CHATHAM HOUSE MEETING ON EUROPEAN GAS SECURITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000300530007-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 20, 2016
• Document Release Date: July 18, 2006
• Sequence Number: 7
• Publication Date: May 12, 1982
• Content Type: MEMO

Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
OFFICE OF THE
UNDER SECRETARY OF STATE
FOR ECONOMIC AFFAIRS
CONFIDENTIAL
May 12, 1982
TO: DOE, Mr. Kenneth Davis
T, Mr. James L. Buckley
DOD, Mr. Fred Ikle
Commerce, Mr. Lionel Olmer
Treasury, Mr. Marc Leland
NSC, Mr. Norman Bailey
FROM: DOD, ephen Bryen/E, 4illiam Martin
SUBJECT: Chatham House Meeting on European Gas Security
Attached is a summary of the Chatham House meeting
on European gas security held May 6. The meeting was
attended by high level representatives of key commercial
firms (producing, consuming and transporting) with an
interest in North Sea development.
The meeting conclusions were strongly reminiscent
of the results o visit to Norway and
the UK last February. There is strong commercial interest
to develop North Sea reserves, although some hesitation
arises because of
(1) perceived lack of sufficient European gas
demand in light of the new contracts with the Soviet Union;
(2) the higher price for Norwegian gas (although
it was recognized that this more secure source would
warrant some additional premium); and
(3) a fear that Europeans, facing significant
challenges in developing Norwegian reserves, may lapse
into further reliance on the Soviet Union in the 1990s.
The resounding conclusion was that future European
gas demand will either be met from further gas from
the Soviet Union or from Norway's giant 31/2 field. Failure
to tap 31/2 and/or Thomsa gas will almost inevitably
result in further dependence on the Soviet Union and
State Dept. review completed ~
Approved For Releas~Q,60@ TA- 84B00049R000300530007-9
 Approved For Release 7/0 /09 : CIA-RDP8IDENTIAL 4B00049R000300530007-9
2_
given the long lead times between negotiations and gas
flow, one might expect the Soviets to try to negotiate
new contracts in not-so-distant future.
Therefore, in our view, every effort should be made
by the United States Government to discourage further
European reliance on Soviet gas and to promote through
any means at our disposal development of the extensive
reserves of Norway, using the UK as a conduit as necessary
for transporting the gas in the early stages of development.
In light of these discussions a sensible US strategy
might include the following elements:
. (1) At the upcoming Versailles and Bonn Summits (and
also at the IEA Ministerial May 24) seek a political
commitment from the Europeans to develop in an expeditious
manner indigenous OECD-wide reserves to minimize future
reliance on Soviet gas. Mandate the High Level Energy
Monitoring Group of the Summit to develop a strategy
for timely and economically prudent development of these
resources (primarily US, Canada, Norway and the UK).
(Note: The US will chair preparations for the US hosted
1983 Summit and we should encourage that this be a major
topic.)
(2) Use an appropriate occasion, either in
Washington or Europe, to have a high level Washington
representative introduce Ambassador Galbraith to key
industrial and political leaders who could play lead roles
in North Sea development. Ambassador Galbraith has been
asked to play a major role in encouraging European leaders
to accelerate North Sea development. Detailed preparations
will be produced in Washington and key support staff should
be provided to the Ambassador in his efforts which might
be expected to begin during the early fall. It might
be advisable to invite Robert Belgrave, who organized
the Chatham House meeting and who is widely respected
in European industrial circles, to be an advisor to
the Ambassador so that we can have the full benefit of
a European perspective, plus a person who has key contacts.
Larry Goldmuntz, who helped coordinate the DOD contracted
study on North Sea gas, might also be a useful aid
to the Ambassador.
(3) Consider areas where the US could provide
supplement financing (perhaps through EX-IM) to encourage
development of North Sea reserves. Treasury might look
into this issue to see if there are any levers we can pull.
CONF/DENTIAL
Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
 Approved For ReleaseCINFIVENT~84B00049R000300530007-9
3-
The issue of continuation, extension or withdrawal
of the 29 December sanctions on oil and gas export
controls is not dealt with in this paper, although it
continues to be in our interest that the pipeline
not proceed or that there be a serious delay in its
construction. If the building of the first
strand of the pipeline proceeds smoothly, the chances
are Europeans will return in the late 1980s for more
Soviet gas recognizing that this is the easiest (although
most dangerous and unacceptable) way out. On the other
hand, if US equipment is withheld the Europeans and
Soviets may be able to develop sufficient indigenous
production capability to build not only a first, but
second, Soviet strand. The possibility of further
reliance on Soviet gas can be offset if Norwegian gas
is brought to the market place at competitive prices
in a timely manner.
The interagency group supporting the Buckley
mission energy objectives is preparing two papers for
consideration by the group. The first is an update
of the analytical framework for assessing future
European alternatives to reduce dependence on the
Soviet Union. A first draft of this paper has already
been distributed to your staffs for comment. A second
paper is being drafted which lays out a political strategy
for achieving the energy objectives of the Buckley
mission. These papers will soon be circulated to your
staffs for their comment.
Attachment: a/s
WFM:jvm
Approved For Release~plg3iENIl L4B00049R000300530007-9
 Approved For Release 2
R&00049ROO0300530007-9
Summary of Chatham House Meeting on Security
of European Gas Supplies
Summary
Robert Belgrave of Chatham House and ex-Director of
British Petroleum hosted a meeting of key commercial firms
interested in producing, transporting and marketing North
Sea gas reserves. Government representatives from both
the UK and US were also present. Topics included
European energy security issues, European gas reserves,
demand and projected imports both from intra-European
trade (i.e., primarily Norway and the Netherlands) and
outside European sources (Soviet Union, North Africa,
Middle East). European gas demand throughout the 1980s
decade is likely to be met from Dutch, Algerian and
Soviet Union sources. Beginning in the early 1990s,
however, additional sources will be necessary to meet even
moderate demand projections. A triangular_deal_might be
envisaged which would connect the Sleipner field of Norway
to the Continent via the UK. The gas could either be shiopec
through the UK or swapped with UK cgs in the Southern North
Sea. Total delivered gas to the Continent would be about
10-15 bcm.
While a useful increment, this will not solve the
total problem. Further gas deliveries will be necessary
by 1995. The only potential sources of sufficient magnitude
appear to be either the Soviet Union (and thus increased
deliveries beyond those being contracted for today) or
the giant Norwegian field 31/2. The Norwegian gas will
be higher priced (at least a dollar more per million Btu);
faces massive infrastructure development for transport
(either over the mountains and through Sweden mainland
or alternatively through a pipeline to Emden); the reserves,
while well proven, are below 300 meters; and the deposits
contain significant amounts of oil, a good part of which
will probably have to be left untapped should the gas be
produced first. Nevertheless, European gas companies are
interested in the Norwegian reserves for diversification
and security of supply reasons. The Norwegians also seem
interested in developing what is commercially viable
especially if the price is right. It was noted that
while Norway's new minority government is more development
prone extensive development will require positive decisions
by the Parliament. A massive, but workable, effort is required by
several different commercial interests and countries if the
Norwegian reserves are to be tapped as a alternative to
further reliance on the Soviet Union. If these efforts
are not undertaken then European countries have no other
choice but to take more gas from the Soviet Union and
thus increase their dependence on and vulnerability to
Soviet energy supplies.
84B00049R000300530007-9
Approved For Release CNI,7ff' It
 Approved For Releasef rf loLK r4BOO049ROO0300530007-9
1. Chatham House Participants. The Royal
Institute of International Affairs (Chatham House) hosted a
meeting on Security of European Gas Supplies on 6th May 1982.
The meeting was chaired by Robert Belgrave of Chatham
House and participants included senior representatives
from key North Sea producer companies (Statoil, Mobil,
Shell, BP, Esso), key consuming companies (Elf, Ruhrgas,
ENI, British Gas Corporation), key infrastructure companies
and banks (Bechtel and Warburg), and government officials
from the UK and US. The USG was represented by Steve Bryen,
DOD and William Martin, State. Chatham House ground rules
for discussion do not permit disclosure of individual
comments, although material discussed can be used as
long as a Chatham House meeting is not indicated as the source
of the information. Therefore, strictly protect sources
noted. (Tab A has the list of participants.)
2. European Gas Security Overview. John Stern of
Conant and Associates opened the meeting by presenting a
framework for viewing gas security. The basic problem
is that by 1990 EEC countries will be-dependent for 40-45%
of their gas supplies from outside the EEC: 20% from
Soviet Union; 10-15% from Norway, and 10-15% from North
Africa. He noted four types of potential security problems:
internal political instability in producer country; political
disagreement between producer and consumer country; price
disagreement; and technical problems. Consuming countries
can best protect themselves by getting as much flexibility
in contracts as possible; promoting interruptible
contracts with gas consumers; and expanding storage. He
was quite pessimistic about Dutch prospects, concluding
that exports will drop to zero by 2000, and that their
ability to act as significant swing producer in time of
emergency could be weak after 1990. The key issue is how
quickly Norway could replace the-Netherlands as European
producer of last resort. He noted security risks with
both imports from the Soviet Union (for strategic reasons)
and North Africa (for price and political reasons) and
concluded that a key issue is the price of security. Steve
Bryen added that another security problem in dealing with
the Soviet Union is that they may eventually have to divert
supplies away from Western Europe to Eastern Europe, given
the expected drop in their oil imports to these countries.
3. Norwegian Gas Reserves and Prospects. Henrik
Ager-Hanssen, senior executive Vice President of Statoil,
then reviewed Norwegian reserves. Known reserves are
enormous and there is still considerable scope for future
Approved For Release MEtW 4L4B00049R000300530007-9
 Approved For Release
IDE-JLA1 B00049R000300530007-9
discoveries, especially north of 62?. The 31/2 field
is at least the size of Groningen, but although the
reserves are well documented the gas lies below 300 meters.
In addition, a layer of oil complicates gas recovery.
If the gas is taken before the oil, then the oil is likely
to remain unrecoverable. Over the next two years, there
will be a number of tests as to whether some of the gas
can be drawn without losing the oil. One participant
noted that he felt there was an 80% chance that the gas
would be taken first. If this were the case and if
development proceeded smoothly, then gas could begin
to flow from 31/2 as early as 1994. This would require
a new pipeline system -- either directly to Emden or
over the mountains and through the heart of Sweden.
Development of this field would provide the Europeans with
an alternative to further reliance on Soviet gas in the
1.990s, but the price of the gas will be much higher --
perhaps at least $1.00 per million btu. Nevertheless,
several gas consuming countries noted that they would
prefer to rely on Norwegian gas to improve the overall
security of their gas supplies. Failure to tap 31/2
will almost inevitably result in further European dependence
on the Soviet Union and given the long lead times between
negotiations and gas flow, one might expect the Soviets
to try to negotiate new contracts in the not-do-distant
future.
4. Triangular Deal. A short term solution to
European gas demands would be a triangular deal involving
Norway, the.UK and the Continent. Gas could be shipped
from the Sleipner field in Norway to Northern Scotland
in exchange for UK willingness to ship some of their gas
(assuming that sufficient reserves are discovered)
from the Southern North Sea to the Continent. This scheme
could provide some 10-15 bcm to the Continent as early
as 1989. It is not the final solution (that rests either
with 31/2 or further Soviet gas dependence) but it is
a very important interim possibility and would buy time
for some of the more distant alternatives to be brought
on stream. The UK government representatives said that
the UK would have no objection in letting Norwegian gas
pass through the UK and in fact noted that the government
had recently announced that due to more pro development
policies which it was promoting that the UK may be in a
position to export gas should there be sufficient finds.
In the short term, however, the UK is concerned as to
how it fills the gap left by the depleting Frigg imported
gas.
Approved For Release 2 r03,04Ur:.lI~l~ t, 00049R000300530007-9
 ? Approved For ReleaseCTF ENTI84B00049R000300530007-9
5. Norwegian Infrastructure. How much new
infrastructure is necessary in Norway to bring gas to
market? There is already a gas line from Frigg to
Northern Scotland (carrying about 10 bcm per year) and
from Ekofest to Emden (about 20 bcm/yr). These fields
are being depleted at a rapid rate and the pipeline
capacity is likely to be increasingly underutilized.
Ager-Hanssen said that if Norway's development plans
were modest, then existing infrastructure would probably
be sufficient to provide relatively small quantities
of gas to the Continent and the UK. If a more aggressive
development stance is desired, then major effort will
be required to put in place a network of pipeline
systems necessary to move 50 to 60 bcm of gas to the
Continent by the end of the century.
6.
Dutch Gas Prospects. One knowledgable participant
took
issue
with Stern's rather pessimistic view toward
Dutch
gas
prospects and said that the picture noted by
Stern
was
true if one assumed no new discoveries. However,
there
were
some interesting possibilities which might
extend Dutch reserves, although certainly the general
downward trend was still highly probable. He noted
that the Dutch were very interested in providing a buffer
stock for future emergencies, although they would expect
to receive appropriate premiums.
7. European Gas Demand. No definitive view was
expressed as to the rate of growth, although most tended
to see gas demand growing at less than that foreseen by
the IEA (see USG visuals at Tab B). One oil company
executive noted that the key "swing" demand was industry.
Still, given falling Dutch production and depletion
of some of the older North Sea fields, there is need to
expand both indigenous European reserves and non-European
imports. One participant noted that if there were a United
Europe, then Norway's reserves could be developed at a
pace commensurate with the depletion of Dutch gas. Very
little gas would be needed from outside Europe. Nevertheless,
when one looks at the reality of the situation one finds
Germany, France and Italy highly dependent on Soviet Union
and Algerian gas for their projected needs (see Tab C for
Statoil estimate of European gas supply and demand to
1990).
8. Vulnerability and Dependence. Robert Belgrave
began a discussion of the difference between dependence
and vulnerability. A German contended that while
Germany might appear very dependent, they were not
vulnerable to disruptions. He admitted that Bavaria
would be dependent on Soviet gas for 80-90% of its gas
requirements, but said that the flexible nature of the
Approved For Rele~14F7I@EA.p~~DP84B00049R000300530007-9
 Approved For Release CO
F@NTd
German gas grid would enable quick switching to occur.
The French and Italians were not as confident of their
abilities to withstand disruptions which led the Chairman
to conclude that while all three countries were highly
dependent, France and Italy appeared to be more vulnerable.
Not surprisingly, both the French and the Italian
participants showed keen interest in the Norwegian gas
possibility, while the German appeared less enthusiastic.
9. Safety Net Measures. The EEC representative
outlined strategies for reducing vulnerability to
outside supplies. His checklist of measures included
more storage, interruptible contracts, space capacity
to be used in times of emergency and more dual fired
capacity.
10. Strategy for the Future. North Sea gas can
provide a key alternative to further reliance on the Soviet
Union. It is important that existing infrastructure
be kept filled and that new infrastructure be built to
accommodate 31/2 and the fields in the far North. The
Sleipner triangular deal provides a very important bridge
to development of 31/2 and therefore should be pursued,
assuming that there is sufficient gas discovered in
the UK sector of the Southern North Sea to be swapped.
All participants agreed that what is needed is a strategy
for development. An ad hoc approach will not work. The
strategy will have to bring together the interrelated issues
of investment needs, pricing policies, technical
achievements to put in the infrastructure in a timely and
economical manner and political constraints. This will
require looking for the big projects with the large
investments. One comment conveyed the sense of the
meeting: if we do this in a United European fashion the
problem will be solved, but if we do it in a country-by-country
manner, we won't succeed. The resounding conclusion
was that future European gas demand will either be met
from further gas from the Soviet Union or from Norway's 31/2.
Tab A - List of Participants
Tab B - USG Visuals
Tab C - Statoil Estimate of European Gas Supply
and Demand to 1990
Drafted: E:WFMartin:jvm:5/10/82
x29332
Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
rn [mni t rri Al
 TAB A
Approved For Release 2007/03/09: CIA-RDP84B00049R0003 0 P96GRAMME
INSTITUTES' JOINT ENERGY POLY Programme Office: 10 St James's Square, London SW IY 4LE Telephone [phone]
SECURITY OF EUROPEAN GAS SUPPLIES
Agenda
Introduction - The Security Issues - Jonathan Stern.
European Reserves - Norway. U.K. Netherlands. France. Germany.
Demand - Forecasts. Share of energy imports.
Dependence and Vulnerability - Germany. France. Italy. U.K. IEA. EDC.
Imports - Present and planned. Netherlands. Norway. Algeria.
Soviet Union.
Suntilementary Sources - LNG. Soviet Union. Norway. Substitutes.
Storage. Shut-in capacity. Improving the grid.
6th May 1982
THE POLICY STUDIES INSTITUTE THE ROYAL INSTITUTE OF INTERNATIONAL AFFAIRS
1/2 Castle Lane, London SWIE 6DR 10 St James's Square, London, SWIY 4LE
Telephone: [phone] Telephone: [phone]; Cables: Aeropagus London;
Telex. IA 896691
Approved For Release 2007/03/09 jCIA-RDP84B00049R000300530007-9
 Approved For Release 2007/03/09 ? CIA-RDP84B00049R000300530007-9
BRITISH INSTITUTES' JOINT ENERGY POLICY PROGRAMME
Programme Office: 10 St James's Square, London SW 1 Y 4LE Telephone [phone]
Thursday 6th May 1982
Participants
Dr Henrik Ager-Hanssen
Robert Belgrave
Colin Brant
Steve Bryen
Michael Clegg
Dr Wilfried Czerniejewicz
Richard Greenwood
Jacques Hartmann
Frank Holloway
Wallace J. Hopkins
P.D. Irwin
Clive Jones
William Martin
Harley McCamish
T.W. Oerlemans
James Peery
Dr Rafaelo Santoro
Jonathan P. Stern
Louis Twiner
Nicholas Wakefield
Ken S. Williams
THE POLICY STUDIES INSTITUTE
1/2 Castle Lane, London SW1E 6DR
Telephone: [phone]
Statoil
Joint Energy Policy Programme
Foreign & Commonwealth Office
US Department of Defence
British Petroleum
Ruhrgas Aktiengesellschaft
EEC Directorate-General for Energy
Elf Aquitaine
British Steel Corporation
International Energy Agency
Mobil North Sea Ltd.
Department of Energy
US Department of State
Bechtel Great Britain Ltd.
Shell International
Esso Europe Inc.
Ente Nazionale Idrocarburi
Conant & Associates
Joint Energy Policy Programme
S.G. Warburg & Co. Ltd.
British Gas Corporation
THE ROYAL INSTITUTE OF INTERNATIONAL AFFAIRS
10 St James's Square, London, SWIY 4LE
Telephone: [phone]; Cables: Aeropagus London;
Telex: RIIA 896691
Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
 Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
TAB B
Continental Europe: Natural Gas
Supply and Demand Forecast
1980-2000
1985
1990
1995
Approved For Release 2007/03/09: CIA-fP84B00049R000300530007-9
DHEIT 3 PI ICS
Demand
AI_non1_n/1_ J i
Norwoy(exi.ati.n )
000. Soviet Gae!
Uren at.
III
Indi, enoue .0 T or, ExLeU
2 X0,
1980
PotentLa .
? Shor-t.roLL.
IER
hLgh
I-ow
 Dor.ond
Continental Europe: Natural Gas
Supply and Demand Forecast
BllLION c is 980-2000
350 -t
t#TERS PER YFit
:..
Addi.tLonoL
,Approved For Release 2007/03/09 CIA-RDP84B00049R000300530007-9
I'
NetherLande
Horwau(sxLst
SovLet gas:
L us
L ua
ExLatL
1990 1995 2000
RLgerLo
Now 'Norwoy
SuppUes
LNG
Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
 ITALY SPAIN TOTAL
BELGIUM FRANCE I GERMANY
KINGDOM
1980 1990 1980 1990 1980 1990 1980 1990 1980 1990 1980 1990
1980 1990
157
34,0 160,0 40,0
2,0 ( 8,0 115,0 :
Consumption 8,9 15,0 26,3 39 0 52,2 70,0 25,6 45,0 177 0
55,0
46,6
65,0
I
Domestic production (a)
-
- i
7,5
2,5
18,9
16,5
11,9
7,3
3,0
38,3
29,3
36,6
44,0
Imports (b)*
I
- Norway
- -
- -
-
-
-
9,3
9,3
. Frigg - - - - -
. Ekofisk Eldfisk 1,9 1,0 2,3 1,3 7,9 3,5
12,1
5,8
-
-
- -
. Heimdal Statfjord - 0,5 I - 2,2 3,4
_ -
-
- I
6,1
_
_
- Netherlands* 7,0 1 6,5 10,0 3,5 18,8 18,0 6,0
I
-
5,6
-
I
41,8
I
33,6
-
-
I
- i
- Algeria 5,0 2,0 9,0 - - -
12,0 1,2
2,0
I
3,2
28,0
0,7
I
0,7
- - - - _ -
- Libya 1,3
I
- 0,8
I
1 1,0
2,1
1,0
-
_
2,0 3,5 12,0 8,1 18,0 6,4
USSR
-
i
10,0 I -
I I
2,0
18,0
44,0
i
I -
-
I
- Germany - - 1,0 - I (1,5)1 - -
_
I - I
-
1 (0,5)
1 -
_
I _
TOTAL (a) + (b)
I 8,9
15,0
26,3
130,5
52,2
59,4
25,6
34,9 2,0
-8,0
1115,0
1147,8
1 46,6
1 54,0
`!+
DIFFERENCE -
3,5 0,6
- - g~5 10,6
-
6,1
11,1 -
_
_
9,2
29,2
_
1,0
11,0
Cbntrncted or under negoci ation
NATURAL GAZ BALAA d IRfWGVel*R%e12Mm3F1I8 EBAPREWW8 D 0003Tffd d ~ AND 1990
(billion cubic meters)
(includes latest Soviet contracts)
1000 Cu m gag # 0,9 TOE
Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
TAB C
I
I UNITED
 Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007-9
Approved For Release 2007/03/09 : CIA-RDP84B00049R000300530007=