SECURITY ASSISTANCE: US, SOVIET, AND EUROPEAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83T00966R000100020005-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 20, 2016
• Document Release Date: April 11, 2007
• Sequence Number: 5
• Publication Date: March 29, 1982
• Content Type: MEMO

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Herewith two pieces for tomorrow's NSC
meeting:
i) A memo of data & comment (+ annexes) re
S urity Assistance.
2) A note + attachment re Energy Security.
Harry Ro e.a
C/NIC
USE
DITIONS PREVIOUS
101 E
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 National Intelligence Council
DDI-2553-82
29 March 1982
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
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cFCRFT
Chairman, National Intelligence Council
Security Assistance: US, Soviet, and European
-- The surge in Soviet sales in 1980 moved the USSR into
a position close to that of the US as an arms supplier
25X1
If only major weapons systems
are consi ere have already taken the lead,
since such equipment accounts for probably 60-70 percent
of Soviet sales, but only about one-third of US sales.
The Soviets also
LDCs
-- In addition to the US and USSR, four West European
suppliers dominate the a m rancel 25X1
in 1980 al , the [Initpri 25X1
Kingdom , any 25X1
-- Several newly industrialized countries (notably Brazil,
Taiwan, and South Korea), as well as Israel, have also
carved out significant niches in the global arms market.
-- Preliminary data for 1981 indicate that sales slumped
from their record 1980 levels, mainly because of the
decisions of major buyers to stay out of the market while
absorbing large delivery backlogs. The distribution of
sales among the major suppliers, however, has not changed
appreciably.
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2. Most of the sales of major suppliers tend to be concentrated among
few recipients.
The bulk of Soviet sales outside the Communist
bloc have been to Libya, India, Ethiopia, Algeria, and until recently, Iraq.
US Foreign Military Sales credits have been concentrated in the Middle East
(Egypt and Israel) and the Aegean area (Greece and Turkey). France and Italy
have made their largest sales in the Middle East, particularly Saudi Arabia
and Iraq.
3. Comment. The principal areas where increased US security assistance
might be particularly important, in enhancing either regional stability or
US influence, are:
-- Europe:
- The southern tier countries -- Portugal, Spain, Greece,
and Turkey -- will be looking for increased US security
assistance in return for their continuing grants of
base access and overflight privileges.
- Turkey, in particular, will require large amounts of
assistance to finance modernization of its armed forces
'while improving internal stability.
-- Latin America:
- Continuing assistance to El Salvador will be a critical
ingredient in the government's attempt to build upon
its successful holding of national elections.
- Arms sales decisions will have a major influence on
US relations with the many military-dominated govern-
ments in Latin America. In particular, US security
assistance could be important in reducing Peru's
dependence on the USSR for arms.
-- Middle East:
- Egypt will be counting on levels of US security assistance
that are sufficient to defend against Libya, demonstrate
the usefulness of the US connection, and maintain its
commitment to the peace process.
- Instability in the Persian Gulf area, stemming largely
from uncertainties about Iranian behavior, sustains the
demand for assistance among the Arab Gulf states. Saudi
Arabia will continue to expect access to sophisticated
US equipment.
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SECRET
- Because the Soviets are likely to stay in Afghanistan
for the near term, military assistance will be important
in bolstering Pakistan's ability to withstand Soviet
pressure.
Africa :
- In the Horn, US assistance programs in Kenya, Sudan,
Djibouti, and Somalia provide access privileges for US
forces and a modest defense against pressures from
Ethiopia and other Soviet clients.
- The moderate states farther west on the continent that
are threatened by Libya -- including Chad, Tunisia,
Morocco, and Cameroon -- constitute another area where
US military aid will be important in bolstering stability
and the confidence of incumbent governments.
- In southern Africa, whether Zambia, Botswana, and even
Angola rely heavily on Soviet help will depend in large
part on the extent to which these governments can obtain
Western aid, including arms.
East Asia:
- South Korea will press for high levels of security
assistance to finance the modernization of its forces
in the face of superior North Korean forces.
- Thailand faces direct pressure from Vietnamese forces
in Kampuchea, and will rely on increased US aid to
strengthen its defenses.
- Military assistance will be a significant factor in the
Philippines' decisions concerning continued US base
rights.
Henry S. Rowen
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DDI 2553-82
29 March 1982
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
SUBJECT:
NIC/AGI
Attachments:
Tables
Security Assistance: US, Soviet, and European
Distribution:
1 - DCI w/atts
1 - DDCI w/atts
1 - ER w/o atts
1 - C/NIC Watts
1 - DDI Registry w/o atts
1 - FILE watts
1 - AG
: CIA-RDP83T00966RO00100020-005-4_._-_-.
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Ener Securit
Comm loupe The Sls subject for the
will Provide an input hit is ing drafted European
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ENERGY ADVICE, Rue De La Rotisserie 6, CH-1204 Geneve. Telephone [phone]. Telex 23276
A Division of AGB Market Research S.A.
EA/SE
ALTERNATIVE STRATEGIES
FOR NATURAL GAS
IN WESTERN EUROPE
An Executive Summary
! in
Economics and Science Planning Inc
1200 18th Street NW
Washington DC 20036
USA
(c) Energy Advice, 1982
11th March, 1982
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4. For various reasons, most north west European
countries have lacked motivation to increase gas
production above presently planned levels. There
are however some signs that attitudes may be
changing.
In spite of an increase in production over the
1981-85 period, proven and probable reserves of
gas are likely to double between end-1981 and
end-1985, to reach 10,200 billion cubic metres
(380 trillion cubic feet) by that time. Half of
these reserves will be in Norwegian areas. We
consider that the peak annual production of
218 x 109 m3 (8.1 TCF) planned for 1985-90 could
physically be increased to at least 315 x 109 m3
(11.7 TCF) without bringing the reserve/production
ratio below the end-1981 level of 31 years.
The timing of such an increase would be phased
between areas so that the British and Dutch sectors
would be contributing from 1985 with the Norwegian
contribution coming in the later 1980s. The main
financial resources required would be for the UK
gas gathering system ($1.8 bn at 1980 prices) plus
$7.2 bn for six new UK field development projects
plus similar investment for new Norwegian fields.
Somewhat smaller amounts would be required for the
development of Dutch off shore fields and increased
capacity of on shore transportation systems to the
rest of Europe.
US business would benefit heavily from an effort
to expand North Sea gas production by 1.5 TCF per
annum.
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To encourage an increase in planned gas production
levels, United States policies should be directed
towards instilling greater awareness of European
possibilities, promoting integration of development
effort, changing the emphasis of EEC and other
supernational programmes and guaranteeing gas
replacements at no greater real cost.
It will be difficult for the US to persuade those
planning to buy Siberian gas that the economic
benefits of a switch to substitute sources would
be greater than now foreseen. It may, therefore,
be more advisable to aim for a compromise between
political and economic benefit through a partial
reduction in Soviet supplies and their replacement
by the most easily attainable North Sea sources.
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1. RESERVES, PRODUCTION AND PRODUCTION POTENTIAL
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The essential components in the current, planned and
potential use of the national gas resources are set out in Tables 1 and
1A. Figures are given in standard cubic metres of 9,381 kcal/m3 and in
trillion cubic feet (TCF) of 1000 BTU/ft3.
Twenty years ago production was restricted to a number
of small fields in West Germany and the Netherlands. Ten years ago
production from the giant Groningen field in the Netherlands was in the
process of rapid growth and four large gas fields in the United Kingdom
sector of the Southern North Sea were in their early years of production.
Since 1971 fields in other parts of the North Sea have been brought on
stream but, even now, production from the Danish and German sectors has
not yet started. There are, as yet, not even firm plans for the develop-
ment of the gas reserves off-shore in the more northerly parts of Norway and
only one field to the west of the United Kingdom is in production.
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Cumulative production to date totals less than 25
percent of proven and probable reserves and there is a current (end-
1981) Reserves/Production (R/P) ratio of over 30 years. Even the
Netherlands, from where 50 percent of total gas to date has been produced,
has an R/P ratio which is only a little under 30.
Current production/development plans imply a cumula-
tive use in the four years 1982 - 85 of some 730 x 109 m3 or 27 TCF,
(44 percent as much gas as cumulative use to end 1981) and during this
period all areas will contribute except Norway's northern areas. Planned
growth in use, is,however, relatively small overall - by no more than 10
percent - and even these limited plans for expansion of production may be
affected in part by demand limitations (arising out of gas pricing policies
in some countries and legislative restrictions on gas use by the E.E.C.)
X By 1985, however, on the basis of the successful
exploration to date plus, the upward reappraisals of the resources in many
IN of the reservoirs in the early stages of exploration; plus the discovery
of new fields as a result of the continued exploration activities, the
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remaining recoverable proven and probable reserves will then have doubled
to over 10,000 x 109 m3 or 372 TCF (after allowing for gas used from
currently proven and probable reserves in the meantime). In spite of
this rapid expansion of reserves, the sum of the post - 1985 planned
peak rates of production from the six countries concerned will not exceed
220 x 109 m3 (8.2 TCF). It is, indeed, unlikely that this rate will occur
in any year before 1990 because individual countries peak rates of
production will not coincide. Even assuming there was such a coincidence
then the average post - 1985 R/P ratio would be almost 50 years.
The pattern and speed of evolution of the size of
North West Europe's gas resources clearly gives plenty of scope for
production ratios higher than those which are currently planned. The
approximate 50 percent enhanced rate of potential recovery is still
relatively modest compared with the likely available proven and probable
reserves by the mid - 1980s. Indeed, the higher production rate still
gives an R/P ratio of 33 years so it can barely be described as a rate
of depletion which ignores the longer term needs of the region. Note that
the additional ?100 x 109 m3 (3.7 TCF) per year of potential production is
also the sum of the extra output from the six countries and this too
cannot be assumed to be time coincident. The additional production
potential falls quite clearly into two time horizons, viz.,first,additions
which could be achieved by 1985 and, second, additions which would come
in at a somewhat later stage but still prior to 1990. Most additional
Dutch and British potential falls into the first category and that from
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the other countries into the second. The extra gas from the second group
of countries could serve gradually to replace the extra .gas from Britain
or the Netherlands after 1985 if the latter countries then wished to
reduce their production levels in the interests of resource conservation.
In any event the production of an extra 40-50 x 109 m3 (1.5-1.9 TCF) of
gas per year from, say, 1984 to the end of the century would not generally
deplete the reserves available; indeed, only about 30 percent of the
potential proven and probable 1985 reserves would be used by the year
2000. But the chances of no more recoverable gas being found after 1985
are virtually zero as the search for reserves will then still be in its
early stages. There is a high probability that annual additions to
' reserves after 1985 will continue to exceed even the higher rate of use
(?300 x 109 m3 or 11.2 TCF per year) indicated.
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2. TIMING AND FINANCIAL RESOURCES NEEDED FOR ADDITIONAL
PRODUCTION
2.1 Short-Term i.e.. by 1985
a) The additional production of up to 25 x 109 m3
(0.9 TCF) per year by the Netherlands would be
based on:
i) more rapid depletion of the Groningen reservoir
which is currently being operated at less than
its potential capacity partly for policy reasons
(discussed below) and partly because of the
failure of gas use to develop as expected.
ii) speedier exploitation of more Dutch off-shore
fields of which about 60 have been discovered
and of which only about 15 are in production
or being developed for production
b) The additional production of up to 15 x 109 m3
(0.6 TCF) per year by the United Kingdom based on:-
i) the development of discovered but so far
unutilized reserves in the southern portion
of the North Sea
ii) the accelerated implementation of pipeline
construction to collect the associated gas
from oil fields in the central and
sections of the United Kingdom North Sea
iii) the development of the large (140 x 1.09 m3
or 5.2 TCF) Morecumbe Bay field (to the
west of Liverpool) as a base load rather
than a peak producing field.
2.2 Medium Term i.e. after 1985 and before 1990
a) Expansion of German, Danish and Irish production,
as shown in the Table, to give up to 12 x 109 m3
(0.45 TCF) Per year additional gas.
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b)
Major additional developments of the Norwegian
North Sea reserves and of reserves off more
northerly parts of Norway through two major new
pipeline systems. Examples of possible develop-
ments are:-
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i) a line from north Norway through Sweden to
the mainland of Europe
ii) a line from Block 31 in the North Sea (with
up to 2000 x 109 m3 or 75 TCF of reserves)
to parallel the line from Ekofis to
iii) a line from the Sleipner area of the North Sea
to the United Kingdom with interconnection
from those to Belgium/France across the
Channel.
Delivery through the additional systems could build up
to 30 x 109 m3 (1.1 TCF) a year by 1990.
2.3 Longer Term i.e. Past 1990 and into the 21st Century
Existing lines, presently planned extensions, plus
the additional lines indicated above would give the potential for the
long term delivery of a total of more than 300 x 109 m3 (11.2 TCF) per
year from the six countries. Continuing new, but by comparison, relatively
modest investment in the extension and the intensification of the pipeline
network to enable supplies to be maintained at this level would then be
required to make possible the production of gas from new fields to
compensate for the decline in production from fields which would become
largely depleted in the meantime. This can be seen as "normal practice"
in a province approaching maturity in its development.
2.4 Financial Resources Needed
In order to supply up to an increased 100 x 109 m3
(3.7 TCF) from the sources indicated in Table 1, additional financial
resources will be needed. Given government sanction for a more liberal
depletion policy, the initial increases in production (from Groningen and
Morecambe Bay, for example) could be achieved with very little investment.
Thereafter, given a gas price up to 30 percent higher than the reported
US $3.00 per million BTU delivered United Kingdom coast which was offered
to and accepted by Mobil for associated gas from the Beryl field, sharp
production increases can be expected from the United Kingdom southern
dry gas fields. Such production could probably be financed from the
internal resources of the leading oil companies involved.
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The cost of a United Kingdom gas gathering system
excluding production facilities to cope with maximum production of
12 x 109 m3 (0.45 TCF) from all United Kingdom fields (gas condensation
fields included) north of the 56th parallel was put at #1,010m (now
$1,838m) at January 1980 values. Of this pipeline costs accounted for
#725m ($1,320m) and onshore costs at terminals for #285m ($518m).
A typical North Sea Oilfield such as Northwest Hutton
Field is estimated to cost about #590m ($1,070m) in capital cost and new
oil/gas or gas condensate fields will not cost less in comparable terms.
Since a gas gathering project would involve at least 6 new field develop-
ment projects a total cost of #4 bn ($7.3 bn) is the minimum figure. To
maximise output to achieve at least the stated aim of an additional
40 x 109 m7 or 1.5 TCF from the North Sea, one must assume that the
capital expenditure effort would be equal to at least half of the total
investment expected on new fields in the 1980s, tJ
In Norway, the focus for additional production is on
Sleipner with reserves of at least 188 x 109 m3 or 7 TCF from 8 to 9
structures. A minimum of 5 platforms is expected to be required at a
cost of over $1.3 bn each plus development drilling of perhaps 100 wells
at $6m each, plus a transportation system to shore.
Statoil claims, no doubt wrongly, that the cost of
bringing new Norwegian gas to market will be $4.00 to 6.00 per million
BTU at the field plus $1.50 to 2.50 per million BTU, to give at least
$5.50 to 8.50 per million BTU at the beach. This figure however takes
into account the presumed average costs of present and future reserves
including those in the Arctic for which costs would be much higher than
for Sleipner itself.
As a yardstick, the landed value of Frigg field gas
in the United Kingdom is estimated at $3.40 per million BTU to give a
rate of return on a conventional dry gas field of less than 10 percent.
In addition to the offshore investment described
above, a switch of supplies from the Soviet Union to the North Sea would
have investment implications for pipeline transportation of gas from the
Netherlands and to Italy and Austria.
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An expansion of about 15 x 109 m3 (0.56 TCF) per annum
in the Netherlands' export capacity above the present level of 50 x 109 m3
(1.9 TCF) would be necessary if the total production from the Netherlands
were to rise to 105 x 102 m3 (3.9 TCF) since domestic demand is unlikely
to rise much above 40 x 109 m3 (1.5 TCF). Similarly Italy's plan to
import 8 x 109 m3 (0.3 TCF) per year from the Soviet Union could not be
replaced by North Sea sources unless the present export capacity from the
Netherlands to Italy (6 - 7 x 109 m3) (0.22 - 0.26 TCF) were more than
doubled.
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3. EQUIPMENT - SOURCES AND FINANCING
In terms of engineering and design business and of
involvement in manufacture of components and sophisticated hardware from
production well to terminal, United States companies will be heavily
involved in all sectors of the North Sea. The claimed share of 70 percent
or more of United Kingdom firms in total offshore business is accurate
only when it is realised that the definition of United Kingdom firms
includes subsidiaries of United States and other foreign companies and
excludes imports of foreign equipment by any of those companies winning
the orders. In short, it may be expected the United States business would
benefit heavily from an-effort to expand North Sea gas production by the
volumes discussed above.
This Section and 2.4 will be expanded in the final
version of our report.
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4. ATTITUDES OF NORTH WEST EUROPEAN
GOVERNMENTS TOWARDS AN INCREASE IN
GAS PRODUCTION
In order to understand present attitudes of North
West European Governments towards an increase in gas production, it is
necessary to set out the reasons for the failure to recognise and utilise
gas resources in the area:
(a) defensive and protectionist attitudes in
the gas industry
(b) equivocal attitude of the oil industry with
gas production and excess refinery, distribution
and transport capacity for oil
(c) lack of understanding of relative field size,
discoverable reserves and price elasticity of
supply
(d) interests and pressure groups (eg coal,
electricity, EEC/nuclear industry,
conservationists) working against increased
gas development
(e) no effective gas lobby
(f) nationalist considerations inhibiting
integrated gas development
(These points will be discussed at greater length in
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the final report.)
Specific national attitudes to levels of gas production
can be summarised as follows:
4.1 West Germany
Unlike other West European countries, West Germany has
allowed its gas reserves to be produced in a recognisably commercial way,
ie on the basis of an approximate 20 year R/P ratio to the context of which
exploration and appraisal has kept the discovery of new reserves moving
along at a level sufficient to sustain a production level of 20 x 109 m3
(0.75 TCF) per year. However, natural gas production is accorded a fairly
low priority in energy policy planning. The latest policy document of the
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Federal Government (November 1981) forecasts increasing demand for gas,
a maintenance of the present indigenous production level (there is no
mention of German offshore gas) and the need for a diversification of
supply sources. The Government has now undertaken to oppose officially
any move by gas exporters and importers to link prices to crude oil - as
this would reduce demand, which would be contrary to Government policy.
A recent (1981) survey of gas (and oil) prospects
indicates that reserves of onshore gas can be expected to continue to
grow even if likely new 'plays' are ignored. The German sector of the
North Sea has been disappointing but gas has been found (although the
quality is poor) and the search is to be renewed. There has been little
national encouragement of the exploration/exploitation effort offshore,
but nevertheless there is a high probability that West German production
could, by the mid 1980s, increase above its current and expected levels.
The main constraint on the development of Danish
natural gas production was the monopoly right granted, almost 20 years
ago, to the single A P M$ller group over oil and gas exploration and
exploitation over the whole of the country's sector of the North Sea.
This Group, having found gas with a very modest exploration effort, was
not willing to produce it because of more attractive outlets for the
investment which would have been involved on the part of one or more of
the Group's member companies. Successive Danish governments felt themselves
unable to intervene for legal reasons and thus the beginning of Danish
gas production was held up for over a decade. It is, indeed, only due to
start in 1983/84 on the basis of discoveries made many years ago.
The initial development is a modest one, in terms of
sales from production, but it is almost certain to expand as exploration
is now being opened up to other companies in the areas that the M$ller
Group has been obliged to give up. The lack of production has inhibited
Danish efforts to consider the use of gas in its energy economy and this
also meant that the country (together with Sweden) lacked interest and
motivation for bringing pressure to bear on Norway in order to secure
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gas production from the Norwegian North Sea dedicated to Danish (and
Swedish) use. Now, however, with the construction of first, the Danish
offshore pipeline system (with a capacity well in excess of immediate
prospects.for production from Danish waters); and second, a national gas
transmission system (covering all the main cities and towns and stretching
across to Copenhagen on the east side of the country), there is positive
interest in a link to a pipeline from Norwegian production. Indeed, in
addition to this providing extra supplies for Denmark itself, it has already
been agreed with Sweden that Norwegian gas be transmitted through the
system for delivery to Sweden (this has involved a Swedish contribution to
the capital cost of the trunk-line) and to Germany. This system (except
for the Norwegian connection) is already under construction and, by 1985,
will provide the infrastructure base for a supply well in excess of the plans
for gas use by the countries concerned: political commitment to the expansion
and success in persuading Norway to co-operate are the only remaining
missing elements.
4.3 The Netherlands
Dutch policy makers have developed a guilt complex about
the way they allegedly 'allowed' Dutch gas production to increase so quickly
in the late 1960s and the early 1970s and permitted it, moreover, to be sold
at 'bargain basement prices' to all comers. The accuracy of the allegations
is far from the truth as Dutch gas was priced to the oil market (except
for some limited sales to Italy for political reasons, viz the idea of the
then Foreign Minister Luns - now NATO Secretary General - that the supply
of cheap Dutch gas would inhibit Italy from buying Soviet gas then on offer)
in the context of constraints by the producers (Shell and Exxon) on the
rate of supply from the Groningen field. Nevertheless, the accusations of
'profligacy' and of generating the so-called 'Dutch disease' (the use of
gas revenues to boost living standards in general and social welfare
provisions in particular) have stuck and have produced as a reaction a policy
which has 'constrained supply' as its central theme. Another factor
involved in the evaluation of this attitude was the influence of the 1970s
Club of Rome and other reports on resource scarcity and the ethical need
to conserve the limited supplies for future generations.
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Thus, exports additional to the maximum
50 x 109m3 (1.9 TCF) per year already agreed have been prohibited
and internal gas use has been deliberately cut back by reducing
(or even eliminating) its use for electricity generation and for
industrial steam raising. Gas production has thus fallen away
from the level of the late 1970s and in the nationally planned future
gas use system presently proven/probable reserves, not required to
cover committed exports, are allocated to'ensure the availability
of gas to residential/commercial users for the period up to 2010.
In particular, gas from the Groningen field is to be held "in
reserve" and its production cut back even more sharply so that it
will be replaced by the use of higher cost resources from
smaller fields (note the essentially non-economic thrust of this
approach). Meanwhile, however, the concept of policy which requires
the development of the alternative small, higher cost fields is
thwarted by bureaucratic delays in the award of production
licences (which can take up to three years to achieve); by
environmental and local opposition to the development of some
of the fields and/or their associated pipelines; and by evolving
government tax policies which threaten the viability of some of the
potential developments all of which requires the detailed approval
of an insufficiently staffed Ministry of Ecomomic Affairs. More
recently the failure of residential/commercial demand to expand
as expected has undermined the plans of Gasunie - and the
size of the revenues expected by the government from the profits
on gas production (the marginal tax rate on the Groningen field
is about 95Y and on other fields about 80%).
All these factors have combined to produce a
situation in which the motivation to find additional gas has
been undermined. In spite of this the offshore search in
particular has been successful with a total to date of some
60 discoveries. Of these only a handful are producing and as
many again in the process of being developed for production
(for `the reasons given above) and this has had the effect of
limiting the apparent growth of Dutch reserves.
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Official reserves figures for offshore gas refer only to fields
in production or development. Reserves in all other discoveries
are ignored. Very recently (in mid February this year) the new
Minister of Economic Affairs finally admitted, for the first time
ever, that Dutch reserves are bigger than those officially declared
and he said that plans for the future should also take "future
expectations of discoveries" into account. This represents a
total volte face for policy planners. He went on to say that as
a consequence imports of gas are not really necessary and that
additional imports (other than those already agreed with Norway)
will no longer be sought. This major change in attitude has been
accompanied by measures to expand the use of gas in the Netherlands
by increasing use in power generation and by changing the policy of
not renewing contracts for gas supply to industrial users. A more
reasonable attitude to the depletion of known measures and a
stimulus to the discovery of new reserves is now well under way.
4.4 The United Kingdom
Long-lived and continuing unhappy (even worsening)
relationships and misunderstandings between oil companies, the
British Gas Corporation and the British government provide the
background to the failure of the U.K. natural gas supply to
develop to the level that could reasonablly have been expected from
the reserves discovered to date and from the potential remaining
to be discovered. Prior to the present Chairman of B.G.C. the
State gas corporation was run by those who thought that absolute
success would have been achieved when the use of natural gas
in the economy reached a level of 40 x 109m3 (1.5 TCF) per year.
The Corporation was thus interested only in securing access to
reserves which enabled it to achieve this fixed objective. As
a consequence the B.G.C. failed to offer reasonable financial
incentives - post 1973 - for the oil industry to find or to
exploit additional gas from the U.K. sector of the North Sea.
As a result the B.G.C. had to agree to purchase gas from the
largely Norwegian Frigg field at a price some 4 to 5 times
higher than the price it was prepared to pay for additional
U.K. sector gas!
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Thus, the Southern part of the U.K.'s sector of the North Sea
I{j
has not been explored or exploited beyond that which has II
been achieved by the late 1960s. Though prices offered
by the B.G.C. for gas from the area have recently been increased
(to a reported $3.0 per million BTU delivered U.K. coast) they
still do not offer an attractive proposition to most oil companies
with potential reserves there. These reserves (amounting to
at least as much gas again as that remaining in the partially
depleted fields) thus remain unutilized.
Hostility between the B.G.C. and the oil
companies has, meanwhile, extended to the associated (and some
non-associated) reserves in the central and northern parts of the
U.K. North Sea. The result was the failure of the parties concerned -
including the government and City financial institutions - to
agree on the conditions for developing an extensive gas gathering
system to enable their reserves to be produced. Upwards of
400 x log m3 (15 TCF) of reserves thus still await the development
of an infrastructure to bring them to shore. The companies do not
show any great degree of urgency over this as they prefer to await
the legislation (to be passed, if all goes well, in the present
session of parliament) which eliminates the B.G.C.'s monopsony
powers and so opens up the prospects for the oil companies
themselves using (or selling) the gas. Meanwhile, the B.G.C. is
more concerned with opposing the proposed legislation than with
actively seeking to provide a system for enabling the reserves
available to be produced. The government, because of fears for
the impact of any state expenditures involved in developing the
production/transportation system required on the Public Sector
Borrowing Requirement (in the context of governmental commitment
to monetarist philosophies and principles) has not wanted to become
involved directly or even to create conditions in which others
would be able to get involved.
Successive governments have also had other
powerful motivations not to encourage more rapid gas resources
development.
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First, there is a recognition that too much gas would undermine
policies designed to support the British coal industry and/or
nuclear power developments. Second, there has been an unwillingness
to consider the inter-connection of the U.K. gas system with
that of the rest of Western Europe and a refusal to sell British gas
into neighbouring European countries. Most recently, B.G.C. industrial
gas pricing policy (to sell it at gasoil equivalent prices plus
a premium) and a government requirement that.residential gas prices
be increased by more than inflation to parity with higher cost oil
products have thwarted the anticipated expansion of the domestic
market. The outlook for any significent expansion in gas use is
now severely limited - unless, under the new legislation, the
producing companies seek actively to supply industrial energy
users on an extensive scale and this is by no means certain.
T o date, the U.K. has not come under much
pressure from other Western European countries or the E.E.C.
to change its policies. This is partly because of the lack of
knowledge/understanding of the U.K.'s gas export potential and
partly because of a less than 100% degree of confidence by
potential purchasers in Britian's ability /willingness to supply
on a continuing basis. This lack of confidence in British
attitudes/abilities was a major consideration in Norway's
decision not to build a gas line to the European mainland
via the U.K. Such a decision could have enabled more
Norwegian gas to be available in Europe earlier than with the
adopted alternative option of an all-Norwegian line via the length
of the North Sea. It would also have meant that British sector
gas could have been collected en route to landfall in Scotland
and so added even more gas to the `potential supply.
4.5 Norway
In terms of present and, even more so, of
near future volumes of reserves discovered, Norway has by far
and away the greatest scope for expanded output The potential
1985 reserves shown in the Table (of more than 5000 x 109 m3 or
190 TCF) are the minimum likely while the 50 x 10 m 3 (1.9 TCF)
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peak production level for post - 1985 is one which is higher than
the level achievable from firm plans already mace. Even at this
higher level, however, Norway will have an R/P ratio in excess of
100. years.
The essential element in the failure of Norway
to evolve production policy more consistent with the size of the
resources available. has been the firm national policy decision to
restrict future total oil and gas production to 90 million tons
of oil equivalent per year (compared with about 50 million tons at
present). However, the new Conservative Government's Oil and
Energy Minister, Vidkunn Hveding, stated in March 1982 that there
is no longer a fixed limit and that a Study Commission will work
out the optimum rate for the Norwegian economy. It is of course
still argued that the strength of the economy is being and will
increasingly be, undermined by the oil and gas sector. Apart from
the feared macro-economic effects (in terms of the impact of oil/
gas exports on the strength/value of the Norwegian Krone; on
wage rates and hence on other activities, notably manufacturing
industry), there is also concern for regional socio-economic
impacts of large scale hydrocarbons production (impacts such as
the undermining of the Norwegian rural way of life in the little
populated west and north and on fishing and associated activities
in these regions of the country).
Norway, as a little populated country with an
already high standard of living and a generally efficient use of
energy, claims that it has been generous in its oil and gas
developments - with exports accounting for up to 80% of total
production. It has also endeavoured - relatively successfully -
to keep the industry Norwegian - both in ownership and operation,
through the state oil company, Statoil, and a number of private
companies, notably Norsk Hydro..
To go faster or futher would
mean its resources being developed in a mode tantamount to
economic imperialism (development by non-Norwegian companies
employing non-Norwegian labour and other factors of production
and for the benefit of the exploiting countries).
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There is also a widely held belief in the idea of a world scarcity
of energy resources - especially oil and gas - so that Norway
is ethically right to save the resources it does not need for
future generations in an energy - short world. Norway's voters
decided to keep their country out of the E.E.C. and it thus has
no commitment to European investment/employment/access to production
on the same terms as those extended to Norwegian investments. Neither
has Norway appeared to recognise the validity of any argument which
stresses its exposure to Soviet influence (through the presence
of undeveloped, valuable resources) or its requirement to serve
NATO through additional oil and gas production. Its policy overall
has been intensely, nationalistic - extending even to its relations
with its closest allies in the Nordic Council - although this may be
changing somewhat with the new Government.
There are a number of minor issues involved in
attitudes to expanding gas production to higher levels. First,
Statoil is more interested in oil and operates as a pressure group
against greater priority for gas. As part of the new Government's
more flexible policy, however, control of the concessions (and the
collection of oil taxes) will be transferred from Statoil to the
Government. Second, one must recognise the difficulties and
complexities of developing expanded facilities in the northern
part of the North Sea and in northern Norway offshore conditions.
It is "frontier of technology" stuff and "making haste slowly"
is an accident minimization procedure - not only in respect of
minimizing dangers to human life, but also pollution danger to
the marine and coastal environments.
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5. POSSIBLE US POLICY STEPS TO ENCOURAGE
ADDITIONAL WEST EUROPEAN GAS PRODUCTION
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5.1 The US should make efforts to persuade Western
Europe of the wealth of its oil and gas resources and of the long-
lived nature of the depletion process of a large province under
active exploration and development. It should try to establish a
climate of opinion in which there is a greater readiness of West
European governments to increase indigenous production of oil and gas.
5.2 US agencies should attempt to produce (or cause to v'
have produced) a West European integrated plan for the rational
depletion of the continent's reserves. This involves facilities and
transport infrastructure but also inter-country guarantees for
covering temporal variations in achievable production levels for
various N W European countries.
5.3 In terms of political action, initial efforts
should be concentrated on the Netherlands where, as indicated in Section
4.3 above, there has just been a change in policy attitudes on the use
of the country's gas reserves. The re-evaluation of the availability
of reserves not only ensures the ability to increase domestic use but
also to increase exports to Belgium and Germany. The US should work
out a scheme whereby the Netherlands is guaranteed replacement supplies
at no greater real cost, if such replacements eventually prove to be
necessary in the longer term to serve Dutch needs.
5.4 Pressure should be brought to bear on the UK to
implement enhanced gas production from the southern North Sea and gas
gathering systems for available reserves from the central and northern
parts of the North Sea. Any suggestions will need to ensure that these
should be accompanied by efforts to persuade the UK to abandon its
policy of preventing gas exports. In particular the efforts should
emphasize the development of a gas delivery system across. the Channel
to France and Belgium. Britain, as with the Netherlands, should also
be guaranteed longer term replacement gas supplies at no higher real
costs than those provided for export in the near future.
prospects can be financed with no effect on the P S B R. This pressure
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5.5 Norway requires to be persuaded to take a quick
decision, and to establish the possibilities of a speedy implementation
of the decision, for making a supply of gas available sufficient to
fill the capacity of the Ekofisk and then the new Danish offshore/
cross-country gas trunkline - or even enough gas to sustain investment
in enhanced capacity in the line, if this is possible. The objective
would be to provide additional gas for Denmark and for Sweden and
W Germany via the links in the system.
5.6 A joint proposal should be made to Norway and the
UK for the construction, as soon as possible, of production and
transportation facilities for gas from the Sleipner area (Blocks 15/5,.
6, 8 and 9) of the Norwegian sector and from fields in adjacent
locations in the UK sector. This would be transported to the east
coast of Scotland and thus into the UK grid to provide the additional
gas required for exports from the UK to the European mainland (see
5.4 above).
5.7 Norway should be pressured to allow up to 80 x 109 m3
(3.0 TCF) peak annual gas production (instead of 50 or 1.9 TCF). The
falling real price of oil - and hence the falling real value of gas -
will mean that Norway needs to produce more to fulfil its objectives
and this should be emphasized : as should the fact that the additional
production need not have any significant effects on Norwegian social
and socio-economic issues as the work and the financing could, if
necessary, be done "offshore", but under Norwegian control and
regulation so that fears of "economic imperialism" can be allayed.
5.8 There should be pressure on West Germany to persuade
it to concentrate its attention on gas supplies from near neighbours
rather than from the Soviet Union. The key role of Ruhrgas in this
process and its position as the market leader on such questions should
he emphasised.
 Approved For Release 2007/04/12 CIA-RDP83T00966R000100020005-4
5.9 The US should ensure that US representatives/staff
at the IEA in Paris toughen up their stand on the opportunities for a
much bigger contribution from West European gas resources to the
region's energy needs. Such views were expressed in the 1980 Review
(published June 1981) but in a very muted way. Attempts should be made
to see that less emphasis in IEA's analyses/publications/presentations
is put on Europe's energy supply difficulties as these simply serve
to encourage limitations on indigenous oil and gas production. More
stress should be put on the opportunities for expanded supplies from
European countries.
5.10 An attempt should be made to knock some rationality
and reasonableness into EEC analyses and recommendations on energy
policy. Its single-minded pursuit of the expansion of nuclear power
curbs its effectiveness and is clearly the pursuit of the unattainable.
The EEC needs to be persuaded that Western Europe's own hydrocarbons
are the single most important positive factor in the region's energy
prospects. Perhaps 'friendly',members of the European Parliament could
be persuaded to help in this respect.
5.11 Consideration should be given clandestinely to
sponsor (or support) an organization in Western Europe dedicated to
promoting the concept of an Energy Independent Western Europe - to
parallel the "Energy Independent US" groups. Perhaps an effort could
be made to make European oil and gas opportunities a main theme of the
1983 London (50th Anniversary) meeting of the World Petroleum Congress...
5.12 US-based oil companies should be persuaded/encouraged
to give highest priority to Western European gas developments as a
matter of urgency. The companies ought to be able to offer advice on
the most practicable and likely projects amongst. those suggested in
this study.
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6. POLICIES TO INDUCE A SWITCH FROM SIBERIAN
TO WESTERN SUBSTITUTE SOURCES
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The project to supply gas from the Siberian part of the-- Soviet
Union is seen in a politically favourable light by the governments of West
Germany, France, Italy and Belgium. All these countries, and in particular,
West Germany, consider that diversification of energy supplies contributes to
greater security and will reduce dependence on OPEC oil. Orders for equipment
from the Soviet Union will help to lighten the burden on the balance of payments
(certainly compared with OPEC oil as an alternative). It is also felt that the
quantity of Soviet gas contracted (now reduced, mainly because of lower demand
estimates, from 40 x 109 m3 (1.5 TCF) to 35 x 109 m3 or 1.3 TCF) represents
a minimal risk in the unlikely event of an interruption of supplies.
In order to counter these views, it will be necessary for
the U.S. to demonstrate:
(a) that the probability of supplies interruption
is far greater than at present thought by the
West European governments involved
(b) that alternative sources of gas can be made
available (if necessary with American help,
and guarantees of supply replacement at the
same real cost) from North West European
sources
(c) that the economic benefits from increased
North West European gas production outweigh
the economic disadvantages of lost export
orders from the Soviet Union
In our view, it will be extremely difficult to work up
convincing arguments for points (a) and (.c). It will, therefore, be neces-
sary to concentrate activity on point (b), as set out in Section 5 above,
With regard to the specific attitudes of West German
banks and trade unions to a switch in supplies, we feel that opposition is
likely to come from individual firms planning to supply equipment to the
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Soviet Union and banks to the extent that they are involved as share-
holders or creditors of these firms. Our approaches to the Trade Union
Federation in West Germany and to the Deutsche Bank as spokesman for the
banking consortium revealed no official "line" from either party which
was different from the government view described above. In fact, there
was even a hint of a more cautious approach to the question of lending
to the Soviet Union to finance equipment imports (as the two parts of
the deal are normally considered separately) and a view that the origi-
nally foreseen credit of DM 10 mrd. (US$4.25 bn) would be used only to
the extent of about DM 3 mrd. (US$1.3 bn).
It may therefore be appropriate to concentrate on a
reduction of imports from the Soviet Union (possibly by restricting gas
demand in industrial sectors through more substitution by coal) rather
than total replacement from other sources.
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^
TABLE I
N.W. EUROPE: NATURAL GAS, PRODUCTION, RESERVES AND POTENTIAL
(all figures in standard m3 x 109 except R/P ratios, in years)
COLITRY/ HISTORICAL
REGION PRODUCTION
r
r
Netherlands
Onshore 5 45 70
Offshore - - 10
W. Ce rnany
IN Onshore 8 15 20
Offshore
Denmark
Offshore
Norway
In
"Northern" -
South N.S. - 18
Other
Iceland - -
CUM.PROD REMAINING 1981
TO 1981 PROVEN RESERVES
(est) PROBABLE PROD.
RESERVES RATIO
1981 (YEARS)
850 1850
40 325
27
CUM. PLANNED LIKELY PEAK ANNUAL R/P
PROD. 1985 REMAINING PRODUCTION RATIO
1982- PRODUCTION RESERVES PLANNED (YEARS)
1985 DISCOV- 1985 -
ABLE BY 1990
1985
250 55 1750 ) 75 28
65 20 400
300
100
374 450
23 625
27
120 26
80 20
> 1000
.450
1750
60
POTENTIAL R/P POTENTIAL
PEAK RATIO PEAK AN-
ANNUAL ? (YEARS) NUAL ADD:
PROD.IN PROD.
1985-
1990
--Offshore - - 1 3 40 40 6 2 75 3 25 5 15 + 2
Totals 13 78 163 1630 >5190 >31 726 181 10225 218 , 47 > 315 33 +97
1*
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Fields' tanker loading facilities
? Existing
g Under development
Existing oil pipelines
Oil pipelines under development
Projected oil pipelines
Existing gas pipelines
-- Gas pipelines under development
- - Projected gas pipelines
Figures show pipeline diameter in Inches
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BRITISH
Flotta i 3ti
E . G. I .,o. /ei
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