After the actual declines in petroleum output registered in 1984-85, which followed a general slowing trend dating from about 1975, many observers were convinced that the predicted peak in Soviet oil output had definitely been passed. But the results for 1986 showed a surprising turnaround, and the Soviets are expected to continue to push production upward in an effort to earn hard currency from exports.
In 1986, output of crude oil and condensate together (Soviet statistics combine the two) recovered to 615 million tons, only 0.2 percent below the historical peak registered in 1983, and 3.4 percent more than in 1985. This was the most rapid growth since 1978, when output rose 4.1 percent. Compared with the plan target for the growth of production of petroleum (crude oil and gas condensate combined) of 3.6 percent for 1986, the reported growth was only 3.4 percent. However, compared with the declines registered in 1984-1985, the results show a remarkable turnaround in the Soviet oil industry.
This was achieved despite relatively high costs of production, which have increased rapidly (see below), and the collapse of oil prices on the world market, which greatly reduced the purchasing power of Soviet energy exports, mainly oil, to the West.
In assessing Soviet oil prospects, developments in the other energy sources also must be considered, as these greatly affect domestic petroleum requirements, and therefore exports. In particular, as petroleum's troubles have mounted in recent years and coal production stagnated, much of the slack in Soviet energy production was taken up by natural gas, especially in domestic energy consumption. The result has been a shift in the fuel mix from oil to natural gas: In 1980, oil comprised 45.5 percent of fuel production, and 41.1 percent in 1970, whereas in 1985, it accounted for only 39.8 percent; in contrast, gas accounted for 35.5 percent of fuel production in 1985, but only 27.1 percent in 1980, and less than 20 percent in 1970. Gas actually surpassed oil as the most important fuel in domestic consumption in 1985, when it accounted for 34.4 percent and oil only 31.7 percent, and in 1986, the share of gas in domestic consumption rose further, to 35.4 percent, while that of oil continued to fall, reaching 31.1 percent.
Despite this, much of the increment in gas output in recent years has gone into making up for declining coal supplies rather than actually displacing oil.
The rebound in oil production in 1986 was due to the much greater investment and overall effort devoted to the industry after its disastrous performance in 1985. The annual plan for the development of the economy in 1986 provided for a massive diversion of investment resources into the energy sector to turn oil and coal production around. Investment in oil extraction was planned to rise a whopping 31 percent in 1986, while investment in the coal industry, which suffered considerably from underinvestment in the preceding 10 years, was planned to grow 27 percent.
Such a drastic altering of investment trends in a single year is the sign of a very strong commitment to maintain energy export earnings in the face of unfavorable developments, in Soviet terms, of trade with the West, and oil exports in particular, given the rapidly rising costs of extracting oil (see below). It also represents a severe strain on the Soviet
...
Read Full Article
|
