ENERGY AND ECONOMIC REFORM IN THE FORMER SOVIET UNION

Transcription

1 ENERGY AND ECONOMIC REFORM IN THE FORMER SOVIET UNION

2 Also by Leslie Dienes SOVIET ASIA: Economic Development and National Policy Choices THE SOVIET ENERGY SYSTEM: Resource Use and Policies (with Theodore Showboat) Also by Istvan Dobozi THE HUNGARIAN ECONOMY IN THE I980s: Reforming the System and Adjusting to External Shocks (with lose/c. Broda) MONEY, INCENTIVES AND EFFICIENCY IN THE HUNGARIAN ECONOMIC REFORM (with lose/c. Broda) PRIMARY COMMODITIES IN THE WORLD ECONOMY Also by Marian Radetzki A GUIDE TO PRIMARY COMMODITIES IN THE WORLD ECONOMY AID AND DEVELOPMENT FINANCING MINING PROJECTS IN DEVELOPING COUNTRIES (with Stephen A. Zorn) INTERNATIONAL COMMODITY MARKET ARRANGEMENTS MINERAL PROCESSING IN DEVELOPING COUNTRIES (with Stephen A. Zorn) STATE MINERAL ENTERPRISES: An Investigation into their Impact on International Mineral Markets URANIUM: A Strategic Source of Energy

3 Energy and Economic Reform in the Former Soviet Union Implications for Production, Consumption and Exports, and for the International Energy Markets Leslie Dienes Prof essor ofgeogra phy University ofkansas Istvan Dobozi Energy Economist World Bank, Washington, DC Marian Radetzki Professo r ofeconomics University ofluted, and Director ofsns Energy. Stockholm MSt. Martin's Press

4 Leslie Dienes, Istvan Dobozi and Marian Radetzki 1994 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the C()pyright Licensing Agency, 90 Tottenham Court Road, London WI P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published in Great Britain 1994 by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN DOI / ISBN (ebook) First published in the United States of America 1994 by Scholarly and Reference Division, ST. MARTIN'S PRESS, INC., 175 Fifth Avenue, New York, N.Y ISBN Library of Congress Cataloging-in-Publication Data Dienes, Leslie. Energy and economic reform in the Former Soviet Union : implications for production, consumption and exports, and for the international energy markets I Leslie Dienes, Istvan Dobozi, Marian Radetzki. p. em. "The study presented on the following pages was conceived at a conference organized by SNS Energy in Stockholm late in 1990." Includes bibliographical references and index. ISBN I. Energy policy-f()rmer Soviet republics-congresses. 2. Energy industries-former Soviet republics-congresses. I. Dobozi, Istvan. II. Radetzki, Marian. III. SNS Energy. IV. Title. HD9502.F67D '0947--dc CIP Transferred to Digital Printing in 2014

5 Contents List of Tables, Figures and Maps Acknowledgements Abbreviations Fuel Conversion Rates VIII xii XIII xiv Summary ofmajor Conclusions Introduction 15 I Alternative Scenarios for the FSU Reform Process 1.1 Introduction 1.2 Scenario 1: radical market reforms 1.3 Scenario 2: gradual market reforms 1.4 Scenario 3: extended period of reform impasse 1.5 Scenario 4: reform impasse and internal war Production Constraints and Prospects Physical-technological constraints Crude oil Natural gas Coal Western technology and its expected impact The economics of fuel supply in the FSU Marginal costs and the range of uncertainty Crude oil Natural gas Coal Geographic breakdown of fuel production Institutional and socio-political issues in energy sector reform The institutional structure of fuel production in Institutional arrangements in the Russian fuel industries 105 V

6 VI Contents Effects of Intra-FSU Political Tensions Socio-economic constraints to fuel output in Scenario Appendix 2.1: Assessing the distribution and recoverability ofbypassed oil Il2 Appendix 2.2: Three methods to compute required investment in the FSU's oil industry between 1993 and Appendix 2.3: Derivation of investment costs for a gas export pipeline. Il8 3 Prospects for FSU Energy Consumption Introduction Energy use patterns in the FSU Trends in energy efficiency Behavioural factors behind inefficient energy use and the magnitude of systemic wastage Structure of energy prices at the beginning of market reforms State-controlled prices Commodity-exchange prices Contract prices Barter prices Interrepublican trade prices Magnitude of distortions in current energy prices Energy price outlook for the near future Market reforms and future patterns of energy consumption Methodology and main underlying assumptions for consumption projections Projected trends in energy consumption under alternative scenarios FSU Energy Exports, International Markets and Eastern Europe Introduction The significance of the FSU as energy exporter prior to the reforms Projections of energy exports from the FSU 171

7 Contents vii 4.4 FSU export supply and world energy markets International energy market reactions to changes in supply The price impact of shifting FSU exports Implications for Eastern Europe Introduction The impact of FSU export shortfalls Conclusions 219 Notes and References 220 Bibliography 229 Index 236

8 List of Tables, Figures and Maps Tables A FSU energy: projections of production, consumption and exports under alternative scenarios 7 B Energy in Russia: projections ofproduction, consumption and exports under alternative scenarios 8 C Projected export revenue from fossil-fuel sales under alternative scenarios Anticipated impact on the energy sector of long-term direction of policy and systemic change assumed in Scenarios Proven plus probable reserves of oil in the FSU and republics in Proven plus probable oil reserves of Russia Proven plus probable oil reserves of West Siberia Reserves in producing oil fields in West Siberia and per cent ofinitial reserves withdrawn, Oil production according to well yields, percentage of reserves produced, and dynamics ofoutput, Russia and West Siberia Natural gas reserves in the FSU and republics in FSU crude oil: prices, extraction costs and transport costs to borders or major consumption centres FSU natural gas: prices, extraction costs and transport costs to borders or major consuming centres Pipe requirement of the FSU gas industry FSU natural gas: potential exports and estimated investment requirements Fuel production in the FSU, Fuel production in Russia, Oil production in Russia, Natural gas production in Russia, Coal production in Russia, Fuel production in Ukraine, VIII

9 List of Tables, Figures and Maps ix 2.17 Fuel production in Kazakhstan, Fuel production in Central Asia, Sectoral distribution offinal energy consumption in the FSU, the US and OECD Europe End-use energy intensity by sector in the FSU, the US, Japan and Germany in 1980 and Technological and vintage characteristics of equipment in the former USSR Magnitude of energy savings potential in the FSU by sector, Wholesale energy prices in Russia, June State-set retail prices ofenergy in Russia, June Volume of energy products traded on the Russian commodity exchanges Degree of distortion in selected Russian wholesale energy prices, June Degree of distortion in selected retail energy prices in Russia, June Fuel consumption in the FSU, Fuel consumption in Russia, Fuel consumption in Ukraine, Fuel consumption in Kazakhstan, Fuel consumption in Central Asia, Fuel consumption in Transcaucasia, Significance of net FSU exports in world fuel markets in Exports (gross) of fuels from leading supplying countries in The significance of imports from the FSU in the West European fossil fuels markets in FSU net exports of fossil fuels FSU energy: projections of production, consumption and exports under alternative scenarios FSU: projected export revenue from fossil fuel sales under alternative scenarios Energy in Russia: projections of production, consumption and exports under alternative scenarios Russia : projected export revenue from fossil fuel sales under alternative scenarios Energy in Kazakhstan: projections of production, consumption and exports under alternative scenarios 182

10 x List of Tables, Figures and Maps 4.10 Energy in Central Asia: projections of production, consumption and exports under alternative scenarios Energy in Ukraine: projections ofproduction, consumption and exports under alternative scenarios Oil in the FSU: exportable surpluses by major republic or republican group, under alternative scenarios Gas in the FSU: exportable surpluses by major republic or republican group, under alternative scenarios Coal in the FSU: exportablesurpluses by major republic or republican group, under alternative scenarios FSU fuel export forecasts: scenario results compared with projected trends Measuring the international price impact of variations in the FSU's coal export performance Measuring the international price impact of variations in the FSU's oil export performance Measuring the impact on European price levels of variations in the FSU's natural gas export performance Significance of imports from the FSU in the East-European energy markets in Eastern Europe: an assessment of the economic impact of higher prices for fuels imported from the FSU FSU gas export supply cost in the year Costs of alternative sources of gas to Eastern Europe Energy intensities in East and West Europe in Figures A FSU oil and gas: projections of production, consumption and exports under alternative scenarios 9 B Russian oil and gas: projections of production, consumption and exports under alternative scenarios Growth Profiles of FSU GOP under Scenarios Percentage of 'active' reserves extracted in producing fields, Russia and West Siberia Production in Russia according to well yield Production in West Siberia according to well yield Sources of oil production for Scenario West Siberia: extraction levels and marginal costs Marginal cost of oil in Russia with a 10 per cent discount rate ( ) 69

11 List of Tables. Figures and Maps xi 2.7 Selected coal producers by volume and cost Institutional structure of the oil industry of the Russian Federation, Energy consumption in the FSU, Total primary energy consumption in the FSU and the OECD Energy intensity of GOP in the FSU and the OECD Energy intensity in the FSU Primary energy consumption per capita The FSU: energy intensity of end-use sectors The FSU: projected energy use in Scenarios FSU natural gas consumption: magnitude ofprice effect under Scenarios The FSU: fuel shares in total energy consumption The FSU: energy efficiency paths under Scenarios FSU oil and gas: projections of production, consumption and exports under alternative scenarios Russian oil and gas: projections of production, consumption and exports under alternative scenarios Fuel exports from the FSU Initial price adjustment to a fall in FSU supply Gas import prices Fossil fuels in Eastern Europe in 1989: shares of gross availability by type and source 210 Maps 2.1 Hydrocarbon basins of the FSU The West-Siberian oil and gas province with subregions Oilfields of the Middle Ob' petroleum region (after Maksimov) Natural gas in West Siberia: deposits of the Nadym-Pur gas region Main gas pipelines and volumes transmitted 82

12 Acknowledgements The study presented on the following pages was conceived at a conference organised by SNS Energy in Stockholm in late Work began in July 1991 and went on until the end of Though the manuscript is the result of a joint effort by the three authors, the main responsibility for Chapter 2 rests with Dienes, Chapters I and 3 with Dobozi and Chapter 4 with Radetzki. Radetzki also undertook a thorough editing of the entire text. Generous financial support from the following sources made the work possible: BITS (Swedish Agency for International Technical and Economic Cooperation); NUTEK (Swedish National Board for Industrial and Technical Development); and two divisions in the World Bank, viz., the Industry and Energy Division in the Technical Department Europe, Middle East & North Africa Region, and the International Trade Division in the International Economics Department. The authors wish to express their sincere gratitude for this support. Consecutive versions of the manuscript have been reviewed in seminars at BITS, SNS Energy, University of Lulea and the World Bank. Valuable comments received at these seminars are gratefully acknowledged. Special thanks are due to Ziad Alahdad, Shigeru Kubota and Harold Wackman, all with the World Bank, whose continuous advice was of great help in improving the quality of the work. Anita Angelryd and Susanne Holmer at SNS Energy, from where the work was administered, processed the words, tables and graphs with great energy and unfailing enthusiasm into a legible shape. MARIAN RADETZKI XII

13 Abbreviations BCM BITS bl BTU (mmbtu) CIA COMECON EOR FSU GDP IMF Kcal KTOE mbd mboed MDS MTOE NUTEK OECD PPP RbI TOE TPES VAT Billion cubic meters Swedish Agency for International Technical and Economic Cooperation Barrel British thermal units (million BTU) Central Intelligence Agency (of the USA) Council for Mutual Economic Assistance (an association of communist countries) Enhanced oil recovery Former Soviet Union Gross domestic product International Monetary Fund Kilocalories Thousand tons of oil equivalent Million barrels per day Million barrels of oil equivalent per day Multidimensional scaling Million tons of oil equivalent Swedish National Board for Industrial and Technical Development Organization for Economic Cooperation and Development Purchasing power parity Ruble Tons of oil equivalent Total primary energy supply Value-added tax XJll

14 Fuel Conversion Rates Most energy quantities are expressed in tons of oil equivalent, TOE. One TOE equals roughly 10 million Kcal and 40 million BTU. Actual tonnages ofcoal are converted into TOE, in accordance with their heat content. In the FSU case, between 1.5 and 3.5 tons ofcoal correspond to 1 TOE. Volumes of gas, too, are converted into TOE according to their heat content. Between and cubic meters of natural gas correspond to I TOE ( BCM = 1 MTOE). In value terms, one dollar per mmbtu roughly corresponds to 28 dollars per thousand cubic meters, to 40 dollars per ton of oil and to 5.46 dollars per barrel of oil. XIV