Oil and Gas Activity in the Soviet North
John Hannigan
The oil and gas sectors are crucial to the Soviet economy. The two fuels provide almost 60 per cent of the country's total energy requirements; they account for more than 50 per cent of the value of total exports and about three-quarters of all hard-currency exports; and they take roughly one-quarter of the country's total industrial investment.
In the above equation, the Soviet North has a predominant role: it accounts for approximately two-thirds of the country's oil and gas output.
Considering that the Soviet Union is the world's largest producer of both oil and gas, its northern share alone dwarfs the volume of these fuels extracted in most other countries. The eight million barrels per day (bpd) of oil produced in the Soviet North is more than five times Canada's total daily production, and the region's 430-billion-cubic-metre (bcm) output of natural gas is almost six times that of Canada, based on 1986 figures. Indeed, the Soviet North's output of both commodities approaches total production in the United States, which ranks second in the world.
Most of the oil extracted in the Soviet North is in a region referred to as the "near North", having a predominantly sub-arctic environment. However, exploration activity is pushing farther north, where the climate becomes increasingly arctic. Most natural gas production occurs in regions near or above the Arctic Circle, where the climate is severe.
Although there is exploration in northern offshore regions, all oil and gas production in the Soviet North is currently onshore. The key area for both oil and gas is the West Siberian basin, located in the administrative zone known as Tyumen' Oblast'. It is estimated that more than 95 per cent of the SovietNorth's oil and gas comes from this area. The secondary northern producing regions are in the Timan-Pechora basin, situated in the Komi Autonomous Soviet Socialist Republic; in East Siberia, serving the industrial centre of Noril'sk; and in the Far East, in the Vilyuj basin around the city of Yakutsk and on the northern part of Sakhalin Island.
West Siberia
Initial exploration for oil and gas in West Siberia dates back to the 1950s, with the first oil production coming on stream in 1964. By 1970, fields in Tyumen' Oblast' were producing eight per cent of the U.S.S.R.'s oil and five per cent of its natural gas. The 1970s then witnessed spectacular growth in fuel production, especially in the mid to latter half of the decade when a massive investment campaign was launched. In 1980, oil production in Tyumen' Oblast' reached 6.1 million bpd,51 per cent of total output, and the region's natural gas extraction climbed to 156 bcm,36 per cent of the country's total. The West Siberian basin had become one of the leading oil- and gas-producing regions in the world.
But success can breed complacency. It is apparent that during the years of success there was an overriding belief among oil industry officials that vast quantities of easily produced oil remained to be found with minimum effort. Soviet commentators now refer to this as a "gusher mentality". However, by the early 1980s, the best that West Siberia had to offer had been found. The oil industry was plagued with problems, many of them originating in decisions taken in the 1970s; these were exacerbated in the early 1980s by a failure to anticipate the extent of the difficulties. Extensive use of water-flooding in the oil deposits to force higher levels of production had resulted in overproduction, thereby shortening the expected life of the fields. An emphasis on development drilling had been carried out at the expense of exploration. The concentration of efforts on drilling new development wells also left many of the producing wells improperly maintained, and they soon became idle. With the convergence of these problems, it became increasingly difficult to meet output targets, and in 1985 oil production from Tyumen' Oblast' declined for the first time, by a significant 250 000 bpd.
At that time, the problems in the oil industry of West Siberia and their overall effect on the Soviet economy were considered to be of crisis proportions. In early 1985, the oil minister was dismissed, and widespread firings of senior officials and managers were carried out. In September of the same year, General Secretary Mikhail Gorbachev toured the region, publicly criticizing the general state of affairs.
To remedy the rapidly deteriorating situation, a comprehensive development plan was formulated, whereby investment funds earmarked for the industry increased substantially, by as much as 20 per cent in 1986. Plans were introduced to expand the infrastructural base, including transportation, power-generating capacity, housing, and social services. Exploratory and development drilling were stepped up, and major efforts were concentrated on the repair of idle wells, of which there were about 2500 in 1985. Measures were also taken to put more of the older producing wells on some form of advanced secondary recovery, especially gas injection. The crash program was effective. The region's production in 1986 is estimated to have risen by around 500 000 bpd. The situation is now more stable, but it is believed that a declining reserves-to-production ratio is still of concern among industry officials.
In contrast to the oil industry, gas production in northern West Siberia has been expanding steadily, despite the more severe climatic conditions. The area where the gas fields are located is predominantly a zone of continuous permafrost, reaching depths of 500 metres or more on the northern most peninsulas. It is an extremely windy area, and winter temperatures can dip to below -50 degrees Celsius. However, the harsh environment has not daunted development efforts. In the 1980s, annual increments in the region's gas production (measured in a standard fuel equivalent) exceeded the largest yearly gains for oil during its most rapid growth in the latter part of the 1970s.
The impressive increase in natural gas production is made possible in the first instance by a huge reserve base. With an estimated 30 trillion cubic metres of proved reserves (Canada has about 2.6 trillion), northern West Siberia is by far the largest known repository of natural gas in the world. The area contains approximately 30 per cent of estimated world reserves. Moreover, the reserves are concentrated in several "supergiant" deposits, each holding more than one trillion cubic metres. One of them-Urengoj-contains an estimated six to eight trillion cubic metres.
Given this unique reserve base, average annual production increments since 1980 have been in the order of 40 bcm. The size of the individual fields means that exploitation can be carried out at one field over an extended period before it is necessary to move on to the next field. This facilitates planning and development. The third supergiant field in northern West Siberia, called Yamburg, is currently being developed. A fourth, situated at approximately 70°N, is expected to undergo initial development in the early l990s.
The location of these prolific gas fields some 2500 to 4000 kilometres from major domestic markets has resulted in the construction of an extensive, long-distance, pipeline network. Currently, there are at least 12 fully operational pipelines, carrying one billion cubic metres per day from northern West Siberia to the European U.S.S.R. and Eastern and Western Europe. Another six are under construction, some of which are already transporting gas at below-maximum capacity. These are to be finished by the early 1990s, at which time the pipeline capacity out of the region will be around 560 bcm per year. This transportation network is the most extensive and concentrated pipeline corridor in the world.
Secondary Regions
The other regions producing oil and gas in the Soviet North pale in comparison with West Siberia, but they are important regional suppliers of fuel, especially for the city of Noril'sk and some centres in the Far East. Certain developments in these regions are worth noting. In the TimanPechora basin, fields above the Arctic Circle yielded their first oil in the autumn of 1985. At about the same time, the first shipment of crude oil by tanker was made from a Barents Sea port to Arkhangel'sk along the western portion of the Northern Sea Route. In 1987, commercial production of oil began on Kolguyev Island in the Pechora Sea. This crude was also shipped by tanker to Arkhangel'sk.
Exploration for oil in the Barents Sea, which began in the early 1980s, continues to expand. Using two Finnish-built drillships, more recently supplemented by a jack-up rig from Finland and a Soviet-built semi-submersible, the Soviet Union has been drilling in three different regions of the Barents Sea. It is not known for certain how many exploratory wells have been completed, or whether any of them have struck oil. However, Soviet enterprises drilling there have encountered numerous problems, primarily technical, and Soviet authorities have said that activity has fallen far short of expectations.
Another area of the Soviet North which has attracted considerable interest over the past decade is offshore Sakhalin Island. There, a joint effort involving the Soviet Union and a Japanese-led consortium has been engaged in oil and gas exploration. Although commercial quantities have been found, development awaits agreement between the two sides regarding timing and quantities to be produced. (For more information on Soviet offshore activity, see the accompanying article by Carl McMillan.)
Significance for Canada
For the foreseeable future, the Soviet North will account for an increasing share of the Soviet Union's total hydrocarbon production. A steady expansion of offshore activity in the Barents Sea is also expected, and, with one or two significant discoveries, the Soviet industry could launch a development program that would lead to potential trade opportunities for firms with offshore production technology suited to northern regions. In an October 1987 speech, Gorbachev referred specifically to the role Canadian technology could play in northern development in the Soviet Union.
While Soviet interest in Canadian technology may lead to exports, Canada might also benefit from Soviet technology and know-how related to northern oil and gas development. For example, Soviet methods of pipeline construction and operation in severe climatic conditions, and especially in permafrost, might be applicable in the event that a pipeline were to be built along the Mackenzie Valley. Another area of interest might be drilling in permafrost conditions and related problems associated with the formation of gas hydrates.
On the social and environmental side, the U.S.S.R. has extensive information regarding the impact of pipeline construction and oil and gas development on the local native population and on the northern environment. Prior to the discovery of oil and gas in northern West Siberia, the region was sparsely inhabited, primarily by small ethnic groups whose principal occupation was reindeer herding, hunting, and fishing. Now, in support of oil and gas development, there is heavy industry, and transportation and communications networks; cities have grown at breakneck speed; and the demands for housing and social services cannot be met. The impact of all this on traditional societies must be great. By the same token, the pace and extent of development must have had negative environmental consequences.
To exchange information and experience on many of these questions, the federal government entered into an extensive program of co-operation with the Soviet Union. Begun in 1984, the Canada-U.S.S.R. Arctic Science Exchange Programme has provided the mechanism for the exchange of Canadian and Soviet scientists in four major areas: geoscience and arctic petroleum; northern environment; northern construction; and ethnography and education. Renewed and expanded in February 1987, it is hoped that this program of scientific co-operation can lead to a beneficial and frank exchange of documentation and data on northern development issues of mutual concern.
John Hannigan is a consultant specializing in the Soviet Arctic.