INTERNATIONAL ECONOMIC & ENERGY WEEKLY 29 APRIL 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00898R000200040008-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 49
• Document Creation Date: December 22, 2016
• Document Release Date: November 15, 2010
• Sequence Number: 8
• Publication Date: April 29, 1983
• Content Type: REPORT

Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3 25X1
Directorate of Secret
Intelligence
International
Economic & Energy
Weekly
Secret
DI IEEW 83-017
29 April 1983
Copy 10 t
13
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
International
Economic & Energy
Weekly
29 April 1983
iii Synopsis
1 Perspective-Energy Security: Still a Major Issue
3 Briefs Energy
International Trade, Technology, and Finance
National Developments
13 Algerian Gas Export Shortfalls: An Energy Security Issue
21 Oil Transport From the Persian Gulf: An Energy Security Issue
31 Japanese Energy Security: Prospects and Implications
39 The UK Market for Norwegian Gas: An Energy Security Issue
0
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Indicators
Comments and queries regarding this publication are welcome. They may be
directed t Directorate of Intelligence, 25X1
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
International
Economic & Energy
Weekly
Synopsis
Perspective-Energy Security: Still a Major Issue)
Most recent industry forecasts indicate that energy supplies should be ample to
prevent a return of sharp price increases and the resultant slowdown in
economic growth for the balance of the decade. These same forecasts indicate
that surplus capacity will be gradually eroded over the balance of the 1980s,
leaving the market increasingly vulnerable to an oil supply disruption. At the
same time, dependence among OECD countries on oil imports from the
Middle East will remain sizable and Western Europe is expected to increase its
imports of natural gas.
Algerian Gas Export Shortfalls: An Energy Security Issue
Serious production problems in its major gasfields will prevent Algeria from
being able to meet about one-half of its annual gas export commitments to
Western Europe and the United States during the remainder of the decade.
This shortfall will reinforce West European views of Algeria as an unreliable
supplier.
Oil Transport From the Persian Gulf: An Energy Security Issue
Continuing dependence on Persian Gulf oil and the uncertain political climate
in the Middle East underscore the potential for a major disruption of non-
Communist oil supplies. While Gulf States have considered building additional
crude oil pipelines to bypass the vulnerable Strait of Hormuz, we doubt that
the overall capability of Gulf states to export oil through pipelines will be
expanded much this decade 25X1
Japanese Energy Security: Prospects and Implications
Japan will remain extremely vulnerable to oil supply disruptions over the next
two decades because of a lack of indigenous energy resources and prospects for
slow growth in nonoil energy use. Imported oil will account for about one-half
Japan's energy needs through the year 2000, and the bulk of Japan's oil
supplies probably.will continue to come from the politically unstable Persian
Gulf.
iii Secret
DI IEEW 83-017
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
The UK Market for Norwegian Gas: An Energy Security Issue 25X1
Despite sharp reductions in industry forecasts of UK gas requirements, the
United Kingdom still will need additional Norwegian gas in the early 1990s,
and we expect London to compete aggressively with other West European
countries for gas from Norway's Sleipner field. If the UK wins the bidding, as
we now expect, we estimate that the British could have a small surplus of natu-
ral gas by the mid-1990s. The existence of a surplus raises the possibility of a
pipeline to export gas to the continent, but we believe a number of political
constraints must be overcome before London would permit gas exports.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
International
Economic & Energy
Weekly
29 April 1983
Perspective Energy Security: Still a Major Issue
Weak energy demand, declining oil prices, and substantial surplus capacity to
produce oil, gas, and coal have led many observers to claim that the energy cri-
sis is over. Most recent industry forecasts indicate that energy supplies should
be ample to prevent a return of sharp price increases and the resultant
slowdown in economic growth for the balance of the decade. These same
forecasts indicate that surplus capacity will be gradually eroded over the
balance of the 1980s, leaving the market increasingly vulnerable to an oil
supply disruption. At the same time, dependence among OECD countries on
oil imports from the Middle East will remain sizable, and Western Europe is
expected to increase its imports of natural gas. As a result, we believe that en-
ergy security will continue to be an important issue for some time to come.F_
Great strides have been made in limiting energy use, especially oil, in OECD
countries following the price shocks of the 1970s. Total energy use in 1981 was
virtually the same as in 1973 despite real GNP growth that averaged 2.4
percent annually over the period. Oil use has actually declined about 10
percent since 1973. Even so, import dependence among OECD countries
remains substantial. Western Europe still relied on imports for more than 40
percent of energy requirements in 1982; for Japan, the level of dependence
exceeded 80 percent. Dependence on imported energy is unlikely to change
much over the balance of the decade, according to industry forecasts. By 1990,
Japan will still rely on imports for over 80 percent of energy requirements and
imports will supply 40 to 50 percent of West European needs as growing gas
imports offset a decline in oil dependence.
As a result, both regions will remain highly dependent on the volatile Persian
Gulf area, where 60 percent of Free World oil reserves are located and where
nearly one-fourth of non-Communist oil supplies pass through the Strait of
Hormuz. The high concentration of oil facilities in the Persian Gulf makes the
area's energy supplies extremely vulnerable to acts of sabotage, revolution, or
war. Although the odds are against a major internal or external disruption of
oil exports from any particular exporting nation or region, the probability of
some sort of disruption occurring is quite high. Since 1950, for example, oil
supplies from major exporting countries have been disrupted on 14 separate
occasions. Moreover, while the United States currently relies on imports for
only about 30 percent of total oil needs, we would not be immune from the
price impacts of an oil supply disruption.
Secret
DI IEEW 83-017
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
The expected increase in reliance on natural gas imports in Western Europe
threatens to raise some additional security problems. Unlike oil, gas supplies
are relatively inflexible because of the transmission and distribution systems
used for delivery. As a result, a gas supply shortfall cannot be easily offset by
shifting to supplies from other sources. To minimize the potentially damaging
effects of a gas supply cutoff, purchasers must add to storage facilities,
increase dual-fired capability, and maintain surge production capability in
domestic gasfields or from import sources. Otherwise, suppliers such as the
Soviet Union-which probably will be supplying more than 30 percent of gas
needs in France, West Germany, and Italy by 1990-could cause serious
economic difficulties by cutting off gas deliveries.
The threat of energy supply disruptions poses additional problems for the
United States beyond the risk of higher prices, reduced economic growth, more
rapid inflation, and higher unemployment. Other importers-especially West-
ern Europe and Japan-probably will remain reluctant to actively support
certain US positions in negotiations with energy producers so long as they
remain heavily dependent on imported energy. Concern over energy security is
also likely to cause several foreign governments to intervene in the marketplace
and impose artificial restraints such as price ceilings whenever a disruption or
the threat of a loss of supplies occurs.
There are several steps which our Allies can take to reduce the threat of supply
disruptions from non-OECD exporters of both oil and natural gas:
? Diversify imports away from potentially unstable sources of supply.
? Increase government-owned stockpiles of oil.
? Encourage the development of indigenous resources, especially natural gas in
Western Europe.
? Limit dependence on any single source of natural gas by factoring in the cost
of needed security measures into the price of these supplies.
? Develop greater linkage between gas pipeline systems in Western Europe,
including a hookup between the now physically separate UK and continental
gas markets.
Whether these actions are undertaken will depend in large part on the
premium buyers are willing to pay for energy security. The costs of the supply
disruptions of the 1970s are still being paid. A disruption in the late 1980s
could be even more costly, especially if Moscow chose to take advantage of its
growing presence in the West European gas market.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
r N
25X1
25X1
^
25X1
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Energy
Recent Oil Price In response to the recent firming of spot crude oil prices, Egypt and the Soviet
Developments Union announced this week an increase in their official oil prices of about
$0.50 per barrel effective 1 May. Spot prices for most crudes are now near of-
ficial prices as a result of dwindling oil stocks and strict adherence by OPEC
members to recent production and pricing guidelines. Decisions by two OPEC
members-Libya and Iran-to cut back sharply on spot sales have also helped
firm spot prices. Some industry analysts believe crude oil prices have
stabilized, but prices could weaken again if OPEC members-most of whom
are still producing well below desired levels-attempt to increase production
significantly in coming months without a corresponding increase in oil
consumption.
ing at near capacity. 25X1
Korean, and French firms have agreed to take a combined total of about
180,000 barrels per day of Saudi crude. The deliveries to France reportedly are
to help finance Iraqi purchases of French arms. The Saudi oil, worth about
$160 million monthly, will not prevent Iraqi import cuts, however; over two-
thirds of the revenue will be needed just to offset the $5-per-barrel decline in
the price of Iraqi crude resulting from the recent OPEC price reduction. Iraq
cannot offset this price decline by exporting more because its only oil export
route is the 700,000-barrel-per-day Turkish pipeline, which already is operat-
Creditors With Oil contractors, Japanese, 25X1
Iraq Compensates Iraq is using crude oil provided by Saudi Arabia to hell) a foreign
Libya Halts Oil Barter Tripoli has informed Moscow that effective 1
Arrangement With May it will revert to paying debts in cash rather than bartering its crude oil.
USSR Moscow previously has preferred cash payments, but last year the USSR
accepted large amounts of discounted Libyan oil instead of cash to cover
payments on Tripoli's overdue debt for arms purchases. Libya has been
displeased with this temporary arrangement because the Soviets were dumping
much of their Libyan crude entitlement on the spot market at prices that
undercut Libyan sales.
Although Libya frequently has violated OPEC guidelines on production,
Tripoli's decision to halt its barter agreement with the USSR and phase out
processing arrangements with West European refiners will improve the
chances of success for the cartel's current production and pricing structure.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Recent firming of spot prices for Libyan crudes to about $29 a barrel has al-
ready encouraged foreign companies operating in Libya to resume lifting their
entitlements and has raised production to 1.1 million b/d in April-Libya's
OPEC quota.
Iranian-Japanese Oil Tehran's insistence on maintaining official oil prices has prompted Japanese
Contract Negotiations buyers to break off negotiations on contract renewals and leaves Japanese
purchases at 110,000 b/d, or half the previous level. Several of the remaining
contracts, which will expire soon, remain in doubt because Japanese firms
want a sizable discount to compensate for higher insurance and transport
costs. Tehran, however, believes that its official price of $28 for Iranian Light
crude is sufficiently below other similar Gulf crudes to remain competitive and
has recently stopped selling its crudes to traders and refiners at discounted
prices. In part as a result of this measure, Iranian spot prices have now risen
close to official prices. If these conditions persist, some Japanese customers
probably will renegotiate contracts for smaller volumes later this year.
Thailand's Natural Gas Under pressure from PTT, Thailand's national petroleum authority, Union Oil
Problems Continue has agreed to accelerate development of the Baanpot natural gas field. PTT of-
ficials have been concerned that production from Erawan, Thailand's only
operating natural gas field, continues at less than one-half the projected rate of
7 million cubic meters per day despite attempts by Union Oil to boost
production. PTT now expects the Baanpot field-originally scheduled to begin
production in mid-1985-to flow at a rate of 0.8 to 1.1 million cubic meters
per day by the end of this year and 1.4 to 1.7 million cubic meters per day by
mid-1984. We believe this estimate is optimistic, however.
he Baanpot field-as well as others in the Gulf of Thailand
yet to be developed-may have problems similar to those at Erawan. Union
claims that Erawan's natural gas reserves are found in many small, unconnect-
ed pools rather than in one large deposit and are thus more difficult to extract.
International Trade, Technology, and Finance
Soviet-US Grain Trade The USSR has not yet responded officially to the US offer to renegotiate the
Prospects Long-Term Grain Agreement, but Soviet officials have indicated they are
interested in a new agreement. The current agreement expires on 30 Septem-
ber. Before the US announcement, a Soviet trade official claimed the US
acreage reduction programs have heightened Soviet concerns about the long-
term availability of grain supplies.
Secret
29 April 1983
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
these purchases were being delayed to help encourage the United States to
negotiate a new grain accord. So far the Soviets have purchased an estimated
34 million tons of grain from all sources for delivery by 30 June. It is not
nown how much if -7. additional US grain the Soviets intend to buy.
While the poor winter crop outlook may prompt the USSR to buy more grain
over the next several weeks, it probably has little bearing on Moscow's desire
to replace the Long-Term Agreement. Some grain traders who have dealt
extensively with Soviet buyers believe the USSR would be willing to increase
the existing minimum purchase level of 6 million tons of US grain by 2 to 4
million tons. Such an expansion, combined with supplies under agreements
with non-US exporters, would ensure Moscow about 20 million tons of grain
annually over the next several years.
China Seeking US China's State Council this month cited textile machinery along with large
Textile Machinery integrated circuits as key products that require upgrading during the Sixth
Five-Year Plan (1981-85), a move that could benefit US firms. Officials of one
province recently justified the purchase of a used US cotton mill by saying that
obtaining Chinese-made equipment would have delayed production by at least
a year and that Western equipment is more dependable. Most of China's
imports of new textile machinery still come from Italy and Switzerland, but
the Chinese now are also negotiating with a US firm for technology to produce
industrial sewing machines for both domestic use and export.
German firms. 25X1
legislation that risks such a large volume of business for about $15 million
worth of specialty metals formerly sold annually to the United States by West
military equipment during the next 10 years. 25X1
Bundestag may impose countermeasures that could prevent the West German
armed forces from purchasing an estimated $10 billion worth of US-made
Metals retaliatory measures. the 25X1
West German-US West German irritation over US legislation restricting West European exports
Dispute Over Specialty of specialty metals to the United States is prom tin consi of
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
tive to purchases from the United States.
The government's opposition to protectionist measures and its desire to avoid
an open dispute with the United States make it unlikely that the Bundestag
will enact sweeping retaliatory measures. As industry leaders increase pressure
on the government to protect their access to the US specialty metals market,
however, some purchases from the United States may be delayed or canceled
as a warning. Most West German military officials would prefer US weapons,
but many members of the Bundestag have a renewed interest in exclusively
European arms cooperation. French industry in particular may try to use US-
West German differences to promote Franco-German programs as an alterna-
East European Trade For the first time in nearly 20 years Eastern Europe recorded a trade surplus
Surplus With with nonsocialist, primarily OECD, countries. The seven nations of the region
Nonsocialist Countries went from a $5.1 billion deficit in 1981 to a surplus of $1.4 billion in 1982.
Yugoslavia and Hungary were the only countries that did not register a
surplus.
East European Trade Million US $
With Nonsocialist Countries
1981
1982
Percent
Change
1981
1982
Percent
Change
1981
1982
Total
36,998
35,524
-4.0
42,098
34,147
-18.9
-5,100
1,377
Bulgaria
3,198
3,195
-0.1
2,546
2,572
1.0
652
623
Czechoslovakia
4,281
4,099
-4.3
3,989
3,598
-9.8
292
501
East Germany
6,714
7,048
5.0
6,654
5,763
-13.4
60
1,285
Hungary
3,652
3,801
4.1
4,442
4,144
-6.7
-790
-343
Poland
5,431
5,197
-4.3
5,366
3,723
-30.6
65
1,474
Romania
7,281
6,325
-13.1
7,065
4,710
-33.3
216
1,615
Yugoslavia
6,441
5,859
-9.0
12,036
9,637
-19.9
-5,595
-3,778
Secret
29 April 1983
performance.
The improvement in the balance of trade was due largely to a cutback in hard
currency imports as Western banks refused to extend new credits to the region.
In the cases of Poland, Romania, and Yugoslavia the reductions were massive,
causing disruptions in industrial production and consumer supplies. Despite
strenuous efforts to raise exports, Eastern Europe's hard currency sales fell by
$1.5 billion as a result of depressed markets in the West. Since Western banks
remain reluctant to provide new loans and the countries face large debt service
payments, the region probably will have to run a hard currency trade surplus
again in 1983. Although economic recovery in the West will help raise exports
somewhat, the need to hold down imports will place severe strains on economic
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
used to mix with Syria's domestically produced high sulfur crud
arrears on its payments for the oil, some of which is reexported and some is
Iranian-Syrian Tehran reportedly has decided to forgive Syria's oil debt, estimated between
Financial Arrangements $750 million and $1 billion. The Khomeini government's largess almost
certainly is motivated by its desire to keep the Iraqi oil pipeline through Syria
to the Mediterranean closed. Under the agreement signed in March 1982,
Tehran supplies nearly 175,000 b/d of crude under generous terms. The first
100,000 b/d is sold for about $25 per barrel while the price of another 55,000
b/d-to be repaid in Syrian products-is calculated at the full Iranian 25X1
reference price of $28 per barrel. A further 20,000 b/d is given at no cost.
Even with these concessional arrangements, Damascus has been consistently in
commodity prices than by an erosion in international competitiveness
Guatemala Reaches The IMF expects Guatemala to sign a letter of intent within a month for a
Preliminary Agreement $125 million standby loan that would begin to ease the country's acute foreign
With IMF exchange shortage. Although this action will pave the way for some World
Bank financing, foreign bankers probably will continue to be wary of resuming
lending to Guatemala any time soon. A key feature of the IMF program,
which could begin as soon as July, is a new value-added tax to replace a
number of sales and foreign trade taxes. The agreement calls on Guatemala to
achieve a payments equilibrium by the end of the 18-month accord, gradually
eliminate the $350-450 million in arrears on foreign obligations, and reduce
the fiscal deficit moderately. Despite Guatemalan fears, the IMF has not
mandated that the government devalue the currency, possibly because Guate-
malan exports have been crippled more by regional turmoil and low world
National Developments
has been increased to $25.3 billion, over 8 percent of Canadian GNP. 25X1
cable TV. As a result, the projected budget deficit for the current fiscal ear
Canadian Budget The new federal budget introduced by Finance Minister Marc Lalonde on 19
Announced April is designed to promote economic recovery by combining moderate
spending with strong tax incentives to encourage private investment. The key
to the budget is a four-year Special Recovery Program that commits $3.9
billion to capital investment and public works projects. Thirty percent of the
money allocated to this program will be spent in the 1983/84 fiscal year,
increasing projected real government expenditures by 2 percent. Moreover,
Lalonde has postponed until the fall of 1984 planned increases in the federal
sales tax from 9 percent to 10 percent and in taxes on alcohol, cigarettes, and
7 Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
The budget's decidedly probusiness orientation represents a significant depar-
ture from the Liberal tradition of large-scale government involvement in the
economy and has been widely characterized as a "Tory budget." In extensive
talks with business leaders before the budget announcement, Lalonde was
cautioned not to introduce too stimulative a budget that would serve only to re-
inflate the economy. He appears to have come up with a budget that gives a lit-
tle to everyone, emphasizes the key role of the private sector in the recovery,
and keeps the deficit within an acceptable limit. This probably will be the last
full budget before elections-which may take place as early as next spring-
and should bolster the Liberals' sagging position in the polls.
Japanese Electronics The Japanese Electronics Industry Association (EIA) has apparently blocked
Firms Seeking Favors the Ministry of Finance's attempt to force repayment of the government
From Tokyo subsidies used to finance the development of advanced electronics and is now
trying to shorten depreciation schedules for new capital equipment. During the
1970s, major electronics producers received large research and development
loans subject to repayment only if the research yielded profitable products
within five years. Of over $200 million in loans to six semiconductor
manufacturers between 1972 and 1976, only $1.3 million had been repaid by
April 1980. To recover a larger share of subsequent loans from the now
profitable industry, the Finance Ministry had wanted the loans repaid if the
research showed profits in eight years.
Less Developed Countries
Continuing Financial The continued shortage of liquid funds is causing Brasilia to delay repaying
Problems for Brazil debts falling due and to seek another multibillion-dollar loan to avert a
moratorium. With reserves depleted, Brasilia is selectively delaying payments
on debts and for imports, raising its commercial overdue debts to nearly $900
million. Petrobras-Brazil's oil company and most
creditworthy borrower-missed $180 million in payments due to US banks
last week. The US Embassy reports private bankers are not yet honoring
pledges to restore $3 billion in short-term credits Brazil needs to meet its cash
requirements. Brazilian borrowers are paying unusually high interest rates for
new short-term loans and to refinance old loans.
Commercial bankers are refusing new loans because public speculation is
growing that Brasilia will soon declare a moratorium on debt repayments. The
government is trying to avoid this, and the delays in making payments
Secret 8
29 April 1983
25X1
25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
probably are intended as a warning to bankers that a suspension of payments
will be the next step. Although aimed at pressing bankers to meet financial
commitments, the selective delays in repayments could backfire. Growing
overdue debts could cause lenders to stop new credit disbursements altogether,
With Cuba's hard-currency shortage precluding
thereby making Brazil's financial problems even more intractable.
Cuban Hard Currency Cuba apparently is being forced to find new Western suppliers as a result of its
Problems recent debt rescheduling. Japan-Cuba's major Western trading partner and
principal source of high-quality capital goods and raw materials-rescinded
official credits for exports to Cuba following Havana's debt rescheduling
request and is refusing to write new export insurance)
25X1
25X1
25X1 significant cash purchases, the Castro regime will have to turn more to Bloc
countries for essential imports or locate Western suppliers willing to offer easy
credit terms. The wariness of private lenders probably will prevent Havana
from obtaining large new short-term loans to finance imports.
Ghana's New Budget The announcement this week of Ghana's long-awaited 1983 budget eliminates
Stirs Dissatisfaction the major stumblingblock to continued negotiations for an agreement with the
IMF. Ghana is counting on the Fund to provide roughly $195 million and to
pave the way for Western bank credits. The government projects a $750
million financial gap for this year. The budget, which addresses the Fund's
primary concern that the currency was overvalued, provides for an import
surcharge and export bonus schemes, in effect devaluing the cedi by nearly 90
percent. Other provisions include sharp price increases for such staples as
gasoline, beer, and cigarettes, but Accra is holding firm on food prices, which
are already at very high levels.
The US Embassy reports that the shaky Rawlings government could find
implementation of the budget a difficult task.
the price increases have intensified antigovernmen sentiment among civil
servants and the military, and Ghana's internal security organization is
concerned that possible civil protests could lead to a coup attempt.
Zimbabwe Extends Prime Minister Mugabe's recently announced plans to acquire controlling
State Control interest in the fuel procurement, transport, and corn milling industries is likely
to reinforce wariness on the part of foreign investors uncertain about
government treatment of private industry. The impact of the announcement,
moreover, probably has been heightened by Mugabe's recent criticism of some
25X1
2oA]
9 Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
cabinet ministers for a "hypocritical commitment" to socialism. Zimbabwe
can ill afford to scare off private capital. The country ran an estimated $650
million current account deficit in 1982, and recent reporting suggests output
may decline by as much as 3 percent this year.
Trinidadian Economic Preliminary figures for last year show a decline in foreign reserves for the first
Problems time in eight years and a budget deficit equal to 20 percent of GDP as
compared to a small surplus in 1981. Although falling oil revenues were offset
by a hike in personal income taxes, current budget expenditures soared 76
percent, mostly because of a 35-percent pay raise for civil servants. The US
Embassy believes that Trinidad's estimate of nearly 4-percent real economic
growth for last year is overly optimistic and expects that cuts in government
subsidies and utility rate hikes this year will drive inflation well beyond the of-
ficially predicted 18 percent. The country's economic difficulties already have
raised fears of widespread layoffs-the unemployment rate probably exceeds
15 percent-and rumors of an imminent currency devaluation.
Pakistani Labor The Chairman of the Pakistan Shippers Council has asked President Zia to in-
Problems tervene immediately to end a dockworkers' slowdown at Karachi. The
slowdown, which began on 30 March, has cut cargo handling in the port by
roughly 60 percent. Moreover, because of long waiting times to load or unload,
shippers are debating a port surcharge that would raise the cost of imports and
exports. Exporters already fear that buyers will soon start canceling orders
because they are unable to meet current commitments. Meanwhile, negotia-
tions on the 50-percent wage increase demanded by dockworkers are at a
standstill because management wants workers to resume normal operations
before resuming talks.
CEMA Negotiations A high-level Soviet delegation visited Bucharest earlier this month and
for a Summit discussed preparations for the still-unscheduled CEMA summit. Bucharest
radio has reported that the talks with President Ceausescu dealt with the need
to expand cooperation within CEMA and the question of energy and raw
material supplies. The delegation also visited Budapest. Meanwhile, a leading
Soviet expert on CEMA said the summit will react in part to developments at
the Williamsburg summit late next month. The delegation probably sought to
persuade Romania and Hungary to drop their opposition to closer integration,
but the effort is unlikely to have succeeded. Moscow apparently is waiting to
see what policy emerges at Williamsburg before further defining its views on
trade ties with the West.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
China Seeking Foreign Beijing last month established the China Nonferrous Metal Industry Corpora-
Investment in Nonfer- tion to accelerate the exploitation of China's abundant resources of nonferrous
rous Metals metals. The corporation's director has announced that foreign firms will be
approached to help develop copper, aluminum, lead, and zinc mines and
smelters and that China would attach the same importance to such develop-
ment as it does to the coal industry. Foreign participation may consist of joint
ventures or compensatory trade, and loans at favorable terms would be
accepted in the technical upgrading of some 819 enterprises.
11 Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Algerian Gas Export Shortfalls:
An Energy Security Issue
Serious production problems in its major gasfields
will prevent Algeria from being able to meet about
one-half of its annual gas export commitments to
Western Europe and the United States during the
remainder of the decade. This shortfall will rein-
force West European views of Algeria as an unreli-
able supplier. As a result, gas purchasers will be
less willing to sign new contracts for Algerian gas
during the 1990s, opening new opportunities for the
Soviets and others to capture any growth in import
demand in the European market.
Gas Development Plans
Shortly after the nationalization of the oil industry
in the early 1970s, the Algerian Government drew
up plans for a major hydrocarbon development
program. The program was designed to bring major
gas deposits into production by the early 1980s
when oil production was expected to begin declin-
ing. The 1977 Algerian Energy Plan centered on
development of the Hassi R'Mel Gasfield, a super-
giant field that holds approximately 60 percent of
Algeria's natural gas reserves of 3.2 trillion cubic
meters, the equivalent of 20 billion barrels of oil.
The remaining reserves, located in numerous small-
er reservoirs in the south, were to be developed by
According to the 1977 plan, Algiers intended to
produce up to 110 billion cubic meters (bcm) of
natural gas annually during the latter half of the
1980s, of which about 70 bcm would be exported,
mostly to Western Europe. Algiers also planned to
develop the large amounts of natural gas liquids
(NGLs)-totaling some 6 billion barrels-con-
tained in its gasfields. Through gas reinjection and
recycling operations, recovery of up to 500,000 b/d
of NGLs were planned, which would largely offset
the decline in oil exports during the early years of
the program.
In 1979 the new government headed by President
Chadli publicly indicated that the gas development
program was technically and financially more than
Algeria could handle. As a result, the program was
substantially cut back. According to the revised
plan, marketable production would total about 50-
60 bcm annually by 1983; about 38 bcm of natural 25X1
gas would be available for export. With this volume
in mind, Algeria finalized contracts with France,
Belgium, Spain, Italy, and the United States. Al-
though price remained an issue in some instances,
buyers were informed that they could count on
Algerian supplies at least through the 1980s. F-1 25X1
Recently completed studies for the Algerian State
Oil and Gas Company (Sonatrach) indicate that
Algeria cannot fill even the scaled-back production
and export program for the 1980s. The main
problem is that Hassi R'Mel is far more geological-
ly complex than was thought earlier. Recently
discovered structural faults and shale barriers, for
example, are hampering the $1 billion gas reinjec-
tion and recycling program Sonatrach has been
using to recover condensates and liquefied petro-
leum gases from the field.' The 50 injection wells
already in place are blocked off from some of the
150 producing wells by these barriers. To correct
'The gas recycling program removes natural gas liquids (conden-
sate, propane, and butane) from produced "wet" gas at the surface
and reinjects the remaining dry gas into the reservoir to maximize
Secret
DI IEEW 83-017
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
- Gas pipeline
Gasfield
d LNG plant
Oilfield
100 200 300 Kilometers
r
100 200 00 300 Miles
Secret
29 April 1983
h1Essi
/ SSa^OLd
Southern gas pipeline
(under construction)
o
MALI
Sardinia
(ITALY)
N I G E R
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Algeria: Gas Production Outlook
0 1980
a CIA estimate based on recent Sonatrach studies.
b Secondary measures: include Hassi R'Mel gas reinjection at 50% of gross
production, associated gas production, limited development of southern
gasfields and gas caps, and reduced domestic consumption.
cHassi R'Mel marketable production, assuming 70% gas reinjection until
1993 when reinjection program ends.
this situation, surface facilities must undergo major
modifications, and new wells have to be drilled
within the faulted areas. An engineering study
completed two months ago also indicates signifi-
cant water encroachment into the field, which
compounds these problems.
Southern nonassociated
gasfields and gas caps
Official 1977 Algerian gas
supply forecast
'"1982 total gas production
As a result of these factors, the availability of
marketable natural gas has fallen far below expec-
tations. Last year, for example, marketable gas
production amounted to roughly 25 bcm, less than
half the volume called for in the Algerian program.
The production shortfall last year held Algeria's 25X1
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
exportable gas surplus to only about 8 bcm. Al-
though well below the level Algeria said it could
deliver, the export gap did not surface as an issue
with customers because the current recession has
lowered West European natural gas demand.
Algeria's Options
Sonatrach is consid-
ering several options to boost production and to
overcome the export shortfall. The easiest and
quickest way for Algeria to meet its export commit-
ments would be to eliminate gas reinjection at
Hassi R'Mel. This would free up about 30 bcm of
gas for export. By eliminating gas reinjection,
however, Algeria would have to forgo its plan to
develop most of the field's NGLs. The eventual loss
of about $20 billion in potentially recoverable
NGLs makes this solution costly.
The most economic, but technically difficult, solu-
tion would be to accelerate development of the
southern gasfields and increase the number of wells
in Hassi R'Mel. Development costs, however,
would be high-we estimate $9-10 billion for field
and facility development. A minimum of some 400
new wells would have to be drilled or worked over
in the southern gasfields, and another 200 wells
would have to be drilled in Hassi R'Mel.
Algiers lacks the skilled crews neces-
sary to complete the drilling and field work in time
to fulfill export commitments through the late
1980s without extensive foreign technical and fi-
nancial assistance.
Sonatrach is probably also considering a series of
secondary options. Individually, each could supply
only marginal amounts of additional gas for export
and each has some drawbacks. These secondary
options include:
? Decreasing gas reinjection at Hassi R'Mel from
the current rate of 70 percent to 50 percent of
gross production-considered by Sonatrach as
Secret
29 April 1983
the minimum gas cycling level. This would pro-
vide another 10 bcm for export. Although about
$10 billion worth of NGLs would be lost over the
longer term, Algeria would enjoy an immediate
gain of $1.5 billion annually in additional reve-
nues from gas sales in the first few years.
? Utilizing currently flared gas. Algiers has recent-
ly decided to resume work on a $1.5 billion gas
pipeline that would tie in the southern associated
fields by 1986. Fluctuations in oil production
rates, however, could keep gas production below
the maximum rate of 5 bcm.
? Production of gas from gas caps and small-scale
development of the southern nonassociated gas-
fields. Although production from gas caps could
provide up to another 5 bcm for export, some loss
in oil recovery would probably occur. Limited
drilling of new gasfields could add 5-10 bcm over
several years for export. Any production from gas
caps and the southern gasfields must, however,
await completion of the southern gas pipeline in
1986.
? Slowing the growth in domestic gas consumption
and reducing gas losses could increase the
amount of gas available for exports perhaps by
another 5 bcm per year.
Algiers' Likely Course of Action
We believe Algerian leaders have only recently
become aware of the extent of the gas production
problem. Several engineering and marketing stud-
ies are now being undertaken by Sonatrach and
foreign consultants to examine the production prob-
lems further)
Algiers faces financial problems that limit its op-
tions. Borrowing to finance new development would
be a difficult choice; Algerian debts already total
over $17 billion, and Algiers has only recently
succeeded in reducing its debt service ratio to less
than 25 percent,
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Algeria: Potential Gas Export Shortfalls'
a Period from 1980 to 1982 are actual rates, after 1982 our estimates are
based on Sonatrach studies.
addition, the decline in oil revenues resulting from
lowered prices will aggravate the problem of appor-
tionment of scarce funds for politically sensitive
housing and services programs.
Because of the financial constraints, Algiers is
unlikely to implement either of the two major
options that would enable it to meet all of its
commitments. We believe Algiers will not cut back
substantially on gas reinjection to avoid the sub-
stantial loss in NGL revenues later in the decade.
With oil production on the decline, revenues from
NGL production will be needed. Algiers probably
cannot significantly accelerate southern gasfield
development in the near term because of the high
cost and a lack of domestic technical capabilities.
In addition, Algiers is reluctant, for political rea-
sons, to accept the level of foreign assistance neces-
sary for accelerated development of new gasfields.
Given these factors, we believe that the Algerians
will opt to implement some of the less costly
secondary solutions to increase the amount of gas
available for export. They will probably eliminate
the flaring of associated gas by 1986 and slow the
growth of domestic gas consumption. Some reduc-
tion in gas reinjection may also be decided upon,
but only within narrow limits because of the poten-
tial impact on future recovery of NGLs. On bal-
ance, we believe that these measures would proba-
bly increase the amount of gas available for export
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Current
Contracts b
(bcm/year)
Deliveries c
1 Jan 83
(bcm/year)
Price b
1 Jan 83
(US $ per
million BTU)
Average
Delivered
Price d
(US $ per
million BTU)
Comments
LNG
22.3 to 24.8
15.9
Belgium
2.5 to 5.0
1.5
4.77
5.60
Deliveries of 2.5 bcm ini-
tiated in November 1982
with an option to in-
crease to 5 bcm in 1986.
3.85
4.35
Suspended November
1982 when Algiers raised
prices to $4.77.
3.60
5.60
Prices tied to fuel oils.
Submission of new pric-
ing formula postponed
indefinitely.
3.60
6.65
Deliveries began in No-
vember 1982.
4.41-
5.41 to 5.71
Deliveries scheduled for
June at 4 bcm, rising to
12 bcm by 1986.
NA
NA
Deliveries as part of
transit fee to Italy
a As of 1 March 1983.
b At Algerian border. 1 June price expected to fall $0.50-0.60 per
million BTU.
c Deliveries converted to an annual rate.
d Price at major consuming area within importing country (that is,
Brussels, Paris, Barcelona, Boston, Midwest, Naples, and Bologna).
e Based on late September 1982 agreement.
to about 20 bcm annually. If Algeria adopted all of
the secondary solutions considered by Sonatrach,
we estimate exportable supplies could reach per-
haps 30 bcm by the mid-1980s. Even in these
circumstances, however, Algiers would be able to
deliver only about three-fourths of the export vol-
umes now under contract.
Secret
29 April 1983
Gas Pricing Tactics
Faced with limitations on its production and export
capabilities, Algiers has allocated its available nat-
ural gas exports to the highest bidders. Although
Algiers has moderated its pricing demands in re-
sponse to sharply falling gas consumption in
Western Europe during the past two years, the
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
price of Algerian gas is still high compared to other
gas sources. Delivered prices of Algerian gas in
Western Europe during January 1983 averaged
about $5.60 per million BTU, compared with the
delivered price of $4.70 for Soviet gas. US deliv-
ered prices for Algerian gas were between $5.60
and $6.65 per million BTU, compared with about
$5.00 for Canadian and Mexican gas. Following
the recent oil price cuts in April, most gas prices,
including Algeria's, should fall by about 50 cents
per million BTU by midyear.
Although Algeria's tough line on pricing and the
recent decline in European gas use led customers to
accept reduced contract shipments, the major buy-
ers are still talking about sizable deliveries of
Algerian gas as the decade proceeds:
? The French utility, Gaz de France, expects to
receive 9 bcm annually from Algeria through the
1980s and has agreed to take-or-pay pricing
provisions under which it must take full delivery
even during periods of slack demand.
? Belgium's Distrigaz has signed an agreement for
at least 2.5 bcm for 20 years with an option to
raise the total to 5 bcm.
? Italy has contracted for pipeline deliveries aver-
aging about 6 bcm annually for the next three
years and 12 bcm annually beginning in 1986.
? In the United States two companies have long-
term supply contracts committing Algeria to de-
liver a total of almost 6 bcm annually well into
the 1990s.
Italy pipeline.
Smaller volumes of gas are scheduled for delivery
to Yugoslavia and Tunisia by way of the Algeria-
The Algerian Government probably will continue
its aggressive pricing policy with an eye toward
selling available supplies to the highest bidder.
Spain ceased buying Algerian gas in late
1982 when Algiers raised prices to $4.77 from
$3.85 per million BTU. According to press reports,
Belgian officials have hinted that they will not take
up the 1986 option for an additional 2.5 bcm that is
called for in Belgium's current contract with Al-
giers
We believe Algiers has set its sights on securing 20-
30 bcm in contracts with take-or-pay provisions.
This would guarantee Algeria a market for the
volume of natural gas that, in our estimation, the
government thinks can be supplied.
Implications for Western Europe
Considering the actions taken by Spain and
Belgium, we believe the Algerian pricing strategy is
reinforcing the view among West European buyers
that Algeria is not a reliable source of natural gas
supplies. This view will be strengthened once Alge-
ria's production problems become known. We be-
lieve that the Algerian Government has thus far
managed to keep news of the supply problem
tightly held.
The growing view that Algeria is an unreliable
supplier is benefiting the Soviets in dealings with
West European buyers.
Madrid, for example, is now
considering purchasing some Soviet gas, in part to
offset its suspended deal with Algeria for 4.5 bcm.
Belgian officials have also indicated that they
would look for an alternative to the additional 2.5
bcm of gas they could buy from Algeria in 1986
under the terms of their present contract. As things
now stand, the USSR will be in a good position to
provide these additional supplies
Impact on the United States
Although Algiers is currently exporting full con-
tract volumes of nearly 6 bcm to US customers
Distrigas and Trunkline, a failure to secure gas
prices comparable to those paid by West European
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
customers probably will induce Algeria to curtail
these deliveries when shortages develop. Algeria
also is likely to favor some West European custom-
ers because of greater profits (resulting from lower
transportation costs) and closer political and trade
ties. Although curtailment could hurt some US gas
companies, US dependence on Algerian gas is
currently negligible, and sufficient supplies would
be available from other sources, especially Canada.
25X1
Beyond 1990
With the scheduled completion of the NGL recov-
ery program in the mid-1990s, Algeria should be
able to meet gas export commitments of 38 bcm.
Development of the southern gasfields, as planned,
could further provide Algiers with an exportable
gas surplus of about 20 bcm annually after 1995,
bringing total export availability to 55-60 bcm.
This surplus could be exported by adding compres-
sors to the Algeria-Italy pipeline or by constructing
additional pipelines to Italy.or Spain. Despite in-
dustry forecasts of an increase in gas import de-
mand, however, we believe most European custom-
ers will be inclined to forgo additional volumes of
Algerian gas in the 1990s because of concern over
Algeria's reliability as a supplier. The issue of
reliability includes price assurances-that is, Alge-
ria's willingness to stick with a contracted price
schedule. From this perspective, the West Europe-
ans may well view the Soviets as a more secure
source of supply for the 1990s. 25X1
Secret 20
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Oil Transport From the Persian Gulf:
An Energy Security Issue
Continuing dependence on Persian Gulf oil and the
uncertain political climate in the Middle East
underscore the potential for a major disruption of
non-Communist oil supplies. The Persian Gulf cur-
rently supplies more than one-fourth of the West's
oil needs; this share is likely to grow due to the
region's large reserves. While Gulf States have
considered building additional crude oil pipelines to
bypass the vulnerable Strait of Hormuz, we doubt
that the overall capability of Gulf states to export
oil through pipelines will be expanded much this
Western Dependence on Persian Gulf Oil
Western dependence on oil imports from the Per-
sian Gulf is substantial. Last year Gulf states
produced about 12.8 million b/d of crude oil and
Non-Communist Dependence on Persian Gulf Oil a
natural gas liquids (NGL). OECD countries im-
ported 7.8 million b/d of oil and petroleum prod-
ucts in 1982 from the Gulf, amounting to about 25
percent of their total oil consumption. While less
than 20 percent of the US oil imports came from
the Persian Gulf, Gulf oil accounted for more than
30 percent of West European imports and nearly 60
percent of Japanese imports.
Large oil reserves in the Persian Gulf states suggest
that a major share of non-Communist supply will
continue to come from this region. According to
some forecasts, OPEC is expected to provide about
one-half of the West's oil consumption in 1990;
more than 60 percent of this will come from the
Persian Gulf. The United States will continue to
rely less heavily on Gulf oil than other major
importers because of higher imports of Mexican
and North Sea oil. According to International
Energy Agency projections of oil requirements,
Thousand barrels per day
(except where noted)
Persian
Gulf
Total
Imports
Percent
Persian
Gulf
Total
Imports
Percent
Persian
Gulf
Total
Imports
Percent
2,602
8,364
31
1,380
6,256
22
Japan
2,708
4,625
59
3,853
5,347
72
4,100
5,576
74
Western Europe
4,078
13,120
31
8,455
13,128
64
10,807
16,714
65
Of which:
France
924
2,033
45
1,749
2,494
70
1,893
2,875
66
Italy
802
2,040
39
1,437
2,362
61
1,739
2,669
65
United Kingdom
357
964
37
966
1,596
61
1,793
2,749
65
West Germany
446
2,217
20
886
2,848
31
1,307
3,001
44
a Includes imports of crude oil and refined products, including
natural gas liquids.
b First half of 1982.
Secret
DI IEEW 83-017
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Bathymetry
0 20 50 100 fathoms
Bandar-e
'Abbas
Khamir
;(;loran
(Clarent.c SirenN
Jazireh ye Qeshm
Gazdan
Bukha
.Qeshm
Jazireh-ye
Honnoz
Ash Sham
man
Limah
t . -
Rams
Ma'rid-'?
Ra's al Khaymah/'
t
(Admin.
Line
\_ -.1 -\,Hisn Diba
United Arab Emirates
Boundary representation is
not necessarily authoritative.
0 37 91 183 meters
Geographical limit of the Strait of Hormuz
Iran-Oman continental shelf boundary
12-nautical-mile limit
Directed traffic lane
Kilometers
0 20
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Nominal
Capacity
1.2
Iraq-Turkey 0.7
Tapline 0.5
Petroline 1.85
Total 4.25
a Estimated on the basis of possible export capacity restrictions at the
port of Baniyas.
b Represents the average for the full year; the pipeline was actually
shut down in April.
c Capacity currently being expanded by 280,000 b/d.
Japan and Western Europe will depend on Persian
Gulf oil for roughly 60 and 40 percent, respectively,
of their total petroleum imports in 1990. These
forecasts expect the Persian Gulf to supply at least
10-11 million b/d of crude oil to the West
The Persian Gulf will account for most of the non-
Communist spare oil productive capacity through
the remainder of the decade. As consumption rises
later in the 1980s, the limited spare capacity
outside the Gulf will be brought back into produc-
Alternative Export Routes
The Strait of Hormuz is the sole sea outlet for the
Persian Gulf. Last year 9.3 million b/d of oil
passed through the Strait-over 80 percent of Gulf
oil exports. The Strait is about 275-km long and, on
Effective
Capacity
Average 1982
Volumes
Low
Estimate
High
Estimate
1.05 a
0.1 b
1.2
1.2
0.7c
0.65
0.98
0.98
0.25
0.05 d
0.1
0.5
1.85
1.1
1.65
3.5
3.85
1.90
3.93
6.18
d Tapline only exported to Jordan in 1982.
e Export capacity; figure excludes an estimated 200,000 b/d for the
Yanbu al Bahr domestic refinery, which will provide products for
Saudi internal consumption.
average, 80-km wide. Traffic is separated into two
1.8-km-wide shipping channels, each at least 50
meters deep. Deep water and strong currents make
the Strait difficult to mine or block. It is narrow
enough, however, to be interdicted by relatively 25X1
weak air and naval forces or shore-based guided
missiles. A threat of closure through force would
have a large psychological impact on shippers, few
of whom would be willing to run even a weakly
enforced blockade. 25X1
Four large-diameter pipelines provide alternatives
for the export of about 4 million b/d of crude oil. In
1982, however, an average of only about 1.9 million
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
b/d of Persian Gulf oil moved by way of pipeline
around the Strait- 17 percent of total exports from
the Gulf region
The Saudi Pipelines
Saudi Arabia's only direct link with the Mediterra-
nean is the Trans-Arabian Pipeline (Tapline) which
runs from Saudi Arabia's eastern oilfields to the
Lebanese port of Sidon. Completed in 1950, the
1,200-km-long line had been capable of carrying
500,000 b/d until Riyadh halted crude exports by
way of the Mediterranean in 1975. The line has
since been used only to supply refineries in Jordan
and Lebanon, with shipments averaging less than
100,000 b/d. cannibal-
ization of pumps and equipment has probably cut
Tapline's effective capacity in half. Fighting in
Lebanon has damaged Tapline facilities there, and
the abandonment of the Lebanese portion of the
line, unused since 1981, was recently announced.
Petroline, the 1,200-km east-west pipeline, opened
in July 1981, connecting the Al Ghawar Oilfield at
Abqaiq to the Red Sea port of Yanbu al Bahr. The
pipeline was built to enhance Saudi export flexibili-
ty by providing an export outlet bypassing the
Strait of Hormuz, while supplying three new refin-
eries on the western coast. The line's design capaci-
ty is 1.85 million b/d, but high transit fees have
made customers reluctant to lift oil at Yanbu al
Bahr. Throughput in 1982 averaged only 1.1 mil-
lion b/d and currently is running about 300,000
b/d.
The Iraqi Pipelines
The Iraq-Syria-Lebanon Pipeline is the oldest ex-
port pipeline in the Middle East. First opened in
1934, the original line was laid from the Karkuk
Oilfield in Iraq through Syria to the Lebanese port
of Tripoli. It has since been expanded to include
three additional pipelines and a northern spur to
Secret
29 April 1983
the Syrian port of Baniyas. Total capacity of the
system is 1.2 million b/d. In recent years, operation
of the line has been interrupted by political differ-
ences between Baghdad and Damascus and unrest
in Lebanon. A dispute over transit fees closed the
pipeline from 1976 to 1979, and in April 1982
Syria shut the line in a show of support for Iran.
Sporadic incidents of sabotage occurred during
periods the pipeline was in use, although operations
were never seriously affected. From 1979 to 1982,
the Iraq-Syria-Lebanon pipeline system carried a
maximum of about 700,000 b/d.
The export capacity of the Iraq-Syria-Lebanon
pipeline may be limited by its tanker-loading termi-
nals. The nominal export capacity of the port of
Baniyas is 830,000 b/d; reconfiguration of berths
in 1976-77 enabling Syria to import refined petro-
leum products reduced this to an estimated 400,000
b/d. We do not know if this port constraint has
been lifted. While the line was open in the 1979-82
period, however, Iraqi exports through Baniyas
never exceeded 400,000 b/d. The port at Tripoli
has the capacity to export about 650,000 b/d and is
capable of handling tankers up to 300,000 dead-
weight tons (dwt), more than twice the size of those
that can be berthed at Baniyas.
The Iraq-Turkey Pipeline, running from the Kar-
kuk Oilfields in northern Iraq to a Mediterranean
loading facility near Ceyhan, Turkey, is currently
Baghdad's sole export route. Its capacity of
700,000 b/d has largely been utilized since the
Syrian pipeline was closed. Periodic sabotage has
closed the line several times since the Iran-Iraq war
began, but damage has been minimal and the flow
of oil has not been stopped for long.
Iraq's internal "North-South" pipeline is also a
major link in the country's oil export system. The
pipeline links the Iraq-Syria-Lebanon line at Ha-
dithah in western Iraq to the southern oilfields near
Basra and is capable of pumping oil in either
direction. The line's capacity is 980,000 b/d pump-
ing south, and 880,000 b/d north.
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Major Middle East Crude Oil Pipelines
as of 1 January 1983
Point of Export
Nominal
Diameter Length
Number
Date
Export Storage
Maximum
Origin Terminal
Capacity
(million
(inches)
(km)
of Pump
Stations
Opened
Terminal Capacity
Capacity (million
Tanker
Size
b/d)
(thousand bbl)
b/d)
(thousand
dwt)
Iraq-Syria-Lebanon
Karkuk Tripoli,
Oilfield, Lebanon
Iraq
0.05
12
856
7
1934
645
1.4
300
Karkuk Baniyas,
Syria
0.35
30-32
891
1952
830
5.6
120
Iraq-Turkey
Karkuk, Iraq Ceyhan,
0.70
40
981
5
1977
1,000
(mini-
mum)
7.0
300
Iraq Strategic Pipeline
Hadithah, At
Iraq Rumaylah,
Iraq
0.98
(south)
42
655
3
1976
0.88
(north)
N (n
b A
Trans-Arabian
Pipeline (Tapline)
At Sidon,
Qaysumah, Lebanon
Saudi Arabia
0.50
30-31
1,213
8
1950
500
(mini-
mum)
4.1
150
a ti
Petroline
Abqaiq, Yanbu at
1.85
48
1,202
11
1981
3,700
11.0
500
Saudi Arabia Bahr,
(mini-
Saudi Arabia
mum)
w
Egypt
Suez-Mediterranean
Ayn
Sidi Kerir,
1.60
2 by 42
320
2
1977
1,700
7.5 (both
285 (both
(SuMed)
Sukhna
Egypt
h,
Egypt
(estimat-
ed)
terminals) terminals)
Remarks
Original Middle East long-dis-
Parallels 12-inch line; utilizes
same pump stations and export
facilities.
Parallels 12- and 16-inch lines
for 795 km, utilizing their pump
stations.
"Loops" on original 32-inch line
connected to form second 32-
inch pipeline, raising total sys-
tem capacity to 1.2 million b/d.
A 30-inch spur to Tripoli was
constructed alongside the 12-
and 16-inch pipelines.
Pipeline capacity being expand-
ed by 280,000 b/d by mid-1984.
Connects Iraq's northern and
southern oilfields; crude oil can
be pumped in either direction.
Lebanese section closed and
possibly will be abandoned;
pipeline is open to Jordan, sup-
plying about 50,000 b/d. Ta-
pline's effective capacity may be
only about 250,000 b/d.
1982 throughput approximately
1.1 million b/d.
Connects Red and Mediterra-
nean Seas, bypassing Suez Ca-
nal; minor modifications could
increase capacity to 1.9 million
b/d.
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Middle East: Major Oil Pipelines
Iraq-Turkey Pipeline
TEHRAN*
Tripol'
Lob
ifediterranean BEIRU
Sea Sidon
SuMeil Pipeline
to Sidi Kerir /Egypt/
Egypt
Secret
29 April 1983
Boundary representation is
not necessarily authoritative.
Persian
Gulf
C7 Oilfield c Oil terminal
1.85 Pipeline capacity (million b/d)
Note: Pipeline alignments are approximate.
0 300
Kilometers
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
KUW?h- Amay
Kuwait Mina a!Bakr
(closed by Iran-lraq War)
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Egypt's SuMed Pipeline
million b/d this year.
Egypt's 1.6-million-b/d pipeline from the Gulf of
Suez to the Mediterranean (the SuMed Pipeline)
facilitates the movement of Persian Gulf oil from
the Red Sea to southern Europe. The pipeline cuts
approximately 13,000 km off the alternate route
around the Cape of Good Hope and reduces costs
by allowing the movement of oil to and from Egypt
in ultralarge crude carriers that cannot transit the
Suez Canal. In 1981 and 1982 the SuMed Pipeline
operated above capacity, although early projections
for 1983 indicate throughput may only be about 1
dad and Damascus, however, make this action
unlikely.
? Addition of a pump station could increase the
capacity of Saudi Arabia's Petroline by 500,000
b/d within two years. Construction of a parallel
pipeline would double capacity to 3.7 million b/d
but would take at least four years to complete.
? An additional loading berth at each terminal
could add 300,000 b/d to Egypt's SuMed Pipe-
line capacity, while construction of another pump
station could boost throughput to 2.1 to 2.3
million b/d.
Expansion of Middle Eastern Pipelines Construction of New Pipelines
The vulnerability of the Strait of Hormuz has led
Persian Gulf oil producers to consider ways to
increase their export flexibility. The closure of
Iraqi export terminals in the Gulf because of war
damage in the fall of 1980 and the threat posed by
Iran to exports from the rest of the Gulf has added
urgency to these efforts. With the recent softening
of the oil market, however, much of the momentum
behind new projects is eroding.
Capacity Increases in Existing Lines
980,000 b/d by mid-1984.
the pipeline's present 700,000-b/d capacity to
Although most existing pipelines have been consid-
ered for expansion since 1979, work has begun only
on the Iraqi line through Turkey. Baghdad has
already let contracts for the construction of five
new pump stations, replacement of existing pumps,
and the construction of 75 km of parallel pipeline to
enhance flow in uphill sections. The project-
costing an estimated $140 million-will increase
Preliminary feasibility studies to expand other
Middle East pipelines have also been conducted:
? By adding pumps at existing stations, Iraq could
increase the capacity of the Syrian pipeline by
200,000 b/d. Political differences between Bagh-
Several new pipelines are now under consideration.
An Iraqi line across Saudi Arabia, recently ap-
proved by Riyadh, appears the most likely to go
ahead. Baghdad is developing plans for the 1.6-
million-b/d pipeline, which would cost an estimat-
ed $3.6 billion. The line would run west of Kuwait,
joining Petroline's right-of-way over the mountains
in western Saudi Arabia to end near Yanbu al
Bahr. An international consortium is being formed
to assist Iraq in planning and financing the project.
Proposals for other pipelines from the Persian Gulf
include:
? A 1-million-b/d line linking Kuwait, Saudi Ara-
bia, Qatar, the UAE, and possibly Iraq to the
southern coast of Oman.
? A 1-million-b/d pipeline from Saudi Arabia's
southeastern Shaybah and Ramlah oilfields to
Oman.
? A 1.6-million-b/d line running entirely within the
UAE, from Abu Dhabi to the Emirate of Fu-
jayrah on the Gulf of Oman.
We believe few of the new pipelines will be built.
With oil revenues plummeting, Gulf producers are
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Middle East: Proposed Crude Oil Pipelines
* SIA
Cyp
Medi terraneanTripoli
Sea Lebaro
BEIRUT*
id 1
rr
Isra
Tel Aviv-Yafo
CAIfW
~CAYn
'Sukhnah
Janbo al Be
Iraq-Saudi Arabia
Neutral Zone
K~ 'vait
*9UWAIT
Saudi Arabia
Ethiopia
Secret 28
29 April 1983
- - Proposed pipeline Existing pipeline
0 Oilfield Oil terminal
1.6 Proposed pipeline capacity (million b/d)
Note: Pipeline alignments are approximate.
0 400
Boundary representation is
not necessarily authoritative.
Soviet Union
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
not only reluctant to allocate funds for new pipe-
lines, but they are also finding that pipeline expan-
sion is financially burdensome. The US Embassy in
Jiddah reports that raising the capacity of Saudi
Arabia's Petroline by 500,000 b/d would cost an
estimated $1 billion; the original price for the
pipeline was only $1.6 billion.
The project most likely to proceed is the Iraq-
Saudi Arabia pipeline. According to Embassy re-
porting, Baghdad continued to press King Fahd on
the issue until he finally gave his go-ahead in talks
last February. With Iraq responsible for finding
financing, however, it is doubtful whether the
approximately $4 billion needed will soon be forth-
coming. Construction is estimated to take four to
five years; hence, the line could not be in operation
before 1987 even if work started this year.
By the end of the decade, the West will still require
some 10-11 million b/d of oil from the Persian
Gulf. With the capacity of Gulf oil export pipelines
unlikely to expand much, the vulnerability of Per-
sian Gulf oil to disruption will not be significantly
moderated. We believe that by 1990 the capacity of
export pipelines from the Persian Gulf will still be
about 4 million b/d. The West, therefore, will
continue to ship a minimum of 6 million b/d of oil
through the Strait of Hormuz, and the Strait will
remain the single most important oil transport
route in the non-Communist world.
29 Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Main Oil Movement by Sea-1982'
1.2 Oil supply (million b/d) at point of origin.
a First-halt 1982 data. 25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Japanese Energy Security:
Prospects and Implications
Japan will remain extremely vulnerable to oil sup-
ply disruptions over the next two decades because
of a lack of indigenous energy resources and pros-
pects for slow growth in nonoil energy use. Import-
ed oil will account for about one-half of Japan's
energy needs through the year 2000, and the bulk
of Japan's oil supplies probably will continue to
come from politically unstable Persian Gulf
sources. US options for enhancing Japanese energy
security are limited.
Energy in Japan
Paralleling dramatic economic growth, Japanese
energy consumption rose sharply during the 1960s
and early 1970s jumping from 1.9 million barrels
per day oil equivalent (b/doe) in 1960 to 7.0 million
b/doe in 1973. Cheap imported oil met most of
Japan's burgeoning energy needs, and by 1973
dependence on imported oil stood at 77 percent of
total energy use. Rapid growth in energy and oil
demand ended abruptly following the 1973 oil
crisis. Through 1982 total energy consumption
increased by less than 300,000 b/doe, and oil use
declined by over 900,000 b/d.
Sluggish growth in energy demand and the falloff
in oil use can be traced to slower economic growth
and sharply higher oil prices. Annual economic
growth rose an average of 3.4 percent during 1973-
82-approximately one-third the rate of the 1960-
72 period. On the price front, imported crude oil
prices increased tenfold since 1973-spurring ma-
jor improvements in energy efficiency. During this
same period, the Japanese economy shifted from
heavy, energy intensive industries, such as steel, to
processing and assembling industries with low ener-
gy inputs, such as electronics. Interfuel substitution
further reduced oil demand.
Measures of Efficiency
Nevertheless, Japan still faces a serious energy
security problem. Poor in domestic resources,
Japan depends upon imported energy for over 80
percent of its energy needs. Imported oil is the
Secret
DI IEEW 83-017
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
dominant fuel, accounting for over 60 percent of
the country's total energy consumption. Nearly
two-thirds of Japan's oil requirements, moreover,
come from the politically unstable Persian Gulf.F
Energy Outlook
In the past year, Japanese Government and private-
sector forecasts of 1990 energy needs have been
trimmed by about 10 to 20 percent. Japan's recent
record on conservation, together with lower projec-
tions for economic growth in the years ahead,
account for these cuts. The maturation of the
Japanese economy and its shift toward high-tech-
nology services will further restrain energy de-
mand. According to the Japanese Economic Coun-
cil, the share of GDP accounted for by the service
sector will rise from 33 percent in 1980 to nearly 50
percent by the year 2000.
The most recent Japanese Government forecast
estimates that 1990 energy needs will total 10.7
million b/doe. We believe that this projection-
which assumes an annual economic growth rate of
5 percent-is too high. According to the Interna-
tional Energy Agency, the Japanese Economic
Advisory Council is revising its midterm economic
forecasts, which Japanese observers suggest are
likely to show annual economic growth of 3.5 to 4
percent. Recent Japanese private-sector projections
already contain more realistic growth assumptions:
? The Petroleum Association of Japan and the
Bank of Tokyo project 1990 requirements at
around 9 million b/doe.
? The Institute of Energy Economics in December
dropped its base 1990 forecast to 8.3 million
b/doe.
? Recent projections
place 1990 requirements for the Japanese at
around 8.5 million b/doe. These forecasts, which
are predicated on annual economic growth of 3.5
percent, are roughly 15 percent below year earlier
On the basis of the most recent Japanese private-
sector forecasts, and assuming an annual economic
growth rate of about 3 percent, we believe Japanese
energy requirements will reach 8 to 8.5 million
b/doe in 1990, compared with about 7.3 million
b/doe last year. By the year 2000, energy demand
is likely to be about 8.8 to 9.3 million b/doe-
assuming about a 3-percent annual GNP growth
projections.
Secret
29 April 1983
25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
rate during the 1990s and continued improvements Demand By Component
in energy conservation. Although real economic
growth may prove higher than what we have Oil. Despite prospects for slow growth in energy
assumed for the 1990s, it would not necessarily consumption, Japan will remain heavily dependent
result in corresponding gains in energy consump- upon oil over the next two decades. Based on our
tion, since much of Japan's future economic expan- assessment of the development of nonoil energy
sion will occur in high-tech and service industries
rather than in energy intensive industries.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
production
Gas
imports
coal
production
coal
imports
sources, we believe oil consumption will be approxi-
mately 4.5 million b/doe in 1990 and around 4.3
million b/doe in the year 2000. As a result, import-
ed oil will account for nearly 55 percent of Japan's
energy requirements in 1990 and just under 50
percent by the end of the century.
Natural Gas. Because of Japanese efforts to reduce
oil use and the clean burning properties of gas,
demand for natural gas is likely to grow more
rapidly than the demand for any other major fuel
during the 1980s. Gas requirements, however, will
be substantially less than the Japanese were expect-
ing when they initiated many of their gas supply
projects in the mid-1970s. We believe Japan's gas
needs will rise from current levels of about 500,000
b/doe to approximately 950,000 b/doe in 1990.
Secret
29 April 1983
This forecast, while in line with Japanese private-
sector forecasts, is roughly 250,000 b/doe below
the official Japanese Government projection
gas requirements dur-
ing ttie s are likely to increase by only about
100,000 to 200,000 b/doe-far below government
growth projections.
Lower gas demand estimates result in large part
from lower prices for competing fuels. The price of
imported natural gas (LNG) is tied to crude oil
prices in current contracts. Consequently, the price
of heavy fuel oil-a lower quality byproduct of
crude oil and a major fuel in electric utilities and
industry-is cheaper than LNG. Japan's LNG
contracts, moreover, contain inflexible "take or
pay" clauses that lock consumers into high-cost
supplies. As a result little
growth in gas use for electricity generation beyond
1990, and the projected increase in industrial gas
requirements is minimal.
Coal. We believe coal requirements in 1990 will
fall far short of government projections. Lower
than expected growth in electricity demand has
lessened the need for new power plants. Because of
existing LNG commitments and nuclear power
plants under construction or site approved, we
believe the bulk of the reduction in new power plant
construction will be coal-fired units. Declining oil
prices, moreover, have recently made the construc-
tion of new coal-fired plants uneconomic compared
with continued operation of existing oil-fired facili-
ties. In industry, we believe future growth in coal
use will be sluggish, in large part because of the
projected slow growth in steel production, which
currently accounts for about 75 percent of Japan's
coal use
Taking these factors into account, we place Japa-
nese coal requirements in 1990 around 1.5 million
b/doe-only about 150,000 b/doe above the 1981
level. Even if the Japanese step up construction of
coal-fired electricity generation plants in the 1990s,
we believe coal requirements in the year 2000 will
*') tivi
25X1
25X1
25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898ROO0200040008-3
Secret
Total energy use
7,016
7,552
7,434
8,000-8,500
8,800-9,300
Total imports
6,307
6,508
6,205
6,550-6,900
6,800-7,150
Oil consumption
5,421
5,000
4,742
4,450-4,550
4,300-4,400
Domestic production
14
10
8
50
50
Imports
5,400
5,091
4,650
4,400-4,500
4,250-4,350
Total OPEC a
5,070
4,312
3,789
3,450-3,550
3,200-3,300
Persian Gulf
4,120
3,547
2,990
2,600-2,700
2,350-2,450
Other OPEC
950
765
799
850
850
Otherb
330
779
861
950
1,050
Natural gas consumption
110
475
491
900-1,000
1,050-1,150
Domestic production
50
41
55
50
50
Imports
60
434
436
850-950
1,000-1,100
Indonesia
219
224
385
360-560
Abu Dhabi
50
50
55
0-240
Brunei
35
143
134
130
Alaska
25
22
28
Malaysia
155
155
Coal consumption
1,099
1,239
1,362
1,500-1,600
1,750-1,850
Domestic production
252
214
209
150-200
150-200
Imports
847
983
1,119
1,300-1,450
1,550-1,700
Australia
371
426
502
600-650
700-775
United States
246
290
347
300-325
350-375
Canada
155
162
156
200-250
250-275
Other
75
105
114
200-225
250-275
Hydro and other
340
447
433
450-550
600-700
a Includes OAPEC members.
b Including unknown.
Imports will not add to the total due to the uncertainty surrounding
future LNG projects.
35 Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898ROO0200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Industry Residential/
commercial
operation by 1990 given current construction lead-
times. As a result, we place output from nuclear
power in 1990 at around 700,000 to 800,000
b/doe-400,000 b/doe below government projec-
tions. By the year 2000, we believe nuclear power
output probably will reach about 1.1 to 1.2 million
b/doe-at least 1.3 million b/doe below official
government projections.
New Energies.' According to industry forecasts,
unconventional energy sources-such as solar,
wind, bio-mass and synthetic fuels-are unlikely to
reduce Japan's dependence upon imported oil over
the next two decades. Projections of lower future oil
price levels have lessened the perceived need to
develop new energy sources. Sluggish oil and elec-
tricity consumption have also reduced government
revenues from oil and electricity taxes-the prima-
ry sources of funds for alternative energy develop-
ment.
Import Dependence
Because of limited domestic oil reserves, Japan
must rely on imports for nearly all of its oil. We
believe the bulk of these imports will come from the
politically unstable Persian Gulf because it con-
tains tains 60 percent of the Free World's oil reserves. As
a result, Japan will remain extremely vulnerable to
oil supply disruptions over the next two decades.F_
Although Japan also relies on imports for the bulk
of its gas and coal needs, imports of coal and LNG
pose far less of a security risk than oil. Based on
current and proposed contracts, Japan is expected
to be importing LNG from six or seven different
countries in 1990. Moreover, Japan probably could
withstand a major LNG supply disruption as long
as oil supplies were available. Japanese electric
utilities-the principal gas consumers-maintain a
significant ability to switch to alternative fuels.
198090 2000
Transportation Electricity
generation
other
Nuclear power
Hydroelectric/
geothermal
reach only 1.8 million b/doe, an amount sharply
below current government projections of 2.7 million
b/doe.
Nuclear Power. Japan has the world's third-largest
nuclear power program-ranking behind the
United States and France. Future growth in nucle-
ar power, however, is constrained by lower levels of
projected electricity demand, public opposition, and
siting difficulties. Of the 30,000 megawatts (MW)
of capacity planned to be added during the 1980s,
we believe only 11,000 MW is likely to be in
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Currently 62 percent of LNG-fired capacity can
switch to alternative fuels. As for coal, the interna-
tional market has abundant supplies, and export
capability will likely exceed demand through at
least the 1990s, according to market forecasts
Energy Security Options
Japan could enhance its energy security by diversi-
fying energy imports among fuels and sources of
supply. Japan could, for example, lessen its vulner-
ability to an oil cutoff by:
? Increasing efforts to diversify oil supplies away
from Persian Gulf sources.
? Boosting government-owned oil stocks.
? Easing or reversing the trend to increased reli-
ance on producer countries for oil supplies rather
than major oil companies that act as market
buffers in the event of a supply disruption.
? Strengthening the refining sector to ensure suffi-
cient production of lighter grade oil products.F_
Given numerous constraints, we believe there is
little potential for Japan to significantly expand its
use of nonoil energy sources beyond estimated
levels. Increased use of LNG is unlikely because of
high relative prices. A myriad of technical prob-
lems complicate coal use in industry, and new coal-
fired plants cannot economically replace existing
oil-fired facilities. A large increase in synthetic
fuels would require huge government subsidies
because of the uneconomic nature of synfuels pro-
duction and the immense capital requirements. As
for nuclear power, public opposition and siting
difficulties remain a major hurdle to further con-
struction.
US options for enhancing Japanese energy security
are limited. The export of Alaskan oil to Japan-
which could reduce Japan's dependence on Persian
Gulf sources and lessen Arab leverage on Japan-is
currently forbidden by US law. Natural gas from
the North Slope could obviate the need for Soviet
gas and reduce dependence on Indonesian supplies,
but Tokyo has already contracted for all the gas it
will need until 1990. Beyond 1990, additional gas
requirements probably will be insufficient to justify
on economic grounds construction of a proposed
Alaskan gas pipeline to deliver North Slope gas to
southern Alaska for shipment to Japan. As for coal,
prospects for increased sales look bleak. Indeed,
Japanese coal requirements in 1990 will probably
fall short of government projections by 600,000
b/doe, and purchases of US coal could well decline
from present levels because of its high cost and stiff
competition from other suppliers.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
EJ Potential surplus
Potential supply gap
Secret 38
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
The UK Market for Norwegian Gas:
An Energy Security Issue
Despite sharp reductions in industry forecasts of
UK gas requirements, the United Kingdom still
will need additional Norwegian gas in the early
1990s, and we expect London to compete aggres-
sively with other West European countries for gas
from Norway's Sleipner field. If the United King-
dom wins the bidding, as we now expect, we
estimate that the British could have a small surplus
of natural gas by the mid-1990s. The existence of a
surplus raises the possibility of a pipeline to export
gas to the continent, but we believe a number of
political constraints must be overcome before
London would permit gas exports.
Sluggish economic growth and effective conserva-
tion measures have led to sharp reductions in
energy consumption in the United Kingdom in
recent years. UK demand for natural gas has
continued to grow, however, increasing nearly 4
percent per year from 1978 to 1981. Growth in gas
demand was strongest in the residential and com-
mercial sectors; these account for over 60 percent
of gas consumption. The rapid rise in demand for
gas was due primarily to its low price relative to
alternative fuels, especially in the residential sector
where gas prices from 1978 to 1981 averaged only
about 65 percent of the price of light fuel oil, the
closest substitute.
UK gas production peaked at 705,000 barrels per
day oil equivalent (b/doe)' in 1977, then declined
steadily to about 607,000 b/doe in 1981. Most of
the growth in UK gas consumption-which totaled
835,000 b/doe in 1981-was supplied by produc-
tion from the Frigg field in the northern North Sea.
Frigg is 40 percent British and 60 percent Norwe-
gian. London had previously negotiated with Nor-
way to purchase Oslo's share of Frigg gas, and UK
gas imports from Norway increased rapidly, reach-
ing nearly 200,000 b/doe in 1981.
Government Price Policy
UK regulations required that British Gas Corpora-
tion (BGC), a public entity, have first right to
purchase all gas produced on the UK Continental
Shelf. Intent on encouraging substitution of gas for 25X1
oil, BGC maintained gas prices far below market
rates. UK gas producers argued that low prices
failed to provide the incentive to increase or even
maintain domestic gas production. Frigg gas pro-
duction peaked in 1981 and in response BGC has
recently renegotiated producer price agreements to
spur additional production
A number of additional UK North Sea projects
have recently been undertaken due to these price
increases. These projects will not, however, yield
enough gas to match the projected growth in
consumption. As a result, BGC is actively seeking
additional gas supplies. London has also imple-
mented policies designed to moderate growth in gas
demand; in 1981, for example, London instructed
the BGC to raise real residential gas prices by 10
percent per year during 1981-83. Because of this
change and the slippage in crude oil prices the once
large price difference between the two fuels has
narrowed.
Secret
DI IEEW 83-017
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Industry forecasts prepared in the first half of 1982
projected long-term growth in UK gas demand of
roughly 2 percent per year, rising to as high as
1.1 million b/doe by 1995. As a result of gas price
increases, two major oil companies prepared revised
projections in October 1982 that are substantially
lower, predicting consumption of 930,000 to
1,000,000 b/doe in 1995. Most of the predicted
growth in UK gas demand is still expected to occur
in the residential and commercial sector.
In our judgment, the most recent forecasts are
more accurate than those prepared in early 1982:
? Declining real,oil prices, expected until 1985, will
increase the price of gas relative to oil.
? North Sea gas supplies will be subject to increas-
ing cost and competition from continental users.
? Government policies no longer encourage artifi-
cially low gas prices.
? Projections indicating moderate UK economic
growth do not support forecasts of continued high
growth in gas consumption.
The recent decline in nominal oil prices will also
erode the relative price advantage of gas, virtually
ending growth in gas consumption in the industrial
sector and moderating consumption growth in the
to rise above official estimates.
Current industry and government forecasts of UK
gas production range from 670,000 to 710,000
b/doe in 1985 and 600,000 to 900,000 b/doe in
1995. Official UK estimates are at the lower end of
these ranges. We believe that future production will
approximate the latest industry forecasts. In our
judgment, official statistics underestimate remain-
ing recoverable gas reserves on the UK Continental
Shelf, and the concessions that London recently
made on tax policies will allow domestic production
London has already taken steps to spur additional
production:
? Prices paid by the BGC to domestic gas produc-
ers are increasing. Last October the BGC signed
a contract with operators of the North Alwyn
gasfield to pay $4 per million BTU, the highest
price ever paid for domestic gas.
? The eighth licensing round, currently under way,
includes 38 southern-sector fields with gas poten-
tial. Although overall industry response has been
residential and commercial sectors.
Secret
29 April 1983
25X1
25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
disappointing, North Sea companies have concen-
trated their bids on the possible gas-producing
concessions.
? The Oil and Gas Bill of 1982 will end the BGC's
monopoly as sole supplier to the industrial sector
and large commercial users, allowing them to
contract directly with alternative gas suppliers.
We estimate that these moves probably will in-
crease domestic gas production to about 820,000
b/doe by 1990 and between 830,000 to 900,000
b/doe in 1995.
Balancing Gas Needs-Looking
Ahead to the 1990s
We believe the United Kingdom will be able to
meet domestic gas demand until the end of the
decade without additional imports, and may even
have a small volume of excess gas in the late 1980s.
According to official government projections, how-
ever, Norwegian Frigg production will decline rap-
idly after 1990, falling from about 200,000 b/doe
in 1990 to zero in 1993. Since UK gas consumption
will continue to grow, reaching 930,000 to 1 million
b/doe by 1995, we believe the United Kingdom will
bid aggressively for gas from Norway's Sleipner
field to meet its projected import requirement.
Sleipner contains an estimated 2 billion boe of
recoverable gas reserves and Statoil, the Norwe-
gian national oil company, has decided on a strate-
gy of rapid depletion
production of as much as 50,000 b/doe
could begin by 1991, increasing to a maximum of
330,000 b/doe by 1995. The Norwegians are pres-
ently negotiating with the British and other Euro-
pean buyers for the sale of Sleipner gas.
Because of the location of the Sleipner field, eco-
nomics dictate that virtually all of the gas be
landed either in the United Kingdom or on the
Continent. Several factors favor the United
Kingdom:
The West European gas market is separated into
two distinct segments, the United Kingdom and the
Continent. Although the two are in close geograph-
ic proximity, there is no interconnecting pipeline. If
the United Kingdom gets Sleipner gas, as we now
expect, and implements policies in the 1980s to
encourage new gas development, the need for addi-
tional imports in the late 1990s will be minimized.
Such policies-including official support for gas
exploration and development and allowing domestic
natural gas prices to rise to market levels-will
allow domestic production to reach 830,000 to
? Sleipner gas contains a high amount of carbon
dioxide, which requires special processing and
possibly separate receiving facilities. London has
experience with this problem, and several smaller
UK gasfields containing carbon dioxide could be
linked to a Sleipner system.
? The location of Sleipner is ideal for linkage to the
existing Frigg pipeline system, which will have
spare capacity of about 330,000 b/doe by 1993.
This method of landing Sleipner gas would cost
only one-fourth as much as a separate pipeline to
the Continent.
? The United Kingdom currently imports about
200,000 b/doe of Norwegian gas and considers
Norway a desirable and secure supplier. Europe-
an buyers are not expected to bid as aggressively
as London for Sleipner gas in view of their
projected lower gas demand and alternative
sources of supply.
Statoil, operator of Sleipner, probably will demand
a price comparable to that received for Statfjord
gas (about $3.50 per million BTU at the wellhead),
which is substantially higher than what the BGC
has been paying for most other gas supplies. We
believe, however, that the BGC is willing to pay a
competitive price for Norwegian gas since there are
now no other viable suppliers and BGC has not
balked at paying competitive prices for Norwegian
gas in the past.
Secret
29 April 1983
25X1
25X1
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
North Sea Gasfields and Pipelines
40 Natural gas field
- Existing gas pipeline
o Terminal
Statfjord
Morecambe
FEDERAL
REPUBLIC
OF
GERMANY
633853 3-83
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
900,000 b/doe in 1995. If gas demand in 1995 is
also in line with current industry estimates, the
United Kingdom could have a small annual gas
surplus of about 80,000 to 160,000 b/doe. This, in
turn, would raise the possibility of the export of
natural gas from the United Kingdom to the
Continent.
Several major oil companies have indicated that
increased UK production would encourage a pipe-
line between southern offshore fields in the United
Kingdom and the Continent. A pipeline to the
Continent has several attractions:
? Swapping southern UK gas for Norwegian gas
imports would lower delivery costs and lead times
in developing northern Norwegian fields.
British reserves in the
southern North Sea are more than sufficient to
justify an economical swap arrangement.
? An integrated gas market would increase supply
flexibility and energy security in the West Euro-
pean gas market.
? A pipeline would allow the United Kingdom to
tap other gas supplies on the Continent once UK
reserves begin to run out.
? Sales of surplus gas to the Continent could net
the United Kingdom additional revenues in the
1990s, when we expect UK petroleum revenues to
fall sharply.
Nevertheless, there has been considerable resis-
tance by BGC and the Energy Ministry to a gas
pipeline link with the Continent. Principal among
British concerns is the possibility that UK gas
reserves would be depleted rapidly by buyers on the
Continent in the event of a gas supply disruption or
a surge in demand. Moreover, domestic opposition
to exports of British gas apparently remains strong.
Last December, for example, London decided to
land the British share of Statfjord gas in the United
Kingdom even though it will be far more costly
than allowing the gas to flow through the Norwe-
gian pipeline to Emden, West Germany. In addi-
tion, London is keenly aware of Norwegian opposi-
tion to an integration of the Continental and UK
markets and would be reluctant to jeopardize any
potential future supply arrangements with Oslo.
Unless these political constraints can be overcome,
we do not believe that London will permit a linkage
with the Continental gas market in the foreseeable
future.
Secret
29 April 1983
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Iq
Next 1 Page(s) In Document Denied
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
 Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3
Secret
Secret
Sanitized Copy Approved for Release 2010/11/15: CIA-RDP84-00898R000200040008-3