UC-NRLF
The Caucasian Petroleum
Industry and its Importance
for Eastern Europe and Asia
BY
D. GHAMBASHIDZE
Hon. Secretary and Member of the Executive Council of
The Russo-British Chamber of Commerce in London.
Paper read at the 29th General Meeting of the Members
of The Institution of Petroleum Technologists on Tuesday,
19th March, 1918.
published bp
THE ANGLO-GEORGIAN SOCIETY,
22, ALBEMARLE STREET, LONDON, W. 1.
1918.
v
Sir BOVEBTON REDWOOD, Bart., Chairman of the Meeting, made
the following concluding remarks : —
" The paper was unquestionably a most valuable statistical
record, eminently worthy of rendering value for future reference by
inclusion in the Journal of the Institution of Petroleum Techno-
logists. He was sure that the Institution might be congratulated,
therefore, in having induced so eminent an authority as Mr.
Ghambashidze to enlighten them on the subject, for he spoke with
the fullest information and his statements might be accepted
unquestionably."
INTRODUCTION.
In the following description of the Caucasian Petroleum Industry
we have endeavoured to give a short historical sketch of the develop-
ment of this industry, which occupies the second important
position in the world. Its potentialities are unlimited and its
exploitation in the past was greatly hampered. Petroleum as a
fuel for modern industry is occupying a very prominent position
and it is getting more and more difficult to supply the ever
increasing demands.
The geographical position of the Caucasian oilfields justifies the
expectation that it will play an enormous part in the development
of local industries in the wide areas of the Middle East, and the local
needs will be so great that export abroad will be curtailed. The
Middle and Near East, with its unlimited natural wealth, has all
the conditions for creating huge industries, and the wide fields of
Asia and enormous population will be a ready market for the
products of those industries. .
The native element has a huge capital invested in that industry,
native labour is already predominant in its exploitation and, writh
normal conditions for its development, will provide ample ground
for foreign investors.
Petroleum is also going to play an important part in the running
of very extensive railway lines which are going to be constructed
throughout the whole of Western Asia. Such expectation is the
more justified by the experiences gained on the Transcaucasian
railways which, from the very beginning of their construction, have
used crude oil as fuel.
The present and potential value of the Caucasian Petroleum
Industry runs into several thousand million pounds.
420217
The Caucasian Petroleum Industry and its
Importance for Eastern Europe and Asia.
By D. GHAMBASHIDZE, Ron: Secretary and Member of the Executive
Council of the Russo-British Chamber of Commerce in London.
Reprinted from the Journal of the Institution of Petroleum
Technologists, vol. iv, pp. 158-188. 1918.
IN dealing with the Petroleum Industry in Eastern Europe we have
to consider various fields of production which are chiefly concentrated
in the Caucasus, on both sides of the main Caucasian Mountains,
while some are situated in the Transcaspian districts.
They are the Baku, Grozni, Kuban, and Guria fields to the
west of the Caspian Sea, and the Uralsk and Transcaspian fields
to the east.
All these latter fields are, up to the present, of much smaller
importance than Baku. Some of them are only in the experimental
stage, or not yet worked to their full capacity, and will therefore
only be dealt with shortly here, before we enter upon the subject of
the classical and prominent field of Baku.
Tcheleken. — Tchelekcn is a small island in the Bay of Krasnovodsk
in Transcaspia, and contains some not very considerable oil areas,
but some fountains were produced on it from rather shallow depths,
and brought it greatly into prominence. The oil produced is
mostly brought fco Baku for refining ; it contains a high percentage
of paraffin, and leaves on treatment an unusually heavy residue of
thick tar, which at ordinary temperatures is almost solid, and must
be mixed with the more fluid residues of the Baku oil before it can
be burnt in the usual firing appliances.
6 GHAMBASHIDZB : TflE CAUCASIAN PETROLEUM
The production ,of ijcude o'-l fro^a "the Island was: in 1911,
15,000,000 poods: i91^,12,Ot)0,X)00 poods : 1913, 7,600,000 poods :
1914, 5,000,000 poods. Other oil-fields in this district are also
found on the shore of the Caspian Sea near Tchikishliar, and at
about 20 versts from the Bala-Ishem Station of the Transcaspian
Railway. The latter is called the Naphtha Hill, and in consequence
of the shortage of fuel the Railway Company intended to build a
branch line to it, and to start its exploitation.
Fergana. — Fergana is in the central part of Turkestan, near
the Station Vanovsk on the Central Asiatic Railway. The
greater part of this field belongs to Nobel Brothers, who struck
the first flowing well in 1904 at a place near Chimion, and have
since then increased the number of their wells to ten in 1915.
The annual production varies between 1 and 2 million poods, but
the whole region is being developed, and a refinery built, as well as
a pipe-line to the above-named station.
Kuban District. — The Kuban District is situated on the north-
western slope of the Caucasian Main Chain, and comprises several
fields whose importance is not yet established. Anapa and Taman
are two of them, whose prospecting was begun in 1912, chiefly by
British capital, but no final results were arrived at before the war
stopped further activities. The Maikop field came to the fore in
1909, when a prolific gusher broke out in it so unexpectedly that
the oil was lost, as no preparations for its storage had been made.
Enormous excitement followed this event. Companies were
formed, speculation in land and feverish borings began on all
sides. A pipe-line was laid to the Station Eiriem, and also two
pipes to the port of Tuapse, but unfortunately the production of
the field was a great disappointment, as only a few wells yielded
oil, and in 1916 only five of the 66 Companies founded in London
for the exploitation of this field were still working, mostly in the
centre and the south-eastern part of it. It is expected that deeper
drilling will give better results. The aggregate depths of all the
wells drilled in 1912 amounted to 11,929 sajens, and in 1913 to
14,475 sajens, and the production of crude oil was in 1912,
9,262, 118 poods: 1913,5,844,798: 1914,5,000,000.
Grozni. — The Grozni oil-fields are situated on the northern slope
of the Caucasian Mountains, and are connected with the Vladi-
caucas railway by the Baku line. Deep boring began there in 1903,
as hand-dug wells, which formerly had been utilised, were found to
be quite inadequate. In fact, the important oil horizons lie very deep
in this field, and most of the original wells are now down between
3,000 and 4,000 feet, and nevertheless their productivity is diminish-
INDUSTRY AND ITS IMPORTANCE. 7
ing. However, new sections have been taken up during the last few
years, and are being methodically worked, specially also as concerns
prevention of the flooding of the wells by surface water, which
accident had repeatedly happened in the beginning of the ex-
ploitation. The total area worked in the field in 1916 was 2,861
desiatines (7,066 acres), and there were 773 wells, of which 385
were in operation. The total of the drillings executed in 1913 were
203,000 feet: in 1914, 290,000 feet: in 1915, 181,930 feet: and in
1916, 158,307 feet.
The total output of the field was : in 1911, 70,000,000 poods :
1912, 65,000,000: 1913, 70,000,000: 1914, 98,455,000: 1915,
88,165,000: 1916, 102,727,615: 1917, 9:198,000 (during January
only). A great part of the Grozni oil is exported through the port
of Novorossisk. The quantities shipped from there were : in 1910,
170,609 tons: in 1911, 234,285: 1912, 213,186: 1913, 219,480:
1914, 149,830. The closing of the Dardanelles stopped further
exports, and as the Grozni oil is specially suitable for the production
of high-class benzine, the consequence was that enormous quantities
of it are accumulating in the field.
Ural-Caspian and Djingi. — These fields cover a large area on the
north-eastern shore of the Caspian Sea, the two principal centres of
production being Dos-Sor in the Emba district and Novobogatinsk.
The former district is in a rather unfavourable position as far as
drinking water is concerned, and the crude oil produced contains a
somewhat high percentage of sulphur. The operations began in
1912, and in 1915 the number of wells amounted to about 60. The
production of the Ural districts was as follows : in 1912, 1,014,825
poods: 1913,7,181,776: 1914, 16,630,985: 1915, 16,620,724:
1916, 15,649,000.
Djingi is a new field on the west of the Ural river, extending
northward from the shore of the Caspian Sea. The prospects are
believed to be very favourable, and several wells sunk by Nobel
Brothers have given satisfactory results. The situation of all
these fields so near the Volga makes their great importance for the
Russian home trade obvious.
Guria. — This oil-field is situated in the district of Ozurgeti, at
a distance of 25 miles from Batum, and only 5 miles from the
small ports of Supsa and Nicolas on the Black Sea in Georgia.
Natural outflows of petroleum had been known there for a long
time, but only in 1911 a Baku firm made a trial boring which pro-
duced a flowing well at a depth of only 63 feet. This immediately
caused a great rush to take up lands in the neighbourhood ; experts
were sent to the spot and several British and other Companies
8 GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
formed. Drilling was started in 1918 in three places, but the out-
break of the war interrupted the work.
The research will, no doubt, be taken up again as soon as cir-
cumstances permit, as the exceptionally favourable position of this
field practically on the Black Sea coast makes it specially in-
teresting.
Baku. — After these few remarks on the comparatively minor
Russian oil-fields, we now come to Baku, which to-day is still the
all-important centre of the Russian oil industry. The principal
objects of this paper will be to consider the present situation of the
industry, and to give the latest available statistical data and
information, but it will omit the technical side of the business, as
the members of this Institution are of course fully acquainted with
this special part of the subject. The following remarks will there-
fore deal only with the economic aspect of the industry, which,
while of the highest importance to the trade in general, is perhaps
less of the domain of the technical expert.
I. Production of Crude Oil. — Before 1870 all the crude petroleum
was obtained from surface pits, dug by hand3 and rarely more than
50 feet deep. In that year boring according to the American
system was first tried, and a hole was drilled to a depth of 20
sajens, but had then to be abandoned. However, this new system
was further employed and with better success, and we find in 1872
two boreholes in operation ; in 1873, 13 ; in 1874, 26 ; in 1875, 35 ;
in 1872, 62 ; and in 1887, even 216. Although in those days the
diameter of the tubing was very small, boring proved very profitable,
as in many cases the new wells produced from 3,000 to 10,000 poods
of oil in twenty-four hours. But these successes of the boring
operations also had quite adverse economic results, for the desire for
fountains became so fascinating that most of the producers
feverishly tried to drill as deep as possible, leaving the upper strata
unexploited, and then the abundance of fountains resulted in many
cases in the actual loss of oil and damage to neighbouring properties.
Also, there was occasionally an over-production of crude oil, with
consequent fall of prices.
In 1873, Robert Nobel arrived on the scene in Baku, and to his
enterprise and technical genius a great deal of the subsequent rapid
development of the industry is due. This development and general
awakening of enterprise is best reflected by the number of boreholes
in operation during the periods mentioned, as follows : 1893, 458 :
1894,532: 1895,604: 1896,734: 1897, 917: 1898,1,107: 3899,
1,857: 1900,1,710: 1901,2,036: 1902,1,967: 1903,1,982: 1904,
2,171 : 1905, 2,162 : 1906, 2,149 : 1907, 2,511 : 1908, 2,668 : 1909,
INDUSTRY AND ITS IMPORTANCE. 9
2,818: 1910,2,026: 1911,3,065: 1912,2,412: 1913,2,670: 1914,
2,541.
The aggregate depths of drilling executed during each year of the
same period were : 1893, 10,986 sajens : 1894, 12,859 : 1895,
20,762 : 1896, 28,125 : 1897, 39,847 : 1898, 57,515 : 1899, 81,832 :
1900, 83,140: 1901, 75,788: 1902, 40,390: 1903, 49,355: 1904,
62,354: 1905,35,666: 1906,48,110: 1907,61,253: 1908,56,793:
1909, 51,803: 1910, 48,436: 1911, 44,864: 1912, 53,554: 1913,
64,285: 1914,51,086: 1915, not recorded : 1916,4,300.
A comparison of the yearly drillings with the corresponding pro-
ductions shows, as it was to be expected, that in order to maintain
and increase the production, the wells had to be sunk to greater and
greater depths. In 1910, of all the producing wells, 885 were at a
depth of from 250 to 800 sajens, 117 from 300 to 350, and 27 of
oyer 350 sajens. Of course, at such depths boring operations are
very slow and expensive. A well costs 100,000 to 150,000 roubles,
and cannot be finished in less than two or two and a half years.
The enormous falling-off in the drilling during 1916 is accounted
for by the difficulty of obtaining the requisite materials and tools,
and their enormous price.
The production of petroleum in Caucasus since the beginning of
this century was as follows (in millions of poods) : 1901, 707-2 : 1902,
672-5 : 1903, 631-1 : 1904, 657-1 : 1905, 453-1 : 1906, 490: 1907,
518: 1908,528: 1909, 531: 1910,582: 1911,557: 1912,566-6:
1913, 559 : 1914, 557 : 1915, 572 : 1916, 603 : 1917, 584 (esti-
mated).
The number of firms engaged in the production during the same
period was: 1901,185: 1902,182: 1908,185: 1904,179: 1905,
169 : 1906, 170 : 1907, 189 : 1908, 185 : 1909, 192 : 1910, 198 :
1911, 191. These figures are fairly stationary, and the firms in
question can conveniently be divided according to their relative
importance into five groups, viz. :
(1) 7 firms with an average yearly production of over 20 million
poods each ;
(2) 5 of over 10 million ;
(8) 11 from 5 to 10 million ;
(4) 20 of from 2 to 5 million ; and
(5) 135 less than 2 million poods each.
From the middle of the year 1912 a very serious process of con-
centration of the large and middle-sized producing firms began, and
towards the end of 1913 the following grouping ensued :
I. The Shell Group, including: The Caspian and Black Sea
Co., Soutchastniki, Kavkas and Schibaieff, produced 50'8 million
10 GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
poods, or 11 '8 % of the total production of the four older Baku
fields and Surakhani.
II. General Russian Corporation, including : Aramasd, Bala-
khany Co., Apsheron Co., Quarnstrem, Grassilnikoff Successors,
Lianosoff, Mantacheff, Mansuetoff, Moscow-Caucasian Co., Naftalan
Co., A. C. Melikoff, Melikoff & Makhmuroff, Tiflis Co., and
Shikhovo Co. This group produced 55-1 million poods, or 12-8 %
pf the total output.
III. Nobel Brothers produced 61-2 million poods, or 14-2 % of
the total output.
IV. The 165 remaining firms, each working separately, pro-
duced 253 million poods, or 58-8 % of the total.
As shown above, the first three groups produced 41-2 % of the
total output of the Caucasus, and if they should unite, they would
not only control the production, but also the sale of the products.
So far no signs of trusts have appeared yet, although there are
many cases of joint contracts being entered into. In order to show
the relative importance of the different Russian fields, I give the
following rough figures of their output during 1915-6 (in millions
of poods) :
1915. 1916. 1915. 1916.
Baku 451 379 Maikop 8 3
Grozni 88 102 Emba 17 15
Tcheleken ... 3 3 Fergana ... 2 2
The most recent figures of the average daily production in Baku
are 1915. 1916. 1917, Jan. -Feb. 1917, March.
940,000 906,000 803,000 758,000 poods.
The prices of crude oil in Baku were (in kopeks per pood) :
1906.
1907.
1908.
1909.
1910.
1911.
1912.
January ...
18-1
23
24-6
19-2
18-55
14-14
28-4
February ...
22-2
24-4
25-6
20
18-65
15-47
31-0
March
24
25-2
26
21-6
17-48
16-8
34-4
April
23-9
25-8
24
2]'3
16
17-43
32-7
May
23-5
28-6
23-2
21-2
15-1
18
34-56
June
24-2
27-4
22
21-7
14-9
20-1
35-9
July
25-5
28-3
20-9
21-9
14-4
22-5
35-6
August
26-7
28-5
21-1
21-5
14-3
24-76
36-35
September..
26-7
29
21-2
20-9
14
26
36-2
October ...
24
25-4
20-9
19-4
14
22-76
36
November...
22-3
24-5
19-4
19-6
14
22-12
36-5
December...
22-6
24-9
18-9
18-5
13-8
23-58
37-0
Average... 23-8 26'7 22-5 20-5 15-48 20-65 34-55
INDUSTRY AND LTS IMPORTANCE. 11
1913. 1914. 1915. 1916. 1917. 1918.
January 37-5 SO 30-2 48-6 45 96
February 37-5 27-75 28-5 46 55 96
March 37'9 41-5 37-6 45 61
April 39-5 38-1 41-3 45 65
May 39-4 35-1 41-5 45 65
June 40-4 44-7 41-25 49 60
July 45-6 47-3 47 45 60
August 52-9 42-5 47-1 45 60
September ... 53-0 39-5 41 45 60
October 46-6 29-4 41-6 45 96
November ... 43-9 24 44-6 45 96
December... . 38-6 28-3 53-2 45 96 —
Average 42-7 35-7 41-2 45-7 68 96
As these figures show, the prices of the crude oil vary considerably
from causes which can mostly not be controlled by the producers.
But in a general manner these variations do not much affect the
trade, and if in any year the market is low, the deficiency will soon
be recovered, as happened, for instance, in the years 1910 and 1911.
Since March, 1916, the prices have been officially fixed by the
Government, but this legal maximum is not maintained in practice,
and a premium of 19^ kopeks per pood was, for instance, paid in
February, 1917, and this increased to 29 kopeks per pood above the
official figure in March of the same year.
In normal times the profits on the sale of the crude oil fluctuate
between 13 and 18 %, so that the business is quite profitable. The
percentage varies according to the strength of the firm in question ;
the big houses are of course better able to protect themselves
against expected market fluctuations, and to secure favourable
conditions by acting together. Such was the case in 1910, when
the price of masut in Baku was from 32 to 35 kopeks per pood,
while in Moscow it reached 60 kopeks. This figure forced the
factories in that district to abandon oil fuel, and fall back upon coal,
the price of which was then 18 kopeks per pood.
II. Refining. — The first illuminating oil produced in Baku was
distilled from the oil-impregnated sand, called " Kir," from which
some 15 to 20% of oil were extracted in 1860. The process used was
very defective, and there was no regular market for the product, so
that the enterprise collapsed.
A new era started with the visit of the celebrated Professor
Mendeleeff, who suggested many improvements in the technics of
12 GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
the distillation and refining of the products. Many othe* chemists
also worked at the solution of the numerous problems connected
with the industry ; crude oil was introduced in place of the oil sand
as raw material, the use of sulphuric acid was begun in the refining
process, and slowly the product was improved and brought nearer
to the standard of the American kerosene.
In 1872 there were in the Baku district about 57 distilleries, but
their business was most irregular, and work was often suspended,
so that they produced only about 2,400 poods of kerosene and 2,860
poods of lubricating oil. At first the distillation had been effected
by means of small retorts or closed vessels, which had to be
reopened after each operation, thus causing a great loss of time
and fuel. In 1875 a continuous system was patented, which was
then improved by Nobel, and by which alone the production could
have reached its present enormous figures. In 1876 the number
of refineries established in Baku amounted to 140. They were
mostly erected in the centre of the town, or near it, and made it
nearly uninhabitable by their smoke and refuse, which flowed into
the streets and the harbour. A special district was therefore
selected, to which all had to remove, and which forms now what
is properly called " The Black Town."
One of the great difficulties of the industry in its beginning had
been the necessity of sulphuric acid, which had to be brought from
Europe at great expense. In 1883 Nobels built a factory for its
production on the spot from Caucasian pyrites, mined in the
neighbourhood of Alexandropol, and other factories for the same
purposes and for the regeneration of the acids have since then been
established. The installation of the present great number of
refineries has also in its turn given rise to a multitude of other
auxiliary mechanical and industrial works.
Officially the refineries are divided into three categories according
to their products, viz : — (1) kerosene ; (2) benzine and goudron,
and (8) lubricating masut. It is difficult to draw a strict line
between them, but the relative numbers in all Kussia were :
1893. 1894. 1895. 1896. 1897. 1898. 1899. 1900.
Cat. 1. 95 92 92 95 95 98 75 80
„ 2. 23 19 22 27 20 19 20 17
„ 8. 59 54 55 50 46 58 50 40
Total 177 165 169 172 161 175 145 137
In 1897 there was a decrease in the number of refineries, owing
to the liquidation of the Union of Refiners, and to other conditions
INDUSTRY AND ITS IMPORTANCE. 13
of the industry. At first kerosene was the principal product of the
refineries, and was exported abroad in large quantities, while the
residues of the distillation were burnt, with their valuable con-
stituents. Only later the latter were also extracted, to the great
advantage of the factories, and now they form a valuable source of
profit.
The following list shows the proportion of factories producing
chiefly the various substances :
1906. 1907. 1908. 1909. 1910. 1911. 1912.
kerosene ... 59 59 54 54 43 39 10
lubricant ... 17 17 19 17 16 14 9
solar oil ... 2233331
benzine ... 1 1 2 2 2 2 3
residues ... 5 6 6 7 6 5 3
paraffin ... 1111112
85 86 85 84 71 64 28
Nearly all the petroleum produced in the Caucasus is refined in
that region. The refineries existing in Nijni-Novgorod, Moscow,
Petrograd and Riga, distil only about 10 or 12 million poods per
annum.
In calculating the cost of the refining operations we have to take
into consideration as a basis the cost of the crude oil delivered at
the refinery, the fuel, for which often the residues of the distillation
are used, the cost of chemicals, administration and labour and
general expenses.
The following table shows the lowest and the highest prices
(in kopeks per pood) of kerosene in Baku delivered in tank-cars on
railway or f.o.b. the steamers in the port, for the years mentioned :
In Tank-cars. F.o.b. Steamers.
1906 23-6—39-2 21 —41
1907 26-7—48-1 26-8 —44-3
1908 24-9—30-7 24-6 — 34<2
1909 24-4—32 23-9 —32
1910 17 —28-5 15-7 —28
1911 19 —34-1 18-66—33-58
As an indication of the propositions of the various articles
produced by the Baku refineries, we give herewith the list for
April, 1916. Their total production amounted to 23,848,900
poods, composed as follows :
14 GHAMBASHIDZE I THE CAUCASIAN PETROLEUM
Illuminating oils (kerosene, pyro-
naphtha and astral oil) 5,874,900 poods.
Lubricating oils (spindle, machine,
cylinder, vaseline, viscosine) ... 980,500 ,,
Solar oils, light and heavy 514,000 „
Benzine 101,300 „
Naphtha residues 13,585,000 „
Paraffin ... 6,800 „
Other products (gasoline, goudron, oil
residues, lubricating masut, etc.) ... 2,786,400 „
III. Transport. — In the early stages of the industry the trans-
port conditions were very primitive. The crude oil was carried
from the wells in skins and barrels loaded on carts or camels, and
Nobels were the first to lay a pipe-line to their factory. Later on
pipes were laid between the factories and the port. These obvious
improvements met in the beginning with fierce resistance from the
workpeople. The transport of the finished products to the con-
sumers was equally difficult. There was then no railway from Baku
to Tiflis, and the only way to the Black Sea was thus shut off. On the
other side the navigation on the Volga was only possible during six
months of the year, and the monopoly of the Steamship Companies
Mercur and Kavkas on the Caspian Sea imposed high rates on the
Baku products. Improvements were again due to the Nobels, who
built the first cistern wagons for transporting the oil on the railways,
instead of using wooden barrels, which were often unsatisfactory.
In order to open an outlet on the Black Sea, Nobel Brothers
constructed in 1889 a pipe-line from Mikhailovo to Kvirili over
the Suram Mountain, which forms the most difficult part of the
railway between Baku and Batum. The transport by the railway,
which was now available, was very unsatisfactory, principally
owing to the configuration of the country, as the line was often
flooded, which caused interruptions of the traffic for weeks and
even months at a time. The idea of replacing it by a pipe-line for
the transport of the oil was therefore natural, and a project had
already been formed in 1882. But its execution met with great
delays, and the western part of it, from Mikhailovo to Batum, was
only ready in 1890, while the portion from Baku to Mikhailovo
began to work only in 1906. The whole length of the pipe-line
from Baku to Batum is about 560 miles, and requires 19 pumping
stations. The diameter of the pipe is 8 in., and it has a capacity
of 60 million poods per year. Its cost was 25 million roubles.
The quantities of oil thus transported were : — In 1900, 21,490
thousand poods : 1901,59,162; 1902,56,495: 1903,52,780: 1904,
INDUSTRY AND ITS IMPORTANCE. 15
64,695 : 1905, 19,543: 1906, 21,760: 1907, 26,570: 1908, 27,674:
1909,19,788: 1910,26,425: 1911,23,630: 1912,22,000.
Since the closing of the Dardanelles the pipe-line has been partly
idle, and was then used for tfce transport of kerosene distillate for
fuel, and even for crude oil. The charge for pumping oil from
Baku to Batum was 13 kopeks per pood, while the railway charged
16 kopeks per pood on oil to be exported, and 26 kopeks per pood for
that destined for consumption in Russia.
While this pipe-line is now more than sufficient for the transport
of the Baku products to the Black Sea, the trade has at its disposal
on the Caspian Sea a considerable number of steamers and sailing
vessels adapted for it, as the following list shows :
No. of
Capacity
No. of
Capacity
Steamers.
Cub. ft.
Sailers.
Cub. ft.
1906
131
5,294,774
140
2,886,841
1907
129
5,230,246
144
2,792,719
1908
129
5,225,100
142
2,764,849
1909
127
5,200,245
145
2,846,982
1910
120
5,239,409
150
2,993,653
1911
121
5,011,191
147
2,899,687
1912
118
5,518,664
60
1,755,034
In 1912 the transport of petroleum products formed 37 % of the
whole traffic on the Volga, and 5 % of the total traffic on all the
Russian railways. The means of transport used at present for the
Baku products are shown by the quantities forwarded during April,
1916:
By Transcaucasian Railway 2,553,200 poods.
to Batum 1,019,500 „
„ Vladicaucas Railway 531,700 „
„ Sea to Astrakhan 43,818,500 „
„ Petrovsk 304.900 „
„ Transcaucasia 773,700 „
„ Persia 247,600 ,
., Other ports 421,000 „
Total 49,670,100 poods.
Of the other producing centres Grozni sends a part of its crude
oil to the refineries in Novorossisk, whence the light oils are
exported, while the residues, which amount to about 16 million
poods per year, are pumped to Petrovsk on the Caspian Sea by pipe-
line, and there shipped by steamer to Astrakhan and Central
Russia. The Maikop production goes for refining mostly to
Ekaterinodar, and is consumed locally.
16 GHAMBASHIDZE I THE CAUCASIAN PETROLEUM
IV. Distribution. — (1) HOME MARKET. — This market is of the
highest importance to the Baku industry, and even more so to the
whole country, as heating and lighting materials are generally scarce,
and especially coal, which is indispensable in many industries,
labours under great and chronic difficulties of transport. As the
export trade has considerably diminished, specially since 1905, and
in consequence of the American competition, the home market has
easily absorbed by far the greatest part of the production, and the
consumption can only increase in the future as new manufactures
will be created in the country.
For this reason the Government had in 1916 worked out a plan
for the distribution of the available illuminating oil, which is
estimated at 60,392,000 poods. Of this quantity the following
apportionment between May, 1917, and May, 1918, was :
The Railways 5,394,000 poods.
Petrograd District 7,798,000 „
Petrograd Central 10,640,000 „
Southern District 8,115,000 „
Volga „ 4,450,000 „
Kieff „ 5,313,000 „
Odessa „ 2,556,000 „
Rostoff ,, 5,105,000 „
Caucasus „ 2,370,000 „
Ural „ 2,003,000 „
Siberia „ 2,816,000 „
East Siberia „ 563,000 „
Far Eastern „ 277,000 „
Turkestan „ 2,943,000 „
Only 6^ million poods can be directly transported by water to
the centres of consumption, while 40 million poods will be carried
by sea to the Volga ports, there to be reloaded on the railways, and
the rest will be carried by railway only direct from the factories to
the consumers.
As to fuel oil, even much larger quantities have in the last few
years been shipped to the Volga ports for distribution in the
interior of Russia, viz. : 1913, 77,035,100 poods; 1914,75,024,200;
1915, 102,799,400. The great increase of 1915 is due to the dis-
turbance of the coal production by the war, and the urgent
necessity of obtaining fuel from other sources. The consumption
of the immediate neighbourhood of the producing centres is in
itself not inconsiderable. Baku, for instance, uses from 10 %
to 15 % of its production of crude oil as fuel, although this
quantity is gradually decreasing, as electric energy and fuel-
INDUSTRY AND ITS IMPORTANCE.
17
saving engines are being introduced. The whole of the Caucasus,
and especially the Transcaueasian Railway, used in 1912
15,000,000 poods, and the Vladicaucas Railway 17,000,000.
The home trade in kerosene was in Russia subject to Government
Control, and to an Excise Duty, of which more will be said later.
The storage of the oil coming from the factories has given rise to
quite an important Government control, thus :
1901. 1902. 1903. 1904. 1905. 1906.
No. of Storages 71 64 69 60 69
„ „ Reservoirs 340 290 327 255 365
Quantities stored 38,681 44,928 43,828 30,087 53,354 pds.
The relative proportion of the various petroleum products in
Caucasia was as follows :
Solar.
537
1,280
3,821
3,050
2,037
The stocks held in Baku on January 1st of the respective years
(in poods) :
1913.
21,254,634
31,163,920
10,149,010
2,130,061
890,607
2,233,015
Kerosene. Lubricating.
1901
135,631
16,788
1902
128,150
16,984
1903
154,921
19,984
1904
162,150
19,800
1905
80,509
13,584
Eesidues.
Others.
Total.
329,364
1,951
484,071
383,136
2,870
512,414
324,436
2,736
564,898
330,665
1,937
517,692
292,656
1,860
390,646
Crude
Residues
Illuminating...
Lubricating ...
Benzine
Solar Oils, etc.
1912.
15,174,212
29,824,676
8,196,998
2,008,878
311,606
2,129,368
1914.
17,338,297
25,358,896
9,157,302
2,131,730
1,056,899
2,084,949
1915.
30,000,000
41,886,800
11,209,600
2,070,600
1,523,200
1,960,300
57,645,738 67,821,247 57,128,073 88,650,500
(2) EXPORT TRADE. — It may seem strange that the products of
the Baku petroleum industry should, from the very beginning, have
been almost exclusively utilised for the export trade, and not for the
home consumption. One of the chief reasons for this anomaly was the
fact that Baku was far distant from the chief distributing centres
of the Empire, and had practically no railway connection with them.
Also, the Government was fostering the export trade from its
initial stages. It released the export goods from the Excise Duty,
and even encouraged the exporters by a special export premium of
4 %. The export for foreign countries was chiefly concentrated in
the Black Sea port of Batum, whence the goods were shipped to
the countries of Western Europe, Africa and the Far East. The
18 GHAMBASHIDZE I THE CAUCASIAN PETROLEUM
export through the Caspian Sea to Persia was of comparatively-
small importance.
The Transcaucasian Railway and the pipe-line to Batum were
really the makers of this export trade, and at the same time gave
to the port of Batum a considerable increase of activity and
importance. About 100 huge tanks were erected there for storing
the oil brought from Baku by rail and by the pipe-line. Then
about 10 special factories were started for the manufacture of tin
cans and wooden cases, which, in the beginning, were the usual
mode of packing of the oil for export, each case containing usually
2 cans of 4 gallons each of petroleum. This packing required
a great deal of work, and occupied a great number of men
and important installations of modern machinery. Rothschild's
factory, which was installed in 1892, was the most important, and
could produce and fill 36,000 tins per day, and pack them into the
respective wooden cases. This factory occupied about 1,400 hands,
and had 28 iron tanks of its own. The export of such cases from
Batum amounted to 2,276,512 cases in 1910, and to 1,400,000 cases
in 1912. Two-thirds of the entire export of the port of Batum
consisted of petroleum products, and the port had no competition
to fear from the other Black Sea ports, as for instance to the port
of Novorossisk, the railway tariff on petroleum products was
7j kopeks higher than on the Transcaucasian Railway. But from
the beginning, the Baku exporters had to face the American com-
petition on the foreign markets, and this, after some time, became
too strong for them, as they were not organised. Nobel Brothers
attempted to unite the representatives of the industry, but their
attempt failed, as everybody was suspicious. The firm of
Rothschild adopted a different attitude. They entered into con-
tracts with various producers, and accepted their products for sale
on commission. In October, 1898, the Government summoned a
conference of Baku industrials to Petrograd. This was attended
by men representing 60 % of the entire industry, and they
endeavoured to combine the organisation of export. An agree-
ment was reached, and Nobel Brothers and Rothschild were
appointed as representatives for the interests of all the exporters.
The same firms were also empowered to enter into an agreement
with the Standard Oil Company for the purpose of dividing the
world's markets, which agreement came into force on February 19th,
1894. In March of the same year the Transcaucasian Railway
lowered its tariff from 19 kopeks to 14 kopeks per pood, and in
July further to 9 kopeks per pood. This measure had a most
beneficial effect, and increased the exports. But the Union did
INDUSTRY AND ITS IMPORTANCE.
not live long, and was wound up on October 1st, 1897. The Baku
industrials had unfortunately failed to understand their interests,
and to follow the lead of such up-to-date firms as Nobel Brothers
and Rothschild.
During the above epoch the chief product of export was illumin-
ating oil, and it was principally directed to Turkey, Egypt, Persia,
India, Indo-China, China and Japan. The following amounts are
(in millions of poods) :
1893. 1894. 1895. 1896. 1897. 1898. 1899. 1900.
To Europe ... 22 20 22 19 18 23 30 82
To the Far East 28 23 29 33 34 33 39 43
Eastward per-j ^ Q^ 6Q ^
centage . . . )
In spite of this activity the export trade was not properly
organised, as the Baku industry had no direct connection with
the various markets, and had to rely upon intermediaries and
dealers, who had the trade in their hands both in Europe and
abroad. The lack of a commercial fleet under the Russian flag
was also a great disadvantage, as it enabled the foreign buyers to
profit by the freights. Practically the entire export was then in
the hands of the big firms like Nobel and Rothschild, who con-
trolled it in their own interests. The export of petroleum products
through all ports and Custom houses of the Empire was as follows
(in thousands of poods): 1901, 18,227: 1902, 91,237: 1903,
95,528: 1904,119,115: 1905,51,988:1906,47,941:1907,44,792:
1908, 50,281 : 1909, 48,512. The total exports from Baku alone
amounted to in 1913, 371 : 1914, 322 : 1915, 385 : 1916, 409 millions
of poods.
The total of 1916 comprises the following details : kerosene,
61,900,000 poods : lubricating oil, 7,500,000 : residues, 271,800,000 :
crude oil, 63,700,000: solar oil, 1,900,000: benzine, 1,100,000:
other products, 900,000: total, 408,800,000 poods. Of these
quantities there were forwarded by sea to Russia and Persia,
366,400,000 poods: by rail to Russia, 38,400,000: by road,
4,100,000. The consumption of all products of the industry in
home and export trades is approximately as follows, in million
poods and percentages :
20 GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
1. As fuel in Baku district 100 or 18-5 %
2. ,. „ on railways 120 „ 22-2%
„ „ in industries (including 30 million
poods burnt in internal-eombustion
engines) 120 „ 22-2%
„ „ by Caspian and Volga Steamers .'.. 60 „ 11-1%
3. „ „ illuminating oil in Russia ... ... 75 „ 13'9%
„ „ „ „ exported abroad ... 30 „ 5-5%
4 „ lubricating oil in Russia ... ... ... 7 ,. 1*3%
,. ,. „ exported abroad ... ... 13 „ 2-4%
5. „ other products (chiefly benzine) in Russia 5 „ 1-0 %
exported abroad 10 ,. 1'9%
540 „ 100%
There is a marked decline in the export figures since 1905,
which coincides with the troubles in Baku, although these difficulties
were not the principal cause of it. The exports to England, France,
Holland, Belgium and Germany had declined considerably, but
of decisive importance was the loss of the Indian, Chinese and
Japanese markets, which had absorbed nearly 70% of the whole
exports. The decline of the export had a very damaging effect on
the development of the industry, and more particularly on that of
the port of Batum, as it coincided with the gradual introduction of
the tank-steamers, which to a great extent superseded the former
mode of shipment in cases. Most of the case factories had to be
closed, and the workmen dismissed. At the same time the receipts
of the Transcaucasian Railway and of the pipe -line diminished in
proportion with the traffic, and the latter specially had to content
itself now with only a small proportion of the transport for which
it had been built.
(3) AMERICAN AND OTHER FOREIGN COMPETITION. — In the early
sixties the first cargo of American kerosene was imported into
Russia, about 100,000 poods, and this caused more attention to be
paid to the production of Baku. In 1872 the imports had already
increased to about 1,630,000 poods, and from this time America
became the most serious competitor with Russia. The particularly
favourable geographical position of Pennsylvania, being connected
with the Atlantic by a net of railways and pipe-lines, and having
direct connection with the commercial centres of the world, and
'its own fleet, had a great deal to do with this success.
While the freight from New York to Kronstadt was about 30
kopeks per pood, it amounted to 35 kopeks for the journey from
INDUSTRY AND ITS IMPORTANCE. 21
Baku to Nijni-Novgorod. The American industry had also at its
disposal great and cheap credit facilities, which was not the case in
Baku, and added to this, Baku had to pay excise duty to the
Government long before the goods were sold — in short, there were
no restrictions on the trade in the United States, whilst the Govern-
ment regulations in Russia were very onerous.
Also, owing to its chemical composition, and to better methods of
refining, the Pennsylvanian petroleum gave 75% of illuminating
oils, while that of Baku only contained 33 %, so that, altogether,
the two industries had to develop under diametrically opposite
conditions. The effect of these combined facilities showed itself in
the production, which in Texas, Louisiana, Indiana, Kansas and
California reached 260 million poods in 1901, 485 in 1903, and
761 in 1905.
Further serious competition then arose also in other directions.
In the early nineties petroleum began to be produced in Galicia and
Rumania, and these two countries soon squeezed the Russian
product out of the German and Austrian markets. An industry
also sprung up in the Dutch Indies and in Burma, and supplied
the vast Eastern market which had been of such great importance
to Baku.
For comparison of the recent and present relative importance
of the principal producing countries, the following table shows
production in barrels of 42 gallons :
1914. 1915. 1916. • 1917 (estimated).
United States .. 265,762,533 281,104,104 300,767,158 341,800,000
Caucasia .. .. 67,020,522 68,548,062 72,801,116 70,000,000
Mexico .. .. 21,188,427 32,910,508 39,817,402 60,000,000
Dutch East Indies .. 12,826,579 12,386,808 13,174,399 14,500,000
Kumania .. .. 12,705,208 12,029,913 10,298,208 11,000,000
Galicia .. .. 5,033,350 4,158,899 6,461,766 5,000,000
V. Labour. — Towards the close of the nineteenth century, the
industrial district of Baku became a great centre of accumulation
of labour. Workmen came to that city from four different sources :
from the Volga district, where it is the usual thing for the peasants
-to go for extra earnings during the autumn and winter months ;
from the Transcaspian district ; from Persia, where there is an
abundance of very cheap labour, and from the Caucasus. According
to nationalities they may be divided into Russians, Tartars,
Armenians, Persians, etc. There is a great difference in these
various elements, in the way of their productivity, standard of life
and traditions, and whilst such a mixture makes them difficult to
handle, there is on the other hand an advantage in this point that
it has taken them a long time to unite. Until 1903 there were
22 GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
practically no strikes in the district, but in that year, when strikes
occurred all over Russia, partly for political and partly for economic
reasons, Baku was prominent in this movement.
It must here be mentioned that the difficulty of the labour move-
ment in Russia, especially as far as it affects the interests of
industry, has always had the following peculiar basis, that whilst in
Western Europe, like Germany, Austria, France, Great Britain and
America, strikes have chiefly been organised by the Trade Unions,
and for economic reasons, in Russia, labour strikes have always
been promoted and utilised by Socialistic parties for political
reasons, at least as long as there were no Trade Unions in the
country. Consequently in all the strike movements the police
immediately interfered, not recognising either economic or political
reasons, and considering strikes as an unlawful method of activity.
This interference, with few exceptions, was a factor rather aggra-
vating than improving the relationship between masters and men,
very often prolonging the strikes and causing even bloodshed.
Such interference on the part of the police was without exception
looked upon unfavourably by the masters, who preferred to deal
themselves with the strikes of their men. The Armenian -Tartar
massacre of 1904, in conjunction with the revolution of 1905,
endangered the position of the industry enormously, and the
Government absolutely failed to arrive at a satisfactory settlement.
In 1906 the first attempts were made to organise Trade Unions in
the Baku district, and considering the very difficult situation, they
have been rather helpful in ameliorating the unhealthy state of
affairs. A special Council of the Petroleum Industrials also actively
assisted in settling the labour question, and at a special conference
with the Ministry of Commerce and Industry in Petrograd a labour
delegation from Baku was invited to participate, and present their
views of labour. As far as the economic grievances of the working
men go, they had not much to complain of, compared with other
industrial districts of Russia, as a considerable reduction of working
hours, and increased wages, were introduced.
One of the most ridiculous demands of the workmen was the
so-called " nagradnya " (bonus), which had unfortunately been
introduced by some firms which made good profits. In conse-
quence, all the workmen began to demand it, not caring about the
crisis through which the industry was passing. The ignorance of
the leaders of the men was appalling. Had they been acquainted
with the condition of the industry, and with the fact that foreign
competition had nearly stopped the export trade, they would not
have embarrassed the capitalists with the strikes, thus adding to
INDUSTRY AND ITS IMPORTANCE. 23
their difficulties, and killing the goose that laid the golden eggs.
It must be mentioned here that the Council of Petroleum Industrials
had constructed very up-to-date and healthy places of amusement for
the workers, and that the hospitals provided for them were established
on quite modern lines and exceptional in the whole of Russia.
Unfortunately, as already mentioned, one of the chief difficulties
in dealing with labour has always been the clashing of political and
economic aspirations, and it may confidently be hoped that after
this war one of the reasons, especially political, will be disposed of,
and that properly-organised Trade Unions, with a better under-
standing between masters and men, will be possible.
In 1913 the number of workmen and officials directly engaged in
the Petroleum Industry in the Caucasus was about 60,000, out of
which about 46,000 were connected with the Baku fields, viz.,
42,105 in the production, and 3,925 in the refineries, pipe-lines and
docks. In the Grozni district there were about 7,200 men engaged
in the production, and 372 in the refineries, total 7,572. Maikop
occupied 1,270 men in the production, and 74 in the refineries, total
1,344. The refineries in Novorossisk employed about 134 men, and
the pumping station in Batum 363.
According to nationalities the workmen were divided as follows :
Tartars and Persians, 21,488, or 54-3 % : Russians, 9,123, or 23-1 % :
Armenians, 7,704, or 19-4%: Georgians, 1,236, or 3-2%.
According to occupations the relative numbers work out in the
following proportion : administration, 6*6 % : foremen, 14-3 % :
mechanics, 4-2 % : skilled workmen, 36-9 % : unskilled labourers,
27-8% : apprentices, 1-0 % : other workers, 9-2 %.
In Baku itself the numbers of men employed in the Oil Industry
amounted to 46,439 on September 1st, 1915, and to 48,526 on
September 1st, 1916.
The latter were distributed in the different branches as follows :
petroleum production, 31,199: boring, 8,812 : mechanical workshops,
3,714 : refining, 4,801 : total, 48,526 men.
In 1909 the 8 hours working-day was introduced for the men
working at the wells, and 9 hours for those in the shops. Housing
is provided for 71 % of all the officials and workmen by their
employers ; 22 % of them are paid lodging-money, while the re-
maining 7 % are not specially provided for.
In 1910, on account of the crisis, about 27 % of the men lost
their occupations, but in 1912, with the renewal of the industry,
their number increased again, and kept on increasing until 1914.
Wages were increased by 20-25 % in 1913 after the strikes, and
since the war began, have been further advanced very considerably.
24 GHAMBASHIDZE I THE CAUCASIAN PETROLEUM
VI. Association of Petroleum Industrialists. — The petroleum indus-
trials of Baku, Grozni and Maikop are organised in several
associations for protecting the interests of their industry. The
most important of them is the Baku Association, founded in 1889.
Originally its functions were very modest, but at present it has
grown into a very important organisation. In 1914 its budget
amounted to Bbl. 2,704,875. The following were the items of its
expenditure :
1. For medical aid Bbl. 860,000
2. „ education „ 248,000
3. „ road construction ... ... ... „ 181,000
4. ,. collection of statistics and publications „ 70,000
5. „ collection and sale of oil otherwise lost
on the roads... ,, 57,000
6. „ drainage and lighting „ 52,000
7. „ maintenance of the police force ... „ 587,000
The income of the Association is derived from the following
sources : the basis is a payment of | kopek per pood of crude oil
produced in the whole district, which, for the convenience of
levying, is divided as follows :
For each pood delivered to the pumping station 0-29 kopek.
„ „ pumped to the refineries ... 0'06 „
., „ „ of petroleum pumped from Bibi-
Eibat to the refineries ... 0-35 „
„ „ of crude oil transported from
Bibi-Eibat 0-50
„ .. „ of crude oil transported from
• refineries 0-15 „
„ „ „ of kerosene transported from
refineries 0-2625
„ „ „ of residue and goudron ... 0'13125 „
An important revenue is also obtained from the sale of oil
collected on the roadways which would otherwise be lost and a
nuisance; the amount realised from this source amounted in 1914
to as much as Rbl. 459,000. Substantial sums were also derived
from payments for medical assistance given to people not directly
connected with the industry.
Membership of the Association is restricted to those engaged in
the production, refining and pumping of the petroleum. In order
to have voting power at the general meetings the firms must have
a production of petroleum of 100,000 to 500,000 poods, refining
100,000 to 200,000 poods, or pumping from 1 to 2 million poods per
INDUSTRY AND ITS IMPORTANCE. 25
annum. One additional vote is allowed in case the production is
over 1 million, refining over 400,000, or pumping over 4 million
poods per annum. A further additional vote is granted in case of
the production being over 2 million poods, refining over 800,000
poods, or pumping over 8 million poods.
The Council of the Association is composed of nine members,
elected for a period of three years. Their work is honorary and
consists of supervising, but the actual management is confined to
the Executive Council, which is composed of the Chairman, of the
representative of the Council with the Government, of the Financial
Adviser, and three members — one of them managing the medical,
the second the technical, and the third the educational departments.
The Department of Medical Aid includes : six ambulances,
apothecaries, two hospitals with 440 beds, 40 doctors, 120
midwives, nurses, dispensers and other staff, and 252 servants. In
1914 the hospitals recorded 412,660 visits ; 23,609 patients were
visited by doctors at their homes. The Educational Department of
the Association maintains 9 schools with 57 branches, 79 teachers
and 2,386 pupils. The children of the workmen are taught
gratuitously, and besides this four large libraries are maintained for
the men themselves. Altogether the work of the Association is
very beneficial for the industry and for those engaged in it.
VII. Ownership of Land. — (1) CROWN PROPERTIES. — With the
abolition of the Concession System and the Crown administration
in 1872, and with the admission of private initiative, the real
development of the industry was made possible. At the time of
the winding-up of the Concession system the Baku industrial area
consisted of 480 desiatines (1,296 acres). The area was divided
into 48 groups of 10 desiatines (27 acres) each. 46 groups were
offered for auction to private people, and only two groups were
reserved, being subject to litigation between the Crown and private
persons. The 46 groups realised at the auction a total of
552,221 roubles. Outside of this area there were still some Crown
properties for which claims were given until 1896 for 10 roubles per
desiatine, and after 1896 for 100 roubles. In 1892 a special Law
was issued regulating Crown properties. They were divided into
two categories, those for investigation, those already proved. In
1896 an additional 70 desiatines (188 acres) were put up to
auction. The system of auctions became very popular and at the
times announced for them there was always great liveliness and
speculation in Baku. From 1896 to 1906 Crown lands were also
obtained without auction, but against royalty, which very often
amounted to 40 % of the gross production.
26 GHAMBASHIDZE I THE CAUCASIAN PETROLEUM
Between 1896 and 1911, 1,212 desiatines (572 acres) were disposed
of without auction ; 38 desiatines of them against a special tax per
pood of oil produced, and 176 desiatines against royalty. In 1912,
the Crown lands under exploitation amounted to about 395 desia-
tines (1,066 acres). In May, 1913, further auctions were held, but
their results were not confirmed by the Government. Those held
in May, 1914, were more successful and an area of 152 desiatines
(410 acres) was handed over to the lessees under varying conditions.
(2) PRIVATE PROPERTIES. — As far as oil lands in private owner-
ship are concerned, they are usually exploited on the basis of
royalties varying between 25 and 30 %. With the decrease of the
export business, the necessity for increasing the exploited area has
much diminished, the more so as many other plots outside of Baku
have been taken up for exploitation, and it is certain that the Baku
industry will not experience any land-hunger for a considerable
time to come.
In 1914 there were in the Baku area under exploitation 1,008
square desiatines, 968 square sajens (2,709 acres) of petroliferous
lands, composed as follows :
(1) Private property, 324 desiatines, 2,093 square sajens (876 acres)
= 82-4%.
(2) Crown lands leased on royalty basis on the gross production :
416 desiatines, 895 square sajens (1,126 acres) = 41-5 %.
(3) Crown lands leased for a rent of 100 roubles per desiatine :
178 desiatines, 144 square sajens (481 acres) = 17'8 %.
(4) Crown lands leased for a flat rent of 125,000 roubles :
66 desiatines, 1,995 square sajens (180 acres) = 6-7 %.
(5) Crown and communal lands leased from the peasants :
16 desiatines, 234 square sajens (46 acres) = 1*6%.
VII. The Petroleum Industry as a source of income to the State. —
From 1821 to 1825 the Baku field was given by the State as a Con-
cession for a yearly payment of 1S1,000 roubles, but as this also
included the right of exploitation of the Salt Lakes the income
from the oil was only 92,000 roubles per annum. In the year 1825
the State exploited the field on its own account, and obtained a
profit of 76,000 roubles. From 1826-1834 the Concession system
was again introduced, with a maximum annual payment of 97,000
roubles. From 1835-1850 the State began the exploitation again
on its own account, with a maximum annual income of 125,000
roubles. From 1850-1867 the Concession system was again intro-
duced, with a maximum annual payment of 162,000 roubles.
From 1867-1872 the same system was continued with a payment of
136,000 roubles.
INDUSTRY AND ITS IMPORTANCE. 27
It is interesting to note that during the whole period between
1821 and 1872, only the very negligible quantity of 21,000,000
poods of oil was produced. In 1867 it was recognised that the
Concession system was very unsatisfactory, and a special com-
mission was appointed by the Viceroy of the Caucasus in Tiflis to
make recommendations. The Commission condemned the Con-
cession system, and recommended the introduction of excise duties
on kerosene. With this object in view special regulations were
made which came into force in 1873. It was decided to transfer
the Crown properties for exploitation by a system of auctions
equally open to Russian subjects and to foreigners, the leases to be
for a maximum of 24 years. At the same time a special excise
duty was introduced to be levied according to the capacity of the
distilling apparatus used, at the rate of 4 kopeks per each vedro
(2-7 gallons) for every day while the still was in operation. But
for various technical reasons these excise regulations were not
very beneficial to the industry, and necessitated further improve-
ments.
In 1875 the Minister of Finance, in agreement with the Viceroy
of the Caucasus, appointed a special Commission for the working-
out of new regulations in place of the existing ones. The new
regulations recommended a discount or drawback of 15 kopeks for
every pood exported abroad, fixed as a minimum capacity for
refining 75 vedros (202 gallons), and lowered the excise per vedro
to three kopeks. It freed from excise the lubricating oils
obtained from petroleum, and the non-refined residues, also
goudron and illuminating gas. It also introduced a measure
allowing the payment of the excise during twelve months, fixing
the financial year from November to November of each year.
Under the same regulation also made, the State also imposed a
considerably higher import duty on foreign kerosene, which had
also to be paid in gold. These regulations entered into force in
1877, and considerably improved the conditions of the industry, so
that in 1887 the Minister of Finance, in considering new sources
of income for the State, found it possible to increase the excise on
kerosene, in this way getting a special annual revenue of 7 million
roubles out of it per year. This latter measure, which came into
force in 1888, made a distinction between light and heavy kerosene,
the former taken at the specific gravity of 0-730-0-830 with a
flashpoint below 45° Celsius, and the latter of a specific gravity of
0-830-0-885, and a flashpoint of 45° Celsius. The excise was fixed
for the former at 40 kopeks, and for the latter afc 30 kopeks per
poo 3. All other products of petroleum, especially crude oil, were
28 GHAMBASHIDZE I THE CAUCASIAN PETROLEUM
left free from any duty. The exported kerosene for abroad was
already free from excise. The only drawback imposed by these
regulations was that the kerosene with a flashpoint at a tem-
perature below 28° C. was considered dangerously inflammable,
and the authorities had to prohibit its sale. Otherwise the industry
was quite free from Government interference, having not even to
pay the trade licences. The result of the regulations for the State
were even better than expected, as in 1888 about 6,601,722 roubles
were collected, or about 32 % more than the expected 5,000,000
roubles. But, as very often happens, the Government regulations
were taken on the line of least resistance, and in 1891 the
production of heavy kerosene considerably exceeded that of light
kerosene, so that the Minister of Finance had to introduce a new
classification, and the specific-gravity limit was fixed at 0-890,
instead of at 0-885. Also all oil products with a flashing-point
below 80° Celsius were now classified with the heavy illuminating
oils and subjected to an excise duty of 30 kopeks. All illuminating
oils with a specific gravity below 0-845 had to pay at the higher
rate of 40 kopeks per pood. At the same time the excise for
illuminating oils from kerosene was fixed at 60 kopeks per pood,
and for light ones at 50 kopeks per pood. For 1916 the excise on
illuminating oil was further increased to 90 kopeks per pood. The
revenue from the excise amounted to : 1893, 16,369-2 thousand
roubles : 1894, 18,928-7 : 1895, 19,788-1 : 1896, 20,925-6 : 1897,
22,807-3 : 1898, 23,452-5 : 1899, 26,184-4 : 1900, 25,503-3 : 1901,
28,617-3 : 1902, 29,597'9 : 1903, 31,890-7 : 1903, 34,688'3 : 1904,
34,890 : 1905, 80,003-1 : 1910, 46,910 : 1911, 42,488 : 1912,
50,038: 1913,48,593: 1914,54,950: 1915,62,040: 1916,82,040.
The considerable falling-off in the revenue of the year 1905 is
easily explained by the grave disturbances which took place in
Baku in that year and the consequent necessity for extending the
time limit for the payment of the excise for several years instead
of 12 months.
In 1906 new excise regulations were introduced. It was decided
to levy 60 kopeks per pood on all transparent oil products. Great
objections were raised to this increase by the Baku industrials, who
argued that such a regulation forced them to concentrate only on
the production of crude oil, which would be detrimental to the
healthy development of the whole industry. But these objections
failed to impress the Government, all the more so as the excise
was coming in in increasing abundance. It must be mentioned
that, considering the bureaucratic system under which Eussia was
struggling to develop her industries, the State had no ground to
INDUSTRY AND ITS IMPORTANCE.
29
complain about the income derived from the petroleum industry,
and the Russian capitalists, as well as any other capitalists, would
have been only too delighted to give to the State its due, if only
the industry was given its chance.
In 1914 the Government, under the stress of war, made a project
of receiving the duty in kind, instead of in cash, and to use the oil
thus received for the purposes of the Navy and other public
administrations. There was also question of the installation of a
Government refinery in Baku, but these projects have so far not
materialised. In March, 1917, the Government decided to impose
also an excise duty of 5 kopeks per pood on crude oil, which
formerly had always been free.
IX. Participation of Foreign Capital. — In the development of the
Russian Oil Industry foreign capital plays a prominent part. The
first important foreign enterprise, that of Nobel Brothers, was
founded in 1872 with a capital of 3 million roubles, which was
increased in 1881 by 3 million roubles, in 1882 by a further 4
millions, and in 1883 again by 5 millions, thus making a capital of
15 million roubles, and showing the sudden expansion of this
business concern. On the other hand, the oldest Russian enter-
prise, the Bakinskoie Nephtiannoie Obsh., founded in 1874, with a
capital of 1\ million roubles, had to write it down to 2 millions in
1894, and only the help of French money brought it again up to
about 8 millions. Russian capitalists kept strangely aloof from
this industry, even after the railway to Batum had been built and
had opened up the prospect of a great export business. Its
possibilities were soon recognised by the Rothschilds of Paris, who
founded in 1883 the Caspian Black Sea Co., and in 1898 the Masut
Co., which was later bought up by the Shell Company.
The following table, from the " Nephtiannoie Dielo," shows the
movements in the capital of the older companies :
Year of
Foundation.
Foreign Capital —
Baku Petroleum Co....
Nobel Brothers
Ragozin
Caspian Black Sea Co.
Schibaiefi
Russian Naphtha Co.
Russian Capital —
Mirzoeff
Caspian Co. ...
Original
Capital.
Capital
1915.
1874
2-GO
7-7 million rbl.
1879
3-00
30-00
» >?
1880
3-50
1-80
» »
1883
1-50
10-00
»> »
1884
1-50
6-50
» »
1884
2-00
24-75
>J 5}
1886
1887
2-14
1-50
3-21
10-00
30 GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
Therefore, while th» foreign enterprises increased their capital
by 66-84 million roubles, the Russian Companies only added
9*57 million roubles to theirs.
British capital became specially interested in the Russian oil
industry after 1898, and between that year and 1903, 85-72 million
roubles were invested in it from this source ; the most important
enterprises being the Schibaeff Petroleum Co., the Russian Petroleum
Co., and the Baku Russian Co. The new fields, like Grozni, are
almost entirely controlled by British and French capital.
X. Prospects of the Industry. — The present deplorable political
and economic situation in Russia does not permit any speculations
as to the near future of the Petroleum Industry, although the
conditions in the Caucasus are far more satisfactory than in other
parts of Russia. But there are still great difficulties to be sur-
mounted, and everything depends on the outcome of the present war.
The question of a State monopoly of fuel oil has lately been brought
forward again, in the first instance for the necessities of the State
during the war. Special committees would be given powers con-
cerning the supervision and distribution of the oil, and on the other
hand the producers in Baku and elsewhere would receive from the
War Industrial Committee a certain quantity of iron and materials,
the scarcity of which is now hampering production. In a general
manner we must consider it premature, under the primitive economic
conditions of Russia, to speak about monopolies in that country, as
such systems can only be recommended to countries where the
industrial development is at its full height. Russia, with its
wealth of undeveloped resources, can only reckon on quick develop-
ment by giving full chance to private initiative and enterprise, and
it is fairly certain that this view will prevail when the political
situation is settled, and when the future economic position comes
to be considered. The State can then confidently rely upon getting
much larger sources of income by giving full swing to private
initiative, than, by monopolies which everywhere kill enterprise.
As far as the future participation of foreign capital goes, it may
be confidently hoped that it will always be welcome. At the same
time it must be mentioned that during the war there has been a
great accumulation of capital in Caucasus, some of which will find its
way into the oil industry. But a great amount of new installations
and technical improvements will have to be provided from abroad,
and this will offer great and fruitful opportunities to British finance
and enterprise. The expected general development and expanse of
industry in the whole of Asia will cause an ever-increasing
demand for oil, and this will give new impetus to the production
INDUSTRY AND ITS IMPORTANCE. 31
and to the opening-up and exploitation of new fields. It must be
mentioned in conclusion that this vast industry, with its enormous
resources and its undoubtedly splendid outlook, is one of those
assets which will help Caucasus in her future economic development.
COMPARISON OF RUSSIAN AND BRITISH WEIGHTS AND MEASURES.
1 Pood 86-11 Ibs.
1 Ton 62-03 poods.
1 Sajen 7 feet.
1 Verst 1166 yards.
1 Desiatine ... ... 2*7 acres.
1 Square Sajen ... 5'44 square yards.
1 Vedro 2-7 gallons.
32
GHAMBASHIDZE : THE CAUCASIAN PETROLEUM
LIST OF COMPANIES
engaged or interested in the
CAUCASIAN PETROLEUM INDUSTRY
and Registered in the United Kingdom.
COMPANIES.
Anglo-Maikop Corporation, Ld.
Anglo-Terek Petroleum Co., Ld.
Australian Maikop Oil Co. , Ld.
Baku Russian Petroleum Co., Ld. . .
Bibi-Eibat Oil Co., Ld
Black Sea Amalgamated Oilfields, Ld.
British Maikop Oil Co., Ld
British Taman Oilfields, Ld.
Caucasian (TchermoefT) Oilfields, Ld.
Central Tcheleken Oilfields, Ld.
Central Ural Caspian Oil Co., Ld.
Chatma Oilfields, Ld.
Cheleken Oilfields, Ld
Emba Caspian Oil Co., Ld.
European Oilfields Corporation, Ld.
Fanieff Oil Syndicate, Ld
Ferghana Oil Fields, Ld
Gadjinsky Cheleken Oil Co., Ld.
Gleboff Grozny Petroleum Co., Ld. . .
Gouria Petroleum Corporation, Ld. . .
Gouria Syndicate, Ld.
Grozny-Sundja Oil Fields, Ld.
Ildokani Oil Syndicate, Ld.
International Oil Lands, Ld.
International Russian Oilfields, Ld.
lora Oilfields, Ld
K. N. Syndicate, Ld.
Kertch -Taman Oilfields, Ld
Kuban Black Sea Oilfields, Ld.
Kuban Refining Co., Ld.
Levanovskoe Petroleum Co., Ld.
London & Maikop Oil Corporation,
Ld.
Maikop Combine, Ld.
Maikop Deep Drilling Co., Ld.
Maikop Midland Oilfields, Ld.
Maikop Orient Oil Co., Ld
Registered
Nominal
Authorised
(R— Reconstructed). Capital.
Debentures.
£
£
R 2- 6-1911
650,000
—
14- 6-1901
160,000
2,500
5- 5-1910
275,000
—
4- 6-1898
750,000
155,000
R 3- 1-1910
R 4- 2-1913
312,500
65,000
26- 3-1915
500,000
—
30- 4-1910
120,000
15,000
8- 7-1912
70,000
—
30-10-1913
350,000
—
6- 9-1912
400,000
—
31- 7-1912
50,000
—
21-11-1902
351,000
—
30- 6-1910
300,000
—
22- 7-1912
2,105,000
—
14- 5-1896
R 15- 5-1900
R 4_ 7-1911
385,000
200,000
27-4 -1914
50,000
— •
19-10-1910
750,000
—
15-10-1912
1,250,000
—
15- 8-1910
750,000
—
7-10-1913
350,000
—
4- 5-1912
15,000
—
31- 3-1913
300,000
—
18- 7-1912
26,250
—
27- 1-1914
200,000
—
22- 2-1913
500,000
—
8- 6-1911
250,000
—
13- 5-1910
17,307
—
25- 6-1913
500,000
—
24- 3-1911
300,000
—
8-10-1913
200,000
—
15-12-1911
300,000
—
24- 3-1910 600,000 —
30-10-1912 750,000 60,000
27- 1-1912 100,000 —
15- 3-1910 157,500 — -
1- 5-1911 250,000 —
Carried forward .. £14,394,557 £497,500
INDUSTRY AND ITS IMPORTANCE.
33
COMPANIES.
Registered
(R— Reconstructed) .
Nominal Authorised
Capital. Debentures.
Brought forward
Maikop Pipe Line & Transport Co.,
Ld.
Maikop Refineries, Ld.
Maikop Selected Oilfields, Ld.
Maikop Spies Co., Ld.
Maikop Valley Oil Co., Ld
New Caucasian Oilfields, Ld.
New Grosny Oilfields, Ld
New Russian Oil Syndicate, Ld.
New Schibaieff Petroleum Co., Ld. . .
North Caspian Oil Corporation, Ld. . .
North Caucasian Oil Fields, Ld.
Oilfields Finance Corporation
Oil Trust of Russia, Ld.
Petroleum Co. of Ildokani, Ld.
Pure Russian Liquid Paraffin Co., Ld.
Russian & Eastern Agency, Ld.
Russian General Oil Corporation, Ld.
Russian Kuban Industrial & Petro-
leum Co., Ld.
Russian Petroleum Co., Ld
Russian United Petroleum Co., Ld.
Shagirt (Cheleken) Oil Co., Ld.
South Caucasian Syndicate, Ld.
South Russian Oil Co., Ld . .
Spies Petroleum Co., Ld.
Suvaroff Taman Oilfields, Ld.
Taman Peninsula Oil Syndicate, Ld.
Tcharken-Cheleken Oil Co., Ld.
Tchengelek Proprietary Co., Ld.
Terek General Oil Co., Ld
Ural Caspian Oil Corporation
West Caucasian Oilfields, Ld.
West Ural Petroleum Co., Ld.
14,394,557 497,500
270,000
7_ 4^-1910
815,000
22-11-1910
50,000
2- 5-1910
400,000
4- 2-1910
125,000
5- 5-1910
400,000
21- 8-1913
300,000
31- 3-1916
360,000
22-10-1913
10,250
R 12- 4-1913
1,160,000
24- 3-1914
1,100,000
29- 1-1901
750,000
19_ 6-1912
303,992
3-10-1911
750,000
5-11-1914
300,000
22-12-1915
50,000
23- 7-1912
125,000
28- 6-1912
2,500,000
29-12-1910
405,000
29-10-1897
R 29- 6-1910
1,400,000
27- 8-1900
120,000
18- 7-1911
250,000
24- 4-1912
25,250
8-12-1898
60,000
11- 5-1900
1,500,000
7- 7-1911
200,000
3- 6-1912
30,000
26- 7-1911
1,000,000
19- 4-1911
200,000
9- 1-1914
500,000
15- 4-1910
1,000,000
19-11-1913
200,000
2- 8-1912
500,000
300,000
80,000
£31,284,049 1,147,500
TOTAL OF 68 COMPANIES :
Nominal Capital . .
Paid-up
Authorised Debentures
Issued
£31,284,049
21,565,978
£1,147,500
1,043,102
40
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