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Pipeline – USSR (1)
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Pipeline – USSR (1)
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Records of the National Security Council, Directorate of European and Soviet Affairs (Reagan Administration)
Jack F. Matlock, Jr.'s Union of Soviet Socialist Republics (U.S.S.R.) Subject Files
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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Matlock, Jack F.: Files
Folder Title: Pipeline - USSR (1)
Box: 30
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
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Contact a reference archivist at: [email protected]
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WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET 5/17/2005
File Folder
USSR - PIPELINE 1/6
FOIA
F06-114/9
Box Number
30
YARHI-MILO
3010
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
10661 CABLE
251715Z FEB 81
2 2/25/1981 B1
R
3/24/2011
F2006-114/9
10649 MEMO
PIPES RE MEO ON STRATEGIC
1 3/4/1981 B1
IMPLICATIONS OF PROPOSED SOVIET-
WEST EUROPEAN NATURAL GAS
ARRANGEMENT
R 9/25/2012 F2006-114/9
10650 MEMO
STRATEGIC IMPLICATIONS OF THE
9 3/4/1981 B3
PROPOSED SOVIET-WEST EUROPEAN
NATURAL GAS ARRANGEMENT
PAR 9/25/2012 F2006-114/9
10651 MEMO
USSR--WESTERN EUROPE: PROPOSED
3 3/18/1981 B3
NATURAL GAS PIPELINE
PAR 9/25/2012 F2006-114/9
10652 MEMO
LENZ TO ALLEN RE DECISION ON SPARE
1 3/25/1981 B1
PARTS LICENSES FOR CATERPILLAR
TRACTORS
R 3/24/2011 F2006-114/9
10653 MEMO
DEAL/LENZ TO ALLEN RE EXPORT
4 3/25/1981 B1
CONTROLS: LICENSE APPLICATIONS FOR
CATERPILLAR
R 11/24/2011 F2006-114/9
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET
5/17/2005
File Folder
USSR - PIPELINE 1/6
FOIA
F06-114/9
Box Number
30
YARHI-MILO
3010
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
10665 MEMO
HIRSCHHORN TO LENZ RE SPARE PARTS
1
ND
B3
B4
FOR PREVIOUSLY EXPORTED
CATERPILLAR PIPELAYERS UNRELATED
TO SIBERIAN PIPELINE
10666 MEMO
KNOWLES TO DEAL RE CATERPILLAR
2 1/9/1981 B3 B4
EXPORTS TO USSR
10667 MEMO
APPLICATION FOR EXPORT OF
1 9/29/1980 B3 B4
CARTERPILLAR PARTS
10668 MEMO
APPLICATION FOR EXPORT OF
1 10/6/1980 B3 B4
CARTERPILLAR PARTS
10669 MEMO
APPLICATION FOR EXPORT OF
1 10/14/1980 B3 B4
CARTERPILLAR PARTS
10670 MEMO
APPLICATION FOR EXPORT OF
1
1/5/1981
B3
B4
CARTERPILLAR PARTS
10654 PAPER
USSR-WESTERN EUROPE: IMPLICATIONS
2 3/25/1981 B3
OF THE SIBERIA-TO-EUROPE GAS PIPELINE
PAR 9/25/2012
F2006-114/9
10662 CABLE
080455Z APR 81
1 4/8/1981 B1
R
3/24/2011
F2006-114/9
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET 5/17/2005
File Folder
USSR - PIPELINE 1/6
FOIA
F06-114/9
Box Number
30
YARHI-MILO
3010
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
10655 PAPER
USSR: LACK OF MOVEMENT ON SIBERIA-
1 4/9/1981 B1
TO-EUROPE GAS PIPELINE
10663 CABLE
161412Z APR 81
5 4/16/1981 B1
R
3/24/2011
F2006-114/9
10656 MEMO
LENZ TO ALLEN RE (NON) TREATMENT OF
3 4/30/1981 B1
THE SIBERIAN PIPELINE PROJECT IN
CURRENT IG'S
R
3/24/2011
F2006-114/9
10657 MEMO
NAU TO ALLEN RE LENZ MEMO ON THE
1 4/30/1981 B1
SIBERIAN PIPELINE PROJECT
R
3/24/2011
F2006-114/9
10658 LETTER
OLMER TO CASEY RE OIL AND NATURAL
2 5/26/1981 B1
GAS PRODUCTION EQUIPMENT TRANSFER
TO USSR
R
9/25/2012
F2006-114/9
10664 MEMO
BREMER TO ALLEN RE SIBERIAN PIPELINE
2 6/15/1981 B1
R 9/25/2012 F2006-114/9
10659 PAPER
USSR-WESTERN EUROPE: IMPLICATIONS
28
ND
B3
OF THE SIBERIA-TO-EUROPE GAS PIPELINE
PAR 9/25/2012 F2006-114/9
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
WITHDRAWAL SHEET
Ronald Reagan Library
Collection Name MATLOCK, JACK: FILES
Withdrawer
JET
5/17/2005
File Folder
USSR - PIPELINE 1/6
FOIA
F06-114/9
Box Number
30
YARHI-MILO
3010
ID Doc Type
Document Description
No of Doc Date Restrictions
Pages
10660 PAPER
WESTERN EUROPE: POTENTIAL FOR
9
ND
B1
ALTERNATIVE GAS SUPPLIES
R
9/25/2012
F2006-114/9
Freedom of Information Act - [5 U.S.C. 552(b)]
B-1 National security classified information [(b)(1) of the FOIA]
B-2 Release would disclose internal personnel rules and practices of an agency [(b)(2) of the FOIA]
B-3 Release would violate a Federal statute [(b)(3) of the FOIA]
B-4 Release would disclose trade secrets or confidential or financial information [(b)(4) of the FOIA]
B-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA]
B-7 Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA]
B-8 Release would disclose information concerning the regulation of financial institutions [(b)(8) of the FOIA]
B-9 Release would disclose geological or geophysical information concerning wells [(b)(9) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of gift.
NEW YORK TIMES - Thursday, February 12, 1981
SOUIET
THURSDAY, FEBRUARY 12, 1981
GASPIPELINE
Letters
Soviet Natural Gas Can Choke America's Allies
To the Editor:
to complete, and probably longer.
viet Army's invasion of Afghanistan.
Your Jan. 16 editorial on the pro-
For all practical purposes, if Soviet
At least one alternative to the Soviet
posed Soviet natural gas pipeline
natural gas is cut off for technical or
gas deal exists. This plan deserves the
project ("Soviet Gas Won't Choke the
political reasons, other natural gas
serious consideration of West Euro-
Allies") implies a misapprehension of
supplies will have to be found. Yet no
pean and American leaders before
the situation that demands correction.
significant "spot market" for natural
they commit themselves to the Soviet
It is true that only a small percent-
gas exists, so 425 bcf/yr will not be
proposal.
age of West Europe's total energy de-
available on short notice. And ade-
Huge reserves of coal exist in the
mand would be met by imports of
quate stockpiling of natural gas would
Western United States. Those could be
Soviet natural gas (the estimates
be prohibitively expensive.
exploited, and the coal could be trans-
range from 3 to 5 percent), but these
Because the above-mentioned indus-
ported to the East Coast via slurry pipe-
figures underemphasize the real im-
tries are vital to West Germany's eco-
line or rail and then transshipped to Eu-
pact of imported Soviet gas on the
nomic stability, a large cutback in this
rope. Coal gasification plants could be
West European economies.
particular 5 percent of total energy de-
built in each of the consuming nations
Take West Germany as an example:
mand would have rapid repercussions
and linked to the existing West Euro-
If the pipeline is completed in the mid-
throughout that country's economy.
pean pipeline network. Whereas the
1980's, 40 percent of West Germany's
Herein lies immense political vul-
natural gas reserves to be exploited in
natural gas imports, or 425 billion
nerability. The dependence of West
the Soviet proposal can supply Western
cubic feet per year (bcf/yr), will
German industries on Soviet natural
Europe for only 30 years, American
come from the Soviet Union. This rep-
gas, combined with a growing reliance
coal supplies are sufficient for 300.
resents just 5 percent of West Germa-
of these same industries on exports to
Our preliminary inquiries suggest
ny's total energy demand, but it is a
the Soviet bloc for profits and employ-
that this alternative plan is technologi-
very important 5 percent.
ment, creates a pressure point for
cally feasible and price-competitive
The various sources of energy
Soviet political manipulation.
with the Soviet pipeline project. Most
(petroleum, coal, hydroelectric and
In the worst case, the Soviets could
importantly, because the entire logis-
nuclear) are not readily interchange-
threaten to cut all economic relations
tical infrastructure (from coal re-
able. West Germany's primary con-
between West Germany and the bloc,
serves to refining and distribution fa-
sumers of natural gas are the chemi-
including exports of natural gas, and
cilities) would remain in the West,
cal, petrochemical and steel indus-
plunge West Germany into economic
West European vulnerability to Soviet
tries. Petroleum, coal, hydroelectric
chaos. Far more likely, the West Ger-
natural gas cutoffs would be nullified.
and nuclear power cannot immedi-
man leadership, understanding the ex-
Western unity would grow through
ately substitute for natural gas in
tent of their dependence and vulner-
energy interdependence rather than
the event of any significant curtail-
ability, would adopt policies more
disintegrate from the Finlandization
ment of supply because the power-gen-
in line with the Soviet platform. In
of Europe.
MILES M. COSTICK
erating facilities of these industries are
short, Finlandization. Such an atti-
MARC DEAN MILLOT
not configured to use those sources.
tude finds precedent in the unwilling-
Washington, Jan. 19, 1981
They could be modified to use some of
ness of West Germany to seriously
The writers are, respectively, presi-
those sources, but the modification pro-
join the American-led embargo of
dent and a research analyst of the In-
cess would take at least six months
the Soviet Union following the So-
stitute on Strategic Trade.
PRESERVATION COPY
JUNI FULNTIAL
GAS INCOMING PIPELINE
Department of State
TELEGRAM
2
PAGE 01
PARIS 05752 01 OF 02 251905Z
3020
PARIS 05752 01 OF 02 251905Z
10661
ACTION EB-04
DOMESTIC POLITICAL REASONS, ALLEGE THEY CANNOT SUBSTAN-
INFO
OCT-01
ADS-00
INR-05
EUR-08
SS-14
AF-04
CLAE-00
TIALLY INCREASE COAL IMPORTS AT THE EXPENSE OF THEIR
NEA-07 NSC-05 NSAE-00 DOE-01 SMS-01 OES-02 SP-02
DOMESTIC HIGH COST COAL INDUSTRY. THE GERMANS CONCLUDE
DOEE-00 /054 W
THAT ABOUT ONE-THIRD OF THEIR INCREASED ENERGY REQUIRE-
115416 251918Z /43
MENTS FOR THE 1985-1990 PERIOD MUST COME FROM INCREASED
P 251715Z FEB 31
NATURAL GAS IMPORTS.
FM AMEMBASSY PARIS
TO SECSTATE WASHDC PRIORITY 1232
5. IT IS DE WISSOCQ'S IMPRESSION THAT THE GERMANS DO NOT
INFO AMEMBASSY ALGIERS
HAVE THE SAME RISK ASSESSMENT OF INCREASED GAS IMPORTS
AMEMBASSY BONN
FROM THE SOVIET UNION AS DO THE FRENCH IN THE CONTEXT OF
AMEMBASSY BRUSSELS
THEIR RESPECTIVE TOTAL GAS SUPPLY SITUATION. ALL GERMAN
AMCONSUL DUSSELDORF
GAS IMPORTS, EXCEPT THOSE FROM THE SOVIET UNION, COME
AMEMBASSY LAGOS
FROM SECURE WEST EUROPEAN SOURCES.
AMEMBASSY LONDON
AMEMBASSY MOSCOW
6. WITH REGARD TO COPING WITH SOVIET SUPPLY DISRUPTIONS,
AMEMBASSY OSLO
THE GERMANS NOTED THAT THEIR GEOLOGY WAS LESS FAVORABLE
AMEMBASSY THE HAGUE
THAN THAT OF FRANCE WITH REGARD TO THE DEVELOPMENT OF
AMEMBASSY VIENNA
UNDERGROUND STORAGE CAPACITY. DE WISSOCQ STRESSED,
USMISSION USNATO
HOWEVER, THAT THE GERMANS WERE HEADING IN THE RIGHT
DIRECTION IN TERMS OF EXPANDING THE LEVEL OF INTERRUPTIBLE
SECTION 01 OF 02 PARIS 05752
INDUSTRIAL CONTRACTS TO DEAL WITH SUPPLY EMERGENCIES.
LIMDIS
7. DE WISSOCQ RECEIVED THE CLEAR IMPRESSION THAT THE
GERMANS WOULD BE READY BY THE END OF MARCH OR THE BE-
E.0.12065: RDS-1 02/25/97 (DUNCAN, ROBERT B.) OR-$
GINNING OF APRIL TO MAKE A FINAL DECISION WITH REGARD
TAGS: ENRG, USSR, FR, FRG
TO INCREASED GAS IMPORTS FROM THE SOVIET UNION.
SUBJECT: FRG-FRENCH JOINT STUDY ON SOVIET GAS DEAL
8. BROADENING THE CONTEXT OF THE DISCUSSION, DE WISSOCQ
QUESTIONED WHETHER EUROPEAN PROJECTIONS OF THEIR FUTURE
REF: STATE 41761
GAS SUPPLIES REMAINED VALID. HE SPECIFICALLY REFERRED
TO A RECENT DOWNWARD REVISION IN THE ESTIMATED RESERVES
1. SUMMARY: DURING DE WISSOCQ'S FEBRUARY 20 MEETING WITH
OF THE EKOFISK NORTH SEA GAS FIELD AND TO THE LIKELY TWO
ENGLEMANN, THE FRENCH TOLD THE GERMANS THAT THEY HAVE NOT
YEAR DELAY IN THE BONNY LNG PROJECT IN NIGERIA.
YET DECIDED HOW MUCH ADDITIONAL SOVIET GAS THEY WISH TO
BUY. THE FRENCH HAVE THE IMPRESSION ON THE BASIS OF
GERMAN FIGURES THAT THE FRG HAS NO ALTERNATIVE TO IN-
CREASED GAS IMPORTS, PARTICULARLY FOR HOME HEATING
PURPOSES. THE GERMANS SEE LESS RISK THAN THE FRENCH IN
INCREASED PURCHASES OF SOVIET GAS AND WILL PROBABLY BE
READY TO MAKE THEIR DECISION BY THE BEGINNING OF APRIL.
THE FRENCH CLAIM THERE IS LITTLE EUROPEAN INTEREST IN
ADDITIONAL ALGERIAN GAS. THEY ALSO SEE GROWING UNCERTAIN-
TY IN EUROPEAN GAS SUPPLY AND WANT ACTIVE US SUPPORT FOR
THE EXPEDITED DEVELOPMENT OF NIGERIAN AND NORWEGIAN GAS
RESOURCES. END SUMMARY.
2. IN RESPONSE REFTEL, EMBASSY OFFICER ON FEBRUARY 24
MET WITH FRENCH ENERGY DIRECTOR GENERAL DE WISSOCQ FOR
READOUT ON HIS FEB 20 MEETING WITH ENGLEMANN ON THE
SOVIET/WESTERN EUROPEAN GAS DEAL.
3. DE WISSOCQ SAID THE FRENCH INFORMED THE GERMANS OF THE
STATUS OF THEIR EFFORTS TO DEAL WITH GAS SUPPLY DISRUPT-
ION BY MEANS OF INTERRUPTIBLE INDUSTRY CONTRACTS AND
INCREASED STOCKING CAPABILITIES; OF THE FRENCH CONVICTION
THAT AN ALGERIAN EFFORT TO JOIN OR EXPLOIT A SOVIET
SUPPLY DISRUPTION WAS A REAL POTENTIAL RISK; AND THAT THE
FRENCH HAD NOT YET MADE A FINAL DECISION ON HOW MUCH
SOVIET GAS THEY INTENDED TO BUY.
4. THE GERMANS, ACCORDING TO DE WISSOCQ, OUTLINED THEIR
PROJECTED GAS REQUIREMENTS THROUGH 1990. DE WISSOCQ SAID
WE COULD UNDOUBTEDLY GET THE SPECIFIC NUMBERS FROM THE
GERMANS BUT HIS CLEAR IMPRESSION FROM THE FIGURES WAS THAT
THE GERMANS REALLY HAVE NO ALTERNATIVE TO INCREASED GAS
IMPORTS TO MEET THEIR ENERGY REQUIREMENTS, PARTICULARLY
FOR HOME HEATING. LIKE THE FRENCH, THE GERMANS HAVE NO
DECLASSIFIED
INTENTION OF INCREASING THEIR DEPENDENCE ON IMPORTED OIL.
IN CONTRAST TO THE FRENCH, THE GERMANS DO NOT HAVE ANY
EARLY OPTION TO RELY INCREASINGLY ON GREATER USE OF
NLRRF06-114/9*10661 #10661
ELECTRICITY FROM NUCLEAR POWER. THE GERMANS, FOR
BY KML NARA DATE4/7/2011
CONF IDENT IAL
CONF IDENT IAL
INCOMING
3
Department of State
TELEGRAM
PAGE 01
PARIS 05752 02 OF 02 251905Z
3026
ACTION EB-04
INFO
OCT-01
ADS-00
INR-05
EUR-08
SS-14
AF-04
CIAE-00
NEA-07 NSC-05 NSAE-00 DOE-01 - SMS-01 OES-02 SP-02
DOEE-00 /054 W
115422 251919Z /43
P 251715Z FEB 81
FM AMEMBASSY PARIS
TO SECSTATE WASHDC PRIORITY 1233
INFO AMEMBASSY ALGIERS
AMEMBASSY BONN
AMEMBASSY BRUSSELS
AMCONSUL DUSSELDORF
AMEMBASSY LAGOS
AMEMBASSY LONDON
AMEMBASSY MOSCOW
AMEMBASSY OSLO
AMEMBASSY THE HAGUE
AMEMBASSY VIENNA
USMISSION USNATO
SECTION 02 OF 02 PARIS 05752
LIMDIS
9. REFERRING TO UNCONFIRMED PRESS REPORTS THAT EL PASO
HAD DECIDED TO ABANDON ITS ALGERIAN LNG OPERATION, WE
ASKED HOW THE FRENCH WOULD FACTOR INTO THEIR PROJECTED
GAS SUPPLY EQUATION POSSIBLE PROSPECTS FOR INCREASED
ALGERIAN GAS EXPORTS TO EUROPE. DE WISSOCQ REPLIED THAT
THE FRENCH DID NOT LOOK WITH FAVOR ON INCREASING THEIR
PURCHASES OF ALGERIAN GAS. IN THE FRENCH VIEW, THE
ALGERIANS HAD PROVEN THEMSELVES ON SEVERAL OCCASIONS TO
BE UNRELIABLE SUPPLIERS. DE WISSOCQ ALSO REFERRED TO
UNDERLINING POLITICAL STRESSES between ALGERIA AND FRANCE
CAUSED BY THEIR HISTORICAL RELATIONSHIP. DE WISSOCQ
CONTINUED THAT THESE POLITICAL STRESSES COULD NOT BE
ELIMINATED UNTIL THE NEXT GENERATION. DE WISSOCQ ALSO
THOUGHT THAT ALGERIAN ENERGY MINISTER NABI WOULD BE MUCH
MORE LIKELY TO OFFER TO SELL EL PASO GAS TO THE DUTCH
OR GERMANS AS A SUBSTITUTE FOR LNG PROJECTIONS WHICH THE
ALGERIANS HAD ABANDONED. HOWEVER, THE DUTCH AND GERMANS,
ACCORDING TO DE WISSOCQ were IN NO PARTICULAR MOOD TO
RUSH TO BUY ALGERIAN GAS GIVEN RECENT INDICATIONS OF
ALGERIAN UNRELIABILITY. IN VIEW OF THE GROWING UNCERTAIN-
TIES FOR EUROPEAN GAS SUPPLY, DE WISSOCQ THOUGHT THAT THE
AMERICAN GOVERNMENT COULD USEFULLY INTERVENE TO ENCOURAGE
BOTH THE NORWEGIANS AND THE NIGERIANS TO take A MORE
POSITIVE ATTITUDE TOWARD THE DEVELOPMENT OF THEIR GAS
RESOURCES IN TERMS OF THE GLOBAL STABILITY OF THE WEST.
10. DE WISSOCQ CONCLUDED THAT THE FRENCH WOULD APPRECIATE
A READOUT OF THE DISCUSSIONS IF THE USG DECIDES TO RAISE
THE SOVIET GAS PIPELINE ISSUE WITH FRG FOREIGN MINISTER
GENSCHER DURING HIS FORTHCOMING VISIT TO WASHINGTON.
CHAPMAN
CONF IDENT IAL
ITEM RETURNED
To NSC
SECRETARIAT
IN APRIL 1987
Log # PA81-10107 March 81 cpy 035
10649 3/5
5
MEMORANDUM FOR:
Mr. Richard Pipes
National Security Council
cysent Treat
The attached memorandum on strategic
implications of the proposed Soviet-West
European natural gas arrangement responds to
the request in your 3 March telephone con-
versation with Sumner Benson. When printing
is completed, you will be sent the full
intelligence assessment. Any comment you
might have on the usefulness of this type-
script would be welcome.
J.K. Marcin
L. Keith Gardiner
Chief, International
Issues Division
Declassified
Office of Political
NLRR Fob 114/9 # 10649
Analysis
By KMLNARA 9/25/12 DAte
Date
4 March 1981
5-75 FORM 101 EDITIONS
USE PREVIOUS
10650
CONFIDENTIAL
fele gas
gas
FOIA(b) (3)
CENTRAL INTELLIGENCE AGENCY
NATIONAL FOREIGN ASSESSMENT CENTER
4 March 1981
MEMORANDUM
STRATEGIC IMPLICATIONS OF THE PROPOSED
SOVIET-WEST EUROPEAN NATURAL GAS ARRANGEMENT
The Soviet Union is becoming the world's largest exporter of natural gas.
By 1990, Soviet gas is expected to constitute 20 percent of continental
Western Europe's gas supplies. The proportion of Soviet gas in total West
European energy consumption will be roughly comparable to the current pro-
portion of Persian Gulf oil in total US energy consumption. This poses
potential strategic problems for Western Europe and for NATO, although not
of the magnitude or type associated with West European dependence on im-
ported oil.
The proposed Soviet-European gas pipeline agreement offers the USSR an
opportunity to draw Western Europe into a closer political-economic relation-
ship. Under certain conditions, the Soviet Union might attempt to exploit
this relationship to undermine West European willingness to act in concert
with the United States on various issues, including those affecting mutual
security. Heightened dependence on the Soviet Union for natural gas would,
for example, increase incentives for West European footdragging against a
United States lead in imposing future economic boycotts on the USSR or in
limiting transfer of high technology to the Soviets.
Whether the Soviet Union would choose to exploit that opportunity, and-
how large its potential leverage to influence European actions might be,
will depend on a number of factors:
The availability to Europe of alternative supplies of natural
gas.
This memorandum was prepared by
Office of Political Analysis, at the request of Richard Pipes, National
Security Council. It was coordinated with the Office of Economic Research.
Research was completed on 1 March 1981. Comments and questions are welcome
and may be directed to
Office of Political Analysis,
PA M 81-10101
DECLASSIFIED IN PART
NLRR F06-114/9#10650
CONFIDENTIAL
BY KML NARA DATE 9/25/12
7
CONF IDDNTIAL
The amount of "insurance" the Europeans have secured in the form of
strategic gas reserves and their capability to substitute other fuels.
West European and NATO cohesion and will to resist Soviet pressures.
Soviet judgments of the risks to its gas-generated hard currency
earnings, which would be about equal to current earnings from oil
sales to West Europe.
Thus far, at least, the opportunities for exploitation by the Soviets
of the potential leverage in the natural gas relationship appear greater
than the risks that they would face in applying leverage.
*
*
*
Growing West European Interest in Soviet Gas
The eagerness of the Soviet Union to capitalize on its
possession of the world's largest reserves of natural gas co-
incides with a shift by continental West European countries from
near self sufficiency to a condition of rapidly rising require-
ments for natural gas imports. Through the 1970s, growth in
indigenous production enabled Western Europe to increase the share
of gas in total energy use from less than 10 percent to almost
20 percent. Nonetheless, plans to limit rates of exploitation
and exports by the West European countries that have the greatest
potential for increased capacity (UK, Netherlands, and Norway)
will force the major West European consumers to turn elsewhere to
continue their increases in consumption in the 1980s.
Liquefied natural gas imports from less developed countries
(LDCs) will probably be increased but will not be sufficient
to meet West European requirements. LDC supplies probably will
fall short for a number of reasons:
West European reluctance to increase sharply dependence
for energy on nations that are perceived to be of ques-
tionable political reliability.
Mixed feelings by some of the LDCs with the greatest
potential for expanded capacity, such as Iran and
Algeria, toward the increased influence and inter-
dependence that would come with Western exploitation
and depletion of their natural gas resources.
Increased competition from Japan and, perhaps in time,
the United States for LDC natural gas.
- 2 -
CONF IDENTIAL
CONFIDENTIAL
High technical complexity and cost of transporting
(liquefying, special shipping, and deliquefying) the
LDC product.
The focus of West European plans concerning natural gas
supplies, therefore, is on greater imports of pipeline gas
from the Soviet Union. The USSR already supplies Western
Europe with about 2.5 billion cubic feet (bcf) per day based
on prior agreements with West Germany, France, Italy, and
Austria. Current negotiations are for additional Soviet
supplies of at least 3.9 bcf/day to these four countries
plus Belgium and Netherlands by 1990.
These plans would double the proportion of Soviet gas
in total West European gas consumption to about 20 percent.
The most important increases would be in France (from 14 to
33 percent), West Germany (from 16 to 26 percent), and
Belgium (from 0 to 40 percent). On a broader. scale, Soviet
gas would rise to about 3.5 percent of total. West European
primary energy supplies.
Although similar in volume to US dependence on Persian
Gulf oil (5 percent of US energy supplies), prospective
dependence on Soviet pipeline gas does not pose for West
Europe the magnitude and type of security problems that stem
from imported oil. Gas will remain less than half as important
as oil in the six West European countries on the receiving
end of the pipeline. It will provide less than 25 percent
of total energy supply in all of the importers except the
Netherlands, while oil is projected to remain above 40
percent in all countries except France. Moreover, the setup
of the pipeline itself will restrict the USSR's ability to
manipulate gas supply to any single West European country
without affecting all members of the pipeline system.
Soviet gas will flow through Eastern Europe and then enter
the West European gas net, where its distribution will be
controlled by the West Europeans.
Soviet Stake in the Pipeline Deal
The Soviet Union would have strong reasons after the
pipeline was completed not to cut off gas supplies to West
Europe. The USSR is counting heavily on hard currency
earnings from these gas sales to compensate for a decline in
oil export revenues, which accounted for nearly half of
Soviet hard currency earnings in 1979. Revenues from gas
will be important in securing the Western technology nec-
essary for long-term development of Soviet energy resources
and for helping the lagging Soviet economy in the 1980s.
Any cutoff of gas supplies would risk the loss of this hard
currency and indeed of the whole climate of good faith in
Soviet-Western economic dealings that is important to Soviet
domestic economic planning and to Soviet diplomacy in a
period of strained political relations with the West.
- 3 -
CONFIDENTIAL
9
CONFIDENTIAL
West Europe's view that these economic considerations
would restrain the USSR is a large part of the reason why
some West Europeans believe that greater Soviet-Western energy
cooperation offers no serious threat of a supply cutoff.
Potential Soviet Political Leverage
Nevertheless, there are ways of manipulating the gas
dependence short of a cutoff that might create enough appre-
hension among West Europeans to increase their susceptibility
to Soviet influence. Moreover, the extreme case of a Soviet
cutoff would create severe enough political and psychological
consequences for Western Europe to merit premonitory analysis.
The chances that the Soviet Union would attempt to manipulate
gas supplies to Western Europe are not inconsequential since
they have used energy as a political weapon in the past. For
example, they reduced or cut off oil supplies to Yugoslavia
in 1948, to Israel in 1956, and to China in the early and mid-
1960s.
The natural gas arrangement with Western Europe would yield
two major opportunities for increased political influence for
the Soviet Union. The first lies in the impetus that the gas
deal would impart to broader Soviet efforts to draw Western
Europe into closer political and economic relations with the
USSR. The aim of this Soviet effort is to increase the legiti-
macy of Soviet foreign policy goals in the eyes of West Europeans
and to persuade them to see US-led or coordinated NATO "anti-
Soviet" initiatives as unnecessary or disturbing to a favorable
status quo. The Soviets are now pursuing this goal, with mixed
success, through individual bilateral and multilateral arrange-
ments and through the Conference on Security and Cooperation in
Europe.
The second advantage to the Soviet Union lies in oppor-
tunities that the evolving natural gas relationship would
provide to help achieve specific political objectives. The
pipeline deal might give the Soviets substantial opportunity
to gain political benefits if they used their potential leverage
indirectly and as only one element in a broader diplomatic
offensive. Opportunities would arise during the construction
phase of the gas deal (until at least the mid-1980s) because
of European eagerness to keep production and employment levels
as high as possible. For example, planned Soviet purchases of
pipe, compressors, valves, and other equipment will aid some
financially troubled European firms and may prevent the closing
of several German plants. After the pipeline is completed, the
leverage would lie in West European reluctance to cope with
Soviet manipulation of gas supplies.
- 4 -
CONF IDENTIAL
CONFIDENTIAL
To capitalize on these potential opportunities, the
Soviets would. have to create the apprehension (in the con-
struction phase) that equipment orders might be cancelled
and (later) that the supply of gas might be reduced without
appearing so threatening as to provoke a West European
backlash and to unify the West European countries' resistance.
Thus, they probably would allude to the gas situation only
indirectly--by reminding the West Europeans of the benefits
of economic cooperation--while stressing the need to avoid
"anti-Soviet" actions that could worsen the West European
political climate and playing on differences between the
West Europeans and the United States and among West European
countries. They could avoid direct threats by reducing gas
supplies with the explanation that there were "technical
problems,' which would be "solved" if the political situ-
ation improved.
Specific Areas of Leverage
Two issues that the USSR might try to influence by
using its potential natural gas leverage as part of a broader
diplomatic effort are Western economic sanctions and NATO
military modernization. In the first case, the Soviets
probably would believe that the prospect of difficulties
arising with Soviet gas deliveries would be an important
consideration in West European support for a US-led economic
boycott on the Soviet Union or in limiting transfers of high
technology to the Soviets. That the Soviets are thinking of
using energy exports in this fashion is indicated by a TASS
commentary in April 1980 which hinted that Western Europe
and Japan might risk losing fuel supplies from the Soviet
Union if they joined in the economic sanctions that were
imposed by the United States after the Soviet invasion of
Afghanistan.
The "worst case" situation that could arise from the
exercise of Soviet leverage would involve shifts in the
decisions by European NATO members on deployment of long
range theater nuclear forces (LRTNF) and on implementation
of the NATO Long Term Defense Plan. For example, if Belgium
had received 40 percent or even 20 percent of its natural
gas--rather than none at all--from the Soviets, the USSR
would have had an additional lever with which to press for
Belgian opposition to LRTNF deployment. Moreover, to the
extent that Soviet-West European economic interdependence
increases, there will be one more argument for West European
groups that are trying to hold down growth in real defense
spending. Finally, the prospective doubling of French de-
pendence on Soviet gas may assist the Soviet effort to slow
or halt the recent trend toward closer military cooperation
between France and its allies.
- 5 -
CONFIDENTIAL
CONF IDENTIAL
The critical political factor in any Soviet effort to
capitalize on the potential leverage flowing from the
natural gas supply relationship is how accurately the USSR
judges West European public opinion. The Soviet Union has
long tried to influence the West European public on domestic
West European issues, most recently in campaigns to prevent
deployment of the "neutron bomb" and of LRTNF. This has.
given the Soviets experience in assessing which groups would
be most sensitive to the economic losses posed by difficulties
with the natural gas arrangements and how politically in-
fluential these groups are. Because the Western European
public has been sensitized by the Middle East oil cutoffs of
the past, it might be anxious about a prospective loss of
Soviet gas.
Would the "Natural Gas Weapon" Work?
Soviet ability to use its potential natural gas lever
successfully would depend both on the European political
will to resist and on two technical considerations--the rel-
atively short-term factor of national and regional strategic
reserves and the mid-term availability of alternative supplies
of gas in the world market.
In the short term, the West European response would depend
heavily on how willing the Europeans had been to pay the cost
of insuring themselves against Soviet leverage. The key
questions would be how much gas was available from a stra-
tegic gas reserve or through surge production; and whether
Europe had retained an effective dual fuel capacity that
would allow industrial, commercial, and large residential gas
users to switch readily to substitute fuels.
Such a strategic defense would depend, in turn, on the
degree of cooperation among West European and other developed
countries. If the Soviets were to suggest a general reduc-
tion in deliveries, they would have to consider the possibilities
of the Dutch expanding production from the Groningen field; the
United Kingdom and Norway releasing gas from the North Sea for
continental European use; and the United States diverting
US-bound shipments of LNG or furnishing oil and coal so that
European gas could be channeled exclusively to economic sectors
or geographic regions where substitution was difficult.
The second consideration for an effective Western defense
against Soviet natural gas leverage would be the degree of mid-
term flexibility in the world gas and energy markets. In the
mid-1970s Japan and the United States were able to pull back from
- 6 -
CONFIDENTIAL
IDDNTIAL
projected heavy investment in Soviet Siberian gas because
they had the alternatives of relying more heavily on gas from
Southeast Asia and Australia and from Canada, Mexico, and
Algeria, respectively.
Although the West Europeans appear more sanguine about
the implications of dependence on Soviet gas than do Japan
and the United States, they agree that diversification of
sources is important in denying the Soviets an opportunity
to use gas supply to push for concessions on other economic
or security issues. The West German cabinet, for example,
reportedly has discussed what proportion of total gas con-
sumption Soviet imports would have to reach before Germany
became critically dependent on the USSR. In the summer of
1980, the cabinet apparently set a guideline of 30 percent,
somewhat above the projected level of German dependence for
the 1980s. More recently, German Economics Minister Lambs-
dorff stated that he did not believe that security against
Soviet gas leverage could be much increased through stored
reserves or greater surge capacity and that Germany's real
protection lay in diversifying its sources of gas supply and
types of fuel.
It is not yet clear what degree of diversification the
West Europeans will be able to maintain in the 1980s. Con-
tinued expansion of LNG production could mean that ocean-
transported gas, primarily from LDCs, could be much more
important than Soviet pipeline gas. Algeria, for example,
has the capability to rival the USSR as a supplier to Western
Europe (counting Algeria's trans-Mediterranean pipeline).
The West Europeans, however, face major uncertainties
in connection with gas imports from LDCs. Larger than an-
ticipated costs and a somewhat cavalier attitude toward
long-term contracts could lead to cancellations of major
planned facilities other than Algeria's Arzew-3 LNG plant.
Anti-Western political upheavals like the Iranian revolu-
tion could lead to suspension of projects like the Iranian-
Soviet-West European IGAT-2 natural gas swap that can still
be defended on economic grounds. With long-term patterns
between gas and oil prices not yet clear, there may be
periodic attempts to increase prices radically, such as
the Algerian effort to triple the price of gas in 1980.
Developments like these could influence the proportion
of Soviet and non-Soviet gas in total West European imports,
and thus affect prospective Soviet leverage. For example,
a shortfall in projected North or West African gas could
7
CONFIDENTIAL
CONFIDENTIAL
lead to competitive bidding for that gas among sèveral West
European countries. If, for whatever reason, the losing
West European country were not able to persuade the Nether-
lands or the United Kingdom to meet its additional needs for
gas, it might turn to the USSR for increased supply. Even
though this Soviet gas would be supplied through a common
European pipeline, the importing country might feel suffi-
ciently pressed economically that it would be receptive to
Soviet suggestions on wider ranging political and economic
issues. In addition, if current US negotiations with Algeria
portend a more active US role in the LNG market, there could
be competition between the United States and its European
allies for African gas. To the extent that this competition
weakened West European prospects for obtaining non-Soviet
gas, it could strengthen West European incentives to coop-
erate with the Soviet Union.
Finally, a tightening of the world gas market might,
over time, lead Japan and possibly the United States to
renew negotiations for joint energy development with the
Soviet Union. Such negotiations could raise strategic
issues that would be important, although less far-reaching
than those that grow out of the Soviet-West European eco-
nomic and energy cooperation.
Outlook
The Soviet ability to capitalize on a changing world
gas market will depend both on West European and broader
allied energy planning and on the availability of altern-
atives to Soviet gas in the world market. The Soviets
probably believe that the West Europeans are capable of
establishing gas reserves and a gas and oil surge production
capacity. They realize that Western Europe, like Japan, is
counting on greatly increased world production of LNG in the
1980s.
The Soviets are also aware, however, that during past
oil shortages the West Europeans have often failed to
cooperate, either among themselves or with Japan and the
United States. The Soviets may judge, therefore, that the
Western countries lack the cohesion and strategic perspec-
tive to address energy security issues collectively and that
they are unlikely to pay the economic and political costs
necessary to counter the vulnerability arising from their
dependence on imported gas. The Soviets also know that
there are political and economic uncertainties associated
with increased gas production in LDCs and that the USSR has
a reputation for reliability in energy supply that could
- 8 -
CONFIDENTIAL
14
CONF IDENTIAL
appear increasingly reassuring to the West Europeans. For
these reasons the Soviets may see more opportunities than
risks in testing Western cohesion by trying to exploit the
potential leverage in the natural gas relationship.
- 9 -
CONFIDENTIAL
GAS PIPELINE
is
Top Secret
10651
FOIA(b) (3)
SPECIAL ANALYSIS
USSR - WESTERN EUROPE: Proposed Natural Gas Pipeline
by
The natural gas pipeline proposed to connect Siberia with
six West European countries is the largest trade project ever
negotiated by the USSR and Western nations. Soviet oil exports
to the West probably will decline in the mid-1980s, and increased
gas exports will be Moscow's only major alternative source of
hard currency. Without the earnings from the sale of gas sent
through the pipeline, Moscow would have to reduce substantially
its imports of Western machinery and other goods. The project
would increase West European reliance on Soviet gas supplies,
although dependence on all Soviet energy supplies as a whole would
increase only slightly as Soviet oil exports drop. The West
Europeans consider the risk entailed in depending on Soviet gas
to be worthwhile, in the interest of keeping the sources of their
energy supplies diversified.
The pipeline would be a major new element in Soviet -
West European relations, providing the Soviets one addi-
tional lever they could use in a broad diplomatic offen-
sive to persuade the West Europeans to accept their views
on East-West issues. Such diplomatic pressures and lever-
age might be directed, for example, at undermining Euro-
pean willingness to act in concert with the US on security
issues.
Any temptation the Soviets might have to threaten
to cut off gas shipments for political ends would be af-
fected by the Soviet need for hard currency earnings and
by the physical setup of the pipeline, which would pre-
clude cutting off any one West European country without
cutting off all others.
The pipeline, however, could be exploited more subtly
for political leverage. The emphasis would be on the
benefits to be gained from cooperation and from avoiding
contentious issues.
-continued
DECLASSIFIED IN PART
Top Secret
NLRR F06-114/9 # 10651
9
18 March 1981
BY KML NARA DATE 9/25/12
16
Top Secret
Nevertheless, even cutoffs have some precedent. The
Soviets cut off oil supplies to Yugoslavia in 1948, to
Israel in 1956, and to China in the early and mid-1960s.
In all three cases, Moscow faced much less serious con-
sequences than would be at stake with the European pipe-
line.
West European Perspective
Barring a major increase in East-West tension, West
European governments see major reliance on Soviet gas as
entailing acceptable political risks. The West Europeans
view the USSR as a more reliable supplier than many al-
ternative sources. They argue, for example, that Moscow
is less likely than Algiers to use gas leverage as a
means of blackmail.
West Europeans point out that their overall depend-
ence on Moscow for energy supplies would increase little,
because of the anticipated drop in Soviet oil deliveries.
The West European countries involved see major
economic benefits:
They need to increase gas imports to offset
the likely decline in oil supplies.
Equipment sales related to construction of the
pipeline would create thousands of jobs and
billions of dollars in business for West Euro-
pean firms.
The Soviets also would spend a large part of
their earnings from gas sales in Western Europe.
As long as the situation in Poland remains volatile,
however, West European officials will be reluctant to
signal their approval of the project to the Soviets.
West Germany and France recently agreed to a joint study
of the whole project, which they could use to delay it
if necessary.
continued
Top Secret
10
18 March 1981
Top Secret
Impact of the "Natural Gas Weapon"
The likelihood is strong that the Soviets will at-
tempt subtle exploitation of the West European interest
in the pipeline project and, in the longer term, in secur-
ing a steady supply of the natural gas. Soviet success
will depend on West European and NATO cohesion and resolve
and on West European progress over the next few years
in developing strategic reserves and a fuel substitution
capability.
West European countries are taking such steps to
protect themselves from Soviet supply interruptions.
Additional progress will be necessary, however, to pro-
vide the cushion needed to avoid serious repercussions
in the event of a complete Soviet cutoff.
Top Cecret
11
18 March 1981
GAS r PIPELINE 10652 Pyes FYI
18
March 25, 1981
To: Richard V. Allen
From: Allen Lenz alber
Subject: Decision on Spare Parts Licenses for Caterpillar
Tractors
The attaced Attached makes the case for your allowing Commerce a go ahead
on previously approved licenses for export of Spare Parts for
use on Caterpillar Pipe layers previously exported to the USSR.
It is important to note that no existing regulation required
Commerce to request your concurrence. Rather, submission indicates
a desire to not be "out of step".
I believe this issue merits your prompt attention. My Commerce
sources tell me that Secretary Baldrige feels word from you is
overdue. A "no" will use up substantial personal capital with him,
but a further delayed response would be even worse.
Put less delicately, "my ass is on the line" to deliver a response
immediately, if not sooner!
I strongly recommend a personal phone call to Baldrige to restore
any good will that might otherwise be lost. If this can't be
done, I can relay the decision to Lionel Olmer.
Larry Brady has no objections to the licenses being issued and
feels that the decision is a political call.
hing is sending tacking goints
done to Baldroge him AL
DECLASSIFIED
NLRRF06-114/9#10652 F06-114/9 10652
BY KML NARA DATE 4/7/2011
mar 26
Foldowed m dentail
10653 19
MEMORANDUM
1239
NATIONAL SECURITY COUNCIL
CONFIDENTIAL
ACTION
March 25, 1981
MEMORANDUM FOR RICHARD V. ALLEN
FROM:
TIM DEAL
6ad
ALLEN J. LENZ
oth
SUBJECT:
Export Controls: License Applications for
Caterpillar (U)
Problem: Commerce has sent to us for review the memo at Tab A
concerning four license applications by Caterpillar to ship
spare parts for pipelayers previously exported to the USSR.
Caterpillar has mounted an intensive lobbying campaign to obtain
approval of these licenses. While we would prefer to delay a
decision on them until we have reviewed our overall policy on
the export of oil and gas equipment and technology to the USSR,
we may not have that option. Commerce is under heavy pressure
to grant the licenses and probably cannot delay action much
longer. This memorandum: (1) provides background information
on the cases and existing procedures for handling Soviet oil/gas
applications, (2) describes the potential policy implications,
and (3) recommends that we inform Commerce that the NSC staff
has no objection from a foreign policy standpoint to the issuance
of licenses for the spare parts. (C)
Background:
Caterpillar has filed four licenses applications to export spare
parts used in pipelayers previously sold to the USSR (total trans-
action value: $2.7 million). These parts are unrelated to the
200 pipelayers for the West Siberian (Yamal) gas pipeline which
Commerce licensed last fall, but which the Soviets did not buy.
Concerned agencies (Commerce, State, Defense, and Energy)
recommend approval of the licenses. (U)
In 1978, the Carter Administration put export controls on oil/gas
equipment and technology destined for the USSR. Under procedures
established for such cases, Commerce referred all licensing
applications which met certain criteria (e.g., the value of the
transaction was more than $1 million; the level of technology
transfer was medium to high; the potential impact on Soviet oil
production was significant) to State and NSC for foreign policy
review. In other less important cases, Commerce could issue the
licenses without referral to State and NSC so long as the item
was not subject to strategic trade controls. (C)
CONF IDENTIAL
Review on
DECLASSIFIED
March 25, 1987
NLRR 10653
BY KML NARA DATE
20
CONF IDENTIAL
2
Despite elaborate screening procedures, the Carter Administration
did not deny any export license applications for oil and gas
equipment or technology until after the Afghanistan invasion.
In February 1980, Dr. Brzezinski issued a directive in President
Carter's name which set forth new conditions for issuance of
export licenses in Soviet oil/gas cases. Accordingly, there was
to be a presumption of denial for technology and a presumption
of approval for end-use equipment. Based on this guidance, in
1980 the Carter Administration:
-- issued export licenses for various end-use items (e.g.,
offshore drilling equipment for joint Japanese/Soviet projects
off Sakhalin Island);
-- issued export licenses for 200 Caterpillar pipelayers for
the West Siberian gas pipeline;
-- denied a license to Dresser Industries for technical
training in connection with the much publicized drill bit plant
in the USSR;
-- denied five applications for relatively sophisticated
computers used by the Soviet Ministry of Energy in seismographic
work. (C)
Commerce referred the Caterpillar spare parts applications to
the NSC on January 9, 1981. Under the existing policy guidelines,
foreign policy review of the applications was not necessary, but
Commerce sought guidance on them because of the controversy
surrounding the original approval of the licenses for the Caterpillar
pipelayers for the Siberian project. On instructions from Dr.
Brzezinski, we returned the applications to Commerce without action
on January 13. (C)
Policy Implications:
Caterpillar can make a good case for approval of the licenses:
-- The applications cover spare parts, not finished equipment
or technology. (C)
-- It has sold 1000 pipelayers to the USSR over the past
ten years; there is a continual need for replacement parts to
service these machines, (C)
-- The spare parts would not be used on the Siberian pipeline.
Approval of the licenses would not, therefore, compromise our
eventual position on US/Western participation in that project. (C)
-- We could justify the export of spare parts as consistent
with USG policy on Soviet oil/gas cases since the Afghanistan
invasion; we would break no new ground. (C)
But it will be difficult to treat this case in isolation. Approval
of the license is bound to have broader ramifications:
CONF IDENTIAL
21
CONF IDENTIAL
3
-- Unless there is a further deterioration in the political
environment, we would be expected to take similar action in the
near future on other pending applications. Issuance of a large
number of export licenses might be perceived as a political signal
to the Soviet Union -- whether intended or not. (C)
-- Caterpillar desires to sell an additional 100 pipelayers
to the USSR for projects not connected with the Siberian pipeline.
Approval of the license for spare parts may encourage Caterpillar
to push for immediate authorization to export the pipelayers.
Permitting that sale would raise anew questions about the US
commitment to the post-Afghanistan sanctions effort and undermine
whatever allied cooperation still exists. (C)
-- The farm community and its supporters in Congress would
attack a decision to allow Caterpillar to ship additional pipelayers
while we continue to block farm sales through the partial grain
embargo. Domestic reaction to a favorable decision on the spare
parts might not be as severe, but it would hardly go unnoticed. (C)
Comment:
This is a tough call. It would be preferable to defer action
on the licenses for the spare parts and other similar applications
until US/Soviet relations improve. But we believe that the
Administration cannot wait that long. Commerce will have to move
soon on the large -- and growing -- backlog of Soviet oil/gas
cases. Under Export Administration Act regulations, Caterpillar
or other applicants could force the issue because US regulations
permit persons who have filed license applications to petition
Commerce if it does not meet legislatively-mandated deadlines.
If Commerce fails to act within the prescribed period (we are
already at that limit in the case of Caterpillar), the applicant
can take the USG to court. (C)
On balance, we favor issuance of the licenses, recognizing that
Commerce will have to take action soon on other pending cases.
To reduce the risk of conveying an unintended political signal,
we could suggest to Commerce that it space out license approvals
and that it emphasize to Caterpillar that approval of spare parts
for previously exported equipment sends no signal on export of
additional pipelayers. Commerce should also emphasize on any
public statement that approval of the spare parts licenses is
"routine" application of long-standing guidelines. (C)
One of the most important considerations is not to impair whatever
ability we have to delay West European participation in the Yamal
pipeline or toughen their terms for participation. The potential
value of this project to the Soviets dwarfs any other individual
project. We think approval of the spare part licenses will stir
less domestic controversy and give us more flexibility in influencing
CONFIDENTIAL
CONFIDENTIAL
4
22
the position of our allies on Yamal than would disapproval, which
would clearly establish a US position that would be difficult to
reverse, absent a marked improvement in US-Soviet relations. A
denial on these spare part licenses would constitute a clear
signal of escalation of our economic restrictions on the USSR.
Even if we are prepared to send such a signal, we do not believe
this is the appropriate vehicle for announcing such a policy. (C)
If you agree with this course of action, you should approve the
recommendations listed below. (U)
RECOMMENDATIONS
That you inform Commerce that you have no objection to the issuance
of licenses for Caterpillar spare parts. (If you approve, Allen
Lenz will sign the memo at Tab B.) (C)
Approve
Disapprove
That we advise Commerce to move through the backlog of pending
Soviet oil/gas cases at a steady, but measured, pace. (C)
Approve
Disapprove
CONF IDENTIAL
29
NATIONAL SECURITY COUNCIL
WASHINGTON, D.C. 20506
January 13, 1981
Brenda Forman-
MEMORANDUM FOR:
KENT KNOWLES
Deputy to the Deputy Assistant
Secretary for Export Administration
Department of Commerce
402085
SUBJECT:
Soviet Oil/Gas Cases
402056
515264 STATES
517481
5167035
I am returning your memos of January 6, 9, and 12, requesting
NSC review of the license applications for Dresser Industries,
Caterpillar, and Lynes International, respectively. Dr.
Brzezinski believes we should hold these and other Soviet
oil/gas cases for the incoming Administration.
Tim
Timothy Deal
Please hold - we a resubint
when new people are in place
+ procedures at I any pressure
comes on these, please lat me
know.
le. 1/19
DEPARTMENT OF COMMER
UNITED STATES DEPARTMENT OF COMMERCE
30
UNITED STATES OF AMERICA
International Trade Administration
Washington, D.C. 20230
8473A
Oil/Gas Waiver # 38
Date:
January 21, 1981
SOVIET OIL/GAS CASE NO. 529084
To:
Operating Committee Members (Defense, Energy and State)
...
From:
Robert L. Spruell
Chief, E-W Trade Branch
PPD/OEA
Subject: Caterpillar - Pipelayer Parts, $910,000
Commerce proposes approval of the attached Soviet Oil/Gas case.
Commerce further believes that this case does/does not warrant
referral to NSC/State for special foreign policy considerations
based on the criteria set forth in the NSC memoranda of September
19, 1978 and February 19, 1980.
DOD
Defer to NSC 1/29/81 per JHower memo,
Energy
State
OK 1/22/81 per telcon R Spruell/R Hansen
Concur
Director, Policy Planning Division
Date
Attachment
Remarks: (If you object to the Commerce recommendation, please
explain your rationale.)
sn. DEPARTMENT TRADE OF 9 COMMERCE
32
1239
NATIONAL SECURITY COUNCIL
WASHINGTON, D.C. 20506
MEMORANDUM FOR ERIC HIRSCHHORN
Deputy Assistant Secretary
for Export Administration
The Department of Commerce
SUBJECT:
Caterpillar Spare Parts
This is in response to your memorandum of March 6.
The NSC staff has reviewed the four cases (515264,
516461, 517035, and 529084) that you submitted
dealing with the export to the USSR of Caterpillar
spare parts for previously exported pipelayers.
We have no objection on foreign policy grounds to
the issuance of export licenses in these cases.
Allen J. Lenz
Staff Director
GAS PIPELINE
CONF IDENTIAL
INCOMING
35
Department of State
TELEGRAM
10662
PAGE 01
TOKYO 06149 070458Z
6514
TOKYO 06149 070458Z
ACTION EUR-12
FOUR YEARS OF 3.5 MILLION TONS OF PIPE FOR THE PROJECT.
INFO
OCT-01
ADS-00
AID-07
INR-10
SS-15
CIAE-00
EB-08
THE NIHON KEIZAI STATED THAT THE PIPE COMPANIES WERE
EA-10
ICA-11
DODE-00
H-01
NSC-05
NSAE-00
COME-00
INTERESTED IN SELLING TO THE SOVIETS AND WOULD CONTINUE
L-03
DOE-10
TRSE-00
PM-09
INT-05
OP IC-07
CEA-01
NEGOTIATIONS WITH THEM WHILE MONITORING THE EXIM BANK'S
OMB-01 STR-10 SMS-01 XMB-02 OES-09 ACDA-12 SP-02
DISCUSSIONS ON CREDITS FOR THE YAMBURG PROJECT. THE
SPRS-02 /154 W
FOREIGN MINISTRY WAS UNABLE TO CONFIRM OR DENY THE
124754 070505Z /13
ASSERTION IN THE PRESS THAT THE COMPANIES WOULD SEND
R 080455Z APR 81
REPRESENTATIVES TO MOSCOW IN LATE APRIL TO CONTINUE DIS-
FM AMEMBASSY TOKYO
CUSSIONS ON PIPE SALES.
TO SECSTATE WASHDC 7940
INFO AMEMBASSY BEIJING
5. THE JAPAN-SOVIET ECONOMIC COMMITTEE, AN ORGANIZATION
AMEMBASSY BONN
OF JAPANESE BUSINESSMEN, MET MARCH 31 TO DISCUSS
AMEMBASSY LONDON
JAPANESE-SOVIET ECONOMIC RELATIONS. ACCORDING TO THE
AMEMBASSY MOSCOW
FOREIGN MINISTRY, A NUMBER OF BUSINESSMEN SPOKE OUT IN
AMEMBASSY PARIS
FAVOR OF EXPANDING ECONOMIC RELATIONS AND PARTICULARLY
AMEMBASSY ROME
IN FAVOR OF PARTICIPATION IN THE YAMBURG PROJECT. HOW-
EVER, THE CONSENSUS FAVORED CAUTION AND NO BREAK WITH
TOKYO 06149
PRESENT PRACTICE IN LIGHT OF THE SITUATION IN POLAND.
THE GROUP DISCUSSED THE POSSIBILITY OF HOLDING A MEET-
PARIS FOR USOECD
ING OF THE JAPAN-SOVIET JOINT ECONOMIC CONFERENCE, BUT
DECIDED NOT TO HAVE A MEETING SOON AND TO DISCUSS THE
E.O. 12065: GDS 04/01/87 (ANGEVINE, CHARLES) OR-E
SUBJECT ONCE AGAIN LATER THIS YEAR.
TAGS: EEWT, ETRD, UR, JA
SUBJECT: VISIT OF SOVIET DELEGATION TO DISCUSS YAMBURG
6. COMMENT: THERE SEEMS TO BE CONSIDERABLE INTEREST
PROJECT
IN THE JAPANESE BUSINESS COMMUNITY IN SELLING EQUIPMENT
AND SUPPLIES FOR THE YAMBURG PROJECT. THE FOREIGN
REF: MOSCOW 4304
MINISTRY ACKNOWLEDGED THAT THE GOVERNMENT IS FEELING
MORE PRESSURE FROM THE BUSINESS COMMUNITY. THE JAPANESE
1.
(c)
ENTIRE TEXT.
SEEM TO BELIEVE THE PROJECT IS VERY MUCH ALIVE AND THE
FOREIGN MINISTRY THINKS IT IS CENTRAL TO THE SOVIET
2. SUMMARY: SOVIET OFFICIALS KOMAROV AND AFANASIEV
UNION'S ECONOMIC PLANS.
VISITED JAPAN FROM MARCH 24 TO 27 TO PROMOTE JAPANESE
COOPERATION ON FINANCING AND PROVIDING EQUIPMENT FOR
MANSFIELD
THE YAMBURG GAS PIPELINE PROJECT. THE MINISTRY OF
FOREIGN AFFAIRS ACKNOWLEDGED INCREASED PRESSURE FROM THE
LOCAL BUSINESS COMMUNITY OVER YAMBURG BUT STATED THE
SOVIET PRESENTATION REGARDING FINANCING PRODUCED LITTLE
REACTION FROM EXIM BANK.
3. FROM MARCH 24 TO 27, THE DEPUTY DIRECTOR OF THE SOVIET
FOREIGN TRADE MINISTRY'S FOREIGN EXCHANGE BUREAU, MR.
KOMAROV, AND THE PRESIDENT OF THE SOVIET NATIONAL MINING
AND INUDSTRIAL PRODUCTS PUBLIC CORPORATION, MR. AFANASIEV
VISITED JAPAN FOR TALKS WITH THE JAPANESE EXPORT-IMPORT
BANK AND PRIVATE CORPORATIONS ON EQUIPMENT PURCHASING
AND FINANCING FOR THE YAMBURG GAS PIPELINE. ACCORDING
TO THE FOREIGN MINISTRY, THE SOVIET DELEGATION MET WITH
NO GOVERNMENT MINISTRY OFFICIALS AND GAVE THE EXIM BANK
ONLY A GENERAL PRESENTATION ON THE SCOPE OF THE PROJECT
AND THE AMOUNT AND TYPES OF EQUIPMENT AND CONSTRUCTION
MATERIALS WHICH WILL BE NEEDED. THEY SAID THE TOTAL PRO-
JECT COST WOULD BE $15 BILLION AND THAT THEY SOUGHT
$3 BILLION IN CREDITS FROM JAPAN. THE FOREIGN MINISTRY
TOLD US THAT IN THEIR DISCUSSIONS WITH THE EXIM BANK,
THE SOVIETS SAID THAT THEY WERE IN THE FINAL STAGE
OF DISCUSSIONS ON CREDITS WITH THE EUROPEANS WHO WERE
GIVING THEM PREFERENTIAL TREATMENT. (ON THE BASIS OF
THE REFTEL WE COMMENTED TO THE FOREIGN MINISTRY THAT
THIS WAS NOT OUR UNDERSTANDING.) THE PRESS CLAIMED
THE SOVIETS TOLD EXIM THAT THE W. GERMANS HAD OFFERED
7.5 PERCENT CREDITS. MITI AND THE FOREIGN MINISTRY
BOTH HAVE TOLD US THAT THE EXIM BANK MERELY LISTENED TO
THE SOVIET PRESENTATION AND MADE NO COMMITMENTS WHATSO-
EVER. ACCORDING TO THE FOREIGN MINISTRY THE EXIM
BANK AND THE SOVIET DELEGATION DID NOT SET A TIME FOR
ANOTHER MEETING ON CREDITS FOR THE YAMBURG PROJECT.
DECLASSIFIED
4. THE PRESS REPORTED THAT THE TWO SOVIETS MET WITH
FOUR JAPANESE PIPE PRODUCERS TO DISCUSS THE PURCHASE OVER
NLRRF06-114/9 NLRRF06-114/9 $10662
CONF IDENTIAL
BY KML NARA DATE 4/7/2011
GAS PIPELINE
10663
37
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E.O. 12065: RDS-4 4/16/2001 (KENNON, L.) OR-E
TAGS: EFIN, PEPR, SU, NL
SUBJECT: A KEY DUTCH VIEW ON THE SOVIET NATURAL GAS
PIPELINE PROJECT
1. X - ENTIRE TEXT.)
2. SUMMARY. THE LEADER OF THE DUTCH EFFORT ON THE
PROPOSED PIPELINE TO TRANSPORT SOVIET GAS TO WESTERN
EUROPE TOLD US HE CONSIDERS THE PROJECT ULTIMATELY IN-
EVITABLE, EVEN THOUGH IT IS BOGGED DOWN IN POWER STRUGGLES
AND LACK OF COORDINATION ON ALL SIDES. THE PROJECT WILL
HAVE TO BE A JOINT WESTERN EUROPEAN ENTERPRISE, SINCE IT
IS TOO BIG FOR ANY ONE COUNTRY ALONE. HE DOES NOT FEAR
DEPENDENCE BY WESTERN EUROPE ON THE USSR VERY MUCH, BUT
RECOGNIZES A NEED TO DIVERSIFY ENERGY SOURCES AND CON-
STRUCT NATURAL GAS STORAGE. HIS MAJOR POLITICAL REASON
FOR PUSHING THE PROJECT IS TO HELP THE USSR DEVELOP
ENERGY SOURCES AND THEREBY AVOID POTENTIAL DEPENDENCE BY
IT ON MIDDLE EASTERN ENERGY. DUTCH TALKS WITH THE SOVIETS
ON A FINANCING PACKAGE FOR DUTCH COMPONENTS IN THE PROJECT
GO ON, ALTHOUGH THE TENTATIVE ARRANGEMENTS AGREED TO
LAST FEBRUARY HAVE LAPSED. END SUMMARY.
3. ECON COUNS HAD LENGTHY DISCUSSION APRIL 16 ABOUT
PROPOSED SOVIET NATURAL GAS PIPELINE TO WESTERN EUROPE
WITH GERRIT WAGNER (STRICTLY PROTECT), WHO IS FORMER
CHAIRMAN OF ROYAL DUTCH SHELL AND THE LEADER OF THE GROUP
THAT IS TRYING TO PUT TOGETHER THE FINANCING PACKAGE FOR
DUTCH PARTICIPATION IN THIS POTENTIAL PROJECT. WAGNER
SIT:
EOB: ECON, EURE, WEUR
WHSR COMMENTS:
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TREATS THE PROJECT AS ULTIMATELY INEVITABLE AND GENERALLY
DESIRABLE. THE RUSSIANS DESPERATELY NEED THE FOREIGN
EXCHANGE THE SALE OF NATURAL GAS WOULD PROVIDE. THE
WESTERN EUROPEANS, ESPECIALLY THE GERMANS AND THE FRENCH,
DESPERATELY NEED THE ENERGY. AT THE SAME TIME, HE IS WELL
AWARE OF THE ENORMOUS COMPLEXITY OF BRINGING THE DEAL
OFF. HE ATTRIBUTES, FOR EXAMPLE, THE SOVIET INSISTENCE ON
A RIDICULOUSLY LOW NOMINAL INTEREST RATE AS THE VICTORY
OF SOME POWER GROUP OR INDIVIDUAL IN THE USSR (PERHAPS THE
STATE BANK). AN EVEN MORE IMPORTANT COMPLICATING FACTOR
IS THAT THERE IS NO COMMON EUROPEAN NEGOTIATOR OR
NEGOTIATING POLICY. EACH EUROPEAN COUNTRY ACTS ON ITS OWN,
EVEN THOUGH THE PROJECT IS so BIG - PERHAPS DOLS 15 TO
20 BILLION - THAT NO ONE EUROPEAN COUNTRY COULD FINANCE
IT NOR USE ALL THE GAS ITSELF. (WAGNER IS OBVIOUSLY
FRUSTRATED BY THIS ANARCHY AND WOULD EQUALLY OBVIOUSLY LOVE
TO BE THE EUROPEAN COORDINATOR.)
4. THE OUTCOME OF THIS MANY-PLAYERED GAME IS TO MAKE
PROGRESS FRUSTRATINGLY SLOW, AT LEAST FROM THE STANDPOINT
OF A DYNAMIC ACTIVIST LIKE WAGNER. WE ASKED HIM WHAT,
ASSUMING THINGS GO WELL IN POLAND, WOULD BE THE EARLIEST
TIMETABLE FOR BEGINNING TO GET GAS THROUGH THE PIPELINE.
HE SAID THAT AT BEST HE DID NOT EXPECT THE NECESSARY
FIRST STEP (AT SOVIET INSISTENCE) OF LINING UP THE
FINANCING PACKAGE COULD BE ACHIEVED DURING 1981. IF IT
IS ARRANGED NOT TOO FAR INTO 1982, THEN GAS COULD BEGIN TO
FLOW SOMETIME IN 1985. SUCH RAPID CONSTRUCTION OF THE
PIPELINE WOULD BE POSSIBLE BECAUSE THE SOVIETS WOULD NOT
BE BOTHERED BY TIME-CONSUMING LAND CONDEMNATION FORMALITIES.
THE BULLDOZERS WOULD JUST GO TO WORK. THE GAS FLOWING
IN 1985 WOULD, HOWEVER, BE FROM EXISTING FIELDS, SINCE
THE SIBERIAN FIELDS COULD NOT BE DEVELOPED THAT FAST.
WAGNER WAS CONFIDENT, HOWEVER, THAT THE SOVIETS COULD
DEVELOP THE TECHNOLOGY TO BRING IN THE GAS FIELDS.
5. ON TECHNOLOGY AND EQUIPMENT, HE TOLD US THAT THE SOVIETS
WERE ADAMANT THAT NO AMERICAN EQUIPMENT OR LICENSES
BE USED IN THE EUROPEAN CONTRACTS. THEY ARE CONCERNED
ABOUT THE "WAVERING NATURE" OF AMERICAN POLICY AND FEAR
THAT THEY MIGHT NOT BE ABLE TO GET SPARE PARTS FOR
AMERICAN EQUIPMENT. (WAGNER ASKED THAT WE HOLD THIS INFOR-
MATION CLOSELY AND THAT IT BE USED IN A WAY THAT WOULD
NOT IDENTIFY HIM WITH IT. WE so ASSURED HIM.)
6. ON THE STATUS OF THE DUTCH NEGOTIATIONS WITH THE USSR,
WHILE
THE TENTAT IVE FINANCING ARRANGEMENT NEGOTIAT-
ED WHEN THE SOVIETS WERE HERE IN FEBRUARY (THE HAGUE 1150)
TECHNICALLY LAPSED ON APRIL 1, TALKS GO ON AND HE IMPLIED
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30
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THEY COULD BE QUICKLY REINSTATED IF THE SOVIETS AND THE
DUTCH COME TO AN OVERALL AGREEMENT. HE THOUGHT THIS WOULD
BE MUCH HELPED ALONG IF THE GERMANS AND THE SOVIETS COULD
GET THEIR BILATERAL ACT TOGETHER, SINCE NOTHING IS GOING
TO HAPPEN WITHOUT THE GERMANS. WHILE THE FIGURE OF FINANC-
ING OF ABOUT DOLS 2.1 BILLION OF DUTCH EQUIPMENT FOR
CONSTRUCTION HAS BEEN WIDELY USED, HE DID NOT PUT MUCH
BT
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INFO ALL EC CAPITALS
AMEMBASSY MOSCOW 1240
TAL
SECTION 02 OF 02 THE HAGUE 02718
EXDIS
STOCK IN THE NUMBER. HE GAVE A RANGE OF DOLS 250 MILLION
TO DOLS 5 BILLION FOR POSSIBLE DUTCH SALES. HE ADDED,
HOWEVER, THAT THE DUTCH WERE HANDICAPPED BY HAVING COME
INTO THE GAME LATE. IT was ONLY LAST DECEMBER THAT THEY
ENTERED INTO SERIOUS NEGOTIATIONS WITH THE SOVIETS.
7. WAGNER SAYS HE UNDERSTANDS AMERICAN CONCERNS OVER
DEPENDENCE ON SOVIET GAS, BUT MAINTAINS THAT THE SALES
ARE A DOUBLE-EDGED SWORD. ONCE THE SOVIETS BECOME DE-
PENDENT ON THE REVENUES, THEY COULD NOT LIVE FOR LONG
WITHOUT THEM, HE RECOGNIZED THAT THE EUROPEANS WOULD HAVE
TO BUILD STORAGE AND IMMEDIATELY BEGIN DEVELOPING
ALTERNATIVE ENERGY SOURCES TO REDUCE TO ACCEPTABLE LEVELS
THE POLITICAL AND ECONOMIC RISKS OF A POTENTIAL CUTOFF.
THE PRESENCE OF DUTCH GAS THAT COULD BE SUPPLIED IN
STEPPED-UP AMOUNTS IF THE SOVIETS CUT OFF THE SUPPLY
WOULD BE AN IMPORTANT BACKGROUND CONSIDERATION. HE
DOUBTED, HOWEVER, IF ANY GUARANTEE OF SUCH COULD BE
FORMALIZED WITH so MANY SOVEREIGNTIES INVOLVED AND NO
COORDINATING MECHANISM IN SIGHT.
8. WAGNER VOLUNTEERED HIS REASONS FOR TAKING SUCH AN
INTEREST IN THE PROJECT, WHICH HE SAID ISN'T AGAINST
DUTCH INTERESTS, BUT, GIVEN THE DUTCH FAVORABLE ENERGY
POSITION, ISN'T VERY MUCH IN DUTCH INTERESTS EITHER. HE
IS IN FAVOR OF ANYTHING THAT DEVELOPS SOVIET ENERGY. THERE
WERE TWO FACTORS INSTRUMENTAL IN MAINTAINING WORLD PEACE.
ONE WAS THE AMERICAN NUCLEAR UMBRELLA. THE OTHER was
THE COMFORTABLE SOVIET ENERGY POSITION, WHICH HAD KEPT
THEM FROM DEPENDING ON MIDDLE EAST ENERGY (EXCEPT FOR
SIT:
EOB:CLWHSR COMMENTS:
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SOME LOCALLY-USED IRANIAN NATURAL GAS). HE FEARS THAT
THEY WOULD BE STRONGLY TEMPTED TO GO AFTER MIDDLE EAST
ENERGY, BY FORCE IF NEED BE, IF THEY RAN SHORT OF THEIR
OWN. DUNNIGAN
BTCL
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GAS PiPECINE
10656
4n
2370
MEMORANDUM
Pages
NATIONAL SECURITY COUNCIL
April 30, 1981
DECLASSIFIED
NLRR 10654
MEMORANDUM FOR RICHARD V. ALLEN
FROM:
ALLEN J. LENZ at
BY KML NARA DATE 4/7/2011
SUBJECT:
(Non) Treatment of the Siberian Pipeline
Project in Current IGs
The first 90 minutes of a 27 April meeting of the Energy Sub-
Group of the East-West Economic IG were. devoted to the standard
bureaucratic paragraph by paragraph review of the Sub-group's
paper on "Export Policy Toward the USSR on Equipment and
Technology for Petroleum and Natural Gas Exploration and Devel-
opment". In its current form, the paper is too short to be
termed a study, but probably too long and torturous (8 pages;
it will be more when it is finished) to be useful as a cabinet
decision document. It is to go to an IG this week for further
review.
After the extended review of this "Export Policy" paper, the
group was ready to adjourn without much attention to an annex
paper, "The West Siberian Pipeline". However, I kept them an
additional 10 minutes with the following thoughts:
Substantial preparatory work has been done toward
advancing, at the July Economic Summit, the concept
of "economic security".
The Siberian Pipeline is the largest single East-
West Trade transaction ever conceived and the
largest single threat to Western economic security
ever likely to exist.
The pipeline project is not dead; it is only slum-
bering. We cannot wait beyond the Summit to make
11 true
our case if we intend to have any impact on the
course of this project.
Because of the size and visibility of the pipeline
project and U.S. concerns about it, in large
measure U.S. export control policy on energy
technology for Soviet use will be determined by
what we do on the pipeline -- by the license deci-
sions we make on that project -- rather than
decisions on pipeline license applications being
determined by the kinds of policy questions addressed
in general terms in the paper that is being labored
over SO diligently.
43
2
There is little point in introducing the general
concept of economic security at the Summit meeting
if we do not follow up at that meeting with a
translation of the concept into specifics on the
pipeline project. The President's persuasive
/yes
powers should be used to advance our case on this
matter.
Hence, the U.S. needs a clear, carefully thought-
out policy on the Siberian Pipeline, both as a
determinant in our broader export control policy,
and also so that we may put the pipeline in its
proper context in Summit discussion of the concept
of economic security.
The four-page paper which has been prepared on the
Siberian Pipeline is totally inadequate to even
begin any internal examination of what our options
and strategy might be in Summit discussions of
the pipeline.
Further, it is evident that little or no attention
beyond this paper has been given to developing our
options in-depth. The Summit meeting is only 12
there
weeks away. Given our experience with the "Economic
skillent H al- we you ind shoughts all miracle across,
Security" concept, 12 weeks probably isn't enough to
deal with the specifics of strategy and tactics on
the pipeline, but I think we ought to try.
We need to begin immediately to really get into
this issue in-depth.
your
you
I think I moved a few people. The Chairman told me that the
shortcomings of the paper would be corrected this week, but
I can't believe that. He simply hasn't grasped what it seems
to me has to be done. Upon receipt of the next iteration of
the paper, I will do a more detailed assessment and give you
more specific recommendations. In the meantime, I suggest
I arr.
that you discuss with Secretary Haig what he has in mind for
downstream efforts on the pipeline, how he sees it fitting
Suifyence
into the Summit, and what preparatory work he believes is
fel the paper
being done.
Soon, then
Henry Nau's comments on this subject are at Tab A.
will elevate l
to higher consider
ation. you and l
could w/Bush began by tacking
44
3
perhape sp
will you gregare
RECOMMENDATION
6 memo actuale to this?
That you discuss with Haig his ideas on the Siberian Gas
(from me to H.
Project; i.e., "Whither are we Drifting?"
Approve
you
Disapprove
That you advise me whether the general views noted above con-
form with yours, so that if they don't I can avoid embarras-
sing us in the future.
You are on the right track absolubely - yrs
Let's talk; you need guidance (you always
need sperikual
guidance but
none or
this case!)
CC: Henry Nau
Richard Pipes
Bill Stearman
10657
as
MEMORANDUM
2370 Add-on
NATIONAL SECURITY COUNCIL
April 30, 1981
INFORMATION
MEMORANDUM FOR RICHARD V. ALLEN
FROM:
HENRY R. NAU
ast
SUBJECT:
Lenz' Memo on the Siberian Pipeline Project
I agree completely with Allen that we need to develop a
position on the pipeline project before we make decisions
on U.S. export control policy more generally. However,
since the pipeline issue will be resolved more by what the
Europeans do than what we do, I would not want our subse-
quent export control policies to be determined entirely
by whether or not the pipeline project goes ahead. I would
therefore distinguish between U.S. export control decisions
on items related to the pipeline from U.S. export control
decisions in the energy sector on other projects. Even if
the pipeline goes ahead, our position should be that we
oppose such projects in the future and that U.S. policy
should deny exports of oil and gas equipment and technology
for any such future projects.
DECLASSIFIED
NLRR F06-114/9*10657
BY KML NARA DATE 4/7/2011
DEPARTMENT of "mere
GAS PiPECiNE
UNITED STATES DEPARTMENT OF COMMERCE ab
UNITED STATES OF AMERICA
The Under Secretary for International Trade
Washington, D.C. 20230
10658
C7MAY1681
3194
SECRET
May 26, 1981
DECLASSIFIED
NLRRF06-114/9 10658 10658
Honorable William J. Casey
Director, Central Intelligence Agency
BY KML NARA DATE 9/25/12
Washington, D.C. 20505
Dear Bill:
Decisions will be made shortly as to the Administration's policy
on the transfer of oil and natural gas production equipment and
technology to the Soviet Union, both in general and specifically
for construction of the Yamal pipeline to Western Europe.
Recently, CIA published an excellent report ("USSR-Western Europe:
Implications of the Siberia to Europe Gas Pipeline", Nos. ER81-10085,
PA 81-10107 (March 1981)) on the strategic impact of Yamal; yet
neither that report nor any other current analysis that I'm aware of
has addressed what I believe to be the fundamental questions which
should be answered in the course of formulating the Administration's
policy:
Can the U.S. Government significantly delay completion of
the pipeline by refusing to grant licenses for export of
U.S. technology and equipment?
How much of a delay would be required to be "significant"
and what would be the effects on the Soviet Union?
To what extent is the cooperation of our trading partners
required (and likely to be obtained if asked for) and what
is the potential for unobserved diversion to the USSR?
Obviously, the thrust of these questions goes to the issue of
foreign availability of the technology and equipment, an issue
which under provisions of the Export Administration Act of 1979
is supposed to be given due consideration in deciding whether to
deny U.S. companies permission to export their goods and services.
SECRET
CLASSIFIED BY L.H. Olmer
DECLASSIFY ON May 26, 1987
ECRET
47
- 2 -
In preliminary discussions with others on this issue, I'm persuaded
that there are differing views regarding the ability of the U.S. to
significantly delay the Yamal project. If the Agency can provide an
authoritative answer or, at the least, credibly assert that no one
presently can provide an answer, resolution of the Administration's
policy would be, I think, substantially aided.
Sincerely,
Cincl Lionel H. Olmer
C.C. Secretary Malcolm Baldrige
bcc Richard Allen
SECRET
GAS PIPECINE 48
8118363
3558
10664
DEPARTMENT OF STATE
Washington, D.C. 20520
June 15, 1981
SECRET
DECLASSIFIED
NLRR F06-114/9 #10661
MEMORANDUM FOR MR. RICHARD V. ALLEN
THE WHITE HOUSE
BY KML NARA DATE 9/25/12
Subject: Siberian Pipeline
The State Department agrees that the USG must have a
firm position on the proposed Siberian gas pipeline before
the Ottawa Summit. In order to avoid limiting the President's
options on broader policy issues, The National Security
Council should consider the pipeline issue within the
context of overall East-West energy relations, and Western
trade with the USSR in general. Our understanding is that
the Department of Defense, Commerce and Energy concur in
this approach to the issues.
The Interagency Group on East-West Economic Relations
is working on advanced drafts of papers on: (a) security
controls on exports to the USSR; (b) special controls on the
export of oil/gas equipment and technology; and (c) the
Siberian pipeline. The security controls paper is essentially
in final form. With respect to the other papers, as far as
we know, all IG members, with the possible exception of
Defense, agree with the format and general content. Since
these issues are inextricably tied, the NSC should consider
the IG papers as a single package. We believe that the IG
can finish its work and submit the papers for NSC considera-
tion in the next few weeks. In order to facilitate the
coordination of the papers we request that you schedule an
NSC meeting for the week of June 29. It would be appropriate
to consider the Caterpillar Corporation's application for
export licenses for pipelayers at the same meeting. The
Secretary would be happy to discuss these issues with you
whenever you can arrange to meet.
At the request of the IG, the CIA provided an initial
assessment of many of the analytical points raised in your
memo and the attached outline. We appended their report,
"USSR-Western Europe: Implications of the Siberia-to-Europe
Gas Pipeline", March 1981, to the draft pipeline paper.
Another copy is attached for your information. Also attached
is an Agency assessment of alternative supplies of gas to
Europe.
SECRET
oter
GDS 6/5/87
49
SECRET
- 2 -
Nonetheless, further analytical work remains to be
done. We have asked the Agency to provide a technical
update to their March 1981 report, with special attention to
the question you raised. They promised to respond during
the week of June 8. We are preparing a more detailed
response to the questions raised in your outline and are
revising the IG pipeline paper to reflect better those
concerns. We will send you the CIA and State analyses and
the latest iteration of the pipeline paper by June 17.
anin L. Paul Bremer aday III for
Executive Secretary
Attachments:
as stated
SECRET
10654
CONF IDENT IAL
GAS PIPELINE
FOIA(b) (3)
3/25/81
ADDENDUM
USSR-Western Europe: Implications of the
Siberla-to-Europe Gas Pipeline*
The proposed project--which would be completed in about
1986-is vital to the Soviets and important to the West
Europeans. We expect Sovlet oll exports to the West to decline
sharply by the mid-1980s. Increased gas exports are Moscow's
only major alternative source of hard currency. Without The
earnings expected from the pipeline deal, Moscow would have to
reduce Imports of Western machinery and other goods greatly.
Moreover, the project furthers Soviet goals of drawing Western
Europe into a closer political-economic relationship.
The Question of Political Leverage
The pipeline would be a major new element in Soviet-West
European relations. It would provide the Soviets one additional
pressure point they could use as part of a broader diplomatic
offensive to persuade the West Europeans to accept their
viewpoint on East-West issues. Such pressure might be directed,
for example, at undermining European willingness to act in
concert with the US on economic sanctions against the Soviets or
on security issues.
Circumstances that would affect any thoughts the Soviets
might have to threaten to cut off gas shipments for politicaľ
ends Include: (1) the Soviet need for hard currency earnings;
and (2) the physical setup of the pipeline, which will preclude
cutting off any one West European country without cutting them
all off. But political leverage stemming from the gas pipeline
could--and probably would--be applied more subtly. The emphasis
would be on the benefits to be gained from cooperation and from
avoiding contentious issues.
Nevertheless, even cutoffs are not without some precedent.
The Soviets cut off oll supplles to Yugoslavia in 1948, to Israel
in 1956, and to China in the early and mid-1960s. In all three
cases, Moscow faced much less serlous consequences than would be
at stake with the European pipeline.
*
This addendum reproduces the key judgments of a recent OER/OPA
Intelligence Assessment titled USSR-Western Europe: Implications
of the Siberia-to-Furone Gas Pipeline, ER 81-10085/PA 81-10107,
March 1981.
CONFIDENTIAL
DECLASSIFIED IN PART
-1-
NLRR F06-114/9 #10654
BY KML NARA DATE 9/25/12
CONF IDENTIAL
34
West European Perspective
Barring a major Increase in East-West tensions, West
European governments see increased use of Soviet gas as an
acceptable political risk. Western Europe views the USSR as a
more reliable supplier than many alternative sources. They
argue, for example, that Moscow is less likely than Algiers to
use gas leverage as a means of blackmail. The also point out
that their overall dependence on Moscow for energy supplies would
Increase little, because of declining Soviet oil deliveries.
Moreover, the six West European countries involved see major
economic benefits. They need to Increase gas imports to offset
the likely. decline in oil supplies. Related equipment sales by
West European firms would create thousands of jobs and billions
of dollars in business. The Soviets would also spend a large
part of their earnings from gas sales in Western Europe.
West European officials are nevertheless wary of signaling
their approval to the Soviets while the Polish situation remains
volatile. West Germany and France recently agreed to a joint
study of the whole project, which they could use to delay it if
necessary.
Impact of the "Natural Gas Weapon"
The likelihood is strong that the Soviets will attempt
subtle exploitation of the developing natural gas relationship.
The effects of such pressure would depend on: 1) West European
and NATO cohesion and will; and 2) progress over the next few
years by Western Europe in Installing "insurance" in the form of
strategic reserves and fuel substitution capability. West
European countries are taking steps to protect themselves from
Soviet supply interruptions. But additional measures are
necessary to provide the cushion needed to avoid serious
repercussions in the event of a complete Soviet cutoff.
One pollcy devlce yet to be fully explored is a mechanlsm
for sharing shortages in the event of a supply disruption
resulting from either technical or political factors.
ONFIDENTIAL
-2-
10654
National
Secret
CENTRAL
Foreign
Assessment
Center
FOIA(b) (3)
USSR-Western Europe:
Implications of the
Siberia-to-Europe Gas Pipeline
An Intelligence Assessment
Information available as of / March 1981 has been
used in the preparation of this report.
This assessment was prepared by
International Issues-Division, Office of Political
Analysis, and
USSR and Eastern
Europe Division, Office of Economic Research.
Comments and queries are welcome and may be
addressed to the Chief, International Issues Division,
OPA, or
or the Chief, USSR and
Eastern Europe Division, OER, on
DECLASSIFIED IN PART
NLRR F06-114/9#10659 10659
Secret
ER 81-10085
P.A 81-10107
BY KML NARA DATE 9/25/12
Murch-1981.
Secret
USSR-Western Europe:
Implications of the
Siberia-to-Europe Gas Pipeline
Key Judgments
The proposed project-which would be completed in about 1986-is vital to
the Soviets and important to the West Europeans. We expect Soviet oil
exports to the West to decline sharply by the mid-1980s. Increased gas
exports are Moscow's only major alternative source of hard currency.
Without the earnings expected from the pipeline deal, Moscow would have
to reduce imports of Western machinery and other goods greatly. Moreover,
the project furthers Soviet goals of drawing Western Europe into a closer
political-economic relationship.
The Question of Political Leverage
The pipeline would be a major new element in Soviet-West European
relations. It would provide the Soviets one additional pressure point they
could use as part of a broader diplomatic offensive to persuade the West
Europeans to accept their viewpoint on East-West issues. Such pressures
might be directed, for example, at undermining European willingness to act
in concert with the US on economic sanctions against the Soviets or on
security issues.
Circumstances that would affect any thoughts the Soviets might have to
threaten to cut off gas shipments for political ends include: (1) the Soviet
need for hard currency earnings; and (2) the physical setup of the pipeline,
which will preclude cutting off any one West European country without
cutting them all off. But political leverage stemming from the gas pipeline
could-and probably would-be applied more subtly. The emphasis would
be on the benefits to be gained from cooperation and from avoiding conten-
tious issues.
Nevertheless, even cutoffs are not without some precedent. The Soviets cut
off oil supplies to Yugoslavia in 1948, to Israel in 1956, and to China in the
early and mid-1960s. In all three cases, Moscow faced much less serious
consequences than would be at stake with the European pipeline.
West European Perspective
Barring a major increase in East-West tensions, West European govern-
ments see increased use of Soviet gas as an acceptable political risk. Western
Europe views the USSR as a more reliable supplier than many alternative
sources. They argue, for example, that Moscow is less likely than Algiers to
use gas leverage as a means of blackmail. They also point out that their
overall dependence on Moscow for energy supplies would increase little,
because of declining Soviet oil deliveries.
iii
Secret
Moreover, the six West European countries involved sce major economic
benefits. They need to increase gas imports to offset the likely decline in oil
supplies. Related equipment sales by West European firms would create
thousands of jobs and billions of dollars in business. The Soviets would also
spend a large part of their earnings from gas sales in Western Europe.
West European officials are nevertheless wary of signaling their approval to
the Soviets while the Polish situation remains volatile. West Germany and
France recently agreed to a joint study of the whole project, which they
could use to delay it if necessary.
Impact of the "Natural Gas Weapon"
The likelihood is strong that the Soviets will attempt subtle exploitation of
the developing natural gas relationship. The effects of such pressure would
depend on: (1) West European and NATO cohesion and will; and (2)
progress over the next few years by Western Europe in installing "insur-
ance" in the form of strategic reserves and fuel substitution capability. West
European countries are taking steps to protect themselves from Soviet
supply interruptions. But additional measures are necessary to provide the
cushion needed to avoid serious repercussions in the event of a complete
Soviet cutoff.
One policy device yet to be fully explored is a mechanism for sharing
shortages in the event of a supply disruption resulting from either technical
or political factors.
Secret
iv
Secret
Si
Contents
Page
Key Judgments
iii
Dimensions and Status of the Project
I
Benefits to the USSR
1
East European Stake
2
West European Perspective
2
Technical Risks to Delivery
3
Potential Soviet Political Leverage
3
Specific Areas of Leverage
4
The Natural Gas Weapon
5
Internal Supply Cushion
5
Diversifying Supplies
6
Outlook
6
Appendixes
A.
Details and Status of the Project
7
B.
Equipment and Hard Currency Costs
11
C.
Soviet Energy Data
13
D.
Western Europe: Energy Stake in Pipeline Project
15
E.
Western Europe: Industrial Stake in Pipeline Project
21
F.
Soviet Pipeline Delivery Problems
23
V
Secret
53
Soviet Union: Major Gas Export Pipelines
Major gas export line.
Possible route of proposed
export line
Kara
Selected gasfield
Sea
0
600 Kilometers
Barents
Yamburg
0
600 Miles
Sea
Secret
Urengoy
Medvezh'ye
Nadym
Norwagian
Arctic
Circle
Sea
Surgut
so
Ukhta
06
Lights
Siveden
Finland
Nerway
North
Tobol'sk
SeR
Kotlas
Nizhnyaya
Tura
U.K.
Perm'
Denmark
Vologda
Baltic Se2
Torzhok
Volga
Kazan'
Kara.
Chelyabinsk
Neth
*
MOSCOW
Belo
Smolensk
G.D.R.
Orenburg
(ux.
Minsk:
Poland
Ivatsevichi
France
F.R.G
Dun:
renburg
Orenburg
Czech
L'vev
Alexandrov
Kiev
Arai
Switz.
Gay
Austris
Novopskov
Uzhgorod
Kremenchug
Italy
Hungary
Drop!
Romenia
Yugoslavia
Sanute
Caspian
Bulgaria
Black Sea
Sea
i
7.)
Turkey
Iran
Mediterranean
Iraq
Sea
Syria
The United Signes Government has not recognized
the incorporation of Estania Lervia, and Lithuana
into the Sovier Union. Boundery representation
is not decessarily authoritative.
T5
30
45
50476'6 (546685) 3-81 CIA
Secret
vi
USSR-Western Europe:
Implications of the
Siberia-to-Europe Gas Pipeline
Dimensions and Status of the Project
The proposed Siberia-to-Western Europe natural gas
outstanding issue. The Soviets have backed off for now
pipeline is the largest East-West trade project ever
from a demand for gas prices at parity with crude oil,
negotiated. The gas export project entails construction
which at the present average OPEC price of $35 per
of a trunkline from the Yamburg gasfield in West
barrel would be about $6 per 1,000 cubic feet (cf). The
Siberia to West Germany, a distance of approximately
French believe that Moscow will eventually settle for
5,000 kilometers. The pipeline will be almost totally
less than parity with oil, but this secms unlikely given
dedicated to export. It will have a capacity of 4.8-5.8
trends in recent gas price agreements within Western
billion cubic feet/day (cf/d), depending on whether it is
Europe.
a single or double line. The gas will be distributed
among at least six West European countries-West
Germany, France, Italy, the Netherlands, Belgium,
Benefits to the USSR
and Austria. The agreement would cover a 20-year
period, with the pipeline's hard currency costs re-
The gas pipeline project would constitute a financial
couped in two years. The East European countries
bonanza for the Soviets. Specifically, the increase in
across which the pipeline travels reportedly will receive
gas exports will provide a major boost to hard currency
roughly 20 percent of the exported gas as a transit fee.
earnings at a time when oil exports are declining.
(See appendix A.)
Once the pipeline is operating at full capacity, the
Soviet indecision regarding the pipeline's route and
USSR would be exporting for hard currency the equiv-
capacity has created a range in possible project dimen-
alent of 1.1-1.2 million b/d-roughly the same volume
sions. We believe that Moscow will decide to build two
of oil exported to hard currency countries in 1979-80.
lines operating at a lower maximum pressure than
If prices achieve parity with crude oil by 1985, hard
would be used in the single-line option, since operating
currency earnings from gas at 1980 oil prices would
a single line at higher pressures would present greater
reach $15-19 billion, about matching combined earn-
difficulties. The route in the USSR and Eastern Eu-
ings from exports of oil and gas in 1980. By 1990; gas
rope could follow several directions (see map). If a two-
export earnings would be in the $19-24 billion range.
line route is selected, hard currency requirements for
the Soviet portion of the line could reach $14 billion.
(See appendix B.) Interest charges during construction
Moscow is counting on the gas project to provide an
would approximate $3 billion for that particular op-
offset to declining hard currency earnings from oil.
tion. Bringing the pipeline to full capacity in any event
The near leveling off of oil production projected in the
will take at least four years from contract signing.
1981-85 Soviet plan, coupled with rising domestic
consumption and Soviet commitments to maintain cur-
rent oil export levels to Eastern Europe, imply a drastic
Although no credit agreements have been initialed, the
reduction in Soviet oil exports to the West. (See appen-
Soviets appear to have lined up perhaps $16 billion in
dix C.) The Soviet Government probably expects such
Western financing, largely official and officially
a reduction. We believe Moscow will face an even more
backed credits. The six principal West European
difficult adjustment-that oil production will begin to
participants have offered $13 billion, with another $3
decline within the next 1 to 3 years and continue
billion probably extended by Japan. Gas pricing is an
Secret
55
arough the rest of the decade. Under these
from the USSR. Soviet gas exports to the region nearly
inces, even with tight domestic oil rationing,
tripled during 1976-80, yet gas deliveries to the region
, could not avoid an climination of hard cur-
as a whole over the next five years are currently
oil exports and probably would have to import
expected to grow by only about 5 percent a year-with
istantial amounts of oil for hard currency.
some countries anticipating no further increments. The
additional gas deliveries, however, could boost the
The outlook for Soviet earnings from exports other
share of Soviet gas to close to 30 percent of Soviet
than oil and gas is dim, Some of the more traditional
energy deliveries to Eastern Europe and to 9 percent of
exports of raw materials-timber and metals-arc
Eastern Europe's total primary energy consumption by
declining. Gold and arms are more promising, but they
1985.
are erratic and in any event will not be large enough to
offset the decline in export earnings. With the pro-
If gas from the pipeline is paid as a transit fee only to
posed pipeline, therefore, the Soviet Union could prob-
those countries that the pipeline crosses, the additional
ably do no better than maintain the current purchasing
gas would go entirely either to Poland and East Ger-
power of its exports over imports of Western food.
many or to Czechoslovakia, depending on the route
machinery, and materials other than oil. Without the
selected. Czechoslovakia appears to bc the favored
pipeline, we doubt that Moscow could avoid a dramatic
route at present, especially given the turmoil in Poland.
decline in such imports.
If only one or two countries received the entire allot-
ment, the additional gas would substantially improve
As for gas production, the project will not initially
the recipients' energy balances in the mid-to-late
enhance Soviet output for domestic use because of the
1980s.
export pipeline's absorption of skilled labor and other
resources needed on domestic pipeline projects. Over
the long run, the technology transfer associated with
West European Perspective
the project should foster the development of critical
gas industry infrastructure. The deal would enable the
The pipeline project would benefit Western Europe by
USSR to purchase Western Arctic-design equipment
further diversifying its gas supplies and reducing its
for gas extraction and transport-such as wellhead
dependence on OPEC oil. West European industries
assemblies, drill pipe, large-diameter line pipe, and
would also benefit substantially from the equipment
state-of-the-art compressors-essential to Siberian gas
sales that would be associated with the project. Finally,
development but not mass-produced by the Soviets.
West European governments realize that most of the
Without the pipeline deal and its hard currency earn-.
forcign exchange Moscow earns from the sale of gas
ings, on the other hand, the Soviets would be hard
will be spent in Western Europe,
pressed to finance imports of Western pipe and equip-
ment essential to domestic gas projects.
The six West European countries depend on imported
energy, primarily oil, for more than half of their en-
ergy. While oil remains the dominant energy source,
East European Stake
natural gas is becoming increasingly important,
accounting for almost 20 percent of total energy use
The East Europeans would benefit substantially from
last year compared with only 8 percent a decade ear-
the additional gas they would receive from the new
lier. The USSR already supplies Western Europe with
pipeline. The precise amount will depend on the pro-
about 2.2 billion cf/d based on prior agreements with
posed pipeline's throughput, of which Eastern Europe
West Germany, France, Italy, and Austria. The cur-
will receive approximately 20 percent. Current Soviet
rent negotiations are for additional Soviet supplies of
gas deliveries of 3.2 billion cf/d annually account for
at least 3.9 billion cf/d to these four countries plus
about 6 percent of Eastern Europe's primary energy
Belgium and the Netherlands by 1990.
consumption and over 20 percent of all energy imports
Secret
2
Secret
These plans would more than double the proportion of
become frequent in recent years; the new export pipe-
Soviet gas in total West European gas consumption
line would also be subject to such interruptions,
from about 10 percent to about 25 percent. The most
particularly during the winter months. The primary
important increases would be in West Germany (from
causes of cutbacks are difficulties in meeting peak
14 to 29 percent) and Belgium (from 0 to 32 percent).
winter gas needs and unreliable operation of pipelines
France, which received no direct shipments of Soviet
during the winter scason
gas until 1980, could-rely on the Soviets for as much as
28 percent of its gas by 1990. On a broader scale,
With or without the project, the Soviet gas industry
Soviet gas would rise to about 6 percent of total West
will have little surge production capacity. In fact,
European primary energy supplies. (See appendix D.)
because of adverse winter conditions, output often
declines when supplies are most needed. The problem
is that gas storage capacity, less than 10 percent of
The West Europeans recognize that the pipeline deal
consumption, has not filled the seasonal supply gap.
would increase their vulnerability to Soviet economic
Winter supply problems will persist, with peak demand
leverage, but they have long seen the Soviets as a more
probably increasing as a share of annual consumption.
reliable source of energy supply than the LDCs. This
Substitution of gas for oil in domestic consumption will
attitude originated in the Suez crisis of 1956, when
gain momentum by the late. 1980s, enlarging the num-
Western Europe was affected by cutoffs of Middle
ber of potential winter consumers. Although some fuel
Eastern oil and turned to the Soviet oil then beginning
switching will be possible, flexibility will remain
to enter the world market. The West Europeans have
limited.
remained steady customers for Soviet oil, which
continued to be delivered during the Middle East war
Breakdowns in pipeline operations due to pipe and
of 1967 and the Arab oil embargo of 1973-74, even
valve failures have also caused export reductions and
though the Soviets verbally supported the Arab action.
are likely to do so in the future. Although not confined
to the winter season, pipeline failures are more likely
during that period and often compound the difficulties
Another incentive encouraging the West European
of meeting peak gas demand. Operational reliability of
move is the prospect of large-scale equipment sales.
the export pipeline will become particularly worrisome
Indeed, West European suppliers of pipcline. machin-
if it parallels the Northern Lights trunk system, one of
ery, and equipment expect to benefit substantially
the world's most trouble-prone pipe routes. Although
from the project. Altogether, pipe and equipment sales
good reliability has been achieved for gaslines in the
of up to $14 billion may be involved. The chief West
North American Arctic, the Soviets probably will not
European beneficiaries would be the firms that have
fare as well. Pipe ruptures and compressor station
already provided several billion dollars in gas equip-
breakdowns are probable, even if Western equipment
ment to the Soviets during the 1970s. Many of these
is used. (See appendix F.)
firms have developed substantial production capacity
dedicated to Soviet needs. (See appendix E.)
Potential Soriet Political Leverage
Technical Risks to Delivery
Moscow secs definite political advantages in the
prospective natural gas arrangement, short of attempt-
Dependence on Soviet natural gas supplies can be risky
ing direct leverage through a gas cutoff. A supply
from a technical, as well as a political, standpoint.
interruption is unlikely because of the substantial eco-
Given the difficult terrain, long distances, and heavy
nomic cost to the USSR itself. In addition; cutting off
demands on equipment, chances are high that supply
gas supplies to attempt political blackmail would
problems will develop from time to time on purely
undermine any improvement in the Soviet-West Eu-
technical grounds. The past record of Soviet gas deliv-
ropean political climate that the pipeline project is in
eries substantiates this. Temporary reductions in gas
deliveries for purely technical or seasonal reasons have
3
Secret
Secrer..
part designed to foster. Finally, a supply interruption
European countries' resistance. Thus, they probably
would be an extremely blunt weapon for the Soviets to
would allude to the gas situation only indirectly-by
apply since Moscow would be unable to interrupt sup-
reminding the West Europeans of the benefits of eco-
plies to just one target country. For example, all ship-
nomic coopcration-while stressing the need to avoid
ments would pass through West Germany; about 15
"anti-Soviet" actions that could worsen the West Eu-
percent of the total would continue on to Belgium and
ropean political climate and playing on differences
the Netherlands. Withholding supplies to these coun-
between the West Europeans and the United States
tries, therefore, would require West German
and among West European countries. They could
cooperation.
avoid direct threats by reducing gas supplies with the
explanation that there were "technical problems."
Short of a complete cutoff, the natural gas arrange-
which would be "solved" if the political situation im-
ment with Western Europe would yield two major
proved.
opportunities for increased political influence for the
Soviet Union. The first lies in the impetus that the gas
Specific Areas of Leverage
deal would impart to broader Soviet efforts to draw
Two issues that the USSR might try to influence by
Western Europe into closer political and economic
using its potential natural gas leverage as part of a
relations with the USSR. The aim of this Soviet effort
broader diplomatic effort are Western economic sanc-
is to increase the legitimacy of Soviet foreign policy
tions and NATO military modernization. In the first
goals in the eyes of West Europeans and to persuade
case, the Soviets probably would believe that the pros-
them to see US-led or coordinated NATO "anti-
pect of difficulties arising with Soviet gas deliveries
Soviet" initiatives as unnecessary or disturbing to a
would be an important consideration in West Eu-
favorable status quo. The Soviets are now pursuing this
ropean support for a US-led economic boycott of the
goal, with mixed success, through individual bilateral
Soviet Union or in limiting transfers of high technology
and multilateral arrangements and through the Con-
to the Soviets. The Soviets, for example, used cnergy
ference on Security and Cooperation in Europe.
diplomacy as one element in their campaign against
West European support for US-led sanctions because
The second advantage to the Soviet Union lies in
of the invasion of Afghanistan. A TASS commentary
opportunities that the evolving natural gas relationship
in April 1980 hinted that Western Europe and Japan
would provide to help achieve specific political objec-
would risk losing fuel supplies from the Soviet Union if
tives. The pipeline deal might give the Soviets substan-
they joined in these sanctions. It is unclear how West
tial opportunity to gain political benefits if they used
European behavior was affected by such statements,
their potential leverage indirectly and as only one
but it is clear that European support for the sanctions
element in a broader diplomatic offensive. Opportu-
was weakened because of a general concern about the
nities could arise during the construction phase of the
economic and political çosts of reduced trade with the
gas deal (until at least the mid-1980s) because of
USSR
European eagerness to keep production and employ-
ment levels as high as possible. After the pipeline is
The gas connection could be used to influence decisions
completed, the leverage would lie in West European
by European NATO members on implementation of
reluctance to cope with Soviet manipulation of gas
the NATO Long-Term Defense Plan and deployment
supplies.
of long-range theater nuclear forces (LRTNF). For
example, the increase in West German dependence on
To capitalize on these potential opportunities, the Sovi-
Soviet gas from 14 to 29 percent, when taken in the
ets would have to create the apprehension (in the
context of German efforts to maintain the present level
construction phase) that equipment orders might be
of Soviet-West German economic interdependence,
canceled and (later) that the supply of gas might be
could provide one more argument for those groups that
reduced without appearing so threatening as to pro-
are trying to hold down growth in German real defense
voke a West European backlash and to unify the West
Secret
4
Secret
57
spending. Similarly, the prospective doubling of
bet. The Dutch are already creating additional surge
French dependence on Soviet gas might assist the
capacity in the huge Groningen field, which could
Soviet effort to slow or halt the recent trend toward
serve as a partial offset to reduced Soviet deliveries.
closer military cooperation between France and its
Even this additional capacity, however, would prob-
allies. Finally, if Belgium had been receiving natural
ably be sufficient to meet only a small portion of West
gas from the Soviets in 1979, the USSR would have
European winter demand in the absence of Soviet gas
had an additional diplomatic point with which to press
supplies. Other West European countries with domes-
for Belgian opposition to LRTNF deployment.
tic gas production may opt to drill additional producing
wells to create surge capacity that. could then be used
The critical political factor in any Soviet effort to
in the event of a shortfall. Only small amounts, how-
capitalize on the potential leverage flowing from the
ever, could be forthcoming from such an effort.
natural gas supply relationship would be how ac-
curately the USSR judges West European public opin-
North Sea gas reserves present the potential for a
ion. The Soviet Union has long tried to influence the
sizable cushion against reductions in Soviet deliveries,
West European public on domestic West European
but they will probably not be available until at least
issues, most recently in campaigns to prevent deploy-
1990. UK policy is to use its substantial gas reserves
ment of the "neutron bomb" and of LRTNF. This
only for domestic purposes, and it is not likely that
experience may lead the Soviets to believe that they
other West European countries will be allowed to tie
can assess which groups would be most sensitive to the
into existing or proposed pipeline networks as a strate-
economic losses posed by difficulties with the natural
gic measure to tap additional gas in the event of a
gas arrangements and how politically influential these
hiatus in Soviet deliveries. While additional gas from
groups are. The West European public as a whole,
Norway's Statfjord field will probably begin flowing to
sensitized by the Middle East oil cutoffs of the past,
continental Europe by 1987, leadtimes are such that
might be very concerned about a prospective loss of
further large deliveries from more northerly gasfields
Soviet gas.
are not likely before 1990.
Natural Gas Weapon
The Europeans are also planning to increase stockpil-
Soviet ability to use its potential natural gas lever
ing capacity. Ruhrgas, the West German utility. is
successfully would depend both on the European politi-
reportedly planning to triple its gas storage capability
cal will to resist and on two technical considerations—
by 1990. Total West German underground gas storage
the relatively short-term factor of national and re-
is less than 20 days of consumption. French officials
gional strategic gas reserves and the midterm avail-
are also seeking to expand underground natural gas
ability of alternative supplies of gas and other energy
storage to roughly 30 percent of expected gas
sources in the world market. Recognizing that the
consumption. France also has the capability of storing
project entails risks, the West Europeans are taking
LNG at two import locations for use in peak shaving
some steps to protect themselves from Soviet supply
and in meeting shortfalls. Excess volumes of gas during
interruptions. Plans to expand storage capacity are
seasonal or other declines in demand can also be
being formulated, for example. Stronger government
reinjected into domestic gasfields and used for offset-
initiatives, however, will be required to provide the
ting future shortages.
cushion needed to avoid serious repercussions from a
complete Soviet cutoff. Ultimately, some sort of mech-
The existing capacity of West European gas consumers
anism for sharing shortages in the event of a supply
to switch to alternative fuels during a gas supply short-
disruption will have to be devised!
fall is unknown. Conversion from gas to oil is relatively
simple, however, requiring only an oil storage tank, a
Internal Supply Cushion. West European countries
pipeline to the furnace, and a different nozzle. In
are exploring ways to limit their vulnerability to
Belgium, all industrial gas users are required to main-
interruptions in Soviet gas supplies should the pipeline
tain dual energy systems and to switch to alternative
project be completed. Dutch gas reserves are the best
5
sources when temperatures drop below a certain level.
losing West European country were not able to per-
Roughly 15 percent of French gas deliveries are on
suade the Netherlands or Norway to meet its addi-
interruptible contracts. West Germany probably main-
tional needs for gas, it might turn to the USSR for
tains a much higher level of dual capacity than France
increased supply. In addition, if current US negotia-
because a greater proportion of Bonn's gas consump-
tions with Algeria portend a more active US role in the
tion occurs in the industrial sector and in thermal
LNG market, there could be competition between the
electricity generation.
United States and its European allies for African gas.
To the extent that this competition weakened West
Diversifying Supplies. Although the West Europeans
European prospects for obtaining non-Soviet gas, it
appear more sanguine about the implications of
could strengthen West European incentives to coop-
dependence on Soviet gas than do Japan and the
erate with the Soviet Union
United States, they agree that diversification of
sources is important in denying the Soviets an opportu-
Outlook
nity to use gas supply to push for concessions on other
economic or security issues. The West German Cabi-
The Soviet ability to capitalize on is changing world gas
net reportedly has discussed what proportion of total
market will depend both on West European and
gas consumption Soviet imports would have to reach
broader allied energy planning and on the availability
before Germany became critically dependent on the
of alternatives to Soviet gas in the world market. The
USSR. In the summer of 1980, the cabinet apparently
Soviets probably believe that the West Europeans are
set a guideline of 30 percent, which is the projected
capable of establishing gas reserves and a gas and oil
level of German dependence for the 1980s. More re-
surge production capacity. They realize that Western
cently. German Economics Minister Lambsdorff
Europe, like Japan, is counting on increased world
stated that Germany's real protection against Soviet
production of LNG in the 1980s.
leverage lay in diversifying its sources of gas supply
and types of fuel.
The Soviets are also aware that during past oil short-
ages the West Europeans have often failed to coop-
It is not yet clear what degree of diversification the
erate, either among themselves or with Japan and the
West Europeans will be able to maintain in the 19SOs.
United States. The Soviets may judge, therefore, that
Continued expansion of LNG production could mean
the Western countries lack the cohesion and strategic
that ocean-transported gas, primarily from LDCs,
perspective to address energy security issues collec-
could be much more important than Soviet pipeline
tively and that they are unlikely to pay the economic
gas. Algeria, for example, has the capability to rival
and political costs necessary to counter the vulnerabil-
the USSR as a supplier to Western Europe over the
ity arising from their dependence on imported gas. The
next five to 10 years if it used both LNG and the trans-
Soviets also know that there are political and economic
Mediterranean pipeline to fulfill existing and proposed
uncertainties associated with increased gas production
contracts. The West Europeans, however, face major
in LDCs and that the USSR has a reputation for
uncertainties in connection with gas imports from
reliability in energy supply that could appear increas-
LDCs. Anti-Western political upheavals like the
ingly reassuring to the West Europeans. For these
Iranian revolution could lead to suspension of projects
reasons the likelihood is strong both that the Soviets
that are now under consideration
fully recognize the potential for subtle exploitation of
the developing natural gas relationship and that they
Such developments could influence the proportion of
will attempt to use it
Soviet and non-Soviet gas in total West European
imports and thus affect prospective Soviet leverage.
For example, a shortfall in projected North or West
African gas could lead to competitive bidding for that
gas among several West European countries. If the
Secret
6
Secret
Appendix A
Details and Status
of the Project
The gas. export project entails construction of a
billion. Interest-charges during construction will be
trunkline from the Yamburg gasfield in West Siberia
approximately $3 billion if the more expensive project
to West Germany, a distance of approximately 5,000
is chosen.
kilometers. The pipeline will be almost totally dedi-
cated to export. It will have a capacity of 4.8-5.8 billion
Bringing the pipeline to full capacity probably will take
cubic fect per day (cf/d), depending on whether it is a
at least four years from contract signing. If negotia-
single or double line. The gas will be distributed among
tions are completed this summer or fall, gas deliveries
at least six West European countries-West Germany,
would not begin before 1986. Even this assumes no
France, Italy, the Netherlands, Belgium, and Austria.
unusual delays. If all Western equipment is delivered
The East European countries across which the pipeline
on time and accompanied by substantial technical
travels reportedly will receive roughly 20 percent of the
advice, the Soviet pipelaying effort probably will still
exported gas as a transit fee.
fall behind schedule because of long persistent prob-
lemis-particularly a serious shortage of skilled labor
Timing and Costs
and severely inadequate infrastructure. The export line
The Soviets have not yet announced the route—
project apparently is included in the Soviets' 1981-85
whether it will parallel the Northern Lights trunk
trunkline construction plans and will be competing for
system (see map) about half of which would be in the
skilled labor needed for the domestic lines.
permafrost zone, or a more southerly path, thus mini-
mizing the area of permafrost to be traversed. Recent
Status of Negotiations
difficulties in constructing trunklines along the
Although discussed for a long time, the current pro-
mountainous southernmost route, however, may per-
posal has gained considerable momentum within the
suade Moscow to select yet a third but unknown alter-
past year. An earlier Soviet plan, North Star. was
native. The pipeline's route across Eastern Europe to
designed as a joint US-USSR project to pipe gas from
West Germany is also unknown, although a path
the giant Urengoy field in West Siberia through a
through Czechoslovakia via Uzhgorod seems the most
2,400-kilometer pipeline to Murmansk, where the gas
likely. Recent reports indicate that if two lines are to be
would have been liquefied for shipment by tanker to
laid, they may follow two separate routes and be built
the east coast of the United States. When US Govern-
one at a time rather than simultancously
ment approval and Eximbank financing were not
forthcoming in 1976, the US consortium turned to
Soviet indecision regarding trunkline route and capac-
Western Europe as a source of equipment and financ-
ity prevents an accurate estimate of the project's for-
ing and as a customer for part of the gas. Disagreement
eign exchange costs and the credits needed to cover
over gas prices and uncertainty regarding US liquefied
imports of pipe, compressors, and other components.
natural gas (LNG) import policy, however, led to an
Given these uncertainties, we estimate that the hard
indefinite shelving of the project in 1977.
currency costs will range up to $14 billion. The upper
range of our estimate assumes an annual 15-percent
According to the Soviet Gas Ministry, the pipeline's
inflation rate for the pipe and equipment costs and the
completion is a major objective of the 11th Five-Year
construction of two 56-inch (1,420 mm) lines with a
Plan (1981-85). Soviet negotiators have had prelimi-
capacity of approximately 5.8 billion cf/d. If the Sovi-
nary talks with all interested European parties on all
ets opt for a single 56-inch line, capacity would total
aspects of the project. Discussion of the current deal
4.8 billion cf/d and the costs would be closer to $10
7
Secret
picked up steam following last summer's Moscow sum-
Table A-1
mit between West German Chancellor Schmidt and
President Brezhnev. Although progress has since been
halting, Soviet officials believe that few economic
Possible Pipeline Credit Packages
problems stand in the way of the project. The combina-
tion of Western governments' willingness to grant siz-
able concessionary credits and business eagerness for
Country
Billion US $ Terms
equipment orders have encouraged this view.
West Germany
5
8.5 to 10 years, 7.75 percent. 85 to
95 percent Hermes guaranteed.
Financing
German industry sources have
Although no credit agreements have been initialed, the
stated they plan to inflate the bid
for provision of engineering the
Soviets appear well on the way to lining up perhaps $16
equivalent market rate.
billion in Western financing for the deal, the bulk of
France,
3.2
7.75 percent, 8 to 10 years, 85 to 15
which would be a mixture of official and officially
guaranteed
percent downpayment. Paris report-
backed credits. Of the total, the six principal West
edly is also considering offering a
four-year grace period.
European participants have indicated they may pro-
0.32
Commercial credit at market rates
vide $13 billion in credits. Another $3 billion will
(13.5 percent).
probably be extended by Japan (see table A-1). By our
Belgium
I
Eight years.
count, Western credit offerings exceed the estimated
Netherlands
2.2
7.75 percent.
hard currency cost of the pipeline-even with a built-in
Austria
1.1
NA
inflation factor of 15 percent a year. While we cannot
Italy
NA
NA
explain the discrepancy, the Soviets may be trying to
Although Japan will not purchase Soviet gas, Japanese firms hope
protect themselves against cost overruns. In any event,
to be major suppliers to the project and to that end have indicated
Moscow would be under no obligation to draw all the
they are actively considering extending $3 billion in credits for sales
of Japanese construction equipment, pipe, and related equipment.
credits.
Preliminary talks centered around a Tokyo offer of an eight-year 6.5
to 7.25 percent loan.
The linchpin in credit talks will be West Germany,
since Deutsche Bank is heading a consortium of 30
banks prepared to offer a credit of $5 billion. The key
issue for the consortium is to obtain a return approxi-
present average OPEC price of $35 per barrel would be
mating market rates (about 15 percent) while appear-
about $6 per thousand cf. Even so, Moscow did man-
ing to accommodate Soviet demand that interest rates
age to obtain a substantial jump in the price of gas
not exceed 7.75 percent. As in previous deals, the
under existing contracts-from less than $2.80 per
Germans hope to close the gap by manipulating either
thousand cf, which generally prevailed in early 1980,
the price of the Soviet gas they buy or the cost of the
to more than $4 per thousand cf, or from about $16 per
equipment and engineering service they sell to the
barrel of oil equivalent to approximately $23. The
Soviets. Since neither gas pricing nor pipeline costs
French believe that the USSR eventually will settle on
have been resolved, credit negotiations probably will
a gas price that is 75 percent of parity with crude oil,
witness further hard bargaining. Once an accord is
but this seems unlikely given trends in recent gas price
reached with West Germany, however, the other coun-
agreements. Norway, for example, has recently con-
tries probably will follow suit.
cluded a deal that essentially results in a crude price
parity by the mid-1980s.
Gas Pricing
Another major outstanding issue is gas pricing. Discus-
Impact on Soviet Hard Currency Earnings
sions with major West European customers last fall
Gas exports as a source of Soviet hard currency earn-
ended with the Soviets backing off a demand for
ings have grown markedly in recent years. In 1980, the
delivered gas prices at parity with oil, which at the
USSR exported 2.1 billion cf/d to Western Europe
Secret
8
Secret
valued at about $3 billion, up from $100 million in
Table A-2
Billion 1980 US $
1975. The volume of gas deliveries in 1980 rose 20
percent over 1979 but foreign exchange earnings more
USSR: Oil and Gas
than doubled because of higher gas prices. Gas export
Hard Currency Exports
earnings in 1981 will increase to perhaps $4 billion,
even though export volume will be almost unchanged.
1980
1985
1990
Soviet gas exports under current agreements are near
their peak of 2.4 billion cf/d scheduled to be reached
Total
17.5
15-19
19-24
by 1985.
Oil
14.5
0
0
Gas
3.0
15-19
19-24
The Soviets project that the proposed gas export pipe-
Assumes no oil exports, gas price parity with crude oil, and full
line will be operating at full capacity by 1985. Assum-
deliveries under the gas pipeline project by 1985:
ing they are correct, which we doubt, the USSR would
be exporting for hard currency 6.3-7.0 billion cf/d or
1.1-1.2 million b/d oil equivalent-roughly the same
volume of oil exported to hard currency countries in
1979-80 (see table A-2). If gas prices achieve parity
Table A-3
Billion cf/d
with crude oil by 1985, hard currency carnings from
gas at 1980 oil prices would reach $15-19 billion, about
USSR: Production of Natural Gas
matching combined earnings from exports of oil and
gas in 1980. By 1990, gas export earnings would be in
the $19-24 billion range
1975
1980
1985 .
1990
Gas Industry Impact
Total
28.0
42.1
58.0-61.9
66.7-70.6
The Soviets are counting on rapid increases in natural
West Sibcria.
3.6
15.8
31.9-35.8
43.5-47.4
gas output to help meet growing domestic energy needs
Of which
as well as existing export commitments. If the project
Urengoy
0
5.8
17.4-15.5
21.3-17.4
gocs through, Soviet planners are counting on gas
Yamburg
0
0
3.9-9.7
9.7-15.5
output of about 60 billion cf/d by the mid-1980s, rising
Other
24.4
26.3
26.1
23.2
to 70 billion cf/d by the start of the 1990s (see table
Plan for USSR total and West Siberia total.
A-3). All of the growth in output will have to come
Estimates. West Siberian total estimated by applying roughly
from development of the Urengoy and Yamburg fields
current rates of growth for the region to both ends of 1985 plan
in West Siberia. The Soviets will be able to increase
range.
Estimates for 1985 and 1990 indicate possible magnitudes of
the level of natural gas production likely in the mid-
Yamburg and Urengoy contribution to overall growth, rather than
1980s by about the amount they would ship through
precise amounts.'
the pipeline. Initially, the project will not enhance the
Soviet ability to increase production for domestic use
because the enormous resource requirements of the
export pipeline, especially skilled manpower, will drain
High-quality Western equipment for extraction and
resources from other oil and gas projects. Installing the
transport of West Siberian gas would constitute a
pipcline along a northerly permafrost route would re-
major benefit to the Soviet gas industry. Specifically,
quire more skilled labor and other specialized re-
the deal would enable the USSR to purchase Western
sources than would following a more southerly route.
Arctic-design equipment for gas extraction and
Over the longer run, the technology transfer associated
processing, including wellhead assemblies and drill
with the project-possibly including the construction
pipe, which the USSR has difficulty in manufacturing.
of compressor repair plants and the development of
The Soviets probably will remain unable to mass-
critical infrastructure-should increase production for
produce quality large-diameter line pipe during much
domestic use.
of the 1980s.
9
Secret
62
Manufacture of inferior specialty steels has made
Even without the pipeline deal, the Soviets would have
Soviet pipe inadequate for high-pressure gas trans-
to import considerable amounts of gas equipment to
mission or for use in corrosive or high-stress environ-
carry out the remaining portion of the gas development
ments such as the West Siberian Arctic. The high
program. The USSR, for example, would still need
pressures possible with Western pipe mean a signifi-
pipe, compressors, and associated equipment for
cant rise in throughput capacity for a given investment
expansion of its domestic distribution system. As long
in steel. As for compressors, Soviet pipeline compressor
as the USSR continues to sell oil in the West, it can
technology is probably 20 to 30 years behind state-of-
afford these purchases. By the mid-1980s, however,
the-art technology in the West. The USSR has no
foreign exchange constraints would limit Soviet access
equivalent to Western 22-megawatt second-generation
to such equipment unless the pipeline project is under
aircraft derivative compressor units nor to any 26-
way. The Soviets will be unable to produce substantial
megawatt industrial-type units, both of which could be
amounts of large-diameter line pipe, the costliest gas-
critical to successful operation of the pipeline.
related import, until the late 1980s at best. Pipe im-
ports have been averaging 1.5-2.0 million tons per year
The gas industry would benefit from the project even
at an annual cost of $750 million to $1 billion.
after the pipeline's completion. For example, Western
pipelayers, earthmovers, and related equipment would
continue to be used for laying domestic trunklines. The
construction equipment could also be used in other
civilian industries or in military construction projects.
If a compressor repair plant were part of the package,
as suggested by the Soviets, the USSR could make a
quantum jump in their lagging compressor technology
by reverse engineering the purchased compressors. Be-
yond this, the export pipeline would improve the
domestic pipeline network if the Soviets dropped part
of the line's throughput in the European USSR.'
I If the pipeline followed a northern route, the possibility would not
be as great as if the route followed a more southerly direction, where
it could be linked more expeditiously with existing lines.
Secret
10
63
Secret
Appendix B
Equipment and Hard Currency Costs
Soviet indecision regarding the pipeline's route and
Table B-1
Billion US s
capacity has permitted only rough estimates of hard
currency costs. The project's basic foreign exchange
Project Hard Currency Requirements
expenditures will be for large-diameter pipe, compres-
sor stations, and ancillary equipment and engineering
services for the pipeline and the Yamburg gasfield (see
Single Pipeline
Dual Pipeline b
table B-1). Our estimates have modified reported cur-
rent prices for those items in two ways. (1) Because the
Total
10.2-11.4
11.9-13.8
Soviets are seeking concessionary financing at interest
Pipe
3.5-4.7
5.2-7.1
rates below current market rates and EC guidelines,
Compressors
3.7
3.7
Western suppliers of equipment and services will ad-
Other
3.0
3.0
just their final sales prices upward to provide the same
100 atmospheres pressure.
yield as could be earned in the West. Our estimates
75 atmospheres pressure.
assume a 15-percent price markup to reflect this ac-
tion. (2) A 15-percent annual rate of price inflation has
also been included to reflect increased prices at the
time of equipment delivery.
ber of gas turbine compressor units would differ
substantially, depending on whether industrial or air-
Pipe
craft designs were used (see table B-2). A combination
The amount of large-diameter (56-inch) pipe needed is
of compressor types probably would be required.
the project's largest variable and will depend on the
Lighter weight aircraft models would predominate on
pipeline's length, its operating pressure, and whether.
a northern, permafrost route while industrial models
one or two lines are required. Pipe purchases con-
probably would provide the majority of throughput
sequently could range from 3.4-7.0 million tons, as
capacity for a southern line. Most combinations, how-
indicated in table B-2. A two-line system at the lower
ever, would fall between 5,000- and 5,500-MW capac-
throughput pressure of 75 atmospheres would require
ity. A compressor equipment price reflecting inflation
only about 50 percent more pipe than a single 100-
over a four-year delivery period would produce only a
atmosphere line, since less thick pipe walls are nec-
small difference in costs, with a median of approxi-
essary. The pipeline's length probably will fall within
mately $3.7 billion.
4,500 to 5,500 km, depending on whether a northern or
longer, southern route is chosen. Given the resulting
Additional Costs
range of tonnage, and inflation over a three-year deliv-
This category is more difficult to estimate because
ery period, hard currency expenditures of $3.5-7.1
little information is available. The Soviets have in-
billion in pipe imports would be required.
dicated a need for several hundred pipelayers, prob-
ably a similar number of earth movers, an extensive
Compressors
computerized pipeline telecommunications and telem-
Compressor costs probably will not vary widely with
etry system, and field development equipment for the
the pipeline's length or capacity. Roughly the same
Yamburg field, such as drill pipe and well completion
amount of compressor power would be needed whether
equipment built to Arctic specifications. The project
a single or dual line were built and whether the pipeline
probably also would require several hundred wellhead
followed a northern or southern route. Only the num-
11
Secret
Secret
The Bottom Line
Table B-2
Total estimated hard currency costs for the project of
$10-14 billion are lower than some figures provided
Pipeline Requirements
both in the press and privately by industry. They also
are less than the approximately $16 billion in total
Western credits tentatively offered so far. Some of the
Pipe (million metric tons)
higher estimates probably include Soviet domestic,
Single Line
Dual Line
(100 atm)
(75 atm)
non-hard-currency expenditures that would add an
Length (kilometers)
equivalent of several billion dollars to the total cost.
4,500
3.4
5.1
The initial credit offerings, moreover, may be reduced
5,500
4.6
7.0
as specific contracts are worked out to eliminate over-
lapping offers of equipment and services. A Soviet
Compressor Units
Number of units
attempt to arrange more concessionary financing than
Required a
needed for the project is nonetheless a possible ex-
Power
Single
Dual
Ratings
Line
Line
planation of the gap between credit offerings and prob-
(Megawatts)
(100 aim)
(75 atm)
able hard currency costs. Another possible cost vari-
Type of gas turbine drive
ation could result if the project involved construction at
Industrial
26
210
210
staggered intervals of both a northern and a southern
Aircraft
15
290
340
line. The total hard currency requirements, however,
(first generation)
would probably still fall within the upper end of the
Aircraft
22
250
250
(second generation)
$10-14 billion range.
Number needed if all compressor power for given line were
provided by type of turbine drive listed.
assemblies, ball valves, and perhaps transport vehicles
designed for operation in swampy terrain. Virtually no
information on costs of Western engineering services,
which perhaps could include some on-site construction
work, are available. A highly tentative estimate of $3
billion for the above items could be in the ballpark.
Secret
12
Secret
65
Appendix C
Soviet Energy Data
Table C-1
Billion Cubic Feet Per Day
USSR: Natural Gas Exports
1975
1980
1985
1990 b
Without
With
Without
With
Pipeline
Pipeline
Pipeline
Pipeline
Total
1.9
5.4
6.6
11.5-12.4
6.6
11.5-12.4
Eastern Europe
1.1
3.2
4.1
5.1-5.3 C
4.1
5.1-5.3 c
Czechoslovakia
0.4
0.9
1.0
1.0-2.2 d
10
1.0-2.2 d
East Germany
0.3
0.6
0.6
0.6-1.2 :
0.6
0.6-1.2 c
Poland
0.2
0.5
0.8
0.8-1.4 .
0.8
0.8-1.4 c
Bulgaria
0.1
0.6
1.0
1.0
1.0
1.0
Hungary
0.1
0.4
0.4
0.4
0.4
0.4
Romania
0
0.1
0.1
0.1
0.1
0.1
Yugoslavia
0
0.1
0.2
0.2
0.2
0.2
Western Europe
0.8
2.2
2.5
6.4-7.1 ¹
2.5
6.4-7.1 f
West Germany
0.3
0.8
1.1
2.1
1.1
-2.1
Italy
0.2
0.6
0.7
1.3
0.7
1.3
Austria
0.2
0.3
0.2
0.5
0.2
0.5
Finland &
0.1
0.1
0.1
0.1
0.1
0.1
France
0
0.4
0.4
1.3
0.4
1.3
Belgium
0
0
0
0.6
0
0.6
Netherlands
0
0
0
0.5
0
0.5
Estimated.
d Range assumes Czechoslovakia receives either no additional gas or
"Without Pipeline" estimates assume deliveries under existing
1.2 billion cf/d from project.
trade agreements.
c Range assumes.either no additional gas or receipt of half of 1.2 bil-
c
Estimated East European total assumes deliveries under current
lion cf/d from projects.
agreements plus 1.0-1.2 billion cf/d from the pipeline project. "With
1 Estimated range from West European total assumes delivery of 80
Pipeline" estimates assume achievement of full capacity of export
percent of pipeline capacity of 4.8-5.8 billion cf/d. The allocation
pipeline (20 percent of pipeline capacity of 4.8-5.8 billion cf/d), with
among individual countries corresponds only to the lower pipeline
the increment going either to Czechoslovakia or divided equally
capacity, which would deliver almost 3.9 billion cf/d. Use of two
between Poland and East Germany. Actual allocations of the
lines in the project could raise West European imports under the
additional gas may vary. Columns do not sum to totals due to
project to 4.6 billion cf/d.
variations in possible delivery allocations.
8 Finland does not pay hard currency for Soviet gas.
13
Secret
Table C-2
USSR: Total Primary Energy Production
Energy Source
1970
1975
1980
1985
1990
mb/doc
b
Percent
mb/doe
Percent
mb/doe
Percent
mb/doe
Percent
mb/doe
Percent
Total
17.8
100.0
22.7
100.0
27.8
100.0
30.1-29.1
100
31.9-29.9
100
Oil
7.1
39.9
9.8
43.2
12.1
43.5
11.0-10.0
37-34
9.0-7.0
28-23
Natural gas
3.3
18.5
4.8
21.1
7.2
25.9
9.4
31-32
11.5
36-38
Coal
6.1
34.3
6.6
29.1
6.7
24.1
7.0
23-24
7.8
24-26
Hydroclectric power
0.6
3.4
0.6
2.6
0.8
2.9
1.0
3
1.2
4
Nuclear power
NEGL
NEGL
0.1
0.4
0.3
1.1
0.9
3
1.6
5
Other
0.7
3.9
0.8
3.5
0.7
2.5
0.8
3
0.8
3
Because of rounding, components may not add to the totals shown.
b Million barrels per day oil equivalent.
Secret
14
Secret
61
Appendix D
Western Europe: Energy Stake
in Pipeline Project
While oil remains the dominant energy source in the
Table D-1
six European countries involved in the project, natural
gas is becoming increasingly important (see table D-1).
Western Europe: Distribution of Total
Natural gas is consumed principally in the industrial
Primary Energy Consumption
and residential-commercial sectors of the six European
nations, but is also used to generate electricity. During
1979
1990
the 1970s, the increase in gas consumption was most
rapid in the residential sector where it replaced coal
Oil c
56
43
and oil in space heating. Gas has also increased its
Natural gas
18
20
share of energy use in the industrial sector at the
Coal
18
17
expense of coal and oil. The share of natural gas in
Nuclear
3
15
total energy use by 1990 is projected to remain the
Hydroelectric and other
4
5
same or increase for all countries except the Nether-
West Germany, Italy, France, Austria, Belgium. and the Nether-
lands (table D-2).
lands. Because of rounding, components may not add to 100.
Projected.
Total natural gas supplies. to the six West European
Inland consumption plus international aviation, marine bunkers,
and refinery fuel and losses.
countries amounted to some 16.1 billion cf/d in 1980.
The Netherlands supplied about half of this total,
including exports of 4.7 billion cf/d to other West
European countries. Domestic production in West
While seeking more gas from the USSR, several Eu-
Germany, France, Italy, and Austria accounted for
ropean nations are also negotiating with the Algerians
about nearly 4 billion cf/d. The remaining supplies
for stepped-up deliveries. The Italians are completing
were imported from the Soviet Union, Norway, Al-
the final phase of construction of an underwater pipe-
geria, and Libya, with over half of the imports coming
line that will deliver 1.2 billion cf/d of natural gas from
from the USSR, via pipeline. West Germany, Italy,
Algeria beginning late in 1981. The Algerians also
France, and Austria received all the Soviet deliveries.
have contracts with France and Belgium to deliver a
combined total of 1 billion cf/d of LNG annually
beginning in 1982. Another Algerian contract to ship
Increased deliveries of Soviet gas in the mid-1980s
1.8 billion cf/d of LNG annually to West Germany
would help offset an expected decline in Dutch gas
and the Netherlands by 1985 apparently has been
shipments. Several Dutch gas contracts are scheduled
canceled. Some of the contracted volume probably will
to expire beginning in 1986, in part because of The
be forthcoming in the form of pipeline exports through
Hague's conservationist policies. In any event, deliv-
Italy or Spain. (See tables D-5 through D-10.
eries from the Soviet Union could approximate 6.3
billion cf/d, enough to make the USSR the largest
Norway and Nigeria are also being looked to for
single supplier (tables D-3 and D-4). Realization of all
increased supplies. A consortium of firms in West
pending contracts would boost total gas supplies to
Germany, France, Belgium, and the Netherlands is
these West European countries by some 30 percent by
negotiating for increased imports from Norway that
1990 despite expected declines in Dutch and other
could add as much as 0.4 billion cf/d to combined
domestic supplies.
15
Secret
60
Secret
Table D-2
Western Europe: Actual and Projected Energy Shares a
Percent of Total Energy Use
Total Energy
(Million b/d Oil
Oil b
Gas
Coal
Nuclear
Other
Equivalent)
1979
West Germany
53
16
27
3
I
5.70
France
60
11
16
5
8
3.79
Italy
68
16
7
I
7
2.96
Netherlands
51
44
5
I
0
1.51
Belgium c
56
20
19
5
0
1.05
Austria
48
20
15
0
17
0.52
1985 d
West Germany
46
18
23
10
1
6.76
France
42
16
15
20
7
4.50
Italy
64
18
9
1
6
3.77
Netherlands
46
43
9
I
0
1.57
Belgium c
47
21
21
11
0
1.15
Austria
45
15
16
0
24
0.62
1990 d
West Germany
43
17
23
16
1
7.42
France
29
16
14
30
11
4.84
Italy
56
21
12
4
6
4.48
Netherlands
47
41
11
1
0
1.65
Belgium
47
20
21
12
0
1.29
Austria
40
21
14
0
25
0.72
a Total primary energy. Because of rounding, components may not
add to the totals shown.
b Inland consumption plus international aviation, marine bunkers,
and refinery losses.
c Including Luxembourg.
:
d Projected.
Secret
16
Secret
69
Table D-3
Percent of Total Consumption Table D-5
Billion Cubic Feet Per Day
Western Europe: Dependence on Soviet Gas
Federal Republic of Germany: Natural Gas Supplies
1979
1990 a
1979
1980
Gas
Total supplies
5.5
5.2
Gas
Energy
Energy
West Germany
14
2
29
6
Domestic production
2.0
1.7
France
0
0
23-28
4
Imports
3.5
3.5
Italy
29
5
29
5
Current sources of imported natural gas
Netherlands
0
0
10
4
32
Contract
1979
1980 b
Belgium
0
0
8
Expiration
Volume
Volume
Austria
59
12
82
18
Netherlands
1986/87/89 2.1
2.0
a Based on individual government estimates of gas and total energy
1991-94
consumption.
b Contracted volumes of Soviet gas were delivered to Italy in
USSR
1990/94/98 0.7
0.8
exchange for Dutch gas until February 1980.
Norway
1997
0.6
0.7
Potential suppliers
Initiation
Volume
USSR additional
Late 1980s 1.2
Nigeria (LNG)
1984-85
0.2
Table D-4
Algeria (LNG) c
1985
0.8
Norway additional
1987
Negotiating
Western Europe Countries: Dependence
on Soviet Energy
Because of rounding, components may not add to the totals shown.
Estimated.
c
Algeria has not begun continuation of facilities to complement the
Million b/d Oil Equivalent
USSR
projects.
Share
Energy
Energy Imports From the USSR
(Percent)
Consump-
tion
Total
Oil
Gas
Coal
1979 15.5
1.2
0.5
0.3
0.4
8
1985 18.4
1.6
0
1.2
0.4
9
1990 20.4
1.6
0
1.2
0.4
8
a
Western Europe countries include West Germany, France, Italy.
the Netherlands, Belgium, and Austria.
17
Secret
70
Table D-6
Billion Cubic Feet Per Day Table D-7
Billion Cubic Feet Per Day
France: Natural Gas Supplies
Italy: Natural Gas Supplies
1979
1980
a
1979
1980 a
Total supplies
2.6
2.7
Domestic production
0.8
0.8
Total supplies
2.8
2.7
Imports
1.8
1.9
Domestic production
1.3
1.3
Imports
1.5
1.5
Current sources of imported natural gas
Contract
1979
1980 a
Current sources of imported natural gas
Expiration
Volume
Volume
Contract
1979
1980 a
USSR b
2000
.0
0.4
Expiration
Volume
Volume
Algeria
1990, 1998
0.3
0.2
USSR
1999
0.8
0.6
Netherlands
1988
1.3
1.0
Libya (LNG)
1992
0.2
0.2
Norway
1977
0.2
0.2
Netherlands
1994
0.4
0.7
Potential suppliers
Potential suppliers
Initiation
Annual
Initiation
Annual
Volume
Volume
USSR additional
Late 1980s
1.0
USSR additional
Late 1980s
0.7
Algeria (LNG)
1982
0.5
Algeria pipeline
1981-85
1.2
Nigeria (LNG)
1984-85
0.2
Nigeria
1984-85
0.1
Norway additional
1987
Negotiating
Estimated.
Estimated.
b Contracted volumes of Soviet gas were delivered to Italy in
exchange for Dutch gas until February 1980.
Secret
18
Secret
71
Table D-8
Billion Cubic Feet Per Day Table D-9
Bilion Cubic Feet Per Day
Netherlands: Natural Gas Supplies
Belgium: Natural Gas Supplies
1979
1980
.
1979
1980 a
Total supplies
4.4
4.1
Total supplies
1.2
1.1
Domestic production
9.1
8.5
Domestic production
NEGL
NEGL
Imports
0.2
0.3
Imports
1.2
1.1
Exports
4.9
4.7
Current sources of imported natural gas
Potential suppliers
Contract
1979
1980 a
Initiation
Annual
Expiration
Volume
Volume
Volume
Netherlands
1987
1.0
0.9
USSR
Late 1980s
0.5
Norway
Unknown
0.2
0.2
Nigeria (LNG)
1984-85
0.1
Algeria (LNG)
1984
0.5
Potential suppliers
Norway additional
1987
Negotiating
Initiation
Annual
Volume
a Estimated.
USSR
Late 1980s
0.6
b All imports from Norway.
c
Algeria has not begun construction of facilities to implement
Algeria (LNG)
1982
0.5
contract.
Nigeria (LNG)
1984-85
0.1
Norway additional
1987
Negotiating
Estimated.
Table D-10
supplies by 1987. These countries and Italy have
Billion Cubic Feet Per Day
signed a contract with Nigeria to import 0.7 billion
Austria: Natural Gas Supplies
cf/d of LNG annually by 1985. Lagos, however, is
apparently delaying startup of construction of the liq-
uefaction facility, and imports will probably be delayed
until late in the decade.
1979
1980 a
Total supplies
0.5
0.5
Despite these deals, the emphasis in West European
Domestic Production
0.2
0.2
natural gas planning has been toward greater reliance
Imports
0.3
0.3
on pipeline gas from the Soviet Union. The West
Europeans have long seen the Soviets as a more reli-
Current sources of imported natural gas
able source of energy supply than the LDCs. This
USSR
0.3
0.3
attitude originates in the Suez crisis of 1956, when
Western Europe was affected by cutoffs of Middle
Potential suppliers
Eastern oil and turned to the Soviet oil then beginning
Initiation
Annual
to enter the world market. The West Europeans have
Volume
USSR additional
remained steady customers for Soviet oil, which
Late 1980s
0.3
continued to be delivered during the Middle East war
Estimated.
19.
Secret
72
of 1967 and the Arab oil embargo of 1973-74, even
though the Soviets verbally supported the Arab action.
This favorable image of Soviet reliability in contrast to
that of LDCs has been reinforced in the case of gas by
revolutionary Iran's cancellation of the Iranian-Soviet-
European IGAT-2 natural gas swap, by Algeria's and
Libya's suspension of LNG shipments, by Algeria's
subsequent cancellation of construction of the Arzew-3
LNG plant, and by what the Europeans considered
extreme Algerian and Libyan demands for increases in
the price of LNG in 1980.
Secret
20
Secret
13
Appendix E
Western Europe: Industrial Stake
in Pipeline Project
The pipeline project would be especially important to
compressor delivery has stalled negotiations. Moscow's
Western pipe manufacturers. West European and
efforts to line up several European firms to handle the
Japanese companies have devoted substantial capacity
order have also been hampered by Soviet concern over
to meeting Moscow's growing demand. US firms, how-
US sanctions policy, since most leading contenders
ever, have never produced the 56-inch-diameter line
produce at least part of their units under US company
pipe that has become the predominant Soviet gas pipe
licenses.
purchase. The USSR spent an estimated $2 billion in
1979 for approximately 1.7 million tons of large-
Rolls Royce of the United Kingdom reportedly is the
diameter pipe. West Germany and Japan each sup-
only major European compressor manufacturer rely-
plied roughly 700,000 tons, with France and Italy
ing entirely on its own technology. It is also a leading
providing most of the remainder.
contender for the pipeline project order and possibly
the only West European company for which a project
The West German firm Mannesmann, eager to be-
contract could mean avoiding severe financial trouble.
come the prime contractor for the pipeline project, is
The Rolls RB-211 aircraft-type compressor station
particularly dependent on Soviet orders, which con-
model competes with US designs. Because recent can-
sume 80 percent of its large-diameter pipe output.
cellation of aircraft engine orders has threatened the
Mannesmann apparently is also the only firm capable
company with substantial idle capacity, Rolls is striv-
of mass-producing 56-inch pipe for operating pressures
ing hard to win Moscow's favor, including acceptance
of 100 atmospheres, for which the Soviets are the only
of Soviet demands that a compressor repair plant be
conceivable buyers. The Japanese welded pipe indus-
part of the deal. Devoid of major aircraft engine or-
try, which devotes more than one-fifth of its output to
ders, Rolls Royce conceivably could attempt to fill the
the USSR, could also produce such pipe under license
entire order for aircraft-type compressors-up to 125
from Mannesmann. If Moscow opts for a dual line at
units-a task of at least two years. Rolls, nonetheless,
75 atmospheres, however, West Germany, Italy,
might have to farm out the job to several West Eu-
France, and Japan might all provide some pipe in order
ropean firms, spreading the pipeline project's benefits
to deliver the total purchase by the contracted date.
somewhat wider
West European firms also have a good chance of
winning the compressor station order-the other major
equipment purchase of the pipeline project-if US
companies remain subject to government bans on such
sales to the USSR. Each of the six countries in the
pipeline project, except for Austria, has at least one
firm or consortium capable of producing industrial or
aircraft-type gas turbine compressor units that Mos-
COW could use. Japan and other European countries are
also potential suppliers. The Soviets would prefer US
compressor models-they are the satisfied consumers
of several hundred to date-but Soviet concern about
future US economic sanctions that would interrupt
21
Secret
Appendix F
Soviet Pipeline
Delivery Problems
The Soviet Union will have a hard time preventing
contractors onsite in the Arctic construction zone
occasional supply interruptions, given the risks of tech-
would give Western gas importers no assurance against
nical failure. Soviet pipeline breaks result from both
substandard performance.
climatic and technical problems. Laying large-
diameter lines across thousands of kilometers of natu-
Major pipeline ruptures could occur at any time of the
ral obstacles, particularly ice-covered mountains,
year. Repair work on Arctic portions of a trunkline
swamps, and permafrost, creates a large potential for
during winter would require at least several weeks.
both construction errors and operational stresses. Per-
Although the Soviets have claimed that on occasion
mafrost construction has been particularly trouble-
they have repaired pipelines within a week or two, they
some for the Soviets. Permafrost-perennially frozen
acknowledge that the norm is much longer. The frozen
soil-is subject to severe buckling over time since its
ground in winter does aid the movement of repair
surface layer annually melts and freezes. Heat gen-
vehicles and delivery of new pipe and equipment, but
erated by gas transmitted through pipes laid under-
those materials still are often slow to arrive on site. If
ground can aggravate the problem of melting. The
the Soviets install two lines under the export line
Soviets have attempted to minimize the stress that this
project, the chances for maintaining at least a reduced
places on pipelines but, like the West, have not been
gas flow would be greatly enhanced.
entirely successful. Another potential problem is mois-
ture collecting in pipe valves and then freezing, snap-
A serious nonwinter pipe rupture could take several
ping the valves. All gas pipelines coming west from
months to repair if it occurred in thawed permafrost or
Siberia must traverse hundreds of rivers and ravines,
swampy tundra. The lack of surface roads, likely to
which can increase pipeline stress. Strong Arctic winds
persist even along the export pipeline, prevents rapid
can damage pipes laid above ground.
use of repair equipment in that environment. Heavy.
pipelaying vehicles, for example, can sink into the deep
The Soviets aggravate matters by paying little atten-
mud, causing serious delays. Such a breakdown, more-
tion to performance standards. Plan fulfillment and
over, might produce a double impact on Soviet gas
wage bonuses for pipelaying crews are based on the
exports, not only reducing deliveries at that time but
amount of pipe laid, rather than the quality of work
perhaps hampering above-normal spring or summer
done. As a result, high-quality Western pipe is fre-
shipments, which the Soviets have made in the past to
quently damaged through careless handling and then
make up for wintertime diversion of gas to domestic
left exposed for months before installation, reducing its
needs.
resistance to corrosion often caused by improper re-
moval from gas of impurities such as water and sulfur.
Compressor station failures could also reduce exports.
Lines have been improperly welded and buried in
Crews operating gas trunklines are judged primarily
permafrost, subjecting the pipe to more stress than is
by the amount of gas they transport annually, rather
necessary from the ground's thawing and freezing. The
than for overall performance that would include timely
Soviets reportedly lost large sections of trunkline along
repair and maintenance efforts. The Soviets as a result
the Northern Lights route because of such faulty in-
have let compressor units run without substantial
stallation procedures. Although Soviet pipeline
maintenance until major failures have occurred.
construction in permafrost probably has improved dur-.
According to Western observers, compressor stations
ing the past decade, Moscow's refusal to allow Western
23
75
on some of the Soviets' major gas export trunklines
have been subjected to such inadequate procedures.
The export pipcline would possess some means of
reducing the likelihood of complete shutdowns due to
compressor failures. Backup compressors at each sta-
tion on the line could minimize flow disruptions if a few
units broke down. Failure of an entire compressor
station would reduce the flow substantially but not halt
it if the pipe remained intact, allowing gas to bypass
the station. The amount of downtime due to a compres-
sor station failure would depend on the problem and
the design of the units. Aircraft-type units that the
Soviets have requested could be back on line within 30
minutes. A serious explosion in an industrial-type
compressor station could require many months to re-
pair. The export pipeline probably will have stations of
both types
Secret
24
10660 76
Western Europe: Potential for Alternative Gas Supplies
The six West European countries involved in negotiations
with the USSR for on additional 1.4 trillion cubic feet of
natural gas annually have a number of alternative supply sources
to pursue to limit dependence on Soviet gas. These sources vary
widely with respect to the potential volume and timeliness of
deliveries as well as their attractiveness to the Europeans from
the standpoint of reliability. Potential increases in supply may
come from:
o Algerian qas in both pipeline and liquefied (LNG)
form. The recent stoppage of deliveries to France and
the United States, however, because of Paris and
Washington's reluctance to accept Algeria's extreme
price demands, raises serious questions about Algerian
reliability.
o Nigerian gas from the Bonny LNG project at the rate of
at least 265 billion cubic feet annually. If Lagos'
sticks to its decision to delay construction of the
project until 1984, deliveries could be postponed until
1987 or later.
O North Sea gas reserves are sufficient to produce a
DECLASSIFIED
NLRRF06-114/9 # #10660
BY KML NARA DATE 9/25/12
sizable increase in continental European gas
supplies. If London maintains its current UK policy on
gos utilization, and if technical and economic
constraints associated with Norweqian reserve
development cannot be overcome quickly, additional
ENTIAL
NOT RELEASABLE TO
FOREIGN NATIONALS
11
annual imports from this region will be limited to the
150-300 billion cubic feet already envisioned.
Other projects to export LNG to Western Europe may
develop late in the decade in Cameroon, Qatar and
possibly Canada.
o Flexibility in accepting delivery under Dutch contracts
may enable some of the countries to use Dutch gas for
surge capacity during unexpected supply shortages or
alternatively to extend contract life. C NF)
Other Gas Suppliers
Three major gas suppliers already have existing or proposed
contracts for future gas deliveries to Western Europe. Several
other suppliers could potentially increase deliveries later in
the decade. (U)
Algeria
Algerian contracts presently call for annual dèlivery of
some 760 billion cubic feet of natural gas to the United States,
France, Spain, and the United Kingdom. Algiers has never met
full contract volumes to these countries as scheduled because of
technical problems with liquefaction facilities, delays in
transport delivery, and more recently, disputes over pricinq.
Still, Algeria is scheduled to begin deliveries of an additional
530 billion cubic feet of LNG annually to France, Belqium, and
the United States in 1982. Completion of an underwater gas
pipeline will also enable Algeria to begin scheduled deliveries
of 450 billion cubic feet annually to Italy later this year if a
pricing agreement can be reached. (U)
TIAE²⁻
NOT RELEASMILE TO
CONH
FOREIGN NATIONALS
78
Algerian natural gas reserves of about 130 trillion cubic
feet are sufficient to permit a sizable growth in exports over
the coming decade. Moreover, Algeria is likely to be forced to
expand gos exports to offset an expected decline in oil revenues
as a result of declining domestic production and growing internal
consumption. In addition, uncertainty regarding the future of
LNG contracts with the United States as a result of pricing
disputes may result in additional LNG supplies being made
available 10 Europe. At present, only France, Italy, Spain and
the United Kingdom have facilities capable of handling LNG
imports. Recent Algerion pricing demands and uncertainties over
Alqiers' reliability as a gas supplier are likely to cause West
Europeans to take a cautious approach in contracting for new
supplies. (U)
Nigeria
The proposed Bonny LNG project to export some 530 billion
cubic feet of natural gas annually has been delayed recently by
the Nigerian government decision to limit funding of the project
during the current five year plan. If this decision is not
revised, it will result in a delay in the beqinning of
construction of the export facilities until 1984 -- when
deliveries were to begin under the terms of the original
contract. Operating companies are still attempting to revive the
contract under its original terms. Nigeria has attempted to
divide sales volume between Western Europe and the United
NOT RELEASABLE TO
CONDENTIAL
FOREIGN NATIONALS
19
States. West European countries are willing to receive the total
contract volume if Lagos and Washington cannot reach agreement.
(C NF)
North Sea
Natural qas reserves in the British-Norwegian sector of the
North Sea presently total some 70 trillion cubic feet with
Norweqian reserves estimated at least 43 trillion cubic feet.
These reserves represent a sizable potential for increased
supplies 10 those countries involved in the proposed Soviet gas
deal. (U)
UK policy, however, is to utilize gas reserves strictly for
domestic consumption. There are presently no existing pipeline
systems connecting UK gas fields with the continental European
pipeline grid, and it appears unlikely that London would allow
any future tie-in, even for strategic purposes. The only
possibility for any linkage would lie in the failure to construct
a second qas-qathering system to allow development of more remote
US gas fields in the general vicinity of Norway's Ekofisk
field. If certain factors prevent these fields from being tied
10 a UK system, operating companies may be permitted to export
some of this gas to continental Europe through the Norwegian
Ekofisk-Emden line or another future Norwegian pipeline.
Reserves in these UK fields probably total some 1.1 trillion
cubic feet. (C NF)
Norway presently exports 350 billion cubic feet of gas
annually from its share of the Frigg field to the United Kingdom
and about 500 billion cubic feet annually of Ekofisk gas to the
CONFIDE
NOT RELEASABLE TO
FOREIGN NATIONALS
80
continent. The Norwegian government has yet to approve final
plans to utilize qus in the Statfjord field. Oslo is expected to
opt to build a system which will pipe this gas to Norway. After
extraction of liquids and some gas for local use, the remainder
will be transported to a riser platform for hookup with gas
produced from other Norweqian fields. This gas will then be
shipped to Emden, West Germany through a pipeline with an annual
capacity of 300 billion cubic feet. Startup of deliveries is
expected by 1987 with initial annual volumes of 130 billion cubic
feet. (C NF)
The bulk of Norway's present gas potential lies in Block 31-
2 just southeast of the Statfjord field. A gas containing
structure in the region has probable reserves estimated at 25-64
trillion cubic feet. The reserves are located in water depths of
1000 feet and will pose great technical problems to develop.
Moreover; Norway is not expected to allow development of these
reserves until assured that a price equal to at least crude oil
parity on a delivered basis is guaranteed. In any event,
development of these qas reserves will likely require that
present Norwegian policy toward hydrocarbon development he
modified 10 allow greater oil/gas production or emphasize gas
production at the expense of oil. Oil bearing structures in
Block 34-10 adjacent. to the Statfjord field contain an estimated
530 billion cubic feet of gas which could also be tied into a
future gas gathering system in the region. (C NF)
Exploration north of the 62nd parallel, where the bulk of
Norway's offshore continental shelf lies, began last summer.
CONFIDENTIAL NOT RELEASABLE TO
FOREIGN NATIONALS
-5-
81
While no detailed reports of discoveries have been released, the
orea is believed to hold great potential. Operating companies
believe that Norway will take a go slow approach in announcing
discoveries and proceeding with development to avoid attracting
Soviet interest. (C NF)
It is doubtful that sizable increases in Norweaian gas
production beyond those planned for the Statfjord pipeline will
occur in the coming decade without a strong push from the
government. Most reserves are located in deep water where doubts
exist about the technological capability to produce and pipe the
gas to the continent. In addition, operating companies in the
North Sea continue to push for oil field development where lead
times and markets are such that they can realize a quicker and
greater return on their investments. (C NF)
Netherlands
Increased exploration both onshore and offshore enabled the
Netherlands to boost total gas reserves to 62 trillion cubic feet
despite producing over 3 trillion cubic feet for domestic and
export markets. Dutch policy is to develop rapidly offshore gas
deposits while conserving reserves in the onshore Groningen field
for future domestic purposes. Still, the huqe Groningen field,
with reserves in excess of 40 trillion cubic feet, represents the
greatest buffer against a shortfall in gas deliveries from other
soures over the next 5-10 years. The Dutch import gas from
Norway and are seeking additional supplies from Algeria, Nigeria,
the USSR and Norway. (U)
NOT RELEASENCE TO
CONHDENTIAL
FOREIGN NATIONALS
-6-
82
Production from the Groningen field presently totals some
2.2 trillion cubic feet with a rated annual capacity of 6.4
trillion cubic feet. Peak capacity could be sustained for about
a year without significant reservoir damage but the productive
life of the field would be shortened by more than the Dutch
government would consider acceptable. Still, the operating
companies (Shell and Esso) have been adding surge capacity to the
field, partly as a result of bumping against peak daily capacity
during cold weather periods in 1978-79. (C NF)
Offshore fields are being produced rapidly to prevent
deterioration of the producing equipment and pipelines. These
fields, along with smaller onshore fields, account for about 30
percent of total Dutch gas production and are expected to play a
greater role in the future if reserves can be increased. The
Dutch also conserve reserves in the Groningen by importing gas.
(U)
Present Dutch policy is to conserve gas for future domestic
needs and the Haque is refusing to renew contracts with present
European customers. At the same time, the Dutch have aareed to
allow customers to reduce delivery in the near term to extend the
life of the contract or insure added deliveries during periods of
shortfall from other suppliers. The Dutch gas supplier, Gasunie,
and the government have rejected proposals to serve. as a supplier
of last resort, but even this policy may be modified in the
future. The Dutch probably would be willing to aid its EC
partners during a gas crisis if some assurances could be made
that withdrawals would be replenished by the EC partners when
CONFIDENTIAL
NOT RELEASABLE TO
FOREIGN NATIONALS
-7-
83
supplies were more ample. Indeed, the producing companies of the
Groningen field already have contingency plans to reverse flow in
the pipeline grid to allow gas to be reinjected into the field.
(C NF)
Other Potential Suppliers
Cas discoveries off the coast of Cameroon have raised the
possibility of developing an LNG export facility there later in
the decade. The size of potential reserves has not yet been
established but operating companies, including a French firm, are
optimistic about the project. Any exports would probably not be
forthcoming until the late 1980s and most likely would be
carmarked for France. (U)
Qatar's huge Northwest Dome gas reserves (140 trillion cubic
feet) have been the subject of intensive study by several firms,
including the West German firm Wintershall. No contracts have
been signed to develop the reserves and it is likely that Qatar
will opt to develop some of the gas for local use before
considering an export project. Participation terms for foreign
firms have made the project unattractive. Still, West Germany
has shown () great deal of interest in the potential LNG supplies
and prospects for declining oil production in Qatar may help push
initial development by the mid-1980s. (C NF)
Canada is moving ahead with plans for a pilot LNG project
designed 10 move gas supplies from the Arctic region to Canada's
east coast, and Canadian officials have discussed the possibility
of LNG shipments to Western Europe. While Canada has sufficient
reserves to accomnodate a reasonable volume of LNG trade with
NOT EASABLE TO
CONADENTIAL
FORMER NATIONALS
-8-
Europe, uncertainties reqarding domestic energy policy and the
unproven Arctic project make it unlikely that this potential will
be realized before 1990. (C NF)
Deep Zone Gas Potential
Sizable reserves of natural gas in very deep geological
zones- 15 thousand to 20 thousand feet or more--exist in the
continental United States and are believed to exist in
continental Europe. Indeed, some drilling activity has indicated
the presence of several hundred billion cubic feet of such
deposits in Belgium. (U)
Development of gas deposits in these deep zones is a costly
procedure because of the depth and structure of the gas bearing
formation. In most cases, it takes a year or longer to drill a
producing well and most operating companies find it more
profitable to explore for oil or more conventional gas sources.
Still, if the existence of such deposits could be proved out.
European governments should be encouraged to stimulate
development of this resource as another offset to a potential
Soviet shortfall. (U)
-9-
COMMENTIAL
TO
NATIONALS