ASSESSMENT OF CIA S STUDIES ON THE PROSPECTS FOR(Sanitized)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83M00171R001200100001-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 21
• Document Creation Date: December 14, 2016
• Document Release Date: May 9, 2002
• Sequence Number: 1
• Publication Date: October 12, 1977
• Content Type: MF

-7.47-77-731
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12 OCT 1977
MEMORANDUM FOR: Acting Deputy to the DCI for
the Intelligence Community
25X1A FROM:
Director of Performance Eva ation
and Improvement
SUBJECT: Assessment of CIA's Studies on the Prospects
' for Soviet Oil Production (U)
(U) The DCI has taken a very direct interest in the subject of the
attached memorandum and has himself participated in a number of meetings
with both fhe drafters of the CIA studies and with some of the critics.
He will consequently already be familiar with much of the material. We
believe, however, that the assessment will still be useful to him as a
succinct statement of views on a complicated and controversial subject.
Attachment:
As Stated
DOWNGRADED TO UNCLASSIFIED
UPON REMOVAL OF ATTACHMENT
/6/
DIA review(s) completed.
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SUBJECT: Assessment of CIA's Studies on the Prospects for
Soviet Oil Production
Distribution:
Original - Addressee
1 - SA/D/DCl/IC
1 - D/OPEI
1 - AC/PAID/OPEI
1 - C/PEB/PAID
1 - PAID/OPEI Chrono
1 - PAID/OPEI Subject
1 - IC Registry
DCl/IC/OPEI/PAIDi bic
(29Aug77)
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DCl/IC 77-2351
14 OCT 1977
MEMORANDUM FOR: Director of Central Intelligence
;
FROM : John N. McMahon
Acting Deputy to the DCI for the
Intelligence Community
SUBJECT : Assessment of CIA's Studies on the Prospects
for Soviet Oil Production (U)
1. (U) Action Requested: None, for information only.
2. (U) Background: The attached assessment is a self-initiated
Intelligence Community Staff effort to examine the validity of the CIA
evaluation of Soviet oil prospects in the light of various criticisms
leveled against it. You are already familiar with much of the material.
We believe, nonetheless, that the assessment will be useful to you as a
succinct statement of views-on a complicated and controversial subject
of continuing interest.
3. (C) The assessment concludes that, at least thus far, CIA's
pessimistic forecast of Soviet oil prospects has not been effectively
challenged. We understand that the Soviet leaders' own evaluation of
their prospects is no more sanguine. DIA, however, is currently con-
sidering whether it will issue a detailed statement differing sharply
with the CIA analysis.
Attachment:
As Stated
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John N. McMahon
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DCl/IC 77-2351
SUBJECT: Assessment of CIA's Studies on the Prospects for
Soviet Oil Production (U)
;
Original - Addressee
1 - ER
1 - AD/DCl/IC
1 - SA/D/DCl/IC
1 - D/OPEI
1 - AC/PAID/OPEI
1 - C/PEB/PAID
1 - PAID/OPEI Chrono
1 - PAID/OPEI Subject
1 - IC Registry
DCUIC/OPEI/PAID,
:bic
(12Sept77)
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Approved For Release 20 litgi104.tl A'ReP83M00171R001200100001-3
ASSESSMENT OF CIA's STUDIES OF THE
PROSPECTS FOR SOVIET OIL PRODUCTION
?
September 1977
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SUMMARY
Purpose: This paper is an effort to examine the validity of the
CIA assessment of Soviet oil prospects in the light of various criticisms
leveled against it.
Analysis and Rebuttal: In a paper published in April 1977 on "The
International Energy Situation: Outlook to 1985," CIA's Office of
Economic Research (OER) included a brief section on Soviet and Eastern
Europe oil prospects. Two additional papers analyzing the Soviet energy
situation in detail were published in April and July. Departing from
the conventional wisdom on this subject, CIA predicted Soviet oil production
will soon peak; maximum production, once achieved, will not be long
maintained; and the decline, when it comes, will be sharp. Even after
taking into account the significant Soviet potential for alternative
energy sources, the "Outlook" paper estimated that the Soviet Union and
Eastern Europe will require imports of 3.5 to 4.5 million barrels of oil
per day (b/d) by 1985. In subsequent briefings and written reports, CIA
made it clear their import estimates assumed a continuation of present
Soviet energy policies.
The most sustained attack by critics of the CIA analysis has centered
on the import estimates. Soviet expert Marshall Goldman and others
argue that the Soviet Union simply cannot afford to import oil and will
take whatever steps are necessary to avoid it. Goldman and DIA also
regard the CIA projections of Soviet production as too pessimistic. DIA
does not differ so much with the conclusion that Soviet oil production
will reach its peak level soon as with the view that maximum production
will not be long maintained and the decline will be sharp.
Assessment: Only the passage of time will permit a definitive
assessment of the validity of OER's analysis of Soviet oil prospects.
As might be expected when the conventional view is challenged, the OER
thesis has been received with skepticism in many quarters. In retrospect
it would have allayed considerable criticism if some qualifications had
been made in the original paper of the 3.5-4.5 million b/d import estimate.
Clearly a continuing analytic effort, as new information becomes available,
is required to test and retest the projections.
Yet up to the present, at least, OER's basic production estimates
have not been effectively challenged. In any event, OER deserves credit
for the planning and execution of a major analytic effort on a topic
affecting the entire Soviet economy with important implications for
U.S.-Soviet relations, as well as the world-wide energy outlook.
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I. Introduction
In a column entitled "Oil and Credibility" (N.Y. Times, April 28,
1977, copy attached as Appendix A), economics professor and Soviet
expert Marshall Goldman argues that it is vitally important that the
President and his advisors not exaggerate the world-wide energy problem.
"Unfortunately, Mr. Carter seems to have done just that when he cited
the Central Intelligence Agency study of the demand and supply of energy
in 1985. The general conclusion.is not wrong, but parts of the analysis
appear to be incorrect. This could affect the public's attitude toward
the whole report's credibility." Goldman then cites CIA's estimate that
the Soviet Union and Eastern Europe will need to import 3.5-4.5 million
barrels of oil per day (b/d) by 1985 and centers his attack on this
conclusion.
The purpose of this paper is to examine the validity of the criticisms
by Goldman and others of the CIA assessment of Soviet oil prospects.
The implications for the "credibility" of the Administration--and more
specifically, of' CIA--will also be touched upon briefly.
II. Background
From World War II until the present time, the Soviet record in oil
production is impressive. Plan production goals were consistently met
or exceeded up to 1970 and have lagged behind original output goals by
only small percentages in recent years. Production in 1976 was 520
million tons (10.4 million barrels per day), nearly 14 times the output
of 1950. From a relatively insignificant oil producer, the USSR has
become the world's largest, exceeding the production of Saudi Arabia as
well as the United States. This great increase, furthermore, was accomplished
without anything like a commensurate rise in inputs.
It is generally recognized--and the Soviets themselves acknowledge--
that the growth in Soviet oil production will be slower in the future
and the costs considerably higher. Nonetheless, the conventional wisdom
has assumed that further increases in Soviet production of oil, combined
with a rapid increase in the production of natural gas, would be adequate
to:
-- meet rising domestic needs;
-- continue to supply most of Eastern Europe's oil requirements;
-- permit the continuation of exports to hard currency
countries at the rate of about 1 million b/d.
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This view was reflected in most of the major world-wide energy
supply and demand forecasts made during the six months before CIA published
its energy outlook in April. A number of the forecasts (Walter Levy,
International Energy Agency, EXXON, OECD) assume the Communist countries
will be small net exporters to the West (approximately 1 million b/d).
A Stanford Research Institute (SRL) study projects Communist country oil
exports in 1985 of 4.5 million b/d, of which 2.4 million b/d is accounted
for by China (most other forecasts concur with CIA's view that China
will be a negligible exporter in 1985). One of the most impressive
studies of world-wide energy prospects (Report of the Workshop on Alternative
Energy Strategies) assumes the Communist countries will neither be
exportingnor importing oil on a net basis in 1985. Only two reports
(FEA and Citibank) forecast net oil imports by Communist countries in
1985 and the larger of these estimates was only 1.5 million b/d.
III. CIA's Blockbuster
In its overall assessment of the outlook for world energy up to
1985, CIA devoted only four brief paragraphs and one chart to the role
of Communist countries in the world oil market. Yet this section--
particularly its conclusion that the Soviet Union and Eastern Europe
will have to import between 3.5 and 4.5 million b/d by 1985--appears to
have been challenged more consistently than any other part of the CIA
paper.
This is hardly surprising. CIA's conclusion that demand for OPEC
oil will exceed OPEC's ability or willingness to produce by 1985 was, in
other respects, in general agreement with the views of other industry
and government forecasters. As previously indicated, however, CIA's
estimate of prospects for Communist countries' oil trade with the West
differs significantly from the other forecasts. If we take the figure
of 1 million b/d as the consensus estimate for Communist countries' oil
exports to the West in 1985, the CIA estimate suggests an additional
demand for OPEC oil in the world market of 4.5 to 5.5 million b/d.
If CIA's estimate proves to be accurate, it will have serious
implications for the West in terms of the supply and price of OPEC oil.
The implications for the Soviet Union, however, are equally if not more
serious.
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IV. The CIA Assessment
A. International Energy Outlook
In "The International Energy Situation: Outlook to 1985"
(April, 1977), CIA summarized Soviet ,and Eastern European oil prospects
as follows:
The Communist countries'have been net exporters of
about 1 million b/d of oil to the West. But the Soviet oil
industry is in trouble. Soviet oil production will soon peak,
possibly as early as next year and certainly not later than
the early 1980s.
The maximum level of output is likely to be between 11
and 12 million b/d--up from the 1976 level of 10 million b/d--
but it is not likely to be long maintained, and the decline,
when it, comes, will be sharp. (A chart estimates production
in 1985 between 8 and 10 million b/d.)
Before 1985, the USSR probably will find itself not only
unable to supply oil to Eastern Europe and the West on the
present scale but also having to compete for OPEC oil for its
Own use. Although there will be some substitution of coal and
gas for oil in domestic use, the scale of such substitution
will be small before 1985. Neither hydroelectric power transmission
from the East nor the construction of nuclear powerplants can
afford much relief until well past 1985.
We estimate that the Soviet Union and Eastern Europe will
require a minimum of 3.5 million b/d of imported oil by 1985.
At worst, slumping production could lead to import requirements
as large as 4.5 million b/d.
In China, the reserve and production outlook is much less
favorable than it appeared a few years ago. We anticipate
that growing domestic oil needs, resulting from economic
growth and trouble with local production, will reduce oil
exports to a negligible level by 1985. In 1980 exports will
total no more than 500,000 b/d.
In a supplementary publication, CIA estimated Soviet
proved oil reserves are 30-35 billion barrels, roughly comparable
with those of the United States.
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B. Additional CIA Studies
The conclusions on Soviet prospects contained in the "Outlook"
paper listed above were based on an Intelligence Memorandum (SECRET) of
March, 1977, entitled "The Impending Soviet Oil Crisis." This paper was
published in unclassified form in late April under the title, "Prospects
for Soviet Oil Production." A second unclassified paper was published
in July, entitled, "Prospects for Soviet Oil Production--A Supplemental
Analysis." Although these papers suggested the possibility of future
net imports by the USSR and Eastern Europe, they did not project imports
of 3.5-4.5 million b/d in 1985, as in the "Outlook" paper.
Finally, CIA produced a paper "Soviet Economic Problems and
Prospects" (SECRET), in July 1977, which assesses the implications of
Soviet energy and other problems on economic growth and outlines the
options open to economic policymakers. An unclassified version was
issued in August.
V. Overcoming the Doubters
CIA has been remarkably successful in overcoming most of the
public criticisms of its Soviet oil assessment. One of its most effective
techniques has been to invite its critics to come in and talk it over.
If not entirely persuaded, the critics thereafter muted their disagreement.
The Agency has also held a number of briefings for government officials, 25X1A
congressmen, businessmen and academics.
In mid-June, CIA conducted a seminar at State on the long-run
demand for OPEC oil. All departments and agencies of the USG with an
interest in energy were represented, including a number at the Deputy
Assistant Secretary level. Somewhat surprisinglY, no one (not even DIA
on this occasion) challenged the Agency's Soviet projections. A CIA
spokesman's comment that Agency projections of net Communist oil imports
in 1985 of 3.5-4.5 million b/d was, of course, based on a continuation
of present Soviet policies may have diffused one line of questioning.
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VI. The Critics Corner
A. Marshall Goldman
Among its public critics, Marshall Goldman appears to be the
most vocal in continuing to disagree with important elements of the CIA
analysis (see letter at Appendix A). The points of difference came out
most clearly 29 June, when a virtual debate took place between CIA
representatives and Goldman before the Commerce Department's Advisory
Committee on East-West Trade, a group which includes businessmen, bankers,
and academics.
Goldman acknowledged that the CIA studies of Soviet oil prospects
show evidence of careful research but questioned the practical results.
He maintained that:
-- The CIA analysts disagree among themselves, as
revealed by the differences in the published studies. Thus,
in the "Outlook" paper, the estimate is that the Soviet Union
and Eastern Europe will require a minimum of 3.5-4.5 million
b/d of imported oil in 1985. These import figures are not
repeated in the "Prospects" paper, which states that "at a
minimum, the USSR will find it difficult to continue to simultaneously
meet its own requirements and those of Eastern Europe while
exporting to non-Communist countries on the present scale.
More pessimistically, the USSR will itself become an oil
importer." (NOTE: A careful reading of the two statements
does not indicate they are necessarily inconsistent, although
the net impression is quite different.)
-- The Soviet Union cannot afford to become an oil
importer in 1985. Oil imports of 3.5-4.5 million b/d would
cost $12-15 billion in hard currency, assuming no change in
world prices. In contrast, the USSR currently depends on oil
exports for 45-50 percent of its foreign exchange earnings.
-- World oil prices are likely to continue to rise,
thereby further encouraging Soviet production and export as
well as the curbing of domestic consumption.
-- The CIA report underestimates the Soviet capacity
to step up off-shore drilling for oil, as well as their capability
for substituting natural gas, coal and nuclear power for oil
to whatever extent should become necessary.
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-- If imports of better pumps and drilling equip-
ment will meet Soviet oil production problems, as the CIA
report suggests, the difficulty of obtaining them seems to be
exaggerated. American manufacturers are anxious to sell such
equipment and it is in the US interest to assist the Soviet
oil industry at this tim.
B. DIA
Within the Intelligence Community, the only dissent from CIA's
findings comes from DIA. In a NID article of 9 May:
"DIA estimates that Soviet recoverable oil reserves
are larger (85 billion barrels) than CIA's (35 billion
barrels). These reserves, ikf supplemented by escalated
exploration and drilling, should enable the Soviets to
remain oil exporters through 1985."
More recently, the NID of 1 July carried another DIA dissent:
"DIA believes that the decline in Soviet oil produc-
tion will not be as rapid as indicated in this article
and that the Soviets probably will maintain production at
current or higher levels into the 1980s."
Irked by these views, CIA recently sent DIA a "put up or shut
up" letter, attached as Appendix B. DIA expects to respond but has not
yet done so. Based on discussions with DIA, it seems likely DIA will
include at least some of the following points in its response:
-- If CIA had labeled its assessment of Soviet oil
prospects a "worst case" scenario, there would be no grounds
for disagreement.
-- DIA does not seriously disagree with CIA's view
that Soviet production may peak around 12 million b/d, possibly
as early as next year. DIA would estimate maximum production
a little higher, closer to 13 million b/d than 12.
-- DIA differs with the CIA view that peak production
"is not likely to be long maintained, and the decline, when it
comes, will be sharp," resulting in production in 1985 of
between 8 and 10 million b/d. Instead, DIA estimates a leveling
of production once the peak is reached, with the result that
production in 1985 would be between 12 and 13 million b/d.
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-- The CIA exaggerates the water lift problem at the
giant Samotlor field in western Siberia. The CIA view that
this field will peak in the next year or so and hold peak
levels for no more than four years is unduly pessimistic.
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C. International Trade Commission
In a study entitled "Factors Affecting World Petroleum Prices
to 1985," published in September 1977, the ITC concluded that, between
now and 1985, the USSR--and the Communist bloc--will remain self-sufficient
in crude petroleum production. The study forecasts Soviet output of 12
million b/d in 1980--not much different than CIA's estimate--but foresees
a further gradual buildup of production by 1985. Thus Soviet output in
1985 is estimated at 14 million b/d, or 4 to 6 million b/d over CIA's
forecast.
The authors of the ITC study acknowledge, however, that their
analysis "relies on published forecasts and sources of historical data,
rather than generating new data and techniques." These sources were
unclassified. In their assessment of oil prospects for the Communist
countries, they make no claim to have attempted original research and
have chosen to support the conventional wisdom on the Soviet Union in
preference to CIA's view. Thus, referring to CIA's claim that Soviet
crude petroleum production will suffer from water encroachment, the ITC
study notes that "CIA's pessimistic assumption, however, has appeared in
no other major study of the world petroleum situation." It should also
be noted that the extensive bibliography attached to the ITC report
includes CIA's April "Outlook" study, but fails to list additional
unclassified CIA studies of Soviet oil prospects published in April and
July.
At one point the ITC study somewhat obliquely recognizes the possibility
that the CIA analysis could prove to be correct. The study states that
"assuming that the eastern Siberian fields are developed rather intensively
and that the western fields continue to produce, production in 1985
could average as much as 20 million b/d. If either assumption is not
attained (sic) this figure is optimistic; and if both assumptions fail
it is quite possible the USSR will be a net importer." This gets to the
heart of the matter since CIA maintains that both assumptions are invalid.
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VII. CIA Response
CIA (OER) has what appear to be convincing answers to most of the
questions raised by its critics. Its response to Dr. Goldman runs along
the following lines:
-- The CIA analysis of Soviet oil production problems
and prospects is largely based on published Soviet sources and any
analyst who might care to retrace the Agency's footsteps would
likely come to the same conclusions.
-- While inevitably CIA analysts have differences among
themselves on minor points, they are unanimous in their belief that
Soviet oil production is going to peak, perhaps as early as next
year but certainly by the early 1980s.
-- CIA now says that it does not disagree with Goldman
and other critics who assert the USSR will be unable to afford an
import requirement of 3.5-4.5 million b/d in 1985. A recently
published Agency analysis stated that the differences between
selling 1 million b/d (as in 1976) and buying 2.7 million b/d (the
projection for 1985 that assumes no unusual conservation efforts
and which is consistent with the earlier import estimate if Romania
and Yugoslavia are not included as Soviet energy clients) is $17
billion in 1977 prices, more than the USSR's total 1976 hard
currency imports. To offset such a shift by increasing non-oil
exports would be an impossible task.
-- Offshore oil production in the Soviet Arctic areas is
at least 10-15 years away and will require Western technology.
Developments in the Black and Caspian seas are not likely to change
the picture significantly, although some increase in Caspian
production may be possible about the mid-1980s.
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-- While there will be some substitution of coal and
natural gas for oil in domestic use, and some increased exports of
gas, the scale of such substitution will be small before 1985.
Admittedly the reserves of both coal and gas are large but are
located mainly east of the Urals far from industrial centers. The
production and transportation problems are great. The cost of
transporting equivalent amounts of energy, for example, are four
times as much for natural gas as for oil.
-- A program for constructing nuclear power plants is
underway but nuclear power will constitute only about two percent
of national energy production in 1985.
-- The need for Western technology to help solve their
oil problem is demonstrated by the fact that Soviet orders for
Western oil and gas equipment increased from $500 million in 1975
to $1.6 billion in 1976. Imported equipment is available only in
limited quantities, however, and can only slow the rate of decline
in oil production once it begins.
On its differences with DIA, CIA makes the following points:
-- The extent of Soviet reserves is largely a matter of
definition. It acknowledges the USSR has abundant potential
reserves in Artic, East Siberian, and offshore areas, and that new
discoveries will eventually be made. The development of such
reserves, however, is at least a decade away and during the next 8-
10 years almost all Soviet output will have to come from existing 25X1C
fields and from new fields in regions now producing.
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VIII. Assessment
Only the passage of time, of course, will permit the validity of
OER's analysis of Soviet oil prospects to be accurately assessed. More
importantly, OER deserves credit for the planning and execution of a
major analytic effort on a topic of major interest affecting the entire
Soviet economy. The results of this research, when combined with other
more apparent factors in the economy pointing toward a slowing down of
the rate of growth, have permitted an assessment of overall Soviet
economic prospects which suggests serious problems ahead for Moscow.
The prospect of reduced economic growth over the next decade, documented
in impressive detail in the recently published study, is expected to
impinge heavily on traditional Soviet objectives in the fields of defense,
foreign policy, industrial investment and consumer interests.
In retrospect, it appears that CIA erred in one respect with
the inclusion of a flat unqualified statement* in the "Outlook" paper
that the Soviet Union and Eastern Europe would be large net importers
in 1985. Subsequently, OLR spokesmen argued that it was clear from
the context that the rule of "ceteris paribus" was implied. They contend,
furthermore, that they fullyrecognized that the Soviet Union would
search for alternatives when it realized a continuation of present
policies would force it to become an oil importer. Subsequently published
studies, they point out, made this clear. While this may all be so, it
would have prevented considerable confusion--and some (perhaps temporary)
loss of credibility--if these points had been made explicitly in the
original paper.
Nonetheless, despite his continued disagreement with parts of the
CIA analysis, Goldman went out of his way at the Commerce meeting to
commend CIA both for the thoroughness of its research efforts and for
the decision to make the studies a matter of public record. If Goldman
still held to the view expressed in his April Times article that CIA was
risking its (and the Administration's) credibility, he kept it well
disguised.
The possibility that the Warsaw Pact countries--and even the Soviet
Union itself--might become net oil importers in the mid-1980s further
strengthens the need of the West to reduce its dependence on OPEC oil.
It is probably all to the good that the public should be made aware of
the possibility of this additional competitive demand on OPEC production.
On balance, OER's analysis of Soviet oil prospects and the publication
of the results in a series of documents have been in the national interest
and the interests of the Intelligence Community.
*"We estimate that the Soviet Union and Eastern Europe will require a
minimum of 3.5 million b/d of imported oil by 1985. At worst, slumping
production could lead to import requirements as large as 4.5 billion b/d."
Appendix A
Marshall I. Goldman article
Appendix B
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mensions of the problem. Because of this since the Soviet Union has coal
past warnings that occasionally have -and untisuilly large deposits of iiillIMr -
proved to be premature or false, it is as it -can- substitute: It can a_s-1-7-Din: !
.
vitally Important that he tPresident ., . crease Its
uscof nuclear power.
. : ..
and his advisers rio -a-zaggerate..Uo;:. ......
i
feirtunately, Mr. Carter seems to have The Soviet Union not only has the
incentive to conserve in order to .d.Nert 1
. done just that when he cited .the . - i
petroleum to this high-priced market,-,
Central Intelligence Agency ..stialy.".Of
the demand. an .supply f energy but Will be sorely pressed if it has to
d o in .
l95. The general conclusion is no im The CIA. scenario impliest
that the Soviet Union will not be able ,
.. r?w_angut pea_irts of the analyiis RP- .
?
,
pear to be incorrect. They could all to export petroleum. However, -sinceiFf _
petroleum exports in 1976 accounted
whble report's -credibility. -,
the public's attitude toward
. ' ,.-the for. about 50 -percent of the Soviet '
, ''..., . . - tj0o ,
ru s -hard-currency earnings, it is
._ .
In particular:. the report: predicts bard to see -where the Soviet Union
that by 1985 the Soviet Union and will find the wherewithal to import;
Eastern T ur_Q.P.6 wirf-FinPn .particularly it the real price -of petro-.
3.5 million to 4.5 million barrels of leum continues to climb
in . - - ? - - ,
'sify--- - -
- ..--_
ine CIA. is saying, therefore, that
- demand pressures on the rest. of tis....
- . . not only will the Soviet Union and its
Predicting Soviet oil output by 1385 .. allies belie. to Import 3.5 to 4.5 million
Is risky. Estimates ot Soviet petroleum -1.barrels a day, but because it will not
re-Ter-yrs are a state secret. ,Conse- . be, able to export its current one 'mil-
quently, .4oreigners can only guess aajion barrels a day to hard-currency
- about Soviet production potential by ; countries, the overall impact on the
;Projecting what comparable geologiCal. -i *orld market will be a drain of 4.5 to
formations' elsewhere in. the --world 5..5 million barrels a day. This, in turn; )
-would yield. Such ' estimates v-ary seems to imply that -the -Soviet five- 1
.-:widely, but 'Si billion barreli r'ii- 'ii.-- Year-plan target for 1980 of 12.6 imil-':
plausibIesuesS;If 'correct:that means " -Hoc:barrels a day will nOt be f-ulfilled 1
' the Russians have the potential not , Isnd 'IliUt suCh- production' cannot be
only to maintain their existing output - 'sustained into 7985. ? '' '7- - ?
but to fulfill their target -for 1980, -,?"....:- SO- far, hoWever, the Russians are
which calls for an increase in -output .-:keping up With their targets. Even 'if
of 5.4-percent a year. " '. ? --- they proauce no more in 1985 than -
Output in several Soviet oil 'fields in - 1.11-e), -project for 1980, that should still
.1976 was less than that of 1975, but . be enough to allow ..them and their .
_ output from the gigantic Tyumen -fields allies to incriaa.se - theid consumption-.
aira-western Siberia more than madeup ::by 50 percent a year forThe neat eight -
- for that. The C./..k. assumesjhatatbe.:._years,..sustainedby :only one million .....
Tyumen fields car-TEcTrit-ii-ire-f67-;pri .,?barrels a day :of importsa-Eyen:then,;,
-vide -such large-scale increments in-this implies ..60. -only,. no _earbing . of-- r,
outpu.t_yearl alIowever, the. Russians...adomestic demand and no rsea?signiti7
e' ui-d f
havicate af. there are.pOtentisil- 'Cant Oil 'discoveries but an abundance
ly rich deposits elsewhere and in other of hard currency to pay for the higher- .
priced world petroleum of 1985. .
geological strata. Moreover, the Rus-
sians have not, until now, been partic-, , Again,-the issue is..not whether the i
ularli efficientln oil recoile:ry and off-, : Soviet 'Union will . ever run out oT --
shore ' drilling-other possible means petro et-17-u?ri .---sl 'will, but it-71ln ---"Cra e
of increased output. For this reason, muct_il_oLgi?er t rE-FC-the CIA. says be- '
they are now-turnin_g actively to the Tore-the Soviet Union becomes th-e-
Vaa'est for tecluncal heirs. , . , cause--of-the tightened market.
1 ?
-ThFC:rfa. and others have been Pre- .
? '
, .
dieting since arleast 1970 a cutback : Marshall I. Goldman is professor Of
- -- - - ? -
AllVii&fluq5i5e*WCTOrgethbrift IslinN.bikillikiVIAbsa001-3
I proved correct if prices bad not soared- 7iesearc1i center. - ' ea ;^. a . 1
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(i7e(c7Ity)
CENTRAL INTELLIGENCE AGENCY
WASHINGTON. D.C. ?20505
MEMORANDUM FOR:
19 July 1977 -
retroieum Section DB-4F2
Defense Intelligence Agency
SUBJECT Differences in CIA/DIA Appraisal of the
Soviet Oil Situatidn
1. The DCI has noted that on several occasions in
recent months, there have been differences in the way
that CIA and DIA assess the Soviet oil situation. These
differences have surfaced in a number of current intelli-
gence articles. An article by CIA analysts entitled "USSR:
Impending Oil Production Crisis" that appeared in the
Weekly Review of April 8th carried the following DIA dis-
sent:
"The DIA estimates that the Soviet proven
reserves are in the range of 85 billion
barrels and therefore cannot agree with
the immediacy of an oil crisis in the USSR
as implied throughout this paper."
A similar statement was contained in an article "USSR:
Natural Gas Prospects" that appeared in the National In-
gelligence Daily of May 9th:
"DIA estimates that Soviet recoverable oil
reserves are larger (85 billion barrels)
than does CIA (35 billion barrels). These
reserves, if supplemented by escalated ex-
ploration and drilling, should enable the
Soviets to remain oil exporters through
1985."
More recently, in "USSR: Bleak Economic Prospects", NID
of 1 July:
r- r ? -;" ,
? , : ;
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"DIA believes that the .decline in Soviet oil
production will not be as rapid as indicated
in this article and that the Soviets probably
will maintain production at current or higher
levels into the 1980s."
2. From our recent telephone conversation I gather
that the CIA/DIA differences involve mainly:
a. the magnitude of Soviet oil reserves,
b. the probable timing of a peaking of Soviet
oil production, and
c. the ability of the So'\(Tiet oil industry to
cope with the drilling and fluid lifting
problems confronting it.
3. The differences with respect to reserves probably
are largely definitional. No one in the West knows for sure
the exact size of Soviet oil reserves, which have been a
state secret since World War II. The CIA estimate of 30-35
billion. barrels attempts to approximate as nearly as possible
the fairly restrictive US definition of proved reserves. The
higher level of Soviet reserves that DIA accepts is one that
we could agree with under a concept that would include
proved, probable, and an optimistic estimate of possible re-
serves. We do not doubt that the USSR has abundant potential
reserves in Arctic, East Siberian, and offshore areas, or
that new discoveries, some of them quite large, will even-
tually be made. However, we believe that development of
such reserves is at least a decade away, and that during
the next 8-10 years almost all Soviet output will have to
come from existing fields and from new fields in regions
now producing. Unless large new deposits are found soon, in
fairly accessible locations, the discoveries will be too late
to alleviate the Soviet problem within the time frame we have
been discussing.
4. Because we believe that time is, running out for the
Soviet petroleum industry, the differences concerning pro-
duction capability seem more important than those concerning
ultimately recoverable Soviet reserves. The extent of dis-
agreement on production, however, is not clear. DIA's
comment in the NID of July 1st apparently accepts the idea
that there will be a decline in Soviet production, but does
not specify when the down-turn will occur. It does say that
the USSR probably will maintain production at current or
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higher levels "into the 1980s". How different this is
from the CIA position depends on how far "into the 1980s"
DIA anticipates maintenance of current production levels.
5. The time at which Soviet oil problems will' become
acute is, of course, difficult to predict precisely. We
believe, however, that Soviet oil production will peak at
some time in the next few y'ears, perhaps as early as next
year, and almost certainly not later than the early 1980s.
The maximum output reached is likely to be between 11 and
12 million barrels per day, and this level probably will
not be maintained for long. The initial falloff, when it
comes, will almost certainly be sharp. Thereafter, output
may continue to fall sharply, level off, or perhaps even
increase as new fields are brought into production in
frontier areas. Given the rapid rate of depletion of
existing fields and the technical difficulties associated
with exploration and exploitation in frontier areas, we
doubt that new discoveries will come on stream rapidly
enough to do more than temporarily arrest the rapid slide
of Soviet output.
6. We seriously doubt that the USSR can achieve the
1980 production goal of 640 million tons (12.8 million
barrels per day). How much short it will be will largely
depend on the rate of water incursion, on Soviet ability
to cope with the necessity to lift large volumes of fluid
(oil plus water), and on Soviet ability to carry out the
necessary drilling.
in:
7. The CIA position has been set forth in some detail
ER 77-10147, "The Impending Soviet Oil Crisis",
March 1977, S.
ER 77-10270, "Prospects for Soviet Oil Production",
April 1977, U.
ER 77-10425, "Prospects for Soviet Oil Production,
A Supplemental Analysis", July 1977, U.
In the interest of achieving a more unified, and'hopefully
improved, Intelligence Community position on these matters
we would welcome receipt of a more detailed discussion of
the DIA position than has been avai1?able to us thus far.
We would be especially glad to receive a more detailed dis-
cussion of 'DIA's views on Soviet production capability.
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New data, or new analytical insights and interpretation
of old data, would be most helpful, as would direct con-
sultation once we have had opportunity to study and-under-
stand the basic DIA position. Such an exchange might
reveal that the differences between us are less meaningful
than they now appear. Should this not prove to be the
case, 'then CIA and DIA would both have a better under-
standing of the reasons we differ. This would at least
greatly facilitate our ability to respond to inquiries from
the Director of Central Intelligence concerning Community
positions on the Soviet oil situation.
Chief, Resources Branch
USSR/Eastern Europe Division
Office of Economic Research
Distribution:
Orig. & 1 - Addressee
1 - D/U
(1)- D/OER
\:1 - U/I&R
OER/U/I&R, dec/6716 (19 July 77)
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