The Acting Secretary of State refers to the circular airgram of September
20, 19482 concerning the
meeting of U.S. Economic Officers in Río de Janeiro November 1 to
November 6, and encloses a paper on petroleum for the Embassy’s
consideration in connection with that meeting.
Petroleum was not included on the agenda of the meeting for a general
discussion on the assumption that the interest in this subject was
limited to those Embassies in countries with an important existing or
prospective oil industry. Petroleum is of great importance, however, to
certain Latin American countries. In addition, the oil of Latin America
is vital to the security of the United States. For these reasons it is
considered desirable that petroleum be the subject of discussion in at
least one meeting of the interested economic officers, and that in view
of the possible limited interest in this subject that such meeting be an
informal evening session. The enclosed paper is submitted as basis for
that discussion. It is being transmitted to those Embassies considered
to have a significant interest in the problem of petroleum.
It is suggested that the Embassy representative at the petroleum meeting
be prepared to give a brief report on the petroleum industry and
petroleum problems of the country to which he is accredited. …
Following the Río meeting, the Department desires from the Embassy a
report giving its considered analysis of the petroleum industry and
petroleum problems of the country to which it is accredited. …
. . . . . . . . . . . . . .
The Department will use this report, along with those from other
Embassies, in its re-evaluation of Latin American petroleum problems and
United States policy toward oil development in the Western
Hemisphere.
[Enclosure]
Petroleum*
world supply and demand situation
During the thirties the United States was very fortunate in that oil
was discovered at a much greater rate than it was consumed. In order
to promote conservation and restrict production to market demand for
this natural resource, most of the oil producing states controlled
the rate of flow of the wells at a level below their maximum
efficient rate. On a country-wide basis the difference between the
actual rate of flow and the maximum efficient rate was more than a
million barrels a day at the beginning of World War II. This reserve
productive capacity was a valuable asset at the time of our entry in
the war, since it enabled production to be expanded to meet all
military and minimum essential requirements for petroleum.
In 1938 the daily average production in the United States was
approximately 3½ million barrels a day. Despite the fact that much
of the consumption of petroleum not essential to the war effort was
eliminated, requirements grew so rapidly that by September 1945
production had reached 4,850,000 barrels a day. This was estimated
to be about 300,000 barrels a day in excess of the maximum efficient
rate of production. In other words, the United States had used up
its cushion of reserve productive capacity and gone beyond by
300,000 barrels a day. The United States was overproducing its oil
fields.
United States production has continued to climb rapidly since the war
and has now reached close to 5,550,000 barrels daily. This high
production rate has been achieved by maintaining a continuous high
drilling rate and by producing wells at or near their maximum
allowable. Whether or not many oil fields are being overproduced is
not known. The industry indicates that the fields are being produced
at the maximum efficient rate. All this has happened while the
United States changed from a net exporter to a net importer of oil.
The daily average net exports in 1938 were 382,000, whereas now the
net imports are probably exceeding 100,000 barrels a day.
The United States industry while drawing upon United States petroleum
resources as fast as technical and scientific knowledge and sound
productive practices will permit, is still short of satisfying
domestic requirements. It appears as if the United States will
become increasingly dependent on foreign sources of supply to
supplement domestic requirements. At the same time the United States
is rapidly depleting its petroleum resources. The present known
reserve is about [Page 252] 11 or 12
times as large as the current annual production, and the estimated
possible new discoveries may not add more than another 20 or 30
years of supply at best, assuming of course that it could be found
and extracted at the desired rate which apparently will not be
possible.
Finding and producing costs are rising as it is becoming more
difficult to locate new and deeper deposits. United States oil is
finding it increasingly difficult to compete with oil from certain
large foreign sources where great quantities of low-cost oil already
have been found.
Although our domestic peacetime requirements are large and growing
rapidly, the Military estimate that United States wartime
requirements would be at least 2 million barrels a day higher than
present consumption. This estimate also supposes the elimination of
nonessential uses—that is non-essential to the conduct of a war.
Current domestic requirements alone are now close to 6 million
barrels a day. Some appreciation of the magnitude of a sudden
increase to 8 million barrels a day may be had when it is realized
that the world production today is approximately 9¼ million barrels
a day.
Any sudden increase in United States supplies could not be
accomplished today unless one or more other countries were deprived
of their supplies. The world’s petroleum facilities are producing at
capacity—including pipe lines, tankers, refineries, and marketing
facilities, and the oil fields of the world cannot be operated
beyond the capacity of the facilities to handle the oil. At present
the only excess productive capacity appears to be in the Middle
East. In this area there are probably several hundred thousand
barrels a day additional oil available but transportation and
refining facilities are not adequate to move and process the oil. In
all other areas, the oil fields as well as the facilities for
handling the oil are being operated at capacity.
Most of the petroleum reserves of the world are concentrated in four
areas, viz., the United States, Venezuela, USSR, and the Middle
East. It is estimated that the United States contains about 22
billion barrels of reserve, Venezuela about 8 billions, the USSR 6
to 8 billions, and the Persian Gulf area in the Middle East
something over 20 billions. The known reserves of the Middle East
are variously estimated at from 20 to 32 billion barrels and the
possible undiscovered reserves are estimated to be of the order of
200 to 300 billion barrels. Unquestionably the possibilities of the
area are immense.
Very little is known about the reserves or production of the USSR.
Only an insignificant proportion of the oil produced there finds its
way into international trade.
The Middle East reserves can be expanded rapidly if sufficient
material and manpower are available. In fact, it is the only area
where the productivity of the known reserves can be greatly
increased. The production of the area is now over a million barrels
a day and the [Page 253] known
reserves are large enough to support a daily production of possibly
8 million barrels a day. The plans for the area call for a daily
production of about 1,800,000 barrels per day by 1952. Such
expansion requires the building of new pipe lines, new tankers, and
more refineries. The proposed pipe lines from the Persian Gulf to
the Mediterranean, if and when completed, would be capable of
transporting more than a million barrels a day.
Persian Gulf oil now supplies less than 40 per cent of the petroleum
for the European Cooperation Administration countries, but by the
end of the four-year program this area is expected to be provided by
over 80 per cent of its requirements from the Persian Gulf area.
In the Western Hemisphere both the United States and Venezuela are
increasing their output at a relatively rapid rate in order to keep
up with increasing demand, but in order to do this a very active
exploration campaign must be maintained to find new reserves for
development. This is a different story from the Middle East where
the reserves already discovered are far more than sufficient to
support the planned expansion to two million barrels a day.
The United States is the greatest market in the world for petroleum.
The United States requirements are almost twice as much as the rest
of the world combined. Although historically the United States has
been a large exporter of petroleum, it cannot in the future continue
so as it is unable any longer to produce its own requirements. Other
countries can look to the United States only for lubricating oils,
high test gasolines, and other similar specialty products.
Until recently the United States has been receiving its supplementary
supplies from Venezuela, but now small amounts of Middle East oil
are being shipped to the United States. To what extent this may
increase cannot presently be determined. However, the major portion
of European requirements have been shipped from Venezuela, and as
that market is gradually taken over by Middle East sources, more and
more oil from Venezuela will be diverted into the United States.
It should be noted that Venezuela is the only Latin American country
that is producing considerably more than its requirements and thus
is a large exporter of petroleum.
Several other Latin American countries produce oil in relatively
small amounts and of these only Mexico, Colombia and Peru have small
surpluses for export. The requirements of the Latin American
countries are growing rapidly and since most of them are importing
nations they are steadily increasing the drain on foreign sources of
supply. Even Mexico, which is now an exporter to a small extent, may
soon become an importer unless new large reserves of petroleum can
be developed in the near future.
[Page 254]
hemisphere defense
Under ordinary peace time conditions the United States would have no
concern about adequate petroleum supplies for domestic requirements,
as it is recognized that there are sufficient reserves in the Middle
East to supplement the world’s requirements for the foreseeable
future. However, it is because of the vulnerability of the Middle
East under emergency conditions that the United States must look to
less vulnerable areas for its peace time and emergency supplies, for
in an industry as highly specialized as petroleum in all its phases
the flow lines must be developed in peace time to be available and
ready for expansion in war time. Therefore, a prudent regard for our
security requires that the United States must look to increased
development of the petroleum resources in the Western
Hemisphere.
The United States, Venezuela, and Canada are the only countries in
the Western Hemisphere where large-scale exploration and development
of new petroleum resources is taking place. But the production of
these three countries is inadequate to meet the war time
requirements of the Western Hemisphere. The United States and Canada
cannot meet their own peace time requirements, and Venezuela’s
surplus is inadequate to make up the deficit in Western Hemisphere
requirements in an emergency.
The Military have been very much concerned about the lack of greater
productive capacity in the Western Hemisphere and have repeatedly
urged that everything should be done to make the Western Hemisphere
self-sufficient in the field of petroleum within the next five
years. The time factor makes this a difficult goal to achieve as it
takes years to make the preliminary surveys, geological and
geophysical studies, discover and develop an oil field.
Our Missions in the Latin American countries have been kept fully
informed of the gravity of the problem and of the urgent need to
find some way of attaining a substantial expansion of petroleum
reserves and production in the Western Hemisphere,†
[Page 255]
The Military attach such importance to the petroleum situation that
members of the Armed Services Petroleum Board have advised their
superiors that defense of the Western Hemisphere in the event of an
emergency will be dependent upon a substantial expansion of Western
Hemisphere petroleum resources within the next few years.
[Here follows a series of studies on oil problems in Mexico,
Venezuela, Colombia, Peru, Brazil, Bolivia, Chile, Argentina, and
Ecuador.]
area of discussion
A general resume of the petroleum situation in the Latin American
countries appears to indicate the following:
- 1.
- A number of the Latin American countries appear to have
good possibilities for the discovery of large petroleum
reserves.
- 2.
- The security of the Western Hemisphere requires that steps
be taken immediately to bring about an expansion of reserves
in the Western Hemisphere with the view toward increasing
its productive capacity by at least 2 million barrels per
day within the next five years.
- 3.
- The most efficient method for achieving rapid expansion of
petroleum resources is by private industry, and, conversely,
probably the least effective method is by outright
unfettered loans to the Latin American Governments for this
purpose.
- 4.
- There appears to be a strong trend toward nationalization
of the petroleum industry in the Latin American countries.
…
- 5.
- It begins to appear that traditional private enterprise
operations; in the petroleum industry may not be possible in
a number of Latin American countries, and that, if so, such
operations cannot be relied upon in those countries for the
needed expansion in petroleum reserves and production in the
Western Hemisphere. If traditional private enterprise
operations are not possible in this important area, what
measures, if any, must be taken to facilitate oil
exploration and production on some other basis?
[Here follows a list of topics for discussion.]