REPORT OF THE ALTERNATIVE ENERGY GROUP INTERNATIONAL MEASURES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00366R000100030006-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 21, 2016
• Document Release Date: August 4, 2008
• Sequence Number: 6
• Publication Date: October 1, 1982
• Content Type: REPORT

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THE COUNSELOR
DEPARTMENT OF STATE
WASHINGTON
October 29, 1982
TO: Members of the Alternative Energy Group
FROM: James L. Buckley;
~~'
Attached please find the draft report of the Group
on International Measures in Support of Energy Alternatives
for Western Europe. This report was prepared by the staff
working group on the basis of the discussions at our last
meeting October 7, and the annex was prepared by the CIA.
My last day of duty here at the State Department
has arrived. Unfortunately, it has not been possible for
me to have a meeting today as planned because so many of
you are out of town. This is regrettable, as I hoped to
say goodbye officially to each of you. Secretary Shultz
has asked Allen Wallis to take over the reins of the Group _
to continue the task of fostering Western alternatives to
greater energy dependence on the Soviet Union. I am sure
that the Group will prosper under his Chairmanship.
Please accept my best wishes and sincere thanks for
your support and counsel over the last few months. Allen
Wallis' office will be in touch with you about scheduling
the next meeting.
Attachment:
State Dept. review completed
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Report of the Alternative Energy Group
International Measures
Introduction
The senior interagency Alternative Energy Group has
examined the prospects for accelerated development of Western
alternatives to greater energy dependence on the Soviet Union.
A first report of the Group identified a series of domestic
measures which a majority of the participants felt would
enhance U.S. credibility as a reliable and long-term energy
supplier to Europe and Japan.
This report presents a companion foreign policy strategy
for encouraging international development of secure non-Soviet
energy alternatives for Europe. (An NSC-led ad hoc interagency
group is to examine issues related to Japanese energy dependence
separately.) An annex to this report includes a fuller discus-
Sion of alternatives to Soviet gas and scenarios of.future
European gas supply and demand.
Continuing Soviet Market Threat
-In-examining--potential European-=natural=-gas-supply- -and--
,demand scenarios, the Group placed particular-- emphasis
the potential ability of the Soviet Union to supply additional
European gas requirements through the mid 1990's. The Soviets
could do so by use of the uncommitted capacity of the Siberian
pipeline (9-10 bcm/yr after 1988 if Italy does'not purchase the
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gas the Soviets had planned to sell it) together with excess
capacity existing elsewhere in the growing Soviet domestic
pipeline grid. Over the longer term, the Soviets will probably
1990's and encouraging economically viable alternative sources
to meet incremental. European gas demand in the long-term..
seek European agreement to construct a "second-strand" pipeline
to increase gas delivery capability further.
The Soviet Union may be expected to be aggressive in
seeking Western customers for this gas, by continuing to
offer low prices and lucrative equipment sales contracts.
By undercutting the market for economically scaled projects,
additional Soviet sales of gas at competitive prices would
preempt development of large-scale alternatives, in particular
the early development of the Norwegian Troll Field (see
scenarios in the annex). To the Russians, these sales would
serve to compensate for the expected fall in Soviet oil and
petroleum product exports during the 1980's.
In light of these circumstances, the Group concluded that
the principal U.S. objective should be to increase European
energy security by minimizing Soviet gas deliveries in the
To this end,.the Group recommends the following strategy.
Recommended International Strategy
1. Limitation of Soviet Gas Purchases. In light of
the continuing Soviet market threat, the Group stressed the
importance of efforts to have European governments agree [to
keep to a minimum imports of Soviet gas in order to ensure
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market share for large-scale economic alternatives.) [not
to commit to any major incremental deliveries of Soviet gas
beyond the amounts presently contracted for or in advanced
stages of negotiations.] The Group recognized that discussions
aimed at neutralizing the Soviet market threat are advancing
in other fora, but recommended that, from the point of view
of promoting alternatives, understandings on this point be
as specific and effective as possible.
2. Encourage European Gas Security and Quantify Full
Cost of Soviet Gas. In order to influence European attitudes
in assessing Soviet versus non-Soviet gas supplies, the U.S.
should support a serious effort to quantify the "full cost"
of Soviet gas, including such externalities as the cost of
prudent security measures, the cost of credit subsidies
adjusted for the market value of equipment sold, and
the macroeconomic consequences of a Soviet cutoff of gas.
As part of this effort, the U.S. should actively support the
IEA Natural Gas Security Study designed to identify needed
security measures. The USG should also develop and disseminate
independent=estimates--of-the fu-1l-cost of- Sov-i-et-gas.-- -Th-i-s-y----
-information-should also-be,-shared with European-gas consumers------
and potential gas suppliers Norway, Nigeria and Turkey.
3. Multilateral Effort to Stimulate Economically
Viable Alternatives. The U.S. should join in a major effort
to utilize the IEA as a forum for examining energy alter-
natives for Europe. The IEA can build upon the 1982
Ministerial agreement that "further attention should be
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given to a number of options which exist to encourage stable
and reliable natural gas trade ...", including "the timely
development of indigenous IEA sources." The IEA is a
particularly effective instrument for focussing on govern-
mental policies that impede timely development of gas
resources (such as price controls, depletion policies,
leasing practices, tax regimes and non-market policies). As
the IEA begins work in this area, NATO in particular should
be kept apprised, as we may wish to involve NATO more
directly after the comparative economics of alternative
sources are known.
4. Continue to work to encourage commercial agreement
to develop alternatives, particularly the Troll field in
Norway. The Group recommends that Ambassador Galbraith's
efforts to encourage commercial plans for Norwegian gas
development continue. As commercial plans proceed, the
Group may wish to make further recommendations should.
governmental involvement be necessary to ensure that
particular, high priority alternatives proceed.
---Next--Steps--.and Further Work
The Group provided guidance on the importance -of- the---.
IEA as a forum for multilateral action on alternatives
directly to the U.S. delegation to the IEA Governing Board
meeting October 26. Based on the outcome of that meeting
and subsequent IEA work, the U.S. should take steps to make
this topic an important item for IEA-Ministerial discussion
in the Spring of 1983, and possibly at the U.S.-hosted
Economic Summit as well.
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The Group requests that the CIA and State Department
continue to keep it apprised of important developments in
energy alternatives. The CIA in particular should continue
its work on refining scenarios for European gas supply and
demand.
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