SIBERIAN GAS PIPELINE
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CENTRAL INT('GENCE
National Intelligence Council 5 March 1982
NOTE FOR, See Distribution
FROM : MG Edward B. Atkeson, USA
NIO/General Purpose Forces
SUBJECT : Siberian Gas Pipeline
You may not have seen this article from
the latest edition of International Defense
Review, Vol. 15, No. 1/1982.
Edward B. Atkeson
Attachment:
Subject Article
DISTRIBUTION:
C/NIC
NIO/Econ
Acting NIO/WE
Acting NIO/USSR-EE
DDI
D/SOVA
D/EURA
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by the approach of the year 1000 akin to the "finlandization" of Eu-
Present fears about the year 2000, ^? surprised by the fact that for almost '
. .. .. .L-1 ICCO.. ....r
more realistic; concerning as they ` mally very reticent.with this sort of
energy. precise details about her. reserves of
l
hic
L---
a
geograp
n l
in th
field
o -
done
e _..--g.
e -
,
neglected by the world as a whole,;: -.,make use of this new source. of
gas deposit at Lacq. There are coup- also equally desirable for any for->
tries, though, which have a much eign countries which might have an
brighter future. One example is the interest to be aware of the Soviet
has good reasons for itsstatedint'n--
tion of aligning its energy policy to for
try's natural-gas resources. Intense natural gas
- -
gigantic p' -,--- - - - -?
gas pipeline running from theYamal gone by the oil trade following the
peninsula to western Europe are all drastic price hikes of 1973. But this.-
indicative of the importance the does not mean that the future is
the Nairobi Conference last August may still come up with some plea-
being as, clear-cut as it might (a - 'could be as high as 1,200 billion.; -
k pro
level.
--
-
n
; th
i
---..-,;.
,.-.
-
. ,
pea
y.
e
USSR),wnlleatLilt; salnvumema
oftheoil=producingcountriesarefar.., s the.. Islamic revolution-.in-Iran, this=
.-.,
oduction has been high- ..-
.. ' 1----
s pr
coup
clearly-holds a.trump card in her ly problematical. Yet Iran is sitting'+
hand.-Although the significance of -',on 15-20%oftheworld's reserves-
Russia's natural 'gas will only really supplies which, for the time being;,,
make itself felt from 1985-1990 are frozen. The existence of the-
onwards, it might well be advisable Iranian natural-gas pipeline-,does
for the West to take note of .the ::;,,,mean, however, that-exports could' -
t all,- berestartedrelativelyeasily=tothe
situation straight away. At'
events, last November's signing by {'.USSR. - :`
?her;armancmmnanvRuhroas(with - ? r=x
important contract for the supply of ing amongst other things because of.
Siberian gas (40 to 50 billion m3 per- thecountry's proximity to the indus-
?
trialised nations of western Europe,..,
annum) has initiated a process -
which appears irreversible. And ir..- arealsobedevilledbytheunpredict
seems likely that France, Switzer-- ability of the Algerian government's
land, Italy, the Netherlands and Aus- policies. For instance, Algeria has
efforts of President Carter and his the natural-gas liquefaction plants
successor Ronald Reagan at the - envisaged in the current five-year,
Ottawa summit to prevent an agree- :, plan (1980-1984) will not be con
. 1 -_-J --- -11. Al
h ?he
h
t
oug
technical departments of the IFP.~ .`:,Petroles) is. at present negotiating.:
Te ti..;; r? ilo Fiance and the 'r. with. the .Algerian-government_1os
been encoura The bitter facts -
ion'. ihis.article ..r...,as:z...agm 9 r kr' z +e'n,:#
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were made plain some weeks ago
during the French president M. Mit-
terrand's visit to Algiers, when
France was obliged to pay a high
price for Algerian gas in return for
guaranteed supplies (reportedly 9
billion m3 per year).
Nigeria's potential production of
20billion m3 per year is quite simply
being burnt away in the form of
flares - which is no isolated
phenomenon. Were this country to
conz5ider marketing its product
sometime around 1985, the propor-
tion going to Europe would probably
not exceed 8 billion m3. As for Qatar
and Cameroon, negotiations' here
are still at the talking stage. A
certain amount of anxiety is bound
to be aroused by the Soviet Union's
potential hegemony in a market
about which the only thing known
for certain is that it will grow -and
grow rapidly. West Germany'sposi-
tion in this connection is significant:
of the 40-50 billion m3 per year
which western Europe should be
receiving from Siberia from 1985
onwards, Bonn hopes to get over 10
billion m3. The German opposition
is therefore quite justified in evok-
ing the spectre of economic pres-
sure being applied in the political
arena in an attempt to "neutralize"
the Federal German Republic.
However, the structure of the future
market for natural gas will call for
enormous investments, and this
necessity will largely rule out the
likelihood of continuous and uneco-
nomical fluctuations on the part of
either the suppliers or the consum-
ers, each side finding its interests
closely interwoven with those of the
other.
The role of the USSR in. the
natural-gas market
As demonstrated quite clearly by
the 11 th World Energy Conference,
natural gas has become one of the
essential sources of primaryenergy.
For example, it accounts for 16-
18% of the primary energy used by
Common Market countries, and its
contribution is likely to go on grow-
ing well beyond the year 2000. Its
political significance is therefore
acquiring very notable dimensions.
Better known in the West under the name "Russia No. 6", this pipeline construction
project now in progress is intended to supply western Europe with at least 40 billion
m3 of additional natural gas per year. As things stand at present, West Germany is
scheduled to receive from 1984 on 10.5 billion m3 per year (plus, possibly, another
0.7 billion m3 intended exclusively for West Berlin), France 8 billion m3, Italy 6-7
billion m3, the Netherlands and Belgium 5 billion m3 each, Austria 3 billion m3,
while Switzerland will probably require only 1 billion m3. Latest estimates of the
overall cost of the project are about US$ 15 billion. The 5,500km-long pipeline will
link the gas fields in western Siberia (Urengoy and Medvezhe) with the German-
Czech birder. It would appear that the USSR has, for technical reasons, chosen to lay
two 1.42m-diameter pipes operating at a pressure of 45 bars, rather than a single
one operating at 140 bars. The total capacity of the double line is understood to be
50.70 billion m3 per year. This will leave a pipeline capacity of at least 10 billion m3
per year by the and of this decade for supplies to other European countries.
It should be noted that, according to Petrostudies projections, which do not
include the new Siberian fields, Soviet natural-gas exports, having reached 58.3
billion m3 in 1981, are likely to level out at 59.8 billion m3 per annum by 1984before
decreasing again after 1994. Added to this will be the flow of Siberian gas, which is
likely to make itself felt in two stages. The initial deliveries, from 1984 onwards,
Supplies of Soviet natural gas to western Europe in 1990
as a percentage of total natural-gas supplies and overall energy supplies
CIA estimates
EEC estimates
Natural gas
Energy
Natural gas
Energy
West'Germany
29%
6%
34%
7%
France
23-28%
4%
26%
4%
Italy
29% ? .
5%.
35%
6%
Netherlands ?
10% -
4%
--11%
4%
Belgium
32%
8%
38%
9.5%-
16
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The current instability in Iran
and, to a lesser degree, in Iraq and
Afghanistan means that Middle
East reserves have for the time
being lost their importance, so the
Soviets look like becoming the
world leaders in the production -
and therefore the export-of natural
gas.
Within the 22 million square
kilometres of Soviet territory,
characterized as it is by vast regions
of sedimentary origin, over 10 mil-
lion square kilometres may be of
interest to the oil industry. These
figures reveal sufficiently clearly
both the size of the task i nvol ved a nd
the immensity of the prospects. In
1860, Baku became the first centre
of exploitation for both oil and gas.
Since then, the Ukraine and the
Orenburg region have developed
into zones of large-scale production.
The deposits between the Volga and
the Urals provide the major part of
Soviet gas, most of it contained in
the sandstone of the Devonian
period and the limestone of the
Carboniferous/ Permian periods.
The northern part of these deposits
tween depths of 250 and 1,200m.
The Apsheron peninsula and the
southern end of western Turkmeni-
stan have also produced results at
350m and below. But the world's
biggest reserves of natural gas are
almost certainly in Arctic Siberia
(Cenomanian sands of the lower
Ob). These deposits, which probably
extend out under the Arctic Ocean,
are fairly near the surface (approx-
imately 1,500m down) and do not
contain any heavy oil fractions.
Systematic prospecting appears
to have- started in 1965, when,
despiteall kinds of technical difficul-
ties, the USSR set about exploring
that immense cornucopia, Siberia.
At that time, proven gas reserves
were of the order of 1,800 billion
m3. Five years later they had already
reached 9,800 billion m3 and by
1980 the figure had risen to 21,000
billion m3 or more than two-thirds of
Soviet reserves. In all probability,
therefore, the USSR possesses sup-
which should by 1985 reach half the scheduled annual volume of 40 billion m3, will
be followed by a second phase, estimated to begin in 1989, when the pipeline is
working at full capacity. In other words, the USSR will come close to doubling its
natural-gas production capacity between now and the end of the 1980s.
According to figures published by the Defense Intelligence Agency, Soviet
natural-gas exports brought in $2 billion in 1978 (equivalent to 4.1% of the
country's exports), $ 2.82 billion in 1979 and $4.98 billion in 1980 (7.4% of
exports). During the same period, oil exports, which peaked at 3.16 million barrels
per day in 1978, have declined markedly, particularly those to non-communist
countries. This explains the lively interest being shown by the USSR in Siberian gas.
It is worth noting here that it was not until 1980 that annual revenues from sales of
gas to West European countries Is 2,514 billion) overtook those from gas deliveries
to COMECON states ($ 2,471 billion dollars), the respective volumes being 22.65
and 32.28 billion m3. The explanation to this apparent paradox lies in the different
pricing policies adopted by the western Europe. For each 28,300m3 (1,000f13) of
gas, the Western countries paid an average of $ 3.14, compared with $ 2.70 paid by
the USSR's communist brothers, who thus clearly benefited from special sales
conditions. In 1980, furthermore. East Germany paid $481 million and Italy $ 691
million for the same quantity of Soviet gas.
The "Russia No. 6" project will, as can be clearly seen, play a major role in
supplying a large number of countries with energy. Although President Reagan,
driven more by internal-political motives than any other, threatened on December
29, 1981, not to supply the Soviet Union with some of the 1.42m-diameter pipes it
needs to complete the trans-Siberian pipeline, this embargo could very well be an
illusory one (the measure would in fact only affect Caterpillar which, if it could not
successfully complete scheduled deliveries of pipelaying equipment, would be
forced to lay off large numbers of personnel and, to a lesser extent, General Electric
which has a contract to supply compressor turbines). In the first place, it would
appear that Canada could take over responsibility for the contracts. Secondly, it is
difficult to believe that the Europeans will actually revoke the signed agreements.
Certain contracts have, in fact, already been awarded by the Soviet Union
notably those forthe purchase of 41 gas compression stations, 22 of which are to be
supplied by the Mannesman group (West Germany) and Creusot-Loire (France), the
remainder coming from Nuovo Pignone (Italy). Mannesman has already-chosen
AEG-Kanis as sub1contractor, while Creusot-Loire seems likely to select Alsthom-
Atlantique. It would appear, moreover, that data-processing equipment worth
nearly FFr2,000 million has been ordered from the French firm Thomson-CSF. The
values of the contracts for Mannesman and Creusot-Loire total $ 1,400 million, while
the Nuovo Pignone equipment order is worth $1,100 million. In addition, the
Scottish firm John Brown has a contract for # 104 million to supply 21 turbines, each
rated at 26,OOOkW (35,000hp).
At the moment, the Soviet Union is negotiating with several West European
countries (including West Germany, France, Belgium, Italy and the Netherlands) for
the delivery of equipment from 1'984 onwards. Provisional agreements have been
signed with ENI (Italy) and Ruhrgas (West Germany). In the second half of January
1982, there was a meeting between a delegation from Gaz de France and its
counterpart from Soyuzgazexport, but as we went to press it was not yet known
whether any signed agreement resulted.
In spite of President Reagan's threats, it seems that it will be difficult to stop a
process which has all the appearances of being irreversible. There are those, it is
true, who are disquieted -or perhaps prudent -enough to worry about the level of
dependence on Soviet natural gas (see table) which this new contract would entail
for the countries of the West. (Following the recent declaration of martial law in
Poland, Italy, for one, has threatened to suspend negotiations with the Soviets.) But,
in the absence of a technological breakthrough during the next few years -
something which does not appear to be on the cards at present-western Europo,
with the exception of the UK, will remain heavily dependent on other countries for
supplies of energy. In these circumstances, it might perhaps be better for western
Europe to accept the situation as it is.
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plies which should give it economic
self-sufficiency up to about the year
2050, even allowing for regular
growth of production and consump-
tion. (By way of comparison, North
Sea natural gas reserves amount to
thirty times less.)
In 1956, having previously
formed part of the oil industry, the
gas sector in the USSR became
independent and even acquired its
own ministry. Moreover the marked
output increases over the last 25
years are indicative of the role ac-
corded to gas as a substitute for oil -
having stood at roughly 7.5 billion
m3 from 1955 to 1960, the annual
increase rose to 15 billion m3 during
the following decade to reach 26.5
billion m3 per year between 1970
and 1980. Annual production in-
creased ten-fold during the period
1960 to 1980 (from 45.3 to 435
billion m3), a markedly higher
growth rate than the world average.
And in spite of a slight slowing
down, the likelihood is that 600
billion m3 will be produced in 1990.
A careful examination of this
trend also reveals a rather troubling
feature, namely that the gas indus-
try's period of renewed growth
began in 1973, the date of the first
oil crisis. Merely a coincidence?
Perhaps, but at the very least it calls
for a number of comments. The
tripling of the price of oil at that time
was far from being a purely spon-
taneous affair. Although aimed os-
tensibly at the. United States (the
embargo which followed provided
sufficient confirmation of that), this
threatening move presented an
even greater danger to the indus-
tries of Europe and Japan whose
primary energy resources were
practically non-existent. And fur-
thermore the whole world was
caught up in a period of crisis. A
steady weakening of Europe has
always been one of the Soviet
Union's more or less veiled objec-
tives and it is hardly surprising that
certain kremlinologists have seen
the, shadow of Moscow lurking
behind the 1973 crisis. If this was
the case, natural gas would then
A , Natural-gas exports, a trump card for the Soviet economy, began flowing
in earnest in 1973. The change of policy which evidently took place in 1978
reveals the dilemma confronting the USSR: to maintain her pressure on the
COMECON countries with the aid of this new weapon or to obtain hard
currency and equipment from western Europe. The Russians will have to
show considerable political skill in this field not to be seen to be favouring one
of these markets too overtly by comparison with the other.
-zA CIA estimates and analyses by the Swedish consultancy firm
Petrostudiesfor 1978-90donot differseriously-as theydo in the case of oil
-when it comes to Soviet reserves ofnatural gas. Even at the presentstage of
exploration, Soviet gas reserves already amount to over 30, 000 billion m 3 or
the equivalent of a good sixty years' production at the 1980 rate of extrac-
tion.
good:eversince 1973, theyearof the firstoilcrisis. Twenty-five new deposits
have.been found during the last three years and the giant deposit at Dauleta-
bad (Turkmenistan) was discovered in 1974. Output doubled between 1970
results for 1980(422 billion m3) and for the first nine Months of 1981 (342
billion m3, equivalent to an annual figure of 456 billion m3) already put the
level of production roughly 5% below the least optimistic projected figure. -
.
Forecast
(lower li
it)
4f
i
i
i
Natural g
as +
d, Natural g
oil gas
alone
Oil gas
purpose being to supply the coun-
tries of the Eastern Bloc. The signifi-
cance cance of the project, which is desig-
nated "Soyuz", can be gauged from
the fact that the North Sea gas
pipelines have a maximum capacity
of between 15 and 22 billion m3 per
year.
As for the countries of western
Europe, natural gas is becoming an
increasingly crucial necessity for
them from year to year. At present,
these countries are linked to the
oilfields of the Ukraine and in partic-
ular to the one at Shebelinka, al-
though production there is declining
markedly. A gas pipeline running
5,500km from Medvezhe (western
Siberia) to the Czech frontier should
enter service in 1984. The volume of
Soviet supplies - indispendable to
Europe -will then be close on 100
onlion m- per year
The first. commercial links were
established with Austria in 1968,
West Germany and Italy not follow-
ing until 1975 and France in 1976.
By 1980 France was spending the
equivalent of FFr 13 billion on Soviet
Petrostudies estimate
.*1
oil'and.natural gas (4 billion m3),.'
although even this is only half as
much as the quantities imported by
the pace. But afterthatthe trend was
reversed and the COMECON coun-
tries began to receive preferential
treatment from the USSR in respect
of natural-gas exports. There are
several possible explanations .for
this:
1. From 1976 onwards signs of
latent discontent have become ap-
parent in the Eastern Bloc countries.
Faced with this situation, the Krem-
lin leadership has begun to see a
special need to tighten Soviet
links" with the European satellites.
while at the same time trying. to
reduce their debt with Western
banks: With the Soviet Union's oil
,.surplusaimmisnrngvs lyandmall-
probability being reserved mainly
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have played its part as a political
weapon for the first time.
Exports are of course the key
factor in the USSR's natural-gas
policy and the Kremlin leadership
must have paid very special atten-
tion to this aspect of the question.
Moreover it has to be recognized
that their efforts were well reward-
ed: between 1975 and 1979, out-
put rose by 41 %, domestic con-
sumption by 30% and exports by
135%, while imports declined by
75%.
Up to 1967, the only countries to
benefit from supplies of Russian gas
-all of it from the Ukraine -were a
few members of COMECON such as
Czechoslovakia and Poland. It was
not until 1979 that a large-scale gas
pipeline (diameter 1.42m) financed
and built jointly by the USSR and its
satellites entered service. This pipe-
line starts at Orenburg in the Urals
and has an average annual capacity
of some 30 billion m3, its main
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for military purposes, natural gas
has put in a very timely appearance
as far as straightening out COME-
CON's energy policy is concerned.
2. Although still inadequate, sys-
tematic efforts to save energy in
western Europe were beginning to
pay off and were generally turning
out to be more effective than most
people admitted.
3. November 1977 saw the appear-
ance on the market of the first
substantial and regular deliveries of
natural gas (especially LNG) from
the North Sea.
These three factors may not be
the only ones involved, but they
suffice on their own to explain the
change of trend.
Soviet natural gas clearly has
potential, but extracting it is by no
means a mere formality. In the first
place, the problem facing the Mos-
cow leadership is made very much
more difficult by the fact that pros-
pecting and production must take
place largely in the eastern part of
the country. Whileoverfour-fifths of
the proven reserves are situated in
Siberia and the extreme East of the
USSR, 80% of consumption occurs
-for obvious reasons-in the west-
ern regions. Nor are matters simpli-
fied by the geographical dispersion
of these resources over a vast terri-
tory twenty times the size of France.
Moreover as the USSR has no gas
liquefaction plants, production
depends upon the pipelines operat-
ing properly. These, however, are
subject to. the very considerable
differences between day and night
temperatures and are exposed to the
snow-storms of Siberia and sand-
storms of Turkmenistan. Frequent
floods caused by the big Siberian
rivers such as the Ob and Irtysh
make them hard of access during
much of the year. For the most part,
new sections can only be laid during
the winter. r{::
In addition, deliveries of equip-'
ment, which are generally incom-
plete and irregular, can be delayed
for long periods and this has a very
bad effect on the quality of the work
(welding, insulation, etc). When of
Soviet origin, the materials them-
selves are only rarely of the quality
needed for applications of this kind.
The infrastructure lags behind the
prospecting program and the whole
process is hampered by notorious
organizational shortcomings. Rail-
ways, roads, river ports, living quar-
ters. power supplies, etc, are still
very inadequate. Moreover it has
not always been possible to release
the necessary funds (the Baikal-
Amur section, for example, has not
yet been completed as called for in
the previous five-year plan).
Total dependence on pipelines
for supplies continues to be a major
handicap. For instance, the network
of large-volume gas pipelines (1.22-
1.42m diameter) is already ex-
periencing serious setbacks al-
though constructed roughly five
years after its oil counterpart. This
explains why in 1979 supplies to
western Europe, although tradition-
ally dependent upon the fields in
western Siberia and the Ukraine,
were taken from the Orenburg depo-
sit. This natural gas has a sulphur
content of 5%, which would be
nothing compared with the roughly
15% at Lacq if the desulphurization
plant at Orenburg - although of
French design - were not prone to
perpetual breakdowns. As a result,
Western consumers experienced
daily drops of up to 40% in supplies
during the period in question and
also had to put up with the strongly
sulphurous smell of the gas they did
- receive. Furthermore, the presence
of H2 S can lead to a fair amount of
corrosion, the effects of which have
been particularly marked in the
Orenburg-Zainsk section. This prob-
lerin is in?fact so worrying that the
Europeans are considering the pos-
sibility of building two additional
industry increased by no more than
20% during the same timespan.
However, this is due partly to the
massive rise in the cost of construct-
ing the pipelines and to getting the
first Siberian fields into production.
On the other hand - and this has
become even more clear since 1973
- these new resources have given
the Russians an important political
weapon. One example of what this
could mean was seen not long ago in
Poland during Mr Gromyko's most
recent visit to Warsaw. Certainly,
the main step taken by the.Soviet
side was to renew officially the
clauses relating to "mutual assist-
ance" by Poland and the USSR (a
declaration of this sort, of course,
preceded the invasions of Hungary,
Czechoslovakia and Afghanistan).
But the threat to stop supplying
natural gas to Poland-which enjoys
special advantages in this field --
V Partial view of the 3rd section of the Tekhmashimport desulphurization
plant at Orenburg (USSR). Designed by the French company.Technip and
completed in 1978, this complex has a treatment capacity of 50 billion m?
per year, which makes it the world's biggest gas treatment unit.
When President Reagan lifted A.
the grain embargoagainst the USSR
last April, it demonstrated quite F
clearly that such measures are illu .1'
sort' if taken by a single country,
a capitalist system, characterized as i.
well. In view of the world distribu-
tion of primary energy and the pres-
ent lack of stability of the market, on
the other hand, we cannot rule out a
fated in other terms. The European
their energy needs. So the question
arises as to whether they would
desulphurization plants, one at
Waidhaus (German-Czech border)
and the other at Baumgarten (Aus-
trian-Czech border). This clearly
shows their interest in future, sup-
plies of Soviet gas.
How things stand
. The USSR's natural-gas industry
has experienced a remarkable
boom, particularly during the period
of the 10th five-year plan, as can be
seen from certain key figures. Pipe
manufacture for the gas industry is
at present running at double the
level of production for the oil sector.
Investment in the oil industry has
risen from 2 to 6 billionroubles-i.e.
tripled-in 15 years. The increase in
investment in the natural-gas indus-
try has been a seven-fold one over
the same period and investment has
now reached practically the same
volume as with oil. In 1978-1979
.alone it apparently . doubled,
.whereas credits granted to the-oil
present time commercial relations
.have been based essentially on an
exchange of gas for pipes; this type
of operation could well become
problematical before very long.
The export of petroleum products
to Western countries could provide
the USSR with an estimated annual
market of over $ 17 billion, which is
equivalent to what Libya earns from
her oil. It would be well to recall that
in a speech before Congress last
April General Haig was insistent
about the considerable sums which
he claimed the USSR was spending
to maintain or provoke hotbeds of
unrest throughout the Third World.
Seen in this context, natural gas has
every semblance of becoming a new
pressure point in time of tension,
particularly when we also consider
the "pacifist" movements which
are increasingly active in central
Europe.- and especially West Ger-
many - and are known beyond any
their supplies on countries like Iran
and Saudi Arabia or to rely on the
pipeline mean an impressive
amount of work for a Europe which
can no longerafford to ignore its ten
million unemployed.
underrate either the political or the
economic consequences of the con-
tracts signed by Ruhrgas or of those
which are likely to follow in their
wake. But Europe hasthetechnolog-
ical ability to provide itself with
safeguards. It would certainly be
sensible for Europe to think about
these things while time is still avail-
able and to ensure now that she has
the means of countering any future
blackmail.
''-,that the energy requirements of the I"
their proven energy reserves at pre-
sent amount to no more than 15%.
energy consumption of all the indus-
trialized countries together.
The Soviet Union for her part has
not forgotten the essential facts.
Those in possession of oil will be
able to a large extent to control the
military situation; those with
natural gas could well hold one of
the keys to the Third ? World of
tomorrow. The USSR has both. We
might leave the final word on this
matter to an article published by our
German colleagues from the journal
OEL: "You. can always trust the
Russians in matters of business. In
this case they'll-either. send us their
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