FREE WORLD NATURAL GAS FLARED

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83T00966R000100060007-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 20, 2016
• Document Release Date: March 5, 2007
• Sequence Number: 7
• Publication Date: August 19, 1982
• Content Type: MEMO

Approved For Release 2007/03/05: CIA-RD'f00966R000100060007-8
THE DIRECTOOOF
CENTRAL INTELLIGENCE
National Intelligence Council
Danny J. Boggs
Senior Policy Advisor
Office of Policy Development
Room 234, Old EOB
Dear Danny:
After our exchange at the Fred Sing-er
meeting the other day, I had the following
data put together on the trends in flaring
of natural gas worldwide. There'still is a
good deal.. of gas being flared but, as you
can see, the trend is sharply downward.
Henry S. Rowen
Chairman
Attachment
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19 August 1982
MEMORANDUM FOR: Henry S. Rowen
Chairman, National Intelligence Council
FROM : I
Chief, Strategic Resource Division
Office of Global Issues
SUBJECT Free World Natural Gas Flared (U)
1. Based on partial data we estimate the amount of Free
World natural gas flared approximated 5 trillion cubic feet in
1981. The volume probably will drop this year to about 4
trillion cubic feet reflecting in large part a sharp drop in the
flaring of oil associated gas Saudi Arabia. (U)
2. Total Free World natural gas flared peaked in 1976 at
6.6 trillion cubic feet. OPEC countries account for about 70-80
percent of total gas flared. Four countries--Saudi Arabia,
Nigeria, Iraq and I?'ran--alone accounted for half of t,otar Free
World gas flared in 1980. The flaring of oil associated gas has
dropped sharply, particularly in OPEC contracts in recent years,
reflecting lower oil output and Saudi Arabia's master gas
system. (U)
SECRET
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40 Free World Flaring of Natural Gas'
(trillion cubic feet)
1979
1980
1982E
OECD OECD
.5
.4
United States
.1
.1
Canada
.1
.1
Western Europe
.2.
.2
OPEC
4.9
4.5
Saudi Arabia
1.4
1.4
.8
.2-.3
Nigeria
1.0
.9
.6
Algeria
.4
.6
Iraq
.4
.3
.1
Iran
.6
.
3
.3
Others
1.2
.0
1
Non-OPEC LDC's
.9
1.0
Mexico
.1
.2
Argentina
.1
.1
Others
.7
.6
Free World Total
6.3
5.8
5
4
e~'A d
1 Source Department of Energy and CEDIGAZ
Note: Communist countries flared about .5 trillion cubic feet in
1980 according to CEDIGAZ
This table is Unclassified.
 Approved For Release
?
African-Middle East Gas Potential:
A Western Alternative?Q'
Several African and Middle Eastern countries have
the potential to sharply increase gas exports. Al-
though little growth in exports is likely during the
1980s, sales could surge during the 1990s. Under
the most favorable circumstances, new projects
could yield gas exports of 2.5 million barrels per
day oil equivalent (b/doe) by the mid-1990s. We
think the best that can realistically be expected,
however, is an increase in exports of 750,000 to
1 million b/doe. For even these levels to material-
ize, Western purchasers must be willing to pay
prices at least 10 to 15 percent higher than the
than the development of gas reserves. Neverthe-
less,.by the early to mid-1990s these countries
will likely have to consider gas exports as a
supplement or alternative to declining oil exports.
In addition, we believe that several politically and
economically allied importing countries will ac-
tively seek to develop gas export projects to help
meet their rising gas import needs. Italy, France,
West Germany, and Japan will be in the fore-
front. II
price of Soviet gas under recently negotiated The Gas Supply Potential
contracts.
Incentives To Export
Middle Eastern 21
and A rica t gas reserves total about 25 trillion
cubic meters (tcm) equal to 150 billion boe. Iran,
Algeria, Qatar, Saudi Arabia, and Nigeria account
for about 85 rercent of the reserves. Roughly half
Declining oil production and the need to find of the total reserves are in fields not associated with
alternative sources of revenue will be perhaps the oil production-the largest of which are Hassi
greatest incentive for some Middle Eastern and R'Mel (Algeria), Pars (Iran), and North Dome
African countries to proceed with gas export (Qatar). Each of these fields has reserves close to
projects: 2.8 tcm (17 billion boe). Because nearly all of.the
? Our analysis
n icates that Algeria, Cameroon,
Egypt, and Nigeria will see the most rapid de-
crease in oil export capacity-largely a result of
limited reserves and rapidly rising consumption.
? Qatar, Iran, UAE, and Libya all have. sufficient
surplus oil productive capacity to maintain cur-
rent rates of oil production through at least 1995.
We believe investment in developing new oilfields
or upgrading existing oil facilities will probably
provide greater rates of return in these countries
'This article summarizes a forthcoming Intelligence Assessment of
the same title
associated gas will eventually be used" omestically
(either through reinjection or as a fuel or feed- 25X1
stock), most proposed gas export projects will uti- 25X1
lize reserves in nonassociated fields. 25X1
Industry reserve estimates and project proposals
indicate that potential African suppliers-Algeria,
Cameroon, Egypt, Libya, Nigeria, and the Ivory
Coast-could deliver as much as 1.6 million b/doe
annually of additional gas supplies to Western
Europe by the early 1990s. Potential Middle East-
ern suppliers-UAE, Qatar, and Iran-could deliv-
er an additional 750,000 b/doe annually, mostly to
Japan. Pricing policies and financial and technical
25X1
Secret
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0P-83T00966 8000100060007-8
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?. ?
Middle East: Proposed Natural Gas Export Projects
Soviet
Union
E So
Co
S~
Di'
dl
r Z. A ;,,-an
r. Existing LNG facility
Proposed LNG facility
Ethiopia \ Somalia . V Exisstitingng pipeline
Sudan
owcary representation is
not n!cessardy authoritative.
612479 8.82
Secret:
20 August 1982
Socotra
(S. Yemen)
0 500
 Soviet versus Middle Eastern African Gas:
Competing on Prices
Several factors give the Soviets an advantage in
pricing gas compared with competitors in the Mid-
dle East and Africa:
? An ability to acquire pipeline right-of-way
through their own territory and other Bloc coun-
tries at little cost.
? Subsidized interest rc res on Western loans, in-
cluding a grace period before payback is
required.
? Availability of domestic labor, which does not
require hard currency outlays.
As a result, the Soviets can hold hard currency
costs to a minimum. In the case of the Yamal
pipeline, hard currency outlays could be as low as
$8 billion. More importantly, the Soviets are will-
ing to accept low or even negative returns initially
to ensure hard currency earnings.
C fA9
constraints, however, are likely to cause total gas
deliveries from these countries to fall considerabl
below these levels. Indeed
ome countries such as Egypt and the
ivory Coast have yet to find large enough reserves
to support LNG export projects. I
Pricing Policy Constraints
Pricing policies of key producing countries will
limit the amount of gas that Western purchasers
will be willing to buy. This constraint alone could
take several projects-such as those in Nigeria,
Qatar, and Algeria-out of serious consideration
or, at a minimum, limit their scope. In addition.
Soviet willingness to compete aggressively on gas
pricing to ensure hard currency earnings will give
Moscow a considerable edge in capturing the West
European gas market in.the 1990s1 I
Only North African producers can build relatively
low cost pipelines with delivery costs competitive
with Soviet prices, but these countries-like other
African and Middle Eastern producers-have been
unwilling to accept the lower wellhead value for
gas needed to compete with the Soviets. Pipelines,
such as those proposed from Qatar and Nigeria,
must traverse long routes across several countries,
incurring high right-of-way and transit costs. Since
most of these countries do. not have the required
domestic skilled labor, the need for a large foreign
labor force will add further to hard currency
outlays. Although subsidized financing and other
credits may be arranged for countries such as
Nigeria and Cameroon, creditworthiness and polit-
ical instability may prevent subsidized financing
for other ecuntries such as :ran.
Several existing and potential gas contracts are
bogged down in pricing disputes. Algeria has
adopted a militant pricing stance which calls for 25X1
gas prices to be based on the prices of`premium 25X1
fuels-currently $5 to 5.50 per million BTU at the
Algerian bo.der. Over the past two years, the 25x1
Algerians have suspended or refused to initiate gas
deliveries to France, the United States, and Italy
until the pricing demands were met. Of-this group,
only the French have acceded. Libya had main-
tained a similar tactic with Italy before pressing
revenue needs forced Tripoli to drop its demands.
Capital Costs and Financial Constrahts
The pricing problem is complicated by the high
capital and delivery costs of some gas projects.
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?
With the exception of trans-Mediterranean gas
estimates indicate that most LNG and pipeline
projects will cost at least $10 billion for each
2130,000 b/doe of capacity. Finance charges can
raise this cost sharply=
Delivery costs would also be quite high for Mite=`:e
Eastern producers because of the long distance to
European markets. LNG would have to be trans-
ported 11,200 kilometers around Cape Hope to
Western Europe at a cost of about $4 to $5 per
million BTU. The passage of LNG tankers through
the Suez Canal would shorten the route considera-
bly but, we believe, may not be possible bee
likely Egyptian concerns over
pipe the transport from the Middle East to
Europe appears at first to be more economical at $3
per million BTU. Transit fees, however, could
easily add another $1 to $2 to costs=
The multibillion dollar cost of these gas projects are
forcing governments in Nigeria; Cameroon, and
Qatar to move cautiously in committing resources
to projects that will not pay off for a..?umber of
years. Spending such large sums on gas export
projects-particularly in capital poor countries like
Nigeria and Cameroon-rather than on agricultur-
al and industrial development projects, risks inter-
nal political criticism. The uncertain market out-
look for gas also imposes risks, particularly when
firm contracts have not been signed=
Technical Constraints
Technical problems may delay or limit the scope of
some projects. A desire to maximize oil and natural
gas liquids (NGL) production, for example-main-
ly through gas reinjection and cycling opera-
tions 2-could delay production of gas from gascaps
and gasfields with high NGL content. Algeria is
'The cycling program removes NGL from produced gas and
reinjects the dry gas into''oe reservoirs to maximize ultimate NGL
recovery. Without gas reinjection, pressure of the reservoir drops,
condensing and confining some of the NGL within the reservoir=
the only country presently undergoing a large sca
gas cycling effort, althoug
Iran is considering plans to renew the
reinjection of massive
its oilfields
Algeria is Aso reassessing its gas production and
NGL recovery program because of deficiencies in
earlier reservoir studies verlooked
extensive structural faulting and understated gas
reinjection required for cycling operations. Since
most African-Middle Eastern gasfields are in an
early stage of exploitation, there is a high risk that
similar problems will be uncovered as fields are
developed and production begins
I Ia number of existing
LNU plants have been plagued with design flow
problems, poor maintenance, or insufficient gas
feed to operate normally. Experience from operat-
ing these plants has discouraged Algeria and prob-
ably Libya from undertaking additional LNG proj-
ects and may cause other producers to rethink their
plans for similar facilities=
Domestic Consumption
Rapidly rising domestic demand for gas could also,
limit supplies available for export. Because net
revenues are likely to remain lower for gas than for
oil on an energy equivalent basis, potential suppli-
ers are likely to push development of gas for
domestic use so as to maximize oil available for
export. They may also consider gas derivative
export projects (methanol :nd petrochemicals) if
the returns are greater than for LNG or pipeline
gas.I I
Saudi Arabia's master gas plan is giving higher
priority to domestic use and gas derivative export
projects rather than to gas exports.. Qatar, Iran,
Algeria, Libya, Egypt, and UAE have all more
than doubled their domestic gas consumption in the
past few years and plan for even more rapid
increases. We believe that in Algeria and Iran
friC:A
 gale
Y
of
es,
0
Africa: Proposed Natural Gas Export Projects
Approved For Release 2007/0
Benin
Too ( Nieria
hanaS
f :?r. ^tic Ocean
ri Existing LNG facility
Lot Proposed LNG facility
f Natural gasfield
- Existing pipeline
- Proposed pipeline
0 '000
Kilometers
9orcary representation is
'.I ?ressanly authoritative.
Hassi
R'mel
Algeria
Trans-Sahara
Natural Gas Pipeline
(a ternative routes;
.
Mali 1,,,J_Niger
.
_
_._ ?~-~. ' CYpws!
Lebanon
Central African
Republic
Bahrain
Qatar
Madagascar
Secret
20 August 1982
 Se zret
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S
Other Possible Supplies
The search for alternatives to Soviet gas has
sparked a number of supply proposals
!though most are technically ease e, we
e//eve that few are likely to come into fruition in
the 1990s. Nevertheless, several of these projects in
countries including Iran, Egypt, Libya, the Ivory
Coast, and Qatar will continue to draw attention
due to their potential for substantial supplies.
We believe Iran could export gas to continental
Western Europe or to Japan, but Tehran's low
financial reserves, outstanding debts, and political
instability under the current regime makefinanc-
ing of a major gas venture very risky in the near
term. On balance we believe that until Tehran's
political situation stabilizes, Iran's gas exports
will be limited to Turkey-and I a pricing agree-
ment is reached-to the GSSR. .
Egypt, the Ivory Coast, and others will consider
gas exports only if sizable new reserves are found.
rising consumption will likely cut into existing
export capacity during the next several years. The
potential for rapidly rising consumption in Egypt
and the Ivory Coast could prevent exports
altogether]
Gas Supply Outlook
Development of African-Middle Eastern gas sup-
plies will hinge on Western Europe's and Japan's
desire to find alternatives to Soviet gas and willing-
ness to pay prices probably 10 to 15 percent higher
than for Soviet gas. Assuming full scale develop-
ment of North Sea reserves and willingness of the
West Europeans and Japanese to forgo additional
Secret'
20 August 1982
supplies of Soviet gas, we believe producers from
Africa and the Middle East could supply an addi-
tional 750,000 to I million b/doe by the mid-1990s:
? Algeria could provide th;; bulk of these supplies,
perhaps up to an additional 600,000 b/doe above
existing contracts, in the early-to-mid-1990s- Be-
cause current technical problems with its gas .
cycling program are likely to prevent Algiers
from fully meeting existing contracts totaling
613,000 b/doe until the early 1990s, West Euro-
pean customers may be extremely reluctant to
contract for large additional volumes from
Algeria.
25X1
25X1
25X1
 ? Cameroon will likely provide 75,000 b/doe of gas
by 1990. A proposed LNG project has been
scaled back recently because of insufficient re-
serves, but construction could begin by 1984 if
pricing and marketing arrangements are settled.
? The UAE will likely expand LNG production by
30,000 b/doe from existing reserves by 1990. It
could increase output another 150,000 b/doe by
1995 if recently discovered onshore reserves from
the Khuff zone are proved to be as large as some
believe. Most sales will probably
continue to go to Japan.
? A decline in the amount of oil available for export
will eventually force Nigeria to undertake a gas
export project. Any new facility would likely be
considerably smaller than the original Bonny
LNG proposal and could total only 125,000
b/doe.
Vt
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