ENERGY RESOURCES

The nature of the Soviet energy resource base has important consequences for Soviet energy policy and for the direction of its efforts in energy R and D. The Soviet Union’s energy resources are large enough that it can pose the trade question not as one of how much to import, but as one of how much to export. It is the only large industrial country in that position. But the economic characteristics of its energy resources are not especially attractive, and most of its internal energy choices and the direction of its energy R and D are conditioned by the location, quality, transportability, and other economic features of these energy resources. The best way to convey the situation is to describe briefly the major components of its energy resource base.

Coal*

Soviet authorities like to say that the USSR has over half the coal resources of the world. This is based on their estimate of 3,669.5 billion tons of “general-geological” reserves, down to 1,800 meters and in seams at least 0.3 meters thick for hard coal and 0.6 meters thick for lignite.

More important for current fuel planning are the records kept by the All-Union Geological Fund of explored† and commercially producible (balansovye) reserves, estimated at 237.2 billion tons on 1 January 1966. The important point is that explored and commercially usable resources of coal are adequate to support production for a couple of centuries even at a rate of production well above the current 750 million tons per year.

Economic evaluation of Soviet coal resources must take account of such economic characteristics as suitability for coking, heat and ash content, suitability for strip mining, cost of production, and location. The major features that should be kept in mind can be covered by several generalizations.

(1) The most intensively developed source—the Donets basin, attractive for the quality of its coal and its location near the sources of demand—has been exploited for a long time. Production must now penetrate deeper and resort to less economical portions of the basin. Production costs and incremental capital requirements for Donets coal are now very high.

(2) The cheapest sources to produce tend to be poorly located with respect to demand; the high quality coals of the Karaganda, Kuznetsk, and Ekibastuz basins are relatively cheap to produce, but must be hauled long distances to the markets they serve. The cheapest coal to produce in the USSR—in the Kansk-Achinsk basin in eastern Siberia—is a long way from the main regions of increasing energy demand.

(3) The best prospects for expanding coal output are in very large open-pit mines in western Siberia and Kazakhstan—the Kuznetsk, Ekibastuz, and Kansk-Achinsk basins. In addition to the common dis-advantage of transport cost, Kansk-Achinsk coal presents difficulties in utilization because of low quality. This coal has a high moisture content (which complicates handling in winter), high ash content, low calorific value, and a tendency to spontaneous ignition. When dried, its high friability makes it difficult to handle.

Natural Gas and Condensate*

After a very late start, an extensive exploration effort in the sixties had raised natural gas reserves to about 25 trillion cubic meters in the A+B+C₁ categories. That is an amount several times the explored reserves in the United States. It is likely that explored reserves will continue to expand rapidly as exploration continues. In addition to reserves in the A+B+C₁ categories, the Russians estimate large holdings of “probable” reserves (their categories: C₂, D₁, and D₂). The most recent estimates of these probable reserves seem to be for 1 January 1971, when they were estimated as 76 trillion cubic feet, down to 5,000 meters, with another 10 trillion cubic feet predicted in the interval from 5,000 to 7,000 meters. At current rates of exploration large amounts of these probable reserves will be transferred to the A+B+C₁ categories. Soviet data for gas reserves include associated gas in gas caps, but not dissolved in oil. Furthermore, it is not certain whether they are comprehensive for offshore gas.

As with coal, the economic characteristics of these gas resources diminish their attractiveness. In both the explored and probable categories, most reserves are in the eastern part of the country and a considerable share is in the far north. Of the 22.6 trillion cubic meters of A+B+C₁ reserves on 1 January 1974, 13.9 trillion cubic meters were in Tiumen’ oblast’ in western Siberia, while the rest of Siberia accounted for another one trillion cubic meters. Central Asia and Kazakhstan accounted for 3.9 trillion cubic meters, leaving only 3.4 trillion cubic meters in the European part of the USSR. The only really large source in the European USSR was the Orenburg field, though the Komi ASSR also had considerable reserves, relatively poorly located. This locational pattern has two important consequences: conditions of climate and terrain are adverse for the exploration and production of gas fields and for the construction and operation of the associated pipelines. In addition, the transmission distance to the major centers of demand is very great. This is an especially adverse circumstance for gas, since its low density makes it expensive to transport.

The Russians do not publish systematic figures on condensate reserves,* but they are no doubt very large. Thus far, little attention has been given to the capture of condensate. Most condensate reservoirs are currently produced without repressuring, which leads to losses of condensate as reservoir pressures drop, causing condensation within the reservoir.

Oil

Soviet sources do not generally release absolute data on oil reserves, since this is prohibited by the State Secrets Act, and we must discuss Soviet oil potential in terms of rather general considerations.

The USSR has very large volumes of sedimentary cover promising for oil accumulation. Large areas of these sediments have been explored only lightly because of the delayed development of the oil industry in the USSR. Once the drive began to expand oil output, relatively modest outlays on exploration disclosed large reserves. Though the growth of reserves has both led and lagged the growth of output at various stages, in recent years the ratio of reserves to output has fallen. But that is probably more an indication of planning errors than of resource exhaustion. The biggest prospects for additional reserves seem to be in offshore areas, in the arctic regions of Siberia, and at depths below those customarily explored so far (below about 3,000 meters). To keep output growing, even to keep it stable, will require meeting some stiff technological demands posed by the new environments.

Oil development has so far followed the geographic pattern common to all major energy resources—early development in European regions with subsequent depletion requiring a shift to Siberian and Central Asian sources. The locational pattern for oil resources still to be found (if technological obstacles can be overcome) should be more favorable than for those currently being produced; the new resources are closer to the big market areas of the European USSR. Specifically, there are thought to be considerable additional resources at depths of about 3,000 meters in the Caspian depression and in offshore areas adjoining the European part of the USSR.

Hydroelectric Power*

The USSR has large resources of hydroelectric power, though most of it is still undeveloped. Translated into fossil fuel equivalents at the heat rate attained in thermal stations of the utility network, hydroelectric power output now contributes a little over 3 percent of all primary energy output.

As with other energy sources, hydroelectric potential is heavily skewed toward the eastern part of the country. An inventory and economic evaluation of hydroelectric potential conducted during 1958–1965 indicated the economically developable potential under present technological conditions at about 1,095 billion kilowatt hours of annual output—i.e., an output roughly equal to total electric power output in the mid-seventies. Since the definition of developable was that “which in the light of contemporary views on the development of electric power and in the light of economic evaluations can be used in the near or distant future,” it would appear to assume considerable technical change and location accommodation (Neporozhnyi, 1970, p. 236).

At the beginning of the seventies, 43 percent of the economic potential in the West (201 BKWH) was in use or being developed, while in the East the corresponding share was only about 16 percent. Thus locational considerations loom large in controlling how fully potential hydropower resources can be used. An attempt has been made to take advantage of Eastern hydro resources by locating such energy intensive industries as aluminum reduction near the sources. But this can make only a slight difference, and significant utilization of Siberian and Central Asian potential over the next couple of decades on a large scale depends on developing new long-distance transmission technologies. There is already some movement of Siberian-generated hydropower through the interconnections of the Siberian grid with the European grid, but the amount of this flow is very small.

Hydroelectric resources have always stimulated grandiose dreams in Soviet planners, and some projects for solving the locational problem by interbasin transfers of water have long attracted attention. Most of these are concerned with irrigation water rather than with hydro potential, but one project, the diversion of water from the northern rivers to the Volga basin, would also have significant effects in increasing the power potential of the cascade of dams already in existence on the Volga. The Soviet planners seem to have serious intentions of making this diversion at some time.

Minor Fuels: Peat, Shale, Firewood.

The Soviet energy balance differs from that in most developed countries by using appreciable amounts of minor fuels. The resources are large, and their location has made them attractive supplements to standard resources in some areas.

Peat occurs very widely in the USSR, but has been exploited mostly in the West, Northwest, and Center regions, which are deficient in other fuels. More effort has been devoted in the Soviet Union than in other countries to make peat a significant fuel resource. A number of distinctive technologies have been developed for extracting, transporting, and processing peat into briquettes and other concentrated fuels, and equipment to burn it on a fairly large scale in electric power stations has been developed. The problem, of course, is to handle it in large volumes, and most of the power stations burning peat have been rather small. The largest peat-burning station is the Shatura station (732 MW capacity) and there are a number now being constructed of 600 MW capacities (Popov, 1974, p. 708). In 1940, 20 percent of all electric power output was produced in peat-burning stations (Mel’nikov, 1968b, p. 569). But the revolutions in the fuel balance and in transport technology for gas and oil have made peat uneconomic as an energy fuel even in regions poor in other energy resources, and its output and use have remained fairly stable at 50–60 MT per year in the last two decades.

Oil shale has played a minor but not insignificant role in the Soviet fuel balance for a long time, again primarily under the protection of distance and the absence of better local alternatives. Its contribution to fuel output is only about a third of that made by peat. Oil shale resources are located in two main areas, the Volga region and the Baltic coast.

Oil shale is burned directly in boilers and furnaces and is also retorted to recover the kerogen or to produce various products by destructive distillation. The potential for using oil shale as a large-scale source of liquid hydrocarbons seems to be governed by much the same considerations as in the United States. The Soviet deposits are better located with respect to water, but the problems of environmental damage from large-scale operations in the USSR are serious. The Soviet oil shale industry has not been notably successful in reclaiming land damaged by mining or in disposal of processed shale. The general current attitude toward oil shale seems to be that if its use is to expand, it should be as a source of materials for the chemical industry (Mel’nikov, 1968b, pp. 621–627).

Firewood has remained a significant fuel both for many small scale local industries close to the lumbering areas and for households. It is an expensive alternative, of course, and the persistence of firewood use is based on the traditional unconcern of the system with modernization evenly across all sectors as well as its general de-emphasis of consumption compared to other end uses of GNP; this has left households, especially rural households, to shift for themselves.

Nuclear Resources

Little is known about Soviet resources of fissionable materials. There seems to be a general consensus that the USSR obtains much of its uranium from Eastern Europe. I have never seen any explicit Soviet discussion that would illuminate how fully the USSR has estimated or explored its own domestic uranium and thorium resources or what kind of supply curve is estimated. This is a subject intimately connected with nuclear power policy, and further discussion will be deferred to Chapter 5.

The USSR also has extensive resources of other novel primary sources, such as solar, geothermal, and tidal energy. These play virtually no role in the current energy economy and can be ignored in an analysis of the main issues of current energy policy. They are considered important for certain regions and for the future; the R and D efforts to develop technologies to utilize them will be examined in Chapter 6.

In sum, the USSR is one of the world’s “have nations” in relation to energy supplies. The Soviet situation becomes less favorable when one takes account of the economic characteristics of these resources. They are not well-located, many are expensive to produce, the quality of many sources is low. In many cases, novel technologies will be required to produce and utilize them extensively. Many Soviet energy sources can be utilized only at the risk of considerable environmental damage, and much damage has already been done through loss of land to reservoirs and strip mines, pollution of rivers with petroleum wastes, and air pollution from burning low quality coals. The best characterization is probably that although the USSR has abundant energy supplies, it is not a country of cheap energy.

The locational factor is one of the most important forces constraining and conditioning energy policy and defining energy R and D tasks. It underlies the current emphasis on atomic power, for example. Despite the abundance and low cost of resources in the East, transport costs give a strong economic advantage to nuclear power west of the Urals. The uneven distribution of water resources (important both as a power resource and for cooling thermal stations) shape Soviet energy policy in distinctive ways, such as the long-standing fascination with big projects for the interbasin diversion of water and the great interest derived therefrom in peaceful nuclear explosives. The regional problem has a heavy influence on the direction of Soviet innovative effort—it provides a special motivation for innovation in long-distance transmission of electric power and for novel transport modes for other kinds of fuel.

Despite the abundance of most of the traditional energy resources, the USSR now finds it necessary to use much more sophisticated technologies in processing and utilization than it has in the recent past to compensate for the low quality of many energy sources and to enhance energy efficiency in view of rising costs. Examples include complicated cycles in thermal power generation, elaborate processing of coal to ameliorate the environmental impact of its use and to make it more transportable, and more sophisticated refining of petroleum to produce products for high-grade uses.

ENERGY PRODUCTION
AND CONSUMPTION

Energy policy and energy R and D are shaped by the peculiarities of demand in any society, and it will be useful to have in mind some of the major elements of the energy supply and demand situation in the Soviet economy. Information on the production, transformation, and utilization of energy in the USSR is not available in Soviet sources in systematic and complete form. Anyone who wants to study this subject must start by developing his own overall energy balances for the Soviet Union. This is a complicated task, and I intend to sketch here only some of the broadest features of the situation important for understanding Soviet energy policy. The reader who is interested in the more detailed analysis and documentation for these generalizations is referred to a much fuller account in Soviet Energy Balances (Campbell, 1978b), on which the following section is largely based.

Growth and Composition of Supply

Table 1-1 shows the history of primary energy output by major source over the whole period of Soviet industrialization and the disposition of that output between domestic consumption and export. During the first 30 years of the Soviet industrialization drive, energy production grew considerably more rapidly than national output. While the growth of primary energy output between 1928 and 1958 averaged about 8.7 percent per year, Abram Bergson has estimated the average annual rate of growth of Soviet national product at a little over 6 percent (Bergson and Kuznets, 1963, p. 6).

Energy growth is measured here in terms of heat content; in view of changing composition and quality, energy output in value terms probably grew still faster. Energy production’s outpacing of total output seems to have been a persistent phenomenon, slightly perturbed in some periods by the changing relationship of trade to production. Overall, since the share of exports fell during this period, the growth of energy consumption at 8.8 percent per year was still higher in relation to GNP growth than was energy production.

A significant break in the energy/GNP relationship came toward the end of the fifties when a new energy policy (see below) made possible a number of fuel economizing shifts, and the growth of energy consumption dropped to about the same rate of growth as GNP. During the sixties energy output grew at 5.3 percent per year, while GNP grew at that same rate (CIA, 1977). In the seventies, Soviet year-to-year GNP growth has been erratic, but has dropped compared to the sixties, averaging about 4 percent. The rate of growth of energy consumption has remained at about 5 percent in the seventies, however, so that the elasticity of energy consumption with respect to GNP growth has again moved well above 1. We might add in this connection that international comparisons of energy consumption have generally found that the USSR is a fairly energy-intensive case—i.e., it has relatively high energy consumption per dollar’s worth of GNP (see Darmstadter, 1971, pp. 32–40). The high elasticity with respect to GNP growth and the high energy intensity of GNP are probably explainable in large part by the same factors: emphasis on energy-intensive outputs and relatively low efficiency in the use of energy.

The composition of energy output has undergone several shifts associated with a marked periodization of energy policy. Two early policy goals were the replacement of wood by fossil sources of power and an effort to avoid strain on the transport system. In connection with the latter goal, strenuous efforts were made to develop local fuel sources in every region. These sources were often of low quality, such as peat, lignite, and oil shale in the Northwest. Because of an insufficient effort to discover new oil resources outside the traditional regions, the growth of oil output fell behind that of solid fuel.

The Second World War forced an accelerated effort to develop oil outside the traditional major oil producing region in the Caucasus and TransCaucasus, specifically in the Volga-Ural region where large resources were found. After the war oil output began to rise fairly rapidly, increasing its share from 18 percent of all fossil fuel output in 1945 to 23 percent by 1955. But then a radical reorientation of the fuel balance took place under new policies introduced as part of the Seven Year Plan (1959–1965), with both oil and gas commencing to grow much faster than other kinds of energy output. Their share in fossil fuel output rose steadily and by 1975 was two-thirds of the total. The best summary expression of this shift in emphasis is found in the fact that between 1958 and 1975, oil and gas accounted for 85 percent of the increment in primary energy production.

TABLE 1-1. Soviet Fuel and Energy Production, Trade, and Apparent Consumption
(million tons of standard fuel^a)

Sources and NOTES: Based on Campbell (1976), supplemented with current statistical handbooks.

Figures in parentheses are estimated.

^aStandard fuel is the common denominator used in Soviet energy accounting. One ton of standard fuel = 7 x 10® calories.

^bConverted at the fuel rate for thermal central stations of the corresponding year.

^cNet exports shown as — and net import as +.

^dNot included in totals.

The availability of very large increments of hydrocarbon fuel, at relatively low cost, both sustained and in part prompted a change in general economic policy toward a more open stance with respect to the rest of the world. Under this policy, large amounts of technically advanced capital goods imports were made possible mainly by earnings from energy exports. Most of the increment in energy exports has been accounted for by oil. In the mid-seventies, 40 to 50 percent of Soviet hard currency earnings came from oil exports. Coal, coke, and electric power have also been exported, but in 1975, they amounted to only 12 percent of energy exports by energy content, slightly more in terms of value. The fact that energy exports are skewed towards oil means that the structure of consumption is slightly different from the structure of production.

The post-1958 experience of the Soviet Union with regard to fuel composition obviously parallels in many respects trends that had taken place much earlier in the United States and Western Europe; at the same time there are some differences. Despite the shift to hydrocarbons, the USSR has remained more dependent on solid fuels than either the United States or Western Europe. In 1975 solid fuels, which constituted only 19.1 percent of total primary energy consumption in the United States and 21.5 percent in Western Europe, were 36.8 percent in the USSR. The large role for solid fuel, moreover, involves significant resort to low-grade fuels—of the 36.8 percent of total energy consumption accounted for by solid fuel in 1975, 11.2 percent is peat, shale, firewood, and lignite, all of which entail high costs in their production, transport, and utilization. The substitution of hydrocarbon for solid fuels has probably gone about as far as it can in terms of shares, and within the solid fuel category, dependence on low-grade coals will increase. One of the most pressing tasks for Soviet energy R and D is to improve or develop technologies for handling low-grade solid fuels.

The USSR made a slow start in developing nuclear power and for most of the years shown in Table 1-1 its contribution to total primary energy output is so small that it could be ignored. The USSR still obtains a smaller share of its total energy supply from this source than either the United States or Western Europe. In 1975 nuclear sources provided 0.5 percent of Soviet consumption of primary energy, 2.3 in Western Europe and 2.5 in the United States. The slowness of nuclear development is partly explained by the relative abundance of other fuels available to the USSR; but, as explained earlier, despite having abundant energy resources, the USSR is not a country that enjoys cheap energy supplies, and there has been a strong rationale for nuclear power for some time, particularly on a regional basis. Soviet energy planners were just slow in making the decision to push nuclear power, and the prospect is that the share of nuclear power in Soviet energy supply will catch up and even surpass that in other areas within a few years.

Somewhat in contrast to what one might expect, the USSR has a low share of total supply accounted for by hydroelectric power. Despite a long-standing bias in favor of hydroelectric power, its share has been appreciably below that in Western Europe and even somewhat below that in the United States.

Energy Consumption by Sector

Consumption of energy by sector is shown in Table 1-2. Several facts stand out in this comparison with the United States and Western Europe.

Losses and internal consumption within the energy sector constitute a higher share of output than in either the United States or Western Europe. Some of this internal consumption is caused by conditions over which Soviet planners have little control. These include the long distance (and hence, high energy cost) for transporting oil and natural gas, the large share of coal converted to coke, and consumption losses associated with the use of low-grade fuels. Still, these losses probably merit more attention in fuel policy than they get.

The most distinctive feature of the Soviet use pattern is the relative unimportance of transport both in absolute terms and with respect to its share in the total. In 1975, the USSR used only about one-seventh as much energy for transport as the United States, mostly because the Soviets have a much smaller stock of automotive vehicles, especially private passenger automobiles. (It may be that the small share is somewhat exaggerated, reflecting possible failure in these balances to get all automotive transport under the transport heading.)

I might mention, however, that despite the even lesser importance of automotive transport in 1960, the transport sector’s share of gross domestic energy use in that year was nearly as high in the USSR as in Western Europe. This high consumption was due to the predominance of railway steam traction in Soviet transport as a whole and the fact that steam traction is very inefficient with respect to energy inputs. The decline in the transport share has resulted from the shift to diesel locomotives, which do a given amount of work with a much smaller energy expenditure.

TABLE 1-2. Energy Consumption by Using Sector, 1975

^aResidential and commercial, construction, public uses, agriculture.

^bIn some cases, components do not add to total because of rounding.

^cDiffers slightly from the figure shown in Table 1-1 , since this figure includes in gas output, gas flared (21.5MT of standard fuel), and noncommercial energy in the form of firewood and peat gathered by the population (20 M T of standard fuel).

The share of total energy supply converted to electric power is higher in the USSR than in either the United States or Western Europe. The difference has usually been a few percentage points, although my balances may understate somewhat the amount of fuel resources consumed by electric power stations in the USSR. I have depended mostly on Soviet statements regarding the heat rates achieved, which I suspect show somewhat exaggerated performance. (More will be said about this in Chapter 3.)

In terms of shares, the high share for electric power is largely just the opposite side of the low share for transport in the USSR. In absolute terms, the USSR converts much less energy to electric power than does the United States, and slightly more than Western Europe.

The share of energy consumed for industry is higher in the USSR than in either the United States or Western Europe and lower for the “other” sector, comprising residential and commercial, construction, public uses, and agriculture. In the USSR in 1975, industry used 1.6 times as much energy as the “other” sector, whereas in Western Europe it used only 1.05 times as much, and in the United States only 1.3 times as much. The comparison is even more striking if we look at the ratio of consumption in industry to consumption in a more restrictive concept of household use. We can separate out “residential” use for both Western Europe and the United States in 1975, and a “household and municipal” category within the Soviet total for “other” with the resulting ratios as follows:

These ratios are probably a reflection of the peculiarities of Soviet final demand structure, in which household consumption is depressed relative to investment and military expenditures. The low level of per capita consumption means low household demand for energy, and industry gets the difference.

In the full fuel and energy balances for the USSR, the shares indicated for agriculture and for construction are significant. These are uses that are so small in Western Europe and the United States that they do not usually even receive mention, much less routine segregation. The source for Western Europe in 1975 does show agriculture as a separate sector (consuming 25.2 million tons of standard fuel), and the U. S. Department of Agriculture has estimated energy use in U. S. farm production in 1974 as 46.8 million tons of standard fuel (without electricity, the amount would be slightly less—FEA, 1977, vol. 1, p. 2) compared with 69.8 million tons of standard fuel for the USSR. Since Soviet agricultural output was probably no more than 80 to 85 percent of U. S. agricultural output in the 1970s (U. S. Department of Commerce, 1972, p. 43), there is a suggestion here that fuel and energy are used very inefficiently in Soviet agriculture.

Another way to look at energy consumption is to treat electric power production as an intermediate transformation rather than as a final use. When the energy consumed in power stations, net of conversion losses, is reallocated to the final consuming sectors, the results for 1975 are as shown in Table 1-3. I have simplified the table still further by eliminating losses and internal consumption and nonenergy uses, and looking only at the relative importance of the three main final demand sectors. Looked at in this way, the predominance of industrial use in the USSR is enhanced still further. The heat and power outputs of Soviet electric power stations go even more heavily to industry than do direct fuel inputs.

TABLE 1-3. Fuel and Power Consumption by Major Sectors, 1975

*In some cases, components do not add to total because of rounding.

The USSR consumes nearly as much energy in industry (580 million tons of standard fuel in 1975) as does the United States (601 million tons of standard fuel). This is remarkable considering that Soviet industrial output is appreciably smaller than U. S. output. Determining the relative size of such economic aggregates as industrial output is an ambiguous business, but it is usually said that Soviet industrial output is probably no more than three-fourths of the industrial output in the United States. The Soviet Central Statistical Administration says that Soviet industrial output was about 80 percent of the U.S. level in 1975. This heavy use in industry may be attributable in part to a more energy-intensive industrial structure than in the United States. This is a more complex matter than it sounds, and I will not go into it here. But it is not unambiguously clear that the Soviet industrial structure is a great deal more energy-intensive than the U.S. structure. Even if differences in industrial structure do play some role here, the difference in energy use per unit of output is so large that it seems highly likely that energy use in Soviet industry is very inefficient.

Having moved from treating electric power as a final consumer to treating it as a transformation technology, the question arises of the efficiency with which the electric power sector transforms energy. As will be explained in Chapter 3, the USSR has relied heavily on co-generation as a technology for its electric power sector, and this has an important effect on conversion efficiency. When we compare the ratio of energy in electric power output to the energy in the fuel burned in electric power stations in the USSR with that in the United States and ficiency looks very low (these data refer to 1975). But the USSR captures a large amount of by-product heat from the generation of power and uses it for space heating and industrial process heat. When this output is accounted for, the Soviet conversion efficiency rises from the 0.2447 shown in the tabulation to 0.5141, significantly higher than for the United States and Western Europe, whose conversion efficiencies would be modified only negligibly by this correction.

Western Europe (see the tabulation below), the Soviet conversion ef.

The Soviet experience underlines in a dramatic way the energy-saving potential of co-generation, and should heighten our own interest in this method as a possible energy conservation measure. The Soviet Union, having already exploited that conservation tactic, must direct its search for fuel savings in electric power generation along other lines.

Some of the most distinctive differences in Soviet energy use patterns are revealed when we look simultaneously at type-of-fuel and sector-of-use. We can best get at this by a USSR/Western Europe/United States comparison of the amounts in particular cells of a source/use matrix. For example, the following data for 1975 show the consumption of petroleum products (in million tons of standard fuel) in the generation of electric power, and in transportation:

The tenfold difference in the ratio between the United States and the USSR is a compound of all the sharpest differences between the supply and demand structures, especially the differential importance of transport, and the differing importance of petroleum compared with other energy sources. Similar disparities show up in the uses to which gas is put, as indicated below (for 1975, in million tons of standard fuel):

Given the low share of household demand in its market structure, the USSR has not needed to allocate much gas to the “other” sector, and has absorbed the rapid growth in gas output in part by using it more heavily in the electric power sector than does the United States or Western Europe.

These differences in Soviet energy consumption structure suggest an important conclusion for energy policy: to the extent that the Russians want to employ energy conservation as a strategy, their attention should probably be directed along somewhat different lines than ours. Given the small size of the household and commercial sector in the total and the small size of the transport sector, the measures that have attracted so much attention in U. S. energy conservation efforts—economizing on space heating, improving automobile efficiency, discouraging the manufacture of high-horsepower automobiles, and raising the efficiency of household appliances—are not very promising for the USSR. Rather, Soviet efforts need to be directed primarily at measures to save energy in industrial processes. I suspect that because of systemic differences, energy conservation in industry may be more difficult to achieve in the USSR than in market economies. In the United States, the stimulus of higher energy costs leads businessmen themselves to seek out many ways to save energy, even in the absence of such government measures as taxes, subsidies, and special R and D efforts. In the Soviet Union, the system is much less likely to show this kind of automatic response; Soviet managers are much less likely than capitalist firms to respond to cost pressures, and it is inherently difficult to attain these savings by campaigns from above because the potentials are so scattered and varied. The Soviet rationing system probably leads to wastage of fuels in the nonhousehold market in a way that has often been noted by economists both with respect to rationing in other countries and in the experience of the Soviet Union. Customers pad requests in the expectation that they will be cut, which leads the rationers to arbitrary cuts, and so on in a vicious circle.

Until recently, one of the interesting characteristics of the Soviet literature on energy policy has been its limited interest in conservation, and Soviet energy officials are only now beginning to speak seriously of such measures as price policy to encourage conservation. With a few exceptions this is also true of the literature on energy R and D, and in dealing mostly with supply-side technologies, rather than with energy utilization technologies, this book accurately reflects Soviet pre-occupations. The main exceptions are in the discussion of electric power, where there has been a strong focus on the heat rate as a technological indicator toward which innovation is directed.

ORGANIZATION AND MANAGEMENT
OF THE ENERGY SECTOR

The Soviet economy is a planned economy, and the multifarious decisions in which an overall energy policy is expressed—choice between alternative energy sources, regional and locational decisions, choice of technologies, the allocation of resources to R and D and the direction of R and D efforts—derive from the general planning process that determines all allocation decisions in the Soviet economy. It is neither possible nor pertinent to try to describe that setting in detail here, and the reader unfamiliar with it is referred to standard treatments of the institutions, processes, and strategies that distinguish the process of resource allocation in the Soviet economy. (See, for example, Bergson, 1964, Campbell, 1974, or Gregory and Stuart, 1974.) It may be useful, however, to describe how the energy sector is organized and to explain the approach that has been used to establish the grosser lineaments of energy policy.

Organizational Structure

The distinctive feature of Soviet energy management is that it is effected through a hierarchical administrative structure. The management of the energy sector is primarily in the hands of several ministries: The Ministry of Electric Power and Electrification (Minenergo), The Ministry of the Coal Industry (Minugol’), The Ministry of Oil Extraction (Minneft’), The Ministry of the Gas Industry (Mingaz), The Ministry of Oil Refining and Petrochemicals (Minneftekhim), The Ministry of Geology (Mingeo). These main branch ministries are also in charge of unconventional energy sources—Minenergo has jurisdiction over tidal and nuclear power and shares responsibility for geothermal energy with Mingaz. Minneft’ has jurisdiction over extraction of oil shale.

The technological level of each of these industries is determined to a considerable extent by the capital goods available to it. The electric power industry depends on the Ministry of Electric Equipment (Minelektrotekhprom—generators, switch gear and transforming equipment), the Ministry of Power Equipment (Minenergomash—turbines and boilers), and the Ministry of Control Equipment (Minpribor—control devices) to increase its output and improve its technology. The oil and gas industry depends on the drilling equipment it gets from the Ministry of Petroleum Machine Building (Minneftemash) and the Ministry of Heavy and Transport Machine Building (Mintiazhmash) and on the pipe it gets from the Ministry of Ferrous Metals (Minchermet).

Taken together, these ministries control most of the research and development resources available for developing and improving energy technology. Each has a large network of R and D organizations under its control. Some research and development activities for energy, however, are under the control of two organizations without responsibilities for energy production. The State Committee for the Peaceful Use of Atomic Energy is essentially an R and D ministry for nuclear technology and the Academy of Sciences controls numerous organizations doing basic research on energy. This energy R and D establishment and the planning of its activity will be more fully described in the following chapter.

A striking aspect of the administrative structure for the energy economy is that there is no energy czar—no energy commissar. There is no administrative node above the ministries we have mentioned with responsibility for energy as a whole. Executive control of these subdivisions of the energy sector is exercised only by the Council of Ministers as one aspect of its larger task of overseeing the whole economy. Many of the information threads come together in the Gosplan, which has a section on fuel and energy, but Gosplan has no executive power to make energy policy or decisions on its own.

There are two important consequences of this structure for energy policy. First, it is a polycentric system in which many of the issues of energy policy get settled through bureaucratic struggles and the political processes of an oligarchic power system. It is only in these terms that we can interpret outcomes on such important issues as the relative priority of nuclear versus conventional sources or the trade off between exporting energy resources to hard-currency trade partners versus other socialist countries. Unfortunately the working of these processes is often opaque, and an understanding of them is more likely to come via the skills of Kremlinology than those of economic analysis.

Second, this system is highly vulnerable to the administrative disease known as “suboptimization,” in which individual units, by trying to improve their performance according to assigned criteria, keep the system as a whole away from a global optimum. In the Soviet system. ministries are powerful organizations with a strong proclivity to defend themselves against control from above and from outside pressures. The coal mining ministry, for example, optimizes locally in ways that create great burdens for other sectors of the energy economy and push global system performance below what is possible. The coal miners seek to reduce production costs by shifting to open-pit sources and by mechanization. Unfortunately, this raises the ash and rock content of coal, subjecting the users to extra costs that often exceed the savings to the coal industry. The railroads are also forced to spend huge amounts of resources on carrying this useless ballast. It should be the function of some higher level organ to correct this, but the instruments at the disposal of the top level planners are inadequate. They lack the information to calculate the optimal cleaning level. Moreover, their incentive levers are insufficiently subtle to make the coal industry carry the cheapening effect of open-pit and mechanized mining just to the point at which, optimally offset by adequate beneficiation, coal quality is optimized in the sense of making production, transport, and using costs a minimum.

One of the most interesting features of the organization of the sector is the constantly shifting pattern of jurisdictions, intended to make the administrative structure more nearly isomorphic with production interrelationships. Both the outer border, where these ministries touch on other sectors of the economy, and the jurisdictional dividing lines within the sector are constantly being changed. Minneft’ and Mingeo are in a constant struggle over the territory within which each will have authority to conduct exploration. The processing of by-product gas has frequently shifted back and forth between Minneft’ (from whose wells it comes) and Mingaz (through whose pipelines it will be delivered to customers). Minugol’ has recently won a struggle to take over from Mintiazhmash the plants that produce coal mining machinery. When those plans were under the control of Mintiazhmash, they (and their supervising ministry) were not especially interested in serving the needs of their coal mining clients. In the Soviet economy the resolution of such conflicts cannot be found by some kind of lateral negotiation and bargaining, but must be pursued through vertical communication channels. The paradoxical result is that, though planning might be thought to have precisely the virtue of eliminating such conflicts and ensuring the attainment of equimarginal conditions in all such situations, it is probably much less able to do so overall than is the market system.

Similarly ironic is the fact that, contrary to the connotation of a long-term perspective usually associated with planning, the Soviet administrative system in fact has a relatively short planning horizon. This weakness weighs especially heavily on energy management because of the long production cycles. The current difficulties in Soviet oil production probably owe a great deal to this kind of bias. Under strong pressure to meet current output goals, the industry responds by shifting resources from exploration to production, overdrilling known reservoirs, injecting water at rates above what would optimize the rate of recovery from the reservoir, and so on. All of these expedients probably cost more in terms of future sacrifices (even properly discounted) than they contribute to some concept of current welfare.

Forecasting and Modeling

In recent years the major method used to impose some sector-wide perspective on decisions about fuel policy has been a modeling effort aimed at optimizing a number of major fuel policy variables. In the process, some progress has been made toward creating an overall framework that would impose a resolution of some of these priority conflicts that is objective and rational from a national-economic view.

There is extensive Soviet literature on this modeling and forecasting work, much of which is methodological and schematic, describing basic concepts of forecasting and modeling and how it might be done, rather than how these schematic approaches are applied in practice.* Also, much of this work is at the level of subsectors rather than the energy sector as a whole, and a great deal of it is also concerned with still smaller units such as a region or an enterprise. But our major concern here is with the scenario-building and modeling work done from a national perspective by a group of research institutions in connection with the effort to project a fifteen year plan (1976–1990) and draw up the 10th Five Year Plan (1976–1980) for energy. The institutions include the Siberian Energy Institute of the Siberian Division of the Academy of Sciences, one of the major project-making organizations in the electric power ministry (Elektroset’proekt), the Main Computer Center of the Gosplan, and the major R and D institute in the oil industry (VNIINP). The following description of their work, based on an article in Planovoe khoziaistvo (1975:2, pp. 29–37), provides some interesting insights into how the presently held strategic views on energy policy were generated. Although that article is somewhat elliptical, it is fairly easy to fill in the gaps because other sources provide much fuller descriptions of the kind of energy-modeling work these organizations have been doing.*

The first step is to outline a number of energy scenarios by putting together various combinations of a few projected variables. The authors are not specific as to the year, but most of the references in various sources imply that the target year is 1990. One of the variables is a forecast of energy demand, but with variations in the range of 10–15 percent. It is not at all clear how the demand forecast is made; one of the most obvious gaps in the whole Soviet literature is the absence of informative discussions of energy demand forecasting. The literature is full of abstract discussions of correlation methods, international comparisons, Delphi approaches, and other exotic techniques, but what one authoritative work on electric power planning says is probably about right: “At the present time the method of direct calculation via output targets and input norms is the basic one used in forecasting and planning consumption of electric power and other kinds of energy in the USSR” (Beschinskii and Kogan, 1976, p. 125).

Ceilings are specified for output of various primary sources, broken down by regions. These are apparently based on reserve estimates in some cases or, in other cases, on estimates of possible capacities (say for nuclear stations). For the particular exercise described in the article, some sources (specifically Siberian oil and gas) were treated as unconstrained. Using estimates for both investment and operating cost for these different sources, and for transport costs, the researchers set up a linear programming model designed to minimize the total cost of meeting the forecast demand. It is not clear in the description how much regional detail is specified in the demand forecast, to what extent the fuel and energy requirements are distinguished by type-of-use, and to what extent these demands are treated as permitting interfuel substitution. But the general energy planning models developed in these institutes depend heavily on these distinctions, since one of their objectives is to generate shadow prices differentiated by region and energy source, to be used in other planning calculations.*

The Planovoe khoziaistvo article indicates that about 80 scenarios were developed embodying various combinations of assumptions as to demand and output constraints. For each of these scenarios an optimizing calculation is made, for which the objective function is to minimize privedennye zatraty (outlays on current inputs plus an interest charge for the capital stocks involved in meeting the specified demands) in the terminal year of the forecast period. The solution in each case is an output pattern for the different main primary sources, a cost total, and (depending on how much regional and end-use detail has been used) a more or less detailed pattern of geographical flows and end-use allocations. There will also be a set of shadow prices from the dual of the linear programming problem described. For any given level of output, the plan with the lowest cost is the optimal plan.

The optimal plan derived from these calculations implies heavy use of Siberian oil and gas and extensive dependence on nuclear power in the European USSR, though a large expansion of output from the Kansk-Achinsk and Ekibastuz coal basins also emerges from the process. Attainment of the optimal plan, however, is considered problematical, since the costs of oil and gas from Siberia may turn out to be higher than forecast, or it may not be possible to develop these resources as rapidly as the optimal plan implies. The considerable share derived for nuclear power also involves uncertainties about how fast the necessary equipment can be produced and what secondary bottlenecks may arise in the industrial branches supplying the inputs for nuclear power stations. (The sectoral impact of investment in nuclear plants is said to be appreciably different from that for conventional stations.) The possibility of developing the implied coal output seems less subject to doubt because the extent and location of reserves are known, and extrapolation of the economic indices is subject to less uncertainty. To allow for possible disappointments in oil, gas, and nuclear output, the modelers make a second iteration with some output constraints for those risky resources and reoptimize with some deterioration in the value of the objective function. This more cautious version the authors call the “effective plan.”

Another consideration is that the capital requirements elsewhere in the economy induced via interindustry flows vary from scenario to scenario. Specifically, the lower cost plans imply very large inputs of line pipe and other steel goods to meet the oil and gas output targets and hence a need for new capacity in the metallurgical industries. The cheaper plans also imply the need for large additional capacities in the industries producing equipment for nuclear stations.* In any case, another step down from the “effective plan” is then made to ease the burden in some of these bottleneck sectors, and the result is described in the article as the “rational plan.”

The features common to all the plans (such as the advantageousness of Siberian oil and gas), together with their differences (such as the cost savings in the objective function that will flow from rapid nuclear buildup), then suggest some general strategic objectives for fuel policy. Concretely, this particular exercise generated three strategic tasks, which the authors describe as follows:

(1) develop as first priority the oil and gas resources of Siberia (raising output above the current all-Union level) and create the necessary system of pipelines, (2) guarantee the commissioning of nuclear power station capacity adequate to cover the increment of electric power consumption in the western and central regions of the European USSR up to and including the Volga region (except for non-baseload capacity, which will be covered by specialized peaking and maneuverable electric power stations) ; (3) create a Kansk-Achinsk fuel and energy node with an output exceeding that of the Donbass and construct large capacity thermal power stations and enterprises for the technological processing of tens of millions of tons of coal to obtain smokeless semi-coke, synthetic gas and liquid fuel. [Planovoe khoziaistvo, 1975:2, p. 35]

Obviously this plan has several other strategic implications not fully underlined by the authors. Most important, there will be a massive flow of energy from East to West, and the planners must concern themselves with means for handling this.

The role to be played by energy exports over the long run is not explicitly addressed in this forecast and, indeed, is usually treated gingerly in this literature. But it is clear from other analyses that the Soviet planners expect to avoid having to import energy and feel it important to maintain a considerable flow of exports, both to meet the energy needs of the fuel-poor countries of Eastern Europe and to earn hard currency. Such an exercise obviously leaves room for debate and requires much more refined analysis before it can be translated into actual energy plans, but it does seem to have been the actual basic rationale for current energy priorities.

This overall strategic vision ultimately becomes the basis for energy R and D planning. Because it grows out of a maximizing model, it is easily manipulable to suggest the areas where the solution of technical problems will have significant payoffs. For example, the massive transport expenditures on gas associated with the priority assigned to west Siberian gas direct attention to the desirability of technological improvements that could ease the resource drain current technology will involve. The emphasis on nuclear power in the western regions suggests all kinds of technical problems, large and small, to be solved, such as the adaptation of nuclear energy to purposes other than power generation and development of the peak load technologies needed to supplement this essentially baseload power source.

How the translation of energy policy goals into an R and D program is made will be further explained in the next chapter.

INPUTS TO THE ENERGY SECTOR:
PRODUCTIVITY CHANGES

To conclude this survey of the place of the energy sector in the Soviet economy a few comments on the input requirements of the sector are in order. The energy sector places heavy demands on the resources available to the Soviet planners. Data on employment, fixed capital, and investment available in the standard Soviet statistical handbooks reveal a number of major features.

These are capital-intensive branches, accounting in recent years for almost 30 percent of all fixed assets in the industrial sector. For earlier years this ratio was much smaller—about 20 percent in the interwar period. The rising share may be interpreted as a consequence of several factors. Most important, fuel output has grown faster than national product, and various structural changes have had adverse effects on capital intensity—the rising share of transmission to generation, the resort to lower quality coal resources, etc. We would expect the many other changes that have taken place to have resulted in significant capital savings. The shift to oil and gas, economies of scale in power generation, and the rising share of open-pit mining in coal are examples. In the light of these capital-saving effects, the others must be all the stronger. One explanation of the huge capital costs must be the commitment to hydroelectric power. At present the fixed assets of hydroelectric stations constitute almost three percent of all industrial fixed assets or 10 percent of all fixed assets in the energy sector. This helps explain why Soviet planners were finally forced to reevaluate the high priority they had assigned to hydroelectric power.

The share of new investment absorbed by the energy sector is even higher than its share in fixed assets. The drain on investment resources was particularly heavy in the years after the Second World War until the shift was made to oil and gas. The energy sector took 40 percent of all industrial investment in 1950, for example.

With respect to labor as well, the energy industries are voracious claimants on resources. Total employment in the energy sector at the beginning of the seventies was over two million people, and energy’s share in the industrial labor force has generally been around 7–9 percent. There was a tendency for the share to creep up just before the big switch to oil and gas, another indication of the crucial importance of that switch in Soviet energy history.

A very large share of energy employment is in the coal industry, which reported over a million production workers in the fifties and sixties. The United States produced about the same amount of coal with 150 thousand employees, and the U.S. energy sector as a whole has taken a much smaller share of the total industrial labor force than the Soviet energy sector. There are some difficulties in getting figures for those employed in energy in the United States (especially in electric utilities), but in the sixties, when the United States was nearly self-sufficient in energy, about five percent of the industrial labor force was required to provide for its energy needs. And, when allowance is made for the fact that in the United States much of that energy output was processed to a much higher quality level, the difference is still more striking.

As we earlier rejected the notion that the Soviet Union is a country with cheap energy, we also reject the notion that the rapidity of Soviet growth has been aided by the easy expansibility of energy supply. Meeting the needs of its growing economy for energy has placed a heavy drain on Soviet resources; together with the tendency for energy requirements to grow faster than all output, this underlines the crucial importance of the question of productivity and technical change in the energy sector.

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•The following description is based mostly on Mel’nikov, 1968b.

†This refers to reserves in the A++B+C₁ categories of the Soviet reserve calculation. The definition of these categories is rather detailed, but the concept is intended to describe reserves sufficiently well explored to justify production decisions.

*This section is based mostly on data in Vasil’ev, 1975, which gives comprehensive tabulations and detailed descriptions of all the fields and regions.

*Condensate is formed by hydrocarbons of the C₆ type (and higher), which at reservoir temperatures are dissolved in the gaseous phase, but which condense at the lower temperature and pressure at the surface.

*This section is based essentially on Neporozhnyi (1970).

*Some sources, however, give much more informative descriptions of the form the actual forecasts take. For example, a book on forecasting the development of the coal industry to 1990 and 2000 lists the 27 volumes and 54 appendices that are to be produced under the forecasting assignment, together with a general description of the topics to be included in each and the institutions that are to produce them (Stugarev, 1976, pp. 64ff.).

*The most complete of these broader surveys is Makarov and Melent’ev, 1973. It has a bibliography of 139 modeling studies completed earlier. Λ summary and interpretation of the actual magnitudes for some important energy variables generated in these forecasts is available in CIA, 1975.

*An example of this kind of product is ANSSSR, 1973. It gives shadow prices recommended by the Gosplan for planning decisions about fuel use.

*As an interesting aside, the authors say that their model did not consider the possibility of importing this equipment. This is a rather strange position to take, since Soviet plans envisage large imports of pipe and pipeline equipment and nuclear power station equipment precisely to help with those bottlenecks.