EUROPEAN GAS SECURITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00423R000300370028-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 8
• Document Creation Date: December 21, 2016
• Document Release Date: January 12, 2009
• Sequence Number: 28
• Publication Date: June 21, 1984
• Content Type: MEMO

MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
CONFIDENTIAL
The Director of Central Intelligence
Washington, D.C. 20505
NIC #03608-84
21 June 1984
National Intelligence Council
VIA: Chairman, National Intelligence Council
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? ?
National Intelligence Officer for Economics
SUBJECT: European Gas Security
I prepared this memorandum in response to your request of 18 June.
The key points are that the West European governmentst, whose projections
had overstated the likely future growth of gas demand during the
negotiations over the Siberian pipeline, appear now to be underestimating
future demand. This underestimate is removing much of the urgency from
efforts to develop alternative gas sources, especially for Norway. In
addition, there is a specific political problem in the UK which may slow
development of Norwegian gas. The Soviets are in a good position to take
advantage of any lag in Norwegian gas development and by the time the
Europeans see the need more clearly, it may be too late to develop
alternative solutions.
Attachment:
As stated
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% ? /`A\ Ir? r r\ITT A I ?
NIC #03608-84
21 June 1984
SUBJECT: European Gas Security
DCI/NIC/NIO/EcoO Ibha(20 June 84)
Dist:
Orig -.DCI
1 - DDCI
1 - DCI/SA/IA
1 - ER
1 - ExSec
1 - C/NIC
1 - VC/NIC (HM)
1 - DDI Registry
1 -DOGI
1 OGI
1 - D/SOVA
2 - NI0/Econ
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? CONFIDENTIAL
European Gas Security
The US effort to head off a likely increase in West European
dependence on Soviet gas in the 1990s by encouraging development of
alternative sources, particularly from Norway, may be encountering some
new difficulties. Official West European forecasts of gas demand have
shifted from over-optimism to what will probably be over-pessimism, as a
result of which the development of new secure gas sources will be
delayed. In addition, internal British politics may block early
development of the large Norwegian Sleipner field, which in turn would
probably further delay development of the even larger Troll field--the
principal alternative to additional Soviet gas in the 1990s. If European
gas demand increases more rapidly than governments and utilities now
expect, as seems likely, construction of a large new pipeline from the
USSR, which would take only about two years, may be the only way to cover
West European gas needs in the mid-to-late 1990s, since the lead times on
Norwegian gas development of sufficient scale are much greater. Moscow
could offer not only prompt delivery of gas, but also lower prices and
additional contracts for large diameter pipe and other gas line equipment.
European projections of gas demand through the remainder of the 1980s
and through the 1990s have gone through a cycle of optimism and
pessimism. In the early 1980s, official gas demand forecasts projected
fairly rapid increases, reflecting the trend of the 1970s, when gas had
been priced below alternative fuels and consequently was being
substituted for them in a number of uses. These high demand projections
were a major reason for the sense of urgency in West European governments
during negotiations with the USSR for construction of the Siberia to
Western Europe pipeline. In 1981, it was widely believed in Western
Europe that there would be sufficient demand fo fill the pipeline to
capacity before 1990. In the course of the pipeline negotiations,
however, European gas demand began to fall not only as a result of the
economic recession, but also because the price of gas had reached near
parity with oil products, and substitution of gas for these fuels
stopped. It took some time, almost two years, for official forecasts to
catch up with reality. Private forecasts by oil companies and gas
utilities were revised downward first; government forecasts were lowered
later. As gas demand continued to decline, successive forecasts were
lowered further, and the latest ones show little increase in gas demand
over the next decade, in spite of nearly a 6 percent growth rate in 1983.
The trouble is that gas demand has begun to turn upward and will
probably continue to increase faster than current official forecasts.
These forecasts are strongly influenced by the recent downward trend-in
demand and also reflect a pessimistic view of the prospects for economic
CONFIDENTIAL
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growth in Western Europe. In addition, these forecasts apparently do not
consider the flexibility some suppliers have recently begun to show over
gas prices and probably reflect an unrealistically high price for future
gas deliveries. The chances are that it will take two years or so of
fairly strong demand growth to force the beginning of a process of upward
revisions of official demand forecasts. This perception lag combined
with the current gas glut could cause substantial delays in the
development of new non-Soviet gas sources. Although the desirability of
developing such sources, especially Norwegian gas from the Sleipner and
Troll fields, has been generally agreed upon in the IEA, the low gas
demand forecasts make it extremely difficult to imbue Western gas
purchasers or their governments with.any sense of urgency, particularly
in view of the availability of additional Dutch gas. Absent a sense of
urgency, all kinds of problems are likely to arise that can delay
development of these gas sources.
One alternative
-being considered is to purchase smaller amounts of natural gas from Dutch
offshore fields, and to accelerate development of some British fields. A
compromise solution, under which the British would import smaller amounts
of Norwegian as also is bei
British purchase of Dutch gas has a desirable feature--it would
entail construction of a trans-channel gas pipeline, which would connect
the UK and continental gas networks for the first time and consequently
enhance the overall flexibility of the system. But both this option and
the option to purchase smaller amounts of Norwegian gas than originally
envisaged have the major disadvantage of almost certainly delaying
development of the Sleipner field for some time. Since the Norwegians do
not want to begin negotiating the sale of the larger Troll field until
Sleipner's development is certain, Troll development also would be
delayed. Furthermore, the volume of Dutch gas available to the Continent
would be substantially reduced if the UK were to import from the
Netherlands.
If European gas demand should rise fairly rapidly in the next few
years and if the development of the Sleipner and Troll fields is delayed,
by the time West European governments have revised their gas demand
forecasts upward, it may then be too late to bring Troll on line soon
CONFIDENTIAL
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enough to meet this new demand. Industry sources indicate that the first
phase development of Troll will take 8 years, on top of a probable
2 years of contract negotiations. This analysis suggests that by
1987-88, additional large-scale purchases of Soviet gas may once again
seem an attractive proposition to the West Europeans. The Soviets are
extremely well positioned to supply this gas. Their reserves are ample.
They have completed four long-distance pipelines in 1981-83; are well
along on the fifth, and apparently plan to build three more in the next
five year period. The laying of pipe takes only about one year and no
more than a second year is needed to get a pipeline to a large fraction
of its ultimate capacity. Moscow can price its gas below any large
alternative source and still make a substantial profit. The Soviets can
also offer massive contracts for large diameter pipe and pipeline
equipment to West European firms that have become highly dependent on the
Soviet market. Taken together, these inducements would be hard to resist.
Should Moscow be able to substantially increase its gas exports to
Western Europe in the 1990s, it would obtain large additional hard
currency earnings with which to buy Western equipment and technology,
could reduce the strain on its oil supply at a time when oil production
will almost certainly be declining, and will have further tightened its
economic linkages with West European countries, which in turn would tend
to strengthen West European interests in stable or improved relations
with Moscow.
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is CONFIDENTIAL ?
WESTERN EUROPE:
Changing projections of Gas Demand in 1990
IEAa
325
310
295
270
Firm A
310
270
255
240
Firm B
330
360
270
265
a Country submissions to the IEA plus France and Finland
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EXECUTIVE SEPETARIAT .
ACTION INFO DATE INITIAL
TO:
1
DCI
2
DDCI
3
EXDIR
4
D/ICS
5
DDI
6
DDA
7
DDO
8
DDS&T
9
Chm/NIC
10
GC
11
IG
12
Compt
33
D/Pers
14
D/OLL
15
D/PAO
16
SA/IA
17
AO/DCI
18
C/IPD/OIS
9
21
22
uote
.F,
3637 (10-81)
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Executive P-~gf~try
84" 264-1
MEMORANDUM FOR: National Intelligence Officer for Economics
FROM: Director of Central Intelligence
SUBJECT: Western Europe: Moving Toward Gas Security?
Will you give me a two or three page memorandum, suitable for top
policyrnakers,on the present significance of the Norwegian gas situation,
the European market and Soviet energy and currency resources. This
should be in the context of our present interests and options for taking
economic, financial and geopolitical action to avoid excessive European
dependence on Soviet energy and a Soviet windfall in the ability to buy
from the advanced countries.
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