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Decline and rebirth
Decline and rebirth Energy demand in the former USSR Lee Schipper and Eric Martinot Using a detailed, bottom up model o f the demand for energy in the former USSR, we build scenarios o f energy use there in 1995 and 2010. This paper reports on our results for 1995. Assuming 18% decline in the 1995 GDP, compared with 1985, we foresee a decline in final energy use of 22% and that for primary energy consumption of about 20%. From how our individual fuels and end uses are coupled, we suggest that oil demand will fall a greater amount by 1995. Keywords: Energydemand; Former USSR; Forecast
Many economists and analysts who study the former USSR (FUSSR) anticipate a severe economic decline in the near term (by 1995) as the economies of the newly independent republics adjust to new economic mechanisms, as huge structural changes such as military cutbacks take place, and as new political priorities are set out. The purpose of this analysis is to understand the implications for energy consumption of these economic and political upheavals. Understanding energy use is critically important for many reasons. The FUSSR relies on energy exports for nearly all of its hard currency earnings used to pay foreign debt and purchase foreign goods. Energy supply availability is linked with economic health and with the physical health of the population. Regional and global environmental degradation and protection requirements are also tied closely to energy use. Thus questions of FUSSR energy consumption affect not only the populations of the republics, but those of the entire world. Many predict that oil and gas exports will decline The authors are with the International Energy Studies Group, Energy Analysis Program, Energy and Environment Division, Lawrence Berkeley Laboratory, 1 Cyclotron Road, Berkeley, CA 94720, USA. 0301-4215/93/090969-09(~ 1993 Butterworth-HeinemannLtd
as energy production declines and as more energy is used to satisfy domestic demands. Aggregate fuel output in fact fell by 0.7% in 1989.1 This was the first time since World War II that fuel production dropped. And in 1990, aggregate fuel output fell even further, by another 2.4%. How will energy demand fare in the next few years? A collapsing economy affects both energy supply, by diverting investment away from basic energy production, and energy demand, as industries shut down or energy distribution breaks down. Which will fall faster, supply or demand? The analysis here suggests that declining supply may not be the clear winner after all. Instead we suggest that the collapse of the economies in the former Soviet republics will reduce energy demand significantly, and with that change, reduce the demand for oil and gas as well. At the heart of our analysis is a major decline in industrial production which accompanies a crash in GDP over the period 1990-95. Soviet net material product (NMP) averaged 2.7% over the period 1986-89. 2 According to several sources GDP fell by 4% in 1990 and by at least 12% in 1991. 3 We assume GDP drops by an average of 5.7% per year from 1991-95. This results in a net 18% drop in GDP between 1985 and 1995, and a crash of 32% between 1991 and 1995. We further assume that industrial production changes in proportion to changes in aggregate GDP. Other major assumptions are as follows: • Services become a much larger share of GDP, up from 21.5% in 1985 to 34.5% in 1995. • Construction takes a much smaller share of GDP, declining from 10.7% in 1985 to 6%. • The freight intensity of the economy (tonne km per GDP) declines by 1995 to 85% of its 1985 value (except for pipelines). • Automobile and air passenger km decline substantially. • Slight growth in the residential sector. In addition to these assumptions, we include changes 969
Energy demand in the former USSR Table 1. Assumptions for activity/structural changes from 1985 to 1995.
General Residential
Services Passenger transport
Freight transport
Manufacturing
Population increases 11% from 276 to 309 million GDP decreases 18%, from 1980US$616to 505 billion Average residence size increases by 2.5% Number of people per dwelling goes from 4.0 to 3.8 Share of new homes heated with district heat is 35% Survival rate of existing homes is 99.8% Service share of GDP goes from 21.5% to 34.5% Floor space increases at rate 90% of services GDP increase Survival rate of existing service floor space is 99% Cars per capita increase from 53 to 60 per 1000 Kilometres driven annually per car decrease to 80% of 1985 Passenger kilometres by air decrease to 50% of 1985 Passenger kilometres per capita by other modes remain the same Tonne kilometres per unit of GDP decrease to 85% of 1985 (excluding pipelines) Truck share of total tonne km increases from 6.1% to 10% Pipelines carry the same tonne kilometres as in 1985 Other transport use increases by ratio of (GDP 1995/GDP 1985)^0.75 (that is, 0.75 elasticity) Energy consumingactivity for manufacturingand industry decreases by ratio of (GDP 1995/GDP 1985) in each sector Raw materials GDP falls from 1980US$65 to 30 billion GDP share of agriculture falls from 18.5% to 18% GDP share of mining increases from 5% to 6% GDP share of construction falls from 10.7% to 6% (Total GDP for agriculture, miningand construction falls from 1980US$211 to 151 billion)
in energy intensities in all sectors, which arise mainly from conservation/efficiency measures forced by economic pressures, decreasing efficiency with output reduction, as in the case of manufacturing, and some modest technological improvement. The full set of model assumptions are detailed in Tables 1 and 2. U n d e r these assumptions, we model total energy demand in all sectors of the economy, based upon growth or declines in activity and intensity of energy consumption. We find that total energy consumption falls by 22% from 1985 to 1995, which represents a crash in energy consumption of 25% from 1990 to 1995. Although this report focuses on 1995, we mention where important where some of our assumptions lead in 2010. Readers unfamiliar with our previous work should consult Cooper and Schipper. The two papers are available as a single report from LBL. 4
Description of the scenario process A scenario is a process by which a rough outline of future social, economic, and technological developments provides a framework for painting a concrete picture of the future. Such a framework allows 'What if?' questions to be asked. The scenario is not a prediction, but at best only a test of reasonableness. No one really knows how far the former Soviet economies will fall. These scenarios can be based only on guesses about the economy. A n d we have little information that allows us to distinguish energy
970
use in the various republics (now Commonwealth members). Instead, we use information about the economy and energy use in the USSR in 1985 and the years to 1988 as a guide to where the collection of former Soviet republics and other entities might be in 1995 or even 2010. All figures, therefore, refer to energy use in the territory of the republics of the FUSSR. The first question we explore is how low energy demand in the F U S S R can fall if the economy contracts by a certain amount. This scenario gives us a sense of whether demand would fall faster or less rapidly than oil production, and shows us under what conditions oil exports might be maintained. Although we have not modelled supply or fuel choice explicitly, our view from the present exercise is that oil demand will fall more rapidly than production in 1995. The second question we can explore is that of longer-term energy demand in the FUSSR. In particular, we can examine energy demand under different scenarios of energy efficiency and conservation improvements between now and 2010. We can point to areas where purposeful assistance in the next few years could pay off through significant reductions in demand after the turn of the century. To this end, it is useful to distinguish between short-term (1995) and much longer-term developments. This is because a critical determinant of energy demand in the F U S S R in 2010 is the degree to which inefficient, o u t m o d e d and downright unproductive machines, buildings, factories and vehicles are simply aban-
ENERGY POLICY September 1993
Energy demand in the former USSR Table 2. Assumptionsfor energyintensity changes from 1985 to 1995 (1985 = 100%).
Residential
Services
Passenger transport
Freight transport
Manufacturing
New and existing homes: 85% Fuel and district heat for water and space heating: 85% Electric water heat: 90% Cooking fuel and electricity: 90% Cooling electricity: 85% Refrigerators and appliances: 95% Lights and electronics: 90% Fuel and district heat for water and space heating: 85% Cooking fuel and electricity: 95% Lights electricity: 90% Refrigeration, cooling, and other electricity, 100% Car fuel per kilometre: 90% Aircraft fuel per passenger kilometre: 90% Car load factor (passenger per vehicle) decreases from 1.95 to 1.8 Other modes fuel per passenger kilometre: 90% Truck fuel per tonne kilometre: 90% Other freight fuel per tonne kilometre: 95% Pipeline fuel per tonne kilometre: 95% Other transport (fishing): 90% Fuel and district heat: 120% Electricity: 110% Raw materials, feedstocks: 80% Agriculture, construction, mining (all forms): 110%
doned or recycled. This degree controls how much inefficient energy using capital remains in 2010, which in turn will exert strong influence over overall energy efficiency in that year. Our detailed analysis of the 2010 situation will be provided in a subsequent report.
ing and agriculture. We estimate that about 25% of the value-added in manufacturing arises in the energy intensive industries, the rest in other manufacturing. Activity in the energy intensive industries falls far m o r e than it does in other manufacturing or agriculture.
Methodology
T h e S o v i e t e c o n o m y in 1 9 9 5
and assumptions
We calculate total energy consumption by breaking energy consumption in each sector into four components: a stock (such as the population size); a structural factor (such as average a p a r t m e n t size or automobiles per capita); a level of activity (such as the average n u m b e r of people per a p a r t m e n t or annual kilometres driven per car); and an energy intensity (such as the energy used per square metre of a p a r t m e n t for heating or the average fuel mileage of automobiles). The growth rates and/or percentage changes in each of these four c o m p o n e n t s can then be considered separately. For each of the two scenario years, 1995 and 2010, we assume a certain population size, absolute or percentage changes in structural factors and levels of activity, and percentage changes in levels of energy intensity. In most cases energy intensities are calculated for 1985 based upon actual energy consumption in each sector, and then scaled by a percentage change to obtain the 1995 levels of intensity. O u r primary assumptions which drive the model are given in Tables 1 and 2. For industry, we divide output into three sectors: energy intensive manufacturing, other manufactur-
ENERGY POLICY September 1993
In the following sections we illustrate our scenarios for 1995, with some c o m m e n t s about the ultimate level of 'recovery' that occurs by 2010. Many of the details of the 2010 scenarios will be worked out in our second paper. The size and structure o f the economy in 1995-2010 We assume economic growth (real G D P ) occurs as follows: + 2 % pa for 1985-90, - 5 . 7 % pa for 199195, and 3% pa for 1996-2010. This means per capita income falls to 73% of its 1985 level by 1995! And per capita income in 2010 only reaches 115% of its 1985 level. These assumptions are based on speculation. H o w e v e r , consider that the 1992 Russian budget cuts defence expenditures from 25% to 4% of the total (New Y o r k Times, 25 January 1992), with the c o m m o n l y cited figure of 50% of industrial output going to defence. Given all the uncertainties, our assumptions are probably reasonable for the purposes of illustrating plausible cuts in energy demand. Thus the scenario pairs a dangerous economic slide with a reasonably strong recovery. Indeed, we suspect that the more rapid and complete is the slide
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Energy demand in the former USSR
in the early 1990s, the more the economy will grow back by 2010. We have estimated two levels of energy use for the crash of 1995. We report here principally on our base case for 1995.
Manufacturing and industry. Our scenario for manufacturing and industry depicts a struggling economy which is barely keeping people housed and fed, and which is producing the minimum possible output. Two key parts of the decline in industrial sectors are defence and construction, which are both expected to decline sharply. When these sectors decline, raw materials production of such goods as steel and cement will follow. Other industrial production will also fall. The main exception to the grim picture in this scenario is that of pipeline activity and energy exports, which remain constant in 1995, relative to 1985 levels. Since we believe that gas is the only fuel whose production can be maintained relatively easily both for domestic use and exports, this assumption is reasonable. We assumed proxy indices to divide industrial production into energy intensive versus nonintensive production - 25% energy intensity versus 75% non-intensive. Energy intensive industry (iron/ steel and non-ferrous metals, chemicals, paper and pulp, building materials) falls from US$65 billion (measured in 1980 US$ by the CIA) in 1985 to only US$30 billion in 1995, as both raw materials and defence industries contract rapidly. Energy intensive industry only recovers to US$45 billion by 2010. Remaining manufacturing industries contract from US$195 billion in 1985 to US$134 billion in 1995, but recover to US$230 billion in 2010. The output of the rest of industry (agricultural, construction, minerals) falls to 70% of 1985 output, or US$151 billion in 1995, as their total shares of agriculture and construction fall. But these sectors rise to 90%, or US$189 billion, by 2010.
Services. By 1995, the service share of GDP increases dramatically. One simple reason is the huge decline in manufacturing share, coupled with an overall decline in GDP in absolute terms that is less than the decline in manufacturing in relative terms. That is, services survive the shake out better than manufacturing. A more fundamental reason for the rise in the importance of services is that real economic activity in services rises rapidly as smaller entrepreneurs and Western interests begin to expand both business services as well as personal services, particularly retail activity, hotels and restaurants, and leisure activities. In absolute terms, service output
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increases from US$133 billion (1980 US$) in 1985 to US$174 billion in 1995, and then nearly doubles to US$303 billion by 2010. Since we assume that the floor space of services grows at 90% of the growth rate of services GDP, this means that floor space expands from 5.4 m 2 per capita in 1985 to 7.1 m 2 in 1995, and then to 10.8 m 2 by 2010.
Households. The household sector changes very slowly. There is little money in the early 1990s for major construction, renovation or acquisition of new appliances. We assume that whereas there was only one dwelling for every four people in 1985 (or about 1.15 families per dwelling), there is one for every 3.8 people in 1995. 5 This means that house floor area per capita in 1995, 15.9 m 2, remains close to its 1989 value, 15.7 m 2 as very little additional housing is built. We do assume that average residence size increases by 2.5% because of the construction of new and larger apartments; however, this factor is really very small, given the crowded nature of Soviet homes. By 2010, however, housing is less scarce, there being one unit for every 3.25 people, as many of the 20 million families and single people living in collective housing in 1985 finally acquire their own apartments or even single family dwellings, whose growth is marked after 1995. This means home area per capita is 15% higher in 2010 than 1985. Fittings remain spartan; there is almost no increase in appliances ownership per capita until after 1995; modest increases then occur.
Travel and freight. In 1995, there will be 60 cars per 1000 people, compared with 53 in 1985.6 Cars in 1995 are driven 20% less than in 1985, and consequently load factors rise from 2.06 to 2.2 people per car as people share car travel more frequently. Air travel per capita contracts by 50% because of fuel unavailability and high prices. Kilometres per capita of other modes of travel, such as bus, rail and water remain approximately the same. The above factors combine to reduce total passenger kilometres per capita by 5% by 1995. (We do foresee, however, a strong rise in per capita travel by about 25% to over 7500 passenger km by 2010.) We assume the freight/GDP ratio (excluding pipelines) falls by 15% between 1985 and 1995. Coupled with a declining GDP, this means that total freight activity falls sharply by 1995, from 7800 to 5500 billion tonne km (and only reaches 80% of its 1985 level in 2010, although GDP is 30% higher than in 1985). Truck freight increases its share of this total freight activity, but bottlenecks affecting liquid fuel supply limit this increase. Pipeline shipping, mostly ENERGY POLICY September 1993
Energy demand in the former USSR
gas but some oil as well, lies at the same level as 1985, as oil contracts while gas exports are increased. Rail freight traffic (combined with domestic shipping in our spreadsheet) declines the most, as trade in bulk raw materials falls so much. Energy intensities in 1995
Energy intensities behave in a mixed fashion. In most industry, output declines significantly, but energy use must be maintained nevertheless to keep factory equipment running. This is particularly true for gas: shutting off pipelines is cumbersome, restarting equally problematic. As a result, fuel and district heat energy intensities for industry actually increase 20% by 1995 over their 1985 values (a similar phenomenon was observed in Poland after 1988). 7 Electricity, which can be more readily shut off when production is low, has less of an increase in intensity, only 10% over 1985. Most other energy intensities fall. Feedstock volumes also fall, we estimated by 20%. Energy intensities in agriculture, construction and mining all increase by 10% over 1985: even though agricultural output is maintained, greater effort is now focused on actually harvesting and delivering this output, which in our formulation increases energy use without increasing the real output. (This situation of increased inefficiency reverses dramatically with recovery.) Residential heating intensity (in energy per square metre) falls 15% because of supply cutbacks by utilities trying to conserve fuel. (This has been observed in Poland in 1989 and 1990. As noted above, turning off gas pipelines is very cumbersome and even dangerous. But the centralized nature of the heat supply system (including the dependence on large gas boilers) makes it possible for authorities to ration gas for heating and water heating by persuading local housing authorities to do so. District heating deliveries can be reduced simply by decreasing the temperature of the water leaving the powerplant for the urban network. Other fuel supplies will be restricted by bottlenecks, and, for oil, LPG and purchased solid fuels, by marked price increases, some of which have already begun. New homes built are 15% less heat intensive than all homes, on average, in 1985. This reflects the fact that former authorities have made some gains in building less energy intensive buildings in the past decade. But this savings reflects no successful new efforts during the next few years. The same decline of 15% in intensity is observed for water heating, cooking, and electricity use for cooling. Intensities of electric appliances remain approximately constant. Service sector heating in-
ENERGY POLICY September 1993
tensity also falls 15%. Electricity for lights falls 10% in both residential and services, while other electricity intensities in the services sector remain approximately constant. One factor lying behind the reduction in electricity intensity is certainly the spot shortages of both electricity capacity (caused principally by maintenance related outages) and by lack of fuel for generation. Such shortages - brown outs and black outs - began to appear in 1991. In transport, car fuel intensities fall to 90% of their 1985 values (from 12 to 10.8 litres per 100 km). This occurs both because the drop in traffic congestion (and additional care taken by drivers) reduces intensity, and because the majority of cars added between 1985 and 1995 will have been small. Air travel energy intensity falls 10% by 1995 as some of the oldest (worst) planes are taken out of the fleet. Intensities of bus and rail fall 10% as more people are crammed into fewer routes and fewer vehicles to conserve fuel. The energy intensity of truck freight also falls 10%, not because the stock becomes more efficient, but because fuel scarcity forces drivers to use their vehicles more carefully, and pay more attention to loading and to greater utilization of vehicles on return trips. The intensities of shipping and rail fall only 5%, as low capacity utilization nearly offsets the improvements in vehicle efficiency permitted by retiring older stock and cutting some freight lines. The intensities of pipelines also fall by 5% because some increased care goes into maintenance of the system, one of the few parts of the Soviet economy still contributing at close to its pre-crash levels! Energy use in 1995: equal weight to structure and efficiency
Our scenario for 1995 shows a significant decline in final energy demand (for all sectors, excluding losses) in the FUSSR, from 41.4 EJ (approximately 19 million barrels per day oil equivalent (mbdoe)), in 1985 to 30.8 (14 mbdoe) EJ in 1995 (Table 3). The largest change occurs in industrial energy demand, which drops by 39%. A smaller decline occurs in the transport sector, while the residential and services sectors remain equal to their 1985 levels. Figure 1 shows 1985 energy demand by sector, as well as overall primary energy losses in that year, and 1995. s Fuel and district heating (dist ht.) received are aggregated for the figure, although these were analysed separately. Similarly, the residential and commercial (service sector, or 'com') buildings are aggregated after separate analysis. We have also estimated the impact of these final demand changes on fuel use (Table 3). Using data
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Energy demand in the former USSR Table 3. Summary of model results, 1985 to 1995 (energy in E J). 1985 actual
1990 actual
1995 model
1985-95 change (%)
1990-95 change (%)
Fuel demand by fuel: Oil Coal and solid fuels Gas District heat Electricity Sum final demand
9.3 6.0 13.3 4.4 4.6 37.6
6.8 4.5 10.9 3.7 3.5 29.5
-27 -25 -18 -16 -27 -22
Consumption by sector Residential/services Industry (including feedstocks) Transport Losses
9.3 25.1 7.0 9.9
9.4 15.4 6.0 9.7
1 -39 -14 -3
Total primary energy
51.3
53.9
40.5
-21
-25
Total oil demand
20.6
19.8
12.8
-32
-30
provided by Sinyak on the share of each fuel in final demand and in heat and power production in 1985, as well as data on total primary energy use (ie production minus net exports and field losses), we estimate total primary energy use for 1995. 9 Several of the key assumptions we make in estimating fuel use are:
Oil use falls whenever transport activity falls, or wherever it is used in industry. • Oil use falls less in power and heat production because heavy oil of low export value is used here. • Gas use falls only as a residual in each sector ie after other fuels have been cut. • Electricity and heat uses are determined separately for each final demand sector, then the fuels used to meet these demands are estimated using the rules above. •
• Solid fuels fall greatly because of their use in heavy industry and the increasing difficulties of mining low-grade Ukrainian and Siberian coal.
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Source: International Energy Studies, Lawrence Berkeley Laboratory (LBL).
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ENERGY POLICY September 1993
Energy demand in the former USSR
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Figure 2. Energy use in the former USSR: fuels to final demand. Source: InternationalEnergyStudies,LBL • A considerable drop in nuclear power output (20%) is expected with continued reduction in the output of reactors at Chernobyl. Figure 2 shows the same patterns by fuel. Here the 'low' fuel demand scenario is also illustrated. The picture we obtain of fuel use in 1995 shows final consumption of all fuel types (excluding feedstocks and district heat) declining significantly. Oil consumption falls from 9.3 EJ (4.3 mbdoe) to 6.8 EJ (3.1 mbdoe), a drop of 27%. Solid fuel also falls by around 25% as heavy industry is shut in. Gas use falls from 13.3 EJ to 10.9 EJ (a drop of 18%); electricity use declines by 1.1 EJ (in delivered terms, approximately 2.5 times more when measured as primary energy). Primary energy use falls from 51.3 EJ (approximately 24 mbdoe), of which 20.6 EJ is oil (9.4 mbdoe), to 40.5 EJ (18 mbdoe), of which 12.8 EJ (5.8 mbdoe) is oil. Thus total oil demand (including oil used for electricity generation) is reduced by approximately 3.6 mbdoe. This decline is probably great enough to keep pace with a fall in oil production. When the 1995 scenario values are compared to actual data for the year 1990, the magnitude of the crash in energy demand becomes even greater. Total primary energy demand, as estimated from various Planecon publications (1991, private communication) in 1990 was 53.9 EJ, from which our 40.5 EJ scenario value for 1995 represents a 25% decline.
ENERGY POLICY September 1993
These changes in primary energy use are illustrated in Figure 3, which also depicts the primary energy use consequences of our 'low' scenario for 1990. About 60% of the decline in energy use occurs because of the slowdown in economic activity. Structural change - decline in heavy industry - is responsible for about 20% of the decline. Improved energy efficiency ie reduced energy use per unit of activity, causes the rest of the decline. These improvements come from better management of existing facilities, there being little equipment retrofit or turnover. That the overall impact of changes in intensities is small is seen by resetting all intensities in 1995 to their 1985 values. The resulting energy use is only 0.5 EJ lower than what we depict here in our base case. The worsening of energy efficiency in industry, however temporary, offsets much of the small energy savings we estimate will occur from improved operations in other sectors. Why do we believe efficiency will not improve by a greater degree? Put simply, the means to improve efficiency are scarcer in the FUSSR now than energy itself. In many ways the energy sector itself, with its high-tech focus and export interests, is better organized and run than the other sectors. Improving homes, factories and transport equipment is not simply a matter of management and equipment replacement. Energy management itself, in response to higher energy prices (or in some cases the first sign of energy prices!) itself requires equipment
975
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often only available abroad, new skills that take time to learn, and a new culture of marketplace economics that itself can take a generation to learn where sophisticated technologies are concerned. Any improvements, of course, would be helpful in improving the functioning of the overall economy, and in large part would reduce pollution as well. Western aid could help somewhat, but even this has its limitations in the short run, lest the presence of a channel of aid be the only mechanism pushing up efficiency. In succeeding papers, however, we will show that the potential for longer-term improvements is indeed bright, as are prospects for interaction with the West, through both assistance and business opportunities. A low consumption case for 1995 After we completed our base case, we were challenged by the US Department of Energy to see if we could speculate on an even lower level of energy use. Reexamining each sector and fuel, we found that the main assumptions show that energy use might fall to a level of 26.1 EJ (approximately 12 mbdoe), or 10% below that we indicated. The main decrement in energy use comes from industry. This could occur if industrial energy intensities were reduced by approximately 5%, rather than increased by almost 15%. Energy use in the other sectors was approximately 5% below the levels we showed in our base case. Reducing energy intensities in industry is not likely
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in the short run, because of both the shortage of monetary and human capital (knowhow) and the reluctance of private and public authorities to invest in industries with uncertain futures.
Comparisons among individual republics The numbers in our models and scenarios represent the entire geographical entity of the FUSSR. With the formation of the Commonwealth of Independent States and greater economic and political control by republican governments over their own territories, the changes discussed in this paper will by no means occur uniformly across all regions and republics. If economic and political disagreements or policy differences cause restrictions on interrepublic trade and commerce, then republics cut off from markets for their goods or suppliers for their material inputs could face greater structural changes and economic collapse in the short term than the aggregate picture presented here. At the same time, other republics might fare better. An important question is whether the reduction of energy consumption in non-energy-rich republics (for example, Ukraine and Belarus) will be supply or demand driven. Will supply shortages as less energy can be obtained from other republics limit energy consumption, or will economic collapse reduce demand to the point where existing supply channels are adequate?
ENERGY POLICY September 1993
Energy demand in the former USSR
For example, Ukraine produced 1% of the oil in 1987, 5% of the gas, and 25% of the coal of the FUSSR. Yet its share of steel production was 34%, its share of electricity production was 17%, its share of cement production was 16%, its share of housing square footage for heating was 20%, and its share of personal automobiles was 20%. Thus even as energy consumption falls in Ukraine due to economic conditions, availability of energy inputs from other republics will be critical since Ukraine has so few resources of its own. The situation in Belarus is similar to that of the Ukraine, although Belarus does not have as much industrial production. Belarus produces almost no oil, gas, or coal of its own, yet must house, transport and provide services for almost 4% of the population of the FUSSR. Belarus produced about 2% of the electricity, 2% of the cement, 18% of the mineral fertilizer, and 3% of the paper of the FUSSR in 1989. Because of the relatively small amounts of heavy industry, energy demand in Belarus would be expected to fall less than in other republics by 1995. Of course in Belarus, energy demand will be primarily determined by supply availability from other republics or countries. Central Asia as a whole produced about 6% of the oil, 17% of the gas, and 20% of the coal of the FUSSR in 1989, with a population of about 18% of the FUSSR. From this perspective, Central Asia is more self-sufficient in energy than Ukraine or Belarus, and therefore energy consumption may be more demand than supply driven. Industrial production in Central Asia is small relative to its size: only 5% of the steel, 4% of the chemicals, 13% of the cement, and 8% of the consumer goods of the FUSSR in 1988. Thus a larger proportion of energy consumption goes to the residential, transport and agricultural sectors. Since we do not expect activity in these sectors to decline as much as in industry, the crash in energy consumption in Central Asia may be relatively modest, if it occurs at all. Energy intensities in the various republics will undoubtedly differ from one another because of differences in the capital stock, lifestyle patterns and climate. Data on energy intensities by republic are not currently available, so such comparisons will be difficult to make quantitatively.
Conclusions: energy use in the former Soviet republics in 1995 In this brief study we have combined detailed information on historical patterns of energy use in the former Soviet republics with information on recent developments there and informed speculation. Us-
ENERGY POLICY September 1993
ing scenarios, we conclude that final energy use in the former Soviet republics in 1995 could be less than 78% of its 1985 value, with most of the decline hitting oil and coal. Assuming little improvement in the effectiveness of the energy supply system in the short term, we find that primary energy needs, net of exports, will be less than 80% of the level of 1985. The GDP, measured in real, Western terms, falls 18%. The largest decline in final energy use, 39%, occurs in industry, but output falls by an even greater amount. This inefficiency, while probably temporary, is the main reason why the ratio of energy use to GDP falls by only 9% in our main scenario. If a major effort to improve efficiency in industry occurs, then energy use in the former Soviet republics could fall even more by 1995, but we do not hold this possibility for very likely. Nevertheless, our work suggests that energy use in the former Soviet republics will fall significantly. This drop will certainly affect oil and gas consumption. Given the international activity aimed at stabilizing output in the oil and gas industries, it is likely that the republics will be able to maintain their combined exports during the middle of this decade. 1M. Sagers, 'News notes: review of Soviet energy industries in 1990', Soviet Geography, April 1991. 2IMF (International Monetary Fund), World Bank, and OECD, A Study of the Soviet Economy, Paris, France, 1991. 3Thane Gustafson, 'How Far Down?', Energy and the Great Soviet Economic Depression, Cambridge Energy Research Associates, Cambridge, MA, 1992; Alastair McAuley, 'The economic consequences of Soviet disintegration', Soviet Economy, Vol 7, No 3, 1991, pp 189-214. 4R.C. Cooper, and L. Schipper, 'The Soviet energy conservation dilemma', Energy Policy, Vol 19, No 4, 1991, pp 344-363; R.C. Cooper and L. Schipper, 'The efficiency and energy use in the USSR: an international perspective', Energy, Vol 17, No 1, January 1992, pp 1-24; L. Schipper and R.C. Cooper, Energy Use
and Conservation in the USSR: Patterns, Prospects, and Problems, Lawrence Berkeley Laboratory LBL-29830, Berkeley, CA, 1991. 5In fact, there were perhaps 75 million homes in 1990 housing about 87 million families, but there were another 13 million families (including many individuals) who did not have their own homes. That is, between two million and four million families lived in collective dwellings with other families, and as many as 25 million individuals lived with families or alone in barracks, dormitories, rooms or some other kind of accommodation best not called a 'home'. The return of troops from Eastern Europe will make this situation worse. Soviet data count total living space, not just living space in homes. 6A rapid increase in car ownership has been observed in Poland since the political reforms and subsequent economic restructuring began in 1988: see S. Meyers, L. Schipper and J. Salay, Energy
Use in Poland 1970-1991: Sectoral Analysis and International Comparison, LBL 33994, Lawrence Berkeley Laboratory, 1993. 7See previous note. 8Figure 1 and subsequent figures give energy demand in EJ and in billions of tonnes of coal equivalent (btce), the standard energy accounting unit in the FUSSR. One btce is equal to 29 EJ or 0.7 billon tonnes of oil equivalent. Unless stated otherwise, electricity and district heat discussed here and depicted in the figures are counted at their final demand values. 9y. Sinyak, 'Energy efficiency and prospects', Energy, Vol 16, No 5, 1991, p 791.
977
Many economists and analysts who study the former USSR (FUSSR) anticipate a severe economic decline in the near term (by 1995) as the economies of the newly independent republics adjust to new economic mechanisms, as huge structural changes such as military cutbacks take place, and as new political priorities are set out. The purpose of this analysis is to understand the implications for energy consumption of these economic and political upheavals. Understanding energy use is critically important for many reasons. The FUSSR relies on energy exports for nearly all of its hard currency earnings used to pay foreign debt and purchase foreign goods. Energy supply availability is linked with economic health and with the physical health of the population. Regional and global environmental degradation and protection requirements are also tied closely to energy use. Thus questions of FUSSR energy consumption affect not only the populations of the republics, but those of the entire world. Many predict that oil and gas exports will decline The authors are with the International Energy Studies Group, Energy Analysis Program, Energy and Environment Division, Lawrence Berkeley Laboratory, 1 Cyclotron Road, Berkeley, CA 94720, USA. 0301-4215/93/090969-09(~ 1993 Butterworth-HeinemannLtd
as energy production declines and as more energy is used to satisfy domestic demands. Aggregate fuel output in fact fell by 0.7% in 1989.1 This was the first time since World War II that fuel production dropped. And in 1990, aggregate fuel output fell even further, by another 2.4%. How will energy demand fare in the next few years? A collapsing economy affects both energy supply, by diverting investment away from basic energy production, and energy demand, as industries shut down or energy distribution breaks down. Which will fall faster, supply or demand? The analysis here suggests that declining supply may not be the clear winner after all. Instead we suggest that the collapse of the economies in the former Soviet republics will reduce energy demand significantly, and with that change, reduce the demand for oil and gas as well. At the heart of our analysis is a major decline in industrial production which accompanies a crash in GDP over the period 1990-95. Soviet net material product (NMP) averaged 2.7% over the period 1986-89. 2 According to several sources GDP fell by 4% in 1990 and by at least 12% in 1991. 3 We assume GDP drops by an average of 5.7% per year from 1991-95. This results in a net 18% drop in GDP between 1985 and 1995, and a crash of 32% between 1991 and 1995. We further assume that industrial production changes in proportion to changes in aggregate GDP. Other major assumptions are as follows: • Services become a much larger share of GDP, up from 21.5% in 1985 to 34.5% in 1995. • Construction takes a much smaller share of GDP, declining from 10.7% in 1985 to 6%. • The freight intensity of the economy (tonne km per GDP) declines by 1995 to 85% of its 1985 value (except for pipelines). • Automobile and air passenger km decline substantially. • Slight growth in the residential sector. In addition to these assumptions, we include changes 969
Energy demand in the former USSR Table 1. Assumptions for activity/structural changes from 1985 to 1995.
General Residential
Services Passenger transport
Freight transport
Manufacturing
Population increases 11% from 276 to 309 million GDP decreases 18%, from 1980US$616to 505 billion Average residence size increases by 2.5% Number of people per dwelling goes from 4.0 to 3.8 Share of new homes heated with district heat is 35% Survival rate of existing homes is 99.8% Service share of GDP goes from 21.5% to 34.5% Floor space increases at rate 90% of services GDP increase Survival rate of existing service floor space is 99% Cars per capita increase from 53 to 60 per 1000 Kilometres driven annually per car decrease to 80% of 1985 Passenger kilometres by air decrease to 50% of 1985 Passenger kilometres per capita by other modes remain the same Tonne kilometres per unit of GDP decrease to 85% of 1985 (excluding pipelines) Truck share of total tonne km increases from 6.1% to 10% Pipelines carry the same tonne kilometres as in 1985 Other transport use increases by ratio of (GDP 1995/GDP 1985)^0.75 (that is, 0.75 elasticity) Energy consumingactivity for manufacturingand industry decreases by ratio of (GDP 1995/GDP 1985) in each sector Raw materials GDP falls from 1980US$65 to 30 billion GDP share of agriculture falls from 18.5% to 18% GDP share of mining increases from 5% to 6% GDP share of construction falls from 10.7% to 6% (Total GDP for agriculture, miningand construction falls from 1980US$211 to 151 billion)
in energy intensities in all sectors, which arise mainly from conservation/efficiency measures forced by economic pressures, decreasing efficiency with output reduction, as in the case of manufacturing, and some modest technological improvement. The full set of model assumptions are detailed in Tables 1 and 2. U n d e r these assumptions, we model total energy demand in all sectors of the economy, based upon growth or declines in activity and intensity of energy consumption. We find that total energy consumption falls by 22% from 1985 to 1995, which represents a crash in energy consumption of 25% from 1990 to 1995. Although this report focuses on 1995, we mention where important where some of our assumptions lead in 2010. Readers unfamiliar with our previous work should consult Cooper and Schipper. The two papers are available as a single report from LBL. 4
Description of the scenario process A scenario is a process by which a rough outline of future social, economic, and technological developments provides a framework for painting a concrete picture of the future. Such a framework allows 'What if?' questions to be asked. The scenario is not a prediction, but at best only a test of reasonableness. No one really knows how far the former Soviet economies will fall. These scenarios can be based only on guesses about the economy. A n d we have little information that allows us to distinguish energy
970
use in the various republics (now Commonwealth members). Instead, we use information about the economy and energy use in the USSR in 1985 and the years to 1988 as a guide to where the collection of former Soviet republics and other entities might be in 1995 or even 2010. All figures, therefore, refer to energy use in the territory of the republics of the FUSSR. The first question we explore is how low energy demand in the F U S S R can fall if the economy contracts by a certain amount. This scenario gives us a sense of whether demand would fall faster or less rapidly than oil production, and shows us under what conditions oil exports might be maintained. Although we have not modelled supply or fuel choice explicitly, our view from the present exercise is that oil demand will fall more rapidly than production in 1995. The second question we can explore is that of longer-term energy demand in the FUSSR. In particular, we can examine energy demand under different scenarios of energy efficiency and conservation improvements between now and 2010. We can point to areas where purposeful assistance in the next few years could pay off through significant reductions in demand after the turn of the century. To this end, it is useful to distinguish between short-term (1995) and much longer-term developments. This is because a critical determinant of energy demand in the F U S S R in 2010 is the degree to which inefficient, o u t m o d e d and downright unproductive machines, buildings, factories and vehicles are simply aban-
ENERGY POLICY September 1993
Energy demand in the former USSR Table 2. Assumptionsfor energyintensity changes from 1985 to 1995 (1985 = 100%).
Residential
Services
Passenger transport
Freight transport
Manufacturing
New and existing homes: 85% Fuel and district heat for water and space heating: 85% Electric water heat: 90% Cooking fuel and electricity: 90% Cooling electricity: 85% Refrigerators and appliances: 95% Lights and electronics: 90% Fuel and district heat for water and space heating: 85% Cooking fuel and electricity: 95% Lights electricity: 90% Refrigeration, cooling, and other electricity, 100% Car fuel per kilometre: 90% Aircraft fuel per passenger kilometre: 90% Car load factor (passenger per vehicle) decreases from 1.95 to 1.8 Other modes fuel per passenger kilometre: 90% Truck fuel per tonne kilometre: 90% Other freight fuel per tonne kilometre: 95% Pipeline fuel per tonne kilometre: 95% Other transport (fishing): 90% Fuel and district heat: 120% Electricity: 110% Raw materials, feedstocks: 80% Agriculture, construction, mining (all forms): 110%
doned or recycled. This degree controls how much inefficient energy using capital remains in 2010, which in turn will exert strong influence over overall energy efficiency in that year. Our detailed analysis of the 2010 situation will be provided in a subsequent report.
ing and agriculture. We estimate that about 25% of the value-added in manufacturing arises in the energy intensive industries, the rest in other manufacturing. Activity in the energy intensive industries falls far m o r e than it does in other manufacturing or agriculture.
Methodology
T h e S o v i e t e c o n o m y in 1 9 9 5
and assumptions
We calculate total energy consumption by breaking energy consumption in each sector into four components: a stock (such as the population size); a structural factor (such as average a p a r t m e n t size or automobiles per capita); a level of activity (such as the average n u m b e r of people per a p a r t m e n t or annual kilometres driven per car); and an energy intensity (such as the energy used per square metre of a p a r t m e n t for heating or the average fuel mileage of automobiles). The growth rates and/or percentage changes in each of these four c o m p o n e n t s can then be considered separately. For each of the two scenario years, 1995 and 2010, we assume a certain population size, absolute or percentage changes in structural factors and levels of activity, and percentage changes in levels of energy intensity. In most cases energy intensities are calculated for 1985 based upon actual energy consumption in each sector, and then scaled by a percentage change to obtain the 1995 levels of intensity. O u r primary assumptions which drive the model are given in Tables 1 and 2. For industry, we divide output into three sectors: energy intensive manufacturing, other manufactur-
ENERGY POLICY September 1993
In the following sections we illustrate our scenarios for 1995, with some c o m m e n t s about the ultimate level of 'recovery' that occurs by 2010. Many of the details of the 2010 scenarios will be worked out in our second paper. The size and structure o f the economy in 1995-2010 We assume economic growth (real G D P ) occurs as follows: + 2 % pa for 1985-90, - 5 . 7 % pa for 199195, and 3% pa for 1996-2010. This means per capita income falls to 73% of its 1985 level by 1995! And per capita income in 2010 only reaches 115% of its 1985 level. These assumptions are based on speculation. H o w e v e r , consider that the 1992 Russian budget cuts defence expenditures from 25% to 4% of the total (New Y o r k Times, 25 January 1992), with the c o m m o n l y cited figure of 50% of industrial output going to defence. Given all the uncertainties, our assumptions are probably reasonable for the purposes of illustrating plausible cuts in energy demand. Thus the scenario pairs a dangerous economic slide with a reasonably strong recovery. Indeed, we suspect that the more rapid and complete is the slide
971
Energy demand in the former USSR
in the early 1990s, the more the economy will grow back by 2010. We have estimated two levels of energy use for the crash of 1995. We report here principally on our base case for 1995.
Manufacturing and industry. Our scenario for manufacturing and industry depicts a struggling economy which is barely keeping people housed and fed, and which is producing the minimum possible output. Two key parts of the decline in industrial sectors are defence and construction, which are both expected to decline sharply. When these sectors decline, raw materials production of such goods as steel and cement will follow. Other industrial production will also fall. The main exception to the grim picture in this scenario is that of pipeline activity and energy exports, which remain constant in 1995, relative to 1985 levels. Since we believe that gas is the only fuel whose production can be maintained relatively easily both for domestic use and exports, this assumption is reasonable. We assumed proxy indices to divide industrial production into energy intensive versus nonintensive production - 25% energy intensity versus 75% non-intensive. Energy intensive industry (iron/ steel and non-ferrous metals, chemicals, paper and pulp, building materials) falls from US$65 billion (measured in 1980 US$ by the CIA) in 1985 to only US$30 billion in 1995, as both raw materials and defence industries contract rapidly. Energy intensive industry only recovers to US$45 billion by 2010. Remaining manufacturing industries contract from US$195 billion in 1985 to US$134 billion in 1995, but recover to US$230 billion in 2010. The output of the rest of industry (agricultural, construction, minerals) falls to 70% of 1985 output, or US$151 billion in 1995, as their total shares of agriculture and construction fall. But these sectors rise to 90%, or US$189 billion, by 2010.
Services. By 1995, the service share of GDP increases dramatically. One simple reason is the huge decline in manufacturing share, coupled with an overall decline in GDP in absolute terms that is less than the decline in manufacturing in relative terms. That is, services survive the shake out better than manufacturing. A more fundamental reason for the rise in the importance of services is that real economic activity in services rises rapidly as smaller entrepreneurs and Western interests begin to expand both business services as well as personal services, particularly retail activity, hotels and restaurants, and leisure activities. In absolute terms, service output
972
increases from US$133 billion (1980 US$) in 1985 to US$174 billion in 1995, and then nearly doubles to US$303 billion by 2010. Since we assume that the floor space of services grows at 90% of the growth rate of services GDP, this means that floor space expands from 5.4 m 2 per capita in 1985 to 7.1 m 2 in 1995, and then to 10.8 m 2 by 2010.
Households. The household sector changes very slowly. There is little money in the early 1990s for major construction, renovation or acquisition of new appliances. We assume that whereas there was only one dwelling for every four people in 1985 (or about 1.15 families per dwelling), there is one for every 3.8 people in 1995. 5 This means that house floor area per capita in 1995, 15.9 m 2, remains close to its 1989 value, 15.7 m 2 as very little additional housing is built. We do assume that average residence size increases by 2.5% because of the construction of new and larger apartments; however, this factor is really very small, given the crowded nature of Soviet homes. By 2010, however, housing is less scarce, there being one unit for every 3.25 people, as many of the 20 million families and single people living in collective housing in 1985 finally acquire their own apartments or even single family dwellings, whose growth is marked after 1995. This means home area per capita is 15% higher in 2010 than 1985. Fittings remain spartan; there is almost no increase in appliances ownership per capita until after 1995; modest increases then occur.
Travel and freight. In 1995, there will be 60 cars per 1000 people, compared with 53 in 1985.6 Cars in 1995 are driven 20% less than in 1985, and consequently load factors rise from 2.06 to 2.2 people per car as people share car travel more frequently. Air travel per capita contracts by 50% because of fuel unavailability and high prices. Kilometres per capita of other modes of travel, such as bus, rail and water remain approximately the same. The above factors combine to reduce total passenger kilometres per capita by 5% by 1995. (We do foresee, however, a strong rise in per capita travel by about 25% to over 7500 passenger km by 2010.) We assume the freight/GDP ratio (excluding pipelines) falls by 15% between 1985 and 1995. Coupled with a declining GDP, this means that total freight activity falls sharply by 1995, from 7800 to 5500 billion tonne km (and only reaches 80% of its 1985 level in 2010, although GDP is 30% higher than in 1985). Truck freight increases its share of this total freight activity, but bottlenecks affecting liquid fuel supply limit this increase. Pipeline shipping, mostly ENERGY POLICY September 1993
Energy demand in the former USSR
gas but some oil as well, lies at the same level as 1985, as oil contracts while gas exports are increased. Rail freight traffic (combined with domestic shipping in our spreadsheet) declines the most, as trade in bulk raw materials falls so much. Energy intensities in 1995
Energy intensities behave in a mixed fashion. In most industry, output declines significantly, but energy use must be maintained nevertheless to keep factory equipment running. This is particularly true for gas: shutting off pipelines is cumbersome, restarting equally problematic. As a result, fuel and district heat energy intensities for industry actually increase 20% by 1995 over their 1985 values (a similar phenomenon was observed in Poland after 1988). 7 Electricity, which can be more readily shut off when production is low, has less of an increase in intensity, only 10% over 1985. Most other energy intensities fall. Feedstock volumes also fall, we estimated by 20%. Energy intensities in agriculture, construction and mining all increase by 10% over 1985: even though agricultural output is maintained, greater effort is now focused on actually harvesting and delivering this output, which in our formulation increases energy use without increasing the real output. (This situation of increased inefficiency reverses dramatically with recovery.) Residential heating intensity (in energy per square metre) falls 15% because of supply cutbacks by utilities trying to conserve fuel. (This has been observed in Poland in 1989 and 1990. As noted above, turning off gas pipelines is very cumbersome and even dangerous. But the centralized nature of the heat supply system (including the dependence on large gas boilers) makes it possible for authorities to ration gas for heating and water heating by persuading local housing authorities to do so. District heating deliveries can be reduced simply by decreasing the temperature of the water leaving the powerplant for the urban network. Other fuel supplies will be restricted by bottlenecks, and, for oil, LPG and purchased solid fuels, by marked price increases, some of which have already begun. New homes built are 15% less heat intensive than all homes, on average, in 1985. This reflects the fact that former authorities have made some gains in building less energy intensive buildings in the past decade. But this savings reflects no successful new efforts during the next few years. The same decline of 15% in intensity is observed for water heating, cooking, and electricity use for cooling. Intensities of electric appliances remain approximately constant. Service sector heating in-
ENERGY POLICY September 1993
tensity also falls 15%. Electricity for lights falls 10% in both residential and services, while other electricity intensities in the services sector remain approximately constant. One factor lying behind the reduction in electricity intensity is certainly the spot shortages of both electricity capacity (caused principally by maintenance related outages) and by lack of fuel for generation. Such shortages - brown outs and black outs - began to appear in 1991. In transport, car fuel intensities fall to 90% of their 1985 values (from 12 to 10.8 litres per 100 km). This occurs both because the drop in traffic congestion (and additional care taken by drivers) reduces intensity, and because the majority of cars added between 1985 and 1995 will have been small. Air travel energy intensity falls 10% by 1995 as some of the oldest (worst) planes are taken out of the fleet. Intensities of bus and rail fall 10% as more people are crammed into fewer routes and fewer vehicles to conserve fuel. The energy intensity of truck freight also falls 10%, not because the stock becomes more efficient, but because fuel scarcity forces drivers to use their vehicles more carefully, and pay more attention to loading and to greater utilization of vehicles on return trips. The intensities of shipping and rail fall only 5%, as low capacity utilization nearly offsets the improvements in vehicle efficiency permitted by retiring older stock and cutting some freight lines. The intensities of pipelines also fall by 5% because some increased care goes into maintenance of the system, one of the few parts of the Soviet economy still contributing at close to its pre-crash levels! Energy use in 1995: equal weight to structure and efficiency
Our scenario for 1995 shows a significant decline in final energy demand (for all sectors, excluding losses) in the FUSSR, from 41.4 EJ (approximately 19 million barrels per day oil equivalent (mbdoe)), in 1985 to 30.8 (14 mbdoe) EJ in 1995 (Table 3). The largest change occurs in industrial energy demand, which drops by 39%. A smaller decline occurs in the transport sector, while the residential and services sectors remain equal to their 1985 levels. Figure 1 shows 1985 energy demand by sector, as well as overall primary energy losses in that year, and 1995. s Fuel and district heating (dist ht.) received are aggregated for the figure, although these were analysed separately. Similarly, the residential and commercial (service sector, or 'com') buildings are aggregated after separate analysis. We have also estimated the impact of these final demand changes on fuel use (Table 3). Using data
973
Energy demand in the former USSR Table 3. Summary of model results, 1985 to 1995 (energy in E J). 1985 actual
1990 actual
1995 model
1985-95 change (%)
1990-95 change (%)
Fuel demand by fuel: Oil Coal and solid fuels Gas District heat Electricity Sum final demand
9.3 6.0 13.3 4.4 4.6 37.6
6.8 4.5 10.9 3.7 3.5 29.5
-27 -25 -18 -16 -27 -22
Consumption by sector Residential/services Industry (including feedstocks) Transport Losses
9.3 25.1 7.0 9.9
9.4 15.4 6.0 9.7
1 -39 -14 -3
Total primary energy
51.3
53.9
40.5
-21
-25
Total oil demand
20.6
19.8
12.8
-32
-30
provided by Sinyak on the share of each fuel in final demand and in heat and power production in 1985, as well as data on total primary energy use (ie production minus net exports and field losses), we estimate total primary energy use for 1995. 9 Several of the key assumptions we make in estimating fuel use are:
Oil use falls whenever transport activity falls, or wherever it is used in industry. • Oil use falls less in power and heat production because heavy oil of low export value is used here. • Gas use falls only as a residual in each sector ie after other fuels have been cut. • Electricity and heat uses are determined separately for each final demand sector, then the fuels used to meet these demands are estimated using the rules above. •
• Solid fuels fall greatly because of their use in heavy industry and the increasing difficulties of mining low-grade Ukrainian and Siberian coal.
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974
ENERGY POLICY September 1993
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Figure 2. Energy use in the former USSR: fuels to final demand. Source: InternationalEnergyStudies,LBL • A considerable drop in nuclear power output (20%) is expected with continued reduction in the output of reactors at Chernobyl. Figure 2 shows the same patterns by fuel. Here the 'low' fuel demand scenario is also illustrated. The picture we obtain of fuel use in 1995 shows final consumption of all fuel types (excluding feedstocks and district heat) declining significantly. Oil consumption falls from 9.3 EJ (4.3 mbdoe) to 6.8 EJ (3.1 mbdoe), a drop of 27%. Solid fuel also falls by around 25% as heavy industry is shut in. Gas use falls from 13.3 EJ to 10.9 EJ (a drop of 18%); electricity use declines by 1.1 EJ (in delivered terms, approximately 2.5 times more when measured as primary energy). Primary energy use falls from 51.3 EJ (approximately 24 mbdoe), of which 20.6 EJ is oil (9.4 mbdoe), to 40.5 EJ (18 mbdoe), of which 12.8 EJ (5.8 mbdoe) is oil. Thus total oil demand (including oil used for electricity generation) is reduced by approximately 3.6 mbdoe. This decline is probably great enough to keep pace with a fall in oil production. When the 1995 scenario values are compared to actual data for the year 1990, the magnitude of the crash in energy demand becomes even greater. Total primary energy demand, as estimated from various Planecon publications (1991, private communication) in 1990 was 53.9 EJ, from which our 40.5 EJ scenario value for 1995 represents a 25% decline.
ENERGY POLICY September 1993
These changes in primary energy use are illustrated in Figure 3, which also depicts the primary energy use consequences of our 'low' scenario for 1990. About 60% of the decline in energy use occurs because of the slowdown in economic activity. Structural change - decline in heavy industry - is responsible for about 20% of the decline. Improved energy efficiency ie reduced energy use per unit of activity, causes the rest of the decline. These improvements come from better management of existing facilities, there being little equipment retrofit or turnover. That the overall impact of changes in intensities is small is seen by resetting all intensities in 1995 to their 1985 values. The resulting energy use is only 0.5 EJ lower than what we depict here in our base case. The worsening of energy efficiency in industry, however temporary, offsets much of the small energy savings we estimate will occur from improved operations in other sectors. Why do we believe efficiency will not improve by a greater degree? Put simply, the means to improve efficiency are scarcer in the FUSSR now than energy itself. In many ways the energy sector itself, with its high-tech focus and export interests, is better organized and run than the other sectors. Improving homes, factories and transport equipment is not simply a matter of management and equipment replacement. Energy management itself, in response to higher energy prices (or in some cases the first sign of energy prices!) itself requires equipment
975
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:: : :i: :i: : :~: :.:: :::i::: : : :
0.8
20
Liquids 0.6 0.4
Solids
10 0.2 0 1985
1990
1995
1995
Est actual
Low
Base
Figure 3. Energy demand in the former USSR: primary fuel inputs 1985-95. Source: International
Energy Studies, LBL.
often only available abroad, new skills that take time to learn, and a new culture of marketplace economics that itself can take a generation to learn where sophisticated technologies are concerned. Any improvements, of course, would be helpful in improving the functioning of the overall economy, and in large part would reduce pollution as well. Western aid could help somewhat, but even this has its limitations in the short run, lest the presence of a channel of aid be the only mechanism pushing up efficiency. In succeeding papers, however, we will show that the potential for longer-term improvements is indeed bright, as are prospects for interaction with the West, through both assistance and business opportunities. A low consumption case for 1995 After we completed our base case, we were challenged by the US Department of Energy to see if we could speculate on an even lower level of energy use. Reexamining each sector and fuel, we found that the main assumptions show that energy use might fall to a level of 26.1 EJ (approximately 12 mbdoe), or 10% below that we indicated. The main decrement in energy use comes from industry. This could occur if industrial energy intensities were reduced by approximately 5%, rather than increased by almost 15%. Energy use in the other sectors was approximately 5% below the levels we showed in our base case. Reducing energy intensities in industry is not likely
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in the short run, because of both the shortage of monetary and human capital (knowhow) and the reluctance of private and public authorities to invest in industries with uncertain futures.
Comparisons among individual republics The numbers in our models and scenarios represent the entire geographical entity of the FUSSR. With the formation of the Commonwealth of Independent States and greater economic and political control by republican governments over their own territories, the changes discussed in this paper will by no means occur uniformly across all regions and republics. If economic and political disagreements or policy differences cause restrictions on interrepublic trade and commerce, then republics cut off from markets for their goods or suppliers for their material inputs could face greater structural changes and economic collapse in the short term than the aggregate picture presented here. At the same time, other republics might fare better. An important question is whether the reduction of energy consumption in non-energy-rich republics (for example, Ukraine and Belarus) will be supply or demand driven. Will supply shortages as less energy can be obtained from other republics limit energy consumption, or will economic collapse reduce demand to the point where existing supply channels are adequate?
ENERGY POLICY September 1993
Energy demand in the former USSR
For example, Ukraine produced 1% of the oil in 1987, 5% of the gas, and 25% of the coal of the FUSSR. Yet its share of steel production was 34%, its share of electricity production was 17%, its share of cement production was 16%, its share of housing square footage for heating was 20%, and its share of personal automobiles was 20%. Thus even as energy consumption falls in Ukraine due to economic conditions, availability of energy inputs from other republics will be critical since Ukraine has so few resources of its own. The situation in Belarus is similar to that of the Ukraine, although Belarus does not have as much industrial production. Belarus produces almost no oil, gas, or coal of its own, yet must house, transport and provide services for almost 4% of the population of the FUSSR. Belarus produced about 2% of the electricity, 2% of the cement, 18% of the mineral fertilizer, and 3% of the paper of the FUSSR in 1989. Because of the relatively small amounts of heavy industry, energy demand in Belarus would be expected to fall less than in other republics by 1995. Of course in Belarus, energy demand will be primarily determined by supply availability from other republics or countries. Central Asia as a whole produced about 6% of the oil, 17% of the gas, and 20% of the coal of the FUSSR in 1989, with a population of about 18% of the FUSSR. From this perspective, Central Asia is more self-sufficient in energy than Ukraine or Belarus, and therefore energy consumption may be more demand than supply driven. Industrial production in Central Asia is small relative to its size: only 5% of the steel, 4% of the chemicals, 13% of the cement, and 8% of the consumer goods of the FUSSR in 1988. Thus a larger proportion of energy consumption goes to the residential, transport and agricultural sectors. Since we do not expect activity in these sectors to decline as much as in industry, the crash in energy consumption in Central Asia may be relatively modest, if it occurs at all. Energy intensities in the various republics will undoubtedly differ from one another because of differences in the capital stock, lifestyle patterns and climate. Data on energy intensities by republic are not currently available, so such comparisons will be difficult to make quantitatively.
Conclusions: energy use in the former Soviet republics in 1995 In this brief study we have combined detailed information on historical patterns of energy use in the former Soviet republics with information on recent developments there and informed speculation. Us-
ENERGY POLICY September 1993
ing scenarios, we conclude that final energy use in the former Soviet republics in 1995 could be less than 78% of its 1985 value, with most of the decline hitting oil and coal. Assuming little improvement in the effectiveness of the energy supply system in the short term, we find that primary energy needs, net of exports, will be less than 80% of the level of 1985. The GDP, measured in real, Western terms, falls 18%. The largest decline in final energy use, 39%, occurs in industry, but output falls by an even greater amount. This inefficiency, while probably temporary, is the main reason why the ratio of energy use to GDP falls by only 9% in our main scenario. If a major effort to improve efficiency in industry occurs, then energy use in the former Soviet republics could fall even more by 1995, but we do not hold this possibility for very likely. Nevertheless, our work suggests that energy use in the former Soviet republics will fall significantly. This drop will certainly affect oil and gas consumption. Given the international activity aimed at stabilizing output in the oil and gas industries, it is likely that the republics will be able to maintain their combined exports during the middle of this decade. 1M. Sagers, 'News notes: review of Soviet energy industries in 1990', Soviet Geography, April 1991. 2IMF (International Monetary Fund), World Bank, and OECD, A Study of the Soviet Economy, Paris, France, 1991. 3Thane Gustafson, 'How Far Down?', Energy and the Great Soviet Economic Depression, Cambridge Energy Research Associates, Cambridge, MA, 1992; Alastair McAuley, 'The economic consequences of Soviet disintegration', Soviet Economy, Vol 7, No 3, 1991, pp 189-214. 4R.C. Cooper, and L. Schipper, 'The Soviet energy conservation dilemma', Energy Policy, Vol 19, No 4, 1991, pp 344-363; R.C. Cooper and L. Schipper, 'The efficiency and energy use in the USSR: an international perspective', Energy, Vol 17, No 1, January 1992, pp 1-24; L. Schipper and R.C. Cooper, Energy Use
and Conservation in the USSR: Patterns, Prospects, and Problems, Lawrence Berkeley Laboratory LBL-29830, Berkeley, CA, 1991. 5In fact, there were perhaps 75 million homes in 1990 housing about 87 million families, but there were another 13 million families (including many individuals) who did not have their own homes. That is, between two million and four million families lived in collective dwellings with other families, and as many as 25 million individuals lived with families or alone in barracks, dormitories, rooms or some other kind of accommodation best not called a 'home'. The return of troops from Eastern Europe will make this situation worse. Soviet data count total living space, not just living space in homes. 6A rapid increase in car ownership has been observed in Poland since the political reforms and subsequent economic restructuring began in 1988: see S. Meyers, L. Schipper and J. Salay, Energy
Use in Poland 1970-1991: Sectoral Analysis and International Comparison, LBL 33994, Lawrence Berkeley Laboratory, 1993. 7See previous note. 8Figure 1 and subsequent figures give energy demand in EJ and in billions of tonnes of coal equivalent (btce), the standard energy accounting unit in the FUSSR. One btce is equal to 29 EJ or 0.7 billon tonnes of oil equivalent. Unless stated otherwise, electricity and district heat discussed here and depicted in the figures are counted at their final demand values. 9y. Sinyak, 'Energy efficiency and prospects', Energy, Vol 16, No 5, 1991, p 791.
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