CIA COMMENTS ON DIA CRITIQUE OF SOVIET OIL PROPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80M00165A001900030008-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 15, 2016
• Document Release Date: February 12, 2004
• Sequence Number: 8
• Publication Date: November 7, 1977
• Content Type: MF

The Director
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MEMORANDUM FOR: Acting Director, Defense Intelligence
Agency
SUBJECT CIA Comments on DIA Critique of Soviet
Oil Prospects
REFERENCE Your memorandum, dated 12 Sep 77,
Differences in CIA/DIA Appraisal of
the Soviet Oil Situation
L. I very much appreciate DIA's effort to further
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knowledge and understanding of the prospects for Soviet
oil production. This issue is clearly, a critical one,
both because of its importance to the economy and
policies of the USSR and because of its far-reaching
implications for the international supply of oil and our
relations with the Soviets. There has been too little
serious research on this question, and I want to strongly
encourage you and others to pursue the matter as one of
the highest priority.
2. CIA's Office of Economic Research has prepared
the attached comments on your critique. As you are aware,
CIA has put a major effort on the Soviet oil question and
built a strong team of Soviet and energy experts. Earlier
CIA estimates of Soviet oil prospects were in general
agreement with your current estimates. The new estimate,
which is considerably more pessimistic, results from a
thorough evaluation and updating of all evidence available
to us. Although no one can have a high confidence in any
prediction a decade ahead, the CIA people tell me that
they find no basis for changing -their estimate.
STA
IDP80M0
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3. I have encouraged our experts to maintain a
continuing dialogue with yours, and we will be happy,
of course, to brief you personally an any important new
evidence or on any other aspects of this problem that
you wish.
0:~- ~-X4
Attachment:
As stated
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SIGNATURE
Remarks: AIC-WG. A ff,37- 7 7
l - 2: Attached are OER's comments
on DIA's critique of CIA's
Soviet oil estimate for trans-
mittal to Lt. Gen. Aaron,
Acting Director,'DIA.
FOLD HERE TO RETURN TO SENDER
FROM: NAME. ADDRESS AND PHONE NO.
DATE
Hqs.
31 Oct
CONF
SECRET
DCI
ER
D/NFAC
DD/NFAC
ADM & ADSS/NFAC
NFAC Registry
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OD/OER
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(31
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 ~~..,,~~ Central Intclli 'cnce Agency ------
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The D rct Ini
7 NOV 1977
MEMORANDUM FOR: Acting Director, Defense Intelligence
Agency
SUBJECT CIA Comments on DIA Critique of Soviet
Oil Prospects
REFERENCE Your memorandum, dated 12 Sep 77,
Differences in CIA/DIA Appraisal of.
the Soviet Oil Situation
1. I very much appreciate DIA's effort to further
knowledge and understanding of the prospects for Soviet
oil production. This issue is clearly a critical one,
both because of its importance to the economy and
policies of the USSR and because of its far-reaching
implications for the international supply of oil and our
relations with the Soviets. There has been too little
serious research on this question, and I want to strongly
encourage you and others to pursue the matter as one of
the highest priority.
2. CIA's Office of Economic Research has prepared
the attached comments on your critique. As you are aware,
CIA has put a major effort on the Soviet oil question and
built a.strong team of Soviet and energy experts. Earlier
CIA estimates of Soviet oil prospects were in general
agreement with your current estimates. The new estimate,
which is considerably more pessimistic, results from a
thorough evaluation.and updating of all, evidence available
to us. Although no one can have a high confidence in any
prediction a decade ahead, the CIA people tell me that
they find no basis for changing their estimate.
25X1
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. 3.. I have encouraged our experts to maintain.a
continuing dialogue with yours, and we will be happy,
of course, to brief. you personally on any important new
evidence or on any other aspects of this problem. that
you wish.
/s/ Stansfield. Turner
Attachment:
As stated
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27 October 1977
SUBJECT: Comments on DIA Critique of CIA Estimate of
Impending Soviet Oil Crisis
1. DIA is unequivocal in judging the validity of our
analysis of the outlook for the Soviet oil industry,
claiming that a review of the evidence reveals nothing
which corroborates the CIA assessment. At the core of the
DIA critique are the following main. points:
o Given the Soviet record in meeting planned
production targets, it seems prudent to accept their
projected 1980 goal of 620-640. million tons as
attainable..
o Soviet proved reserves total 60-75 billion
barrels rather than the 30-35 billion barrels CIA
estimates.
o The Soviet Union does not have a fluid lift
problem, which,'in the CIA analysis, is overstated
because of a methodological error.
o The Soviet Union does not have a severe
drilling problem, since the drilling program now
devoted to gas can be shifted to oil exploration.
Aside from these specific points, DIA further 'argues that
large investments being made to expand West Siberian
pipeline facilities constitute additional evidence that the
Soviets can meet planned production targets for 1980 and
beyond.
Soviet Oil Plans and Accomplishments
1. Soviet performance throughout the 1950s and 1960s
was one of successful fulfillment of annual and five-year
plan goals for oil production. Since 1971, however, annual
goals have not been met, even though West Siberian output
goals were exceeded. For example, during 1971-75 total
overfulfillment of oil production from West Siberia amounted
to almost 880,000 b/d, but was offset by shortfalls in older
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producing regions. Thus, if West Siberia had not surpassed
the original target for 1971-75, national oil output in 1975
would have been about 8.94 million b/d rather than the .9.82
million b/d actually recorded.
2. Indeed, the consequences of this West Siberian
overproduction are at the core of our analysis.. The decline
in the output from older fields in the Western regions is
continuing to be more rapid than the Soviets expected, a
factor which DIA apparently does not take into account.
3. Soviet oil production during the remainder of the
1970s and into the 1980s will depend heavily on. the increased
development of West Siberian deposits. After the giant
Samotlor oilfield reaches its planned peak production in
1977-78, all of the planned increase in output will have to
come from smaller fields in West Siberia. In 1976, seven
new deposits were brought into production, but their total
contribution to output growth was less than 300,000 b/d,
compared with 280,000 b/d for Samotlor alone. Soviet sources
indicate that peak production can be maintained at Samotlor.
for only about .4 years, and. the DIA assessment provides no
insight into how an eventual decline at Samotlor will be
offset.
4. There is an analogy between the CIA forecast of
oil developments in the Soviet Union and recent oil
production history in the United States. In the US,
domestic oil production declined about 1.5 million b/d
between 1971 and 1976, after the reserve to production ratio
fell below 10:1.* For the Soviet Union, CIA is projecting
a peak in oil output after 1978 and a subsequent decline
in production similar to the one which occurred in the
US after 1971.
Reserves
5. Neither exploratory drilling meterage nor claimed
finding rates support a reserve estimate as high as DIA's
60-75 billion barrels. According to Soviet sources, total"
* A reserve to production ratio (R/P) of 10:1 is a minimum
level considered essential in planning for growth in oil
production. It is widely held that an R/P below this
level will restrict growth and eventually bring about a
production decline unless large additional discoveries
are made.
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exploratory drilling amounted to 80 million meters during
1946-75. National Petroleum Council (NPC) experts, in
studies published in 1962 and 1964, calculated finding
rates of 120-150 tons per meter in the USSR in the 1950s.
Finding rates have clearly fallen since the early 1960s.
6. We believe that our estimate of proven reserves
is liberal because the well-publicized "write off" -- the
periodic downward revisions of reserve estimates by the
Soviets themselves -- is not taken into account. These
write-offs could reduce estimated reserves as much as
25 percent. Our results agree with oil reserve. estimates
published by Dr. R.W. Campbell (University of Indiana)
for 1960 and subsequent indicators of reserve growth.
7. Soviet literature indicates that proved oil reserves
(A + B) declined in 1971-75, as production exceeded gross
additions to A + B reserves. Apparently, the situation
has continued to deteriorate, since reserve targets were
not met in West Siberia last.year or this year according
to Pravda (10 Aug. 77). Moreover, the author of the same
Soviet article said that the failure to meet reserve targets
would adversely affect the industry in the near future.
This statement is not consistent with a reserve estimate
as high as 60-75 billion barrels.
8. Oil Minister Shashin and other high officials.have often
stated that continued expansion of the petroleum industry
after 1975 required the discovery of whole new oil provinces
similar to West Siberia. Again, this is not consistent with
DIA's high level of proved reserves. Unproved reserves
cited by DIA as 438 billion barrels are not relevant to
discussions of production in the near term. Unproved
reserves will only become relevant when they are confirmed
by drilling. We do not know whether 438 billion barrels
is conservative or optimistic, although we note that it
is more oil than has been found and proved in all the Persian
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Gulf countries combined. Only about 150 billion barrels
have been found in the United States in the entire history
of the industry.
Drilling Requirements
9. We disagree with DIA on the adequacy of Soviet
drilling capacity. We believe drilling capacity will be a
constraint on Soviet oil production for the following reasons:
o The number of drilling rigs has. been and will
probably continue to be, about constant in spite of
rising production of rigs because of the very large
replacement demands.
o There are few, if any, opportunities to shift
rigs from gas to oil exploration because most gas
exploration rigs are already being used for oil.
o Rig productivity (meters drilled per rig) will
increase, but not enough. The increase from 1971-75
required to fulfill the 1976-80 plan is 42. percent,
whereas it was only 17 percent from 1966-70 to 1971-75.
Moreover, drilling conditions will become much more
difficult.(for example, drilling in West Siberia, where
conditions are harsh, is to rise from 9.5 million meters
in 1971-75 to 30 million meters in 1976.-80).
o Finally, oil recovery rates will fall, as no
new giant fields have been discovered.
10. We agree with DIA that total meterage drilled has
increased in each Five Year Plan since 1960. DIA fails to
note, however, that exploratory drilling -- including
drilling for gas -- has remained constant at.25-26 million
meters in each period. Exploratory drilling by the Oil
Ministry itself has declined in absolute terms, and its
share in total drilling has fallen sharply, dropping from
40-50 percent of total meterage drilled in 1960 to only
about 20 percent last year (see the Table). The decline
basically reflects the increased emphasis given to develop-
ment drilling. This shift has accelerated since 1970 in
order to sustain gains in production at a time when
depletion offset requirements have been mounting. "Depletion
offset" is a Soviet concept to define the new capacity
required to offset the decline in output from existing
wells. Soviet technical literature clearly states that
depletion, in this sense, has been growing in recent years,
indicating that an increasing proportion of wells is in
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USSR: Drilling by the Ministry of the Petroleum Industry
(000.Meters)
.Year
Exploratory
Development
1966
3,347.1
.5 596.3
8,945.4
1967
3,374.3
5,860.4
9,234.7
1968
2,926.5
5,866.9
8,793.4
1969
.2,667.9
6,040..8
8,708.7
1970
2,830.9
6,198.3
9,029.2
1971
2,952..6
6,291.5
9,244.1
1972
2,903.6
6,951.0
9,854.6
1973
2,868.2.
7,677.4
10,545.6
1974
2, 92'0.. 7
8,059.7
10,980.4
1975
2,732.6
8,,927.1
11, 659.7
1976
2,545.8
9,521.0
12,066.8
SYPEHOE,:Bbin. 9, CEHT., 1977, CTP. 4. (H. A. CVI,QOPOP,
VI 4PYf VIE, "OCHOBHbIE AOCTV)KEHVIA B OBJIACTV 6YPEHV1A HEOT-
AHbIX CKBA)KVH 3A InOCnE,QHVIE f O,3bl. ")
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the stage of declining output. The Soviets recognize
this trade-off between development and exploratory drilling
but continue to opt for the former. Only improved drilling
rates will solve the problem, and drilling is the most
backward sector of the Soviet oil industry.
11. Not only are development drilling requirements
continuing to rise rapidly, but exploratory drilling
must be increased sharply to'locate and prove'reserves to
support production in the 1980s. By that time, output in
the old Urals-Volga fields will be falling rapidly, and
production at Samotlor and other major West Siberian
fields will have begun to decline.
12. The
turbo drills,
80 percent of
remainder are
US equipment
Soviets
use three types of drilling
equipment:
rotary
drills, and electric drills.
About
Soviet
drilling rigs are turbo rigs.
The
mostly
rotary rigs roughly comparable with
produced
in the early 1950s. The.electric?
drill has been tested extensively but technical problems
persist. Despite the-growing need for drilling, the
Soviet rig park has remained essentially unchanged at
1,800 deep well. rigs. The down-hole turbines used in
turbo drilling have a relatively short life, about 600
hours. Because of the abrasion caused by drilling fluids,
turbine vanes wear out quickly. Bearings also wear out
.rapidly from the harsh operating environment. In 1975,
Soviet production of turbine sections was slightly less
than 10,000, which implies that each operating rig requires
reequiping with new turbines every six months.
13. Since 1960, with the move to West Siberia and
the need to drill to greater depths in nearly all regions
of the USSR, commercial drilling speed of exploratory rigs
has fallen by 15 percent. Because of the decline. in rig
productivity, the USSR will have to boost its active rig
park just to maintain present amounts of annual drilling,
let alone meet future increased drilling requirements.
Moreover, the decline in rig productivity probably will
accelerate as a larger share of total drilling takes place
in Siberia, where wells are deeper than in the Urals-Volga
fields and rig transport between wells is more costly and
time consuming.
14. No evidence is available, however, to indicate
that the Soviets have planned or have the capacity to
boost their rig supply sharply. As late as 1976, Oil
Minister Shashin said that rig productivity would have to
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rise by 42 percent during the current plan period if the
1980. output goal is to be met. The number of meters
drilled annually in the USSR is roughly one-fifth that
achieved in the US with approximately the same number of
rigs. Large amounts of improved equipment and skilled
operating crews will be required to upgrade the Soviet
,capability. Even if the.USSR decides to reequip its
drilling sector with massive imports of Western equipment,
adequate supplies would not be available for years, in
part because of order backlogs by Western purchasers.
15. The Soviets will be unable to shift rigs from
gas to oil development. Almost all the rigs allocated to
the gas industry are needed for the large increase in.gas
production called for in Soviet plans. Few rigs are
being used for gas exploration. In 1973 the ministry of
Geology was ordered to discontinue the search for gas in
West Siberia and to concentrate on looking for oil. Even
so, oil exploration targets have not been met.,
Fluid Production and Fluid Lift
16. DIA is, of course, correct in basing the demand
for pumps only on the amount-of fluid to be artificially
lifted. However, Soviet data lead us to conclude that DIA
has greatly underestimated the volume of fluid (oil plus
water) to be pumped in the 1980s. The volume of oil
produced by free-flowing wells is expected to decline in
the next several years because of rapid water encroachment
in. the oil-producing reservoirs. A recent Soviet oil.
journal (Neftyanoye Khozyaistvo, July 1977) indicated that
more than 63 percent of total oil production is to be
produced from wells employing artificial lift in 1980.
This is an increase from 45 percent in 1970 and 55 percent
in 1975. This source also gives the total water cut as
48 percent in 1975 and 53 percent in 1980. It is reasonable
to assume (as does DIA) that the water cut in free-flowing
wells will remain at about 13 percent, as during the past
decade. From these data, we can calculate total fluid lift
of 930 million tons in 1975 and 1.45 billion tons in 1980,
and artificial lift of 690 million tons in 1975 and
1.18 billion tons in 1980 -- or well above DIA's forecast
of 922 million tons. The Soviet estimate implies a modest
increase of almost 2 percent a year in the water. content
of the fluid from 1975 to 1980, whereas the DIA assumes
only about half a percentage point increase annually.
17. CIA believes,-based on recent Soviet experience,
that the water content in total fluid produced will rise
more rapidly than Soviet planners have assumed -- about
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3 percent per year. Recent Soviet technical publications
indicate that the water content of fluid recovered from
West Siberian oilfields that have been in full production
will increase 4-6 percent per year. The situation in
older fields is probably at least as bad. The entire
increase in our estimate of fluid lift over the'implicit
Soviet plan figure for 1980. would have to be artificially
lifted. Thus, in 1980 some 1.5 billion tons of,fluid
would have to pumped, out of a total fluid lift requirement
of 1.8 billion tons (see Figure 3).
18. The DIA makes a linear projection of the
artificial fluid lift requirements. It further assumes
that the water content of fluid artificially lifted
remains at 60 percent from 1975 to 1980 and then rises
to 65 percent in 1985. As indicated above, Soviet plans
imply a 67 percent water cut by 1980 and our forecasts
are substantially higher. After 19.80, moreover, the
problem is bound to worsen unless giant new fields are
found in accessible areas. Barring such developments,
artificial lift requirements are almost certain .to rise
at a constant or increasing rate.
19. We are in general agreement with DIA's estimate
of the numbers and capacities of pumps in 1975 and do not.
take issue with its projections of pump capacity, although
there are many uncertainties in such a projection. DIA's
projected pump capacity, however, would not meet CIA's
projected fluid lift requirements even if all the pumps
were fully used. Realistically, moreover, the short
operating life of Soviet submersible pumps (6 months to a
year on the average and less in some areas), the need to
hold many in reserve for replacement, and the large
downtime for repair are bound to substantially reduce
capacity utilized.
20. CIA agrees that the overall water cut (the percent
of water in total fluid production) did not increase much
during 1967-75.. What DIA apparently does not recognize is
that several-unique factors accounted for this relative
stability -- factors which will not be important in the
future.
a. First, the major Urals-Volga fields were in
what the Soviets call "the second stage of production,"
where output is maintained relatively flat by infill drilling
(drilling new wells in between oil wells). At this stage.,
wells that showed sharp increases in water production could
be profitably abandoned or converted to water injection
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wells. The Soviet literature is replete with references
as to how these fields (presently accounting for more than
one-third of Soviet output) are now entering the "third
stage of production," where oil output declines sharply
while total fluid production rises, causing a sharp rise
in the water cut. Figure 1 is from a 1976 Soviet
publication and is typical of Soviet technicians" view of
the outlook for the Urals-Volga region.
.b. Second, the rapid development of new fields
in West Siberia, where wells flow freely for a short period
and where substantial-water cuts begin about 2-5 years
after production begins (in contrast to 10-15 years in the
Urals-Vol'ga), also held down the overall water cut during
1967-75. However, by 1975, the average water cut in West
Siberia was rapidly approaching the average for the USSR
as a whole. Figure 2, from the same 1976 Soviet publication,
shows the rapid rise in average water cut for West Siberia
as a whole (#1), as well as for important subregions, such
as Nizhnevartovsk (Samotlor) (#2), Surgut (#3), Shaim (#4),
and the Ust Balyk oilfield (#5). (The solid lines indicate
average oil yield per well, while the dotted lines indicate
total fluid.)
West Siberian Pipelines and Electric Power Facilities
21. We cannot agree with DIA estimates that the
Soviets are expanding pipeline capacity in West Siberia
to handle 400 million tons (8 million b/d) annually.
The pipeline system presently in operation to transport
West Siberian crude oil to the Urals and eastern Siberia
consists of one 1,020 mm diameter and three 1,220 mm
diameter lines with a total capacity of 252-276 million
tons per year (5 to 5.5 million b/d). Construction of a
fourth 1,220 mm diameter pipeline is due to get underway
this fall from the oilfields at Samotlor to refineries in
the western regions of the USSR and is to be completed by
1980. A line, listed by DIA to be built from
Samotlor to Tayshet, will not be a separate pipeline but
an extension of the existing pipeline from Samotlor to
Andzhero-Sudzhensh to Irkutsk. Thus, by the end of 1980,
total pipeline capacity to transport oil from West Siberia
would be some 320-354 million tons (6.4 to 7.1 million b/d).
Because of the Soviet welding techniques and delays in
installing pumping stations, we believe that the lower
range of the pipeline capacity (6.4 million b/d) is more
likely. This'figure -- 6.4 million b/d -- is consistent
with Soviet plans to produce 6.0 to 6.2 million b/d in
West Siberia in 1980, a target which the Ministry of
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FIGURE I
THE EFFECT OF WATER SATURATION OF PETROLEUM.
16
20
40 60 80
CYMMAPHbIVt OTBOP HE4TM,
700
SOURCE: B. n. MAKCVMOB, 3KCnJ1YATAUVi HE(~T5;H6'X MECTOPOh;AEHI1
B OCJ1O HEHHL~X YCJIOBVIRX. MOCKBA, V13AATETibCTBO
HEAPA, 1976, CTP. 44.
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FIGURE 2
DYNAMICS OF AVERAGE YIELDS OF WELLS OF WEST SIBERIA
157/s
197,E
15 71
SOURCE: B. f7. MAKCkIMOB, 3k,Cf111YATALIV5: HECTPHb:X MECTOPO?!'.]EH'r+C?
r. ,
 U y
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W
o ~ n
t: co
a
L 7
cr
O G
0 0
tf i ~}
0
IC
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Construction of Oil and Gas Industry Enterprises (responsible
for pipeline construction) will strive to meet..-.
22. DIA overestimates-the capacity of 1,220 mm
diameter pipelines by 15-20 percent. Soviet sources
reveal that the range of throughput for a 1,220-mm oil
pipeline is 70-78 million tons, not 80-90 million tons
that pipelines operating in Western countries can handle.
23. DIA states that the electric power network in
the Tyumen' Oblast-Middle Ob' region of Western Siberia
is under continuous expansion and is designed solely to
support the fuels industry. Soviet literature is replete
with references about the use of gas from this region to
generate power for transmission to consumers in the Urals
area.. Moreover, the capacity of power plants projected
by DIA for West Siberia in 1985 and 1990 is much higher
than we can account for, either from Soviet plans or-from
other source materials.
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DIA Estimated Soviet
1980 Fluid Lift Requirements
millions of tons)
Oil Production
630
Less Gas Condensate
15
615
Oil, Free Flowing
246.00
40%)
Oil, Artificial Lift
369.00
60%)
615.00
(100%)
Fluid, Free Flowing
Oil
246.00
Water
36.90
282.90
Fluid, Artificial Lift
Oil
369.00
( 40%)
Water
553.50
60%)
922.50
(100%)
Total Fluid Production
Weighted Ratio
Oil
615.00
( 51%)
Water
590.40
49%)
1,205.40
(100%)
Figure 5
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