Crucial Role for Red Oil

Topping Out?

Soviets look toward the Artic

The two great rival Communist powers--the Soviet Union and China--each possess imposing oil reserves that are bound to become important factors in the world's struggle to avert a full-fledged energy crisis. Yet because both nations are so secretive, outsiders have had trouble analyzing their true capabilities or intentions. Some Western experts fear that the looming international competition for available supplies could lead to political and perhaps even military confrontations.

Soviets look toward the Arctic

A5 every American consumer is only too aware, the health and prosperity of the industrialized nations depend directly on the free flow of oil from the 13 OPEC nations. What most Americans do not realize is that the West's economic well-being is also indirectly dependent on the crude being pumped from wells in the Soviet Union. Reason: so delicate is the worldwide balance between supply and demand that a downturn in Soviet production could throw petroleum markets into chaos and set off skyrocketing price rises as a result of a punishing competition for existing supplies. On the other hand, an increase in Moscow's output could help delay an energy crunch until new power sources, notably nuclear and solar, can reduce world dependence on petroleum.

The U.S.S.R. plays a crucial role because its oil resources are so immense. During the past decade, the Soviet Union has become the world's largest petroleum producer (slightly more than 4 billion bbl. in 1977, v. 3.29 billion bbl. for second-place Saudi Arabia). At the same time, in a little-noticed development, Moscow has become the world's third largest oil exporter, behind only Saudi Arabia and Iran. In 1977 the Russians sold an estimated 1.2 billion bbl. to a thirsty world. Though 57% of their exported oil goes to Eastern Europe at prices 20% to 30% below OPEC levels, the rest is sold to the West, and in 1976 brought in $4.6 billion, nearly half of the country's foreign earnings. Even the U.S. buys an odd tankerload of Russian oil.

Many American experts fear that Soviet production is already peaking. Last year the CIA issued a detailed report predicting that the nation's most productive wells, notably the huge Samotlor field and those along the Urals (see map), would soon be drying up. Thus, concluded the CIA, the Soviets will become net importers of oil by the mid-1980s. Reason: they are pumping too much too fast and do not possess the technology needed to bring in new wells in the forbidding climes of the Arctic Circle and Bering Sea. Says Energy Secretary James Schlesinger: "If anything, the CIA report was optimistic."

But some American academic and industry experts dispute the prognosis.

Marshall Goldman, deputy director of Harvard's Russian Research Center, notes that the U.S.S.R. has been increasing production by 6% a year. "It won't take them that long to bring new stuff on line," he predicts. One major U.S. oil company forecasts that Russian output will rise, though at declining rates, into the late 1980s and perhaps even longer.

TIME Moscow Bureau Chief Marsh Clark, who last week visited a Siberian field near Surgut, found ranking Soviet oil experts confident but cautious. "If we said all our problems were solved, nobody would believe us, including ourselves," said one official. But the oilmen claimed that they were on the verge of major discoveries in the far north.

Because the Kremlin treats reserves as state secrets, it is not easy to project production figures. According to the latest estimates by the U.S. Geological Survey, Soviet proven and estimated onshore reserves stand at an impressive 80 billion bbl. The main problem is that the most promising reserves are located in barren, inhospitable areas where drilling is extremely difficult. In the western Siberian fields, tall drilling rigs perch precariously on unstable peat that freezes rock hard in winter and heaves and shifts in summer.

Exploiting the Arctic fields will cost billions of rubles, but the Soviets cannot afford to ignore them. Petroleum is the lifeblood of their economic plans and political schemes. Though Moscow has told its East European allies to look elsewhere for additional oil, it still supplies 80% of the area's needs, and wants to continue to do so. The dependency helps bind the otherwise restless Poles, Czechs, East Germans and Hungarians to the U.S.S.R. At home, some conservation measures have been introduced, but the Kremlin would be unwilling to risk the unrest that might come from drastic cutbacks in government plans to expand industry and raise living standards. Abroad, oil sales enable the Russians to buy the latest technology needed to step up economic development, including the improvement of drilling methods, and to buy grain when their own harvests fall short.

Can the Soviets win the battle for the Arctic oil? No one can say for sure. Despite their backwardness and bureaucratic bungling, the Russians have shown remarkable skill and endurance in their present Siberian ventures. They have learned how to insulate rigs against the treacherous thawing tundra and to use aluminum drilling shafts that can be sunk deeper than heavier steel ones. They have developed turbo-drills that, they claim, bore three times as fast as conventional U.S. ones. But despite wages two to three times as high as the national average of $215 a month, workers desert the frozen Siberian expanses in droves.

If the Russians fail in the Arctic and the Soviet Far East, they would be forced to turn to the Middle East for supplies. That prospect deeply worries Pentagon planners, who fear that Soviet involvement in the Horn of Africa stems from Moscow's desire to control choke points along the tanker routes that carry oil to Western markets. The Saudi rulers and the Shah of Iran share concern that the Kremlin might resort to force to secure new supplies. For all parties concerned. the best solution by far would be for the Soviets to succeed brilliantly in their Arctic efforts.

Potential Giant

Peking experts visit U.S.

Among Mao Tse-tung's most famous sayings is, "Power grows out of the barrel of a gun." Mao's successors now realize that one kind of power China needs most flows from the end of a pipeline. In an attempt to increase oil output and hence speed the country's economic development, 16 Chinese petroleum experts, led by Sun Ching-wen, the nation's No. 1 oilman, have spent the past three weeks in the U.S. at the invitation of Secretary Schlesinger. Before they flew home this week, the Chinese were given a red-carpet, coast-to-coast tour that took them to the most advanced U.S. drilling sites and laboratories. At every stop, the Chinese evidenced an insatiable curiosity, insisting upon inspecting the latest drill bits and prodding their hosts with endless, often highly technical questions.

The Chinese visit was an indication of Peking's desire to use Western technology as a means of dramatically increasing oil production. It is a sound strategy, since China has the potential to become a true oil giant and it has barely tapped its resources. Like the Soviets, the Chinese refuse to disclose precise data about reserves; because large parts of the country have not been thoroughly surveyed by oil geologists, the Chinese themselves probably have only imprecise figures. The lowest foreign estimate of Chinese reserves, a 1977 guess by the American Petroleum Institute, puts them at 20 billion bbl.; if those reserves were proven, China would rank ninth in the world. The CIA has a far higher estimate: 39 billion bbl. below dry land and perhaps that much offshore--a grand total that would place China neck and neck with the Soviet Union for second place, behind Saudi Arabia.

China's production, although modest in comparison with its estimated reserves, has multiplied roughly six times in the past decade. In 1977, by Western estimates, it reached 1.8 million bbl. a day, edging ahead of Indonesia in output. Because they are beginning to convert their industries from coal to oil. the Chinese keep most of the oil for themselves. Only 10% of the nation's production is exported, mostly to Japan to finance the purchase of much-needed industrial and technological equipment. China's aim is to quadruple production, to roughly 8 million bbl. per day, by 1990.

So far, politics has been the most bothersome bottleneck in the development of China's oil. Before the Communists came to power in the late 1940s, little oil exploration had been conducted in China. In the '50s, Russian experts helped in tapping several big finds, but in 1960 they pulled out, leaving the barely experienced Chinese on their own. Their departure coincided with the conclusion of Mao's Great Leap Forward, which was intended to initiate the masses into the discipline and skills required in an industrial society. The consequence: a huge stumble backward that hurt China's developing industries. After a few years of respite, Mao's second self-inflicted economic catastrophe, the Cultural Revolution of 1966-69, saw many of China's industrial managers humiliated and intimidated by the wild-eyed Red Guards. More recently, the so-called Gang of Four, which includes Mao's radical widow, tried to sabotage exports by demanding that all recovered oil be used at home.

Seeking to boost output, China's oil technocrats now are drilling new onshore wells in the country's northwest regions. But their main hope is to strike rich offshore deposits. In the past few years, China has built or bought ten offshore rigs, including a secondhand North

Sea rig from Norway that is capable of deep ocean drilling. At the same time, Peking has asserted its sovereignty over vast reaches of the Asian continental shelf. That could mean trouble, since these claims conflict with those made by nearly all of China's neighbors, including Japan and the Philippines. Though South Korea and Taiwan have granted exploration rights in the Yellow and East China seas to several U.S. companies, including Gulf and Amoco, the U.S. Government has cautioned American companies to keep their research craft away from the disputed areas for fear that China might seize one.

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