NEXT MEETING OF OVERVIEW GROUP FOR NSSD 9-82

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90B01013R000300470015-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: August 19, 2009
• Sequence Number: 15
• Publication Date: May 5, 1982
• Content Type: MEMO

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Executiv Secretary
Dote
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NATIONAL SECURITY COUNCIL
WASHIIdG70N, D.C, 20506
CONFIDENTIAL
May 5, 1982
MEMORANDUM FOR L. PAUL BREMER III
Executive Secretary
Department of State
DAVID PICKFORD
Executive Secretary
Department of the Treasury
SYSTEM II: 90284
LTC. ROBERT P. MEEHAN
Assistant for Interagency Matters
Office of the Secretary of Defense
STEPHEN SHIPLEY
Executive Assistant to the Secretary
Department of Interior
JEAN JONES
Director, Executive Secretariat
Department of Commerce
WILLIAM. V. VITALE
Director, Office of the. Executive Secretariat
Department of Energy
WILLIAM SCHNEIDER
Associate Director for National Security
and International Affairs
Office of Management and Budget
THOMAS B. CORMACK
Executive Secretary
Central Intelligence Agency
ROGER PORTER
Special Assistant to the President
for Policy Development
JAMES BURNHAM
Special Assistant to the Chairman
Council of Economic Advisers
COL. CHARLES F. STEBBINS
Executive Assistant to the Chairman
Joint Chiefs of Staff
SHEILA DRYDEN
Special Assistant to the Director
Federal Emergency Management Agency
CONFIDENTIAL n
Review 5 5 8 8 J ~~i>t~~ `~~~\(~'j ~~ j
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VVi ~i iiJLiq t it"~G..
Next Meeting of Overview Group for
NSSD 9-82
The Overview Group for NSSD 9-82 will not meet as scheduled
on May 7. To allow more time for work to progress, the
next meeting of the Overview Group will take place on May 19
at 11:00 a.m. in the White House Situation Room. At that
meeting, we will discuss the outlines of Parts i and II of
the study and an initial draft of Part I.
several times between now and May 19. Contact
The CIA Working Group on the first two parts will meet?
if you are not participating and feel you should be.
Attached for your information is a recent Wall Street Journal
article on energy forecasting.
Michael 0.-Wheeler
Staff Secretary
CONFIDENTIAL
Review on S May 1988
coy ~~ ~~~~~~~r
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The Wall Street Journal, Wednesday, May 5, 1982
1~~ore or Less Oil
T~~ill Go Up or Dorm
Or M?ybe It Won't
~ ~ ~
Energy- Experts Are Gun-Shy
after Forecasts, for Years,
Ha~-en't Turned Out ~'4'ell
Jahn I.ichtblau, an unabashed energy
forecaster, is feeli.~tg a bit abashed these
cat's. "The less you quote me the better,".
::e says.
hfr. Lichtblau's sudden shyness is under
standabie. As head of the Petroleum Indus?
_by Research Foundation. he predicted
~laom and doom in 1981. World oil demand
mould "likely accelerate," oil supplies from
5astern Eumpe and otireL non-0PEC coun-
tries would decline, and there would be a
contini frig dmp in , U.S. production.- On ail
cottnts, just the opposite happened, and the
.world is awasb in oil- :. '. -
"If we had just applied Economics 101;;_
3fr. Lichtblau says,_"we would have come.,
:tp with bettr results." ~ ? .. - _.: ... _
- In making .bum~redictlans, Mr _Licht-
~blsu has~a.lat of.company.'"AIl_forecasters;
both -tn .the government and ? in the private .
sector, have been awful .at figuring, out
here *.he energy markets were headed. the.
past few years," says Dennis O'Brien, who
does his predicting . as a deputy assistant
secretary of the U.S.-Department of Energy.
.Just why~heir crystal balls failed them is
the subject of intense sous-searchirsD among...
the energy experts..T'hey, have..huddled:at.
:vario~rs~-professional- forums,. brokea.=:dgwn
L'teir elaborate energy:mode3s.:.anQ tried.to
isolate- flaws in them. Marry: forecasters
have, concluded that .the errors weren,t en-_
rarely of theft own maldrtg.::. .~~.:=' :. '...
Baal Irdta Blamed ?t?;-?-...?.=-- ? _- ?-
- Some blame. "bad government. data,"
Others blame war, weather and other
"exogeneous factors," ? as they ~ call ahem,
chat can't be cranked into their models. Sti11
aLhers blame "aberrant consumer behav-
for" in response to anticipated shortages
and rising prices. But a good number of
foreczsters simply concede that they grossly
r,?:eres:imated energy demand and grossly
underestir;.ated energy sa:-irgs from conser-
:?atio_, and improvements in technology. _
' In any case, "the whole profession is now
in a state of uproar," says Rep. Albert Gore
Jr., Democrat of Ten?
-nessee, who. con-
ducted a congres-
sional investigation of
the profession last
year because "bil-
lions and billions of
dollars" in private
and federal funds
"are gambled on the
basis of forecasu." Today, he sa}?s, fore-
casters are changing their assumptions.
"Conventional wisdom changes faster
than we'd like to admit," says James Swee-
ney, the director of Stanford Universiry's en-
ergy-modeling forum. "Only recently, the
general consensus was that demand and
prices would keep going up. Now the consen- i
sus is that they'll keep going down, at least
for a while:" ~ ~ '
That isn't to say, of course, that the cur-
rent consensus is correct. Because soothsay-
ers share the same statistical techniques,
economic theory and data, "they.also tend
to share the same ignorance," says Stephen
h1clJees, an economist at the Federal Re?
serve ~ Bank -of Boston. "So~ they're- either:
.going 20 be all right as a group, or all wrong;
as a group.,. _ .-
; :=
,3nflueaeed:by the'=Present ~~~ _
~~`: Moreo'ver: many forecasters t_ry to.~3ivine.
the. future merely' by extrapolating the past;-
`sb their long-range forecasts are: heavily in-
''fluenced ?by. present-day-reality: -"~i'hen the
(energyJ. market's going up, they think it's
goingup forever; when it's going down, they
think it's going .down forever,?' says Arnold f
-Safer;~who considers hirriself a~"Tnaverick"
Energy forecaster. In .the fall -df.1980, when
.pr'sces~ were rising, one forecaster. predicted
3100?x-barrel oil before 1935..Now that tl-ey I
' .are falling; he is :predicting ~E15=a-barrel oil
''before 1985. - ?
Throughout history, it seems, oii. fore
casters have suffered similar: shortsighted-
ness. They have bounced .back`and forth .tie-
tween predictions of impending glut and im-
pending shortage, and in almost every.in-.
stance their forecasts have been cFrorig one
way or another. So if history is any guide, it
should teach one important lesson about
forecasting: "The only way. to - be sure
i 'where the market is headed is to go in just
~ the opposite direction," says James Tanner,
the editor of Petroleum Information Interna-
tional, aweekly energy publication.
The first gloom and-doom forecaster w?as
David Kfiite, onetime chief geologist of the
U.S. Geological Surrey. During.}World War I
-a time when consumption w?as rising, do-
mestic production. w?as leeeling off, reserves
were d~cind!ing and doubts ~~?ere deeelo~i~g '
over future oii s;lpr;ies from ',fexico R`:en
'the L'.S.'s b;r~est suppliers-Air. t`:hite ;,re?
cicted th:.t the peat. of L'.S. oil }roc~.C:i:U.^? I
::~aad soon be reached. Ecen more afar :i^~
was his dire prediction in 1918 chat the U.S.
had only 6.7 billion barrels of recoverable oil
left fn the ground.
But the arrival of peace and oil gushers
in Oklahoma and East Texz_c ended the cri-
sis and created the nation's first "glut." Ey
1930, the U.S. had produced another 6.7 bil-
lion barrels of oil and the consensus among
forecasters. was that the surplus was here to
stay.
1'Yorld War II resurrected the preaicton
that "oi] is in short supply." But as the war
waned znd new supplies were tapped in the
L'.S. and the Middle East, forecasters found
it fashionable to talk about. "a long era of
cheap energy" and began issuing "plentiful
supply" forecasts again. The Arab oil em?
bongo of 1973-14 abruptty ended the eu-
One famous forecast was the Central In-
telligence Agency`s 2977 prediction that oil
output in the Soviet Lrnian, the world's !at'o?
est producer, would soon peak, then decline
sharply and turn the Soviet into a huge net
imporier.by ls3.i. The prediction sparked.
world-wide anxiety that the Russians would
be forced.somarch into the hfiddle East and.
thereby sendaoil prices soaring..=~~
.Prediction "'R.ei~se~I~-~U ,, , -;;
_,~.,.,
''~LYaltez"2.f ci3oiialit;;~,private?energy _c_nri~.
:sultaniw~iio?tvas'L~en:thehead of the CIA re-~
:sear~ch'team,;;says.-tliaf::tbe aaency.later re-
vised iEs-forecast;-but not-because~the origi-
nal .ons'tiPas .v~ron~.:.Thanks to the ori,~tal
..forecast; ~e argues; "the Soviets invested ati
-incredible_amount ~# money xo find new sup-
plies; ';thereby averting the anticipated cri?
sis:_ Several==.consumer:-groups; _ however;
,.charged`=tIie;.CIA?svfth ~_deliherate. deceptign
aimed at ~-ilrurrurtiag up-st-pport~ ~or.Presf=
dent_Carter'senergy,pr~g:aai.= ~}~~ =??
fession-. wilt-probably never be.: the -same.
The CIA. forecast "ended the era of fabulous
forecasts and made :chose who. practice the
profession :somew:iat-~cautiaus,"-says Mr.
O'Brien of the.~epartmeat?of Energy. Mr.~
McDonald :puts~~_it .more bluntly:.:"Fore-
casters are-scared to death to make specific
So they: hedge a lot. For example, Sher-
man Clark,- a forecaster i, Brookfield Cen-
ter, Conn., who has been "burned badly" by
making specific projections on oil prices.
now makes L'tree, "different?case forecasts"
and assigns probabilities to each ore. His
current five-year price fore^.ast ranges from
S15 to Sufi a barrel and "Lhe probability that
the. price co?.;td be anyw:~_re in that ; w e is
abo;:*. ester: ' he sa}~s.
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j,~5 J (2 )
Compatties Hedge .
Oii companies are also hedging their bets
much more these days. Standard Oil of Cali-
f::r^ia's chief economist, William Hermann,
says, "In the Bast we gave. our best guess.
\ou' we plot different price pa'~tts and ex-
plain what we think will happen within those
paths." This change is understandable when
you consider the difference between the
company's 1913 and 1932 forecasts for world
energy consunption in the year 2000. The
latest one is lower by the equivalent of 137
~ billion barrels of oil, or about five-sixths of
Sa::di Arabia's total proven oil reserves.
Exxon Corp. also has looked bad ~ at
times. An Exxon forecast released in De-
comber 19;9 assumed that oil ?prices, then
about S18 a barrel, would rise to 57a a barrel
in 1935.. But only a month after the report
came out. oil was already selling at S26 a
barrel. "We looked pretty stupid on that
one." an Exxon man says.. -
Some forecasters are considering issuing
new forecasts more often. "Rather than
sticidng with one forecast and trying to jus-
tify it; I -think it would ?make a lot .more
sense if every six months or so, one would
make a new farecest as conditions change: '
says Mr. Lichtblau of the.Petroleum Indus-
try Research Foundation: Meanwhile, at
various speaking .en,~agements..l'gt'. ?Zicht-_ :.
?blan bas started citing govemmettteaet'gy:-
forecasts '#astead of:-his own: "Tins:=way .if ..:
the foceca_~t`Ss=wrasig;- Peoples .can :blame.,
them, ~~not.`. me; ': he :gays.. "I :don't-want to
may, ~~,~y, ,.,,` rr'? -
sttck. my. nec3c out.:: ' ..
nice- Mf:..I.tchtblan;~? "`mosf:;prominent
forecasters=are.afraid to 'strike out on?their
I own these days" with a truly original fore-
cast. says Dir. b4chees, the Federal Reserve
Bank economist, who has studied their re-
cent predictions. Faced with so much uncer-
tainty, "they've clustered together like a
herd of sheep." he says, making it hard to
distinguish one forecast from another.
There are differences. however. Before a
group o? oilmen in Denver recently, Fred
Singer, an energy fore;:'aster who contends
that the glut is price-;educed and that prices
could fall to S25 a barrel next year, debated
Ragaet El Mallakh, an energy forecaster
who says that the glut is recession-induced
and that oil prices could b?gin climbing
again once the recession subsides.
Although neither forecaster clearly domi-
noted the debate ("I don't think either orre
of them has the faintest idea what's going io
happen," says Glenn Anderson, a Denver
oilman), Mr. EI Mallakh admits that Mr.
Singer's prediction gets a tot more attention
than his. "He tells the public what they want
to hear, namely. 'We can live without the
foreigners," says Mr. El Mallakh, who is.an
Egyptian. "But I can't get my ~ message'
. across. because. people don't want ~to-Dear
anything about oil shortages anymore."...:
" Mr. Singer's_ predictions, in _fact, fre-
~WaIISLreet~Journal's editorial?pagFBnt',Mri^
'tnrials to rnajor~pubIications=tiacluding:this'.
i one). ones I'm always-turned down:" :~~r .~T~=<
.guilty-of-it:~'~ ~ -;~-.r-~:~;-_:;.u~- _ -- _?
- _ The Jtiuraaleertai~tly t~uotes '"expetgs"ra;?.
'lot, and these ' :experts" -have= sotnettrttes`.
~tinately,,ihe press :decides who arexhe:Px
#orecaster; ;'there: are ;-people~~predictittg:
~2ions of gluts t~T shortages are`inore`'media:
:events" than realfty_'"Af aziy point in time,~~
says Mr.:Safer. the self-styled..rtiaverick`-
Journal article-as saying that'.`we're headed
:for a shortage of coal in the Easi":and thaI
.by 1983 prices could. almost quadruple. To-.
day, with coal demand and prices in the dol-
drums, Mr. Kowa freely admits that he has
been "consistently wzong"- in making en-
ergy forecasts. But chat doesn't seem; to
been dead. wroitg:'Two-years apo fvr?exam:
ple, coal analyst John Kawa was quoted in a
As a securities analyst, "you make or
break yourself on earnings projections," he
says. "Energy forecasts are just a side-
light."
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_ ~ ~
EXSEC -4961
DATE
3 MAY 82
CLASS.
-118 &NSSD 9
-82 CONF.
sue:
MINUTES OF THE OVERVIEW GROUP MEETING APRIL 29, 1982
RE: NSSD 9-82, the next OVERVIEW MEETING WILL BE HELD
ON 7 MAY 82.
6 MAY SUSPENSE
4MAY 82; DRUG TO ES.
4MAY82: CYS TO CHM/NIC,DDI,AND ER FILE FM ES. & OGI
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