Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

172. Memorandum From Philip A. Odeen of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, March 13, 1973.

• SUBJECT
  • Meeting with Charles DiBona, Wednesday, March 14, 1973

DiBona has requested this meeting in order to discuss:

• —The Presidential energy message due for publication in late March and the major issues that can be addressed by that message.
• —General national security issues involved with the nation’s energy problems, and the priorities for further work in these areas.²

The President’s Message

As you know, Peter Flanigan prepared extensive analysis of several issues which could be addressed in the Presidential message.³ Flanigan’s analysis focused on the economic and political considerations with little treatment of national security concerns. DiBona recognizes this deficiency in the existing analysis.

However, because we are under some pressure from Congress and elsewhere to get the message out soon and to announce some clear initiatives to meet the nation’s energy problems, he intends to discuss these issues with you and to get your agreement regarding which ones should be addressed in the President’s Energy Message.

The key question is which of these issues have significant national security implications and which can be addressed now before we have adequate knowledge of the broad alternatives or their national security implications.

Since the options papers themselves are not sufficiently synthesized, I have summarized the major issues below and discussed each with respect to:

• —implications for national security, and
• —the effect of establishing a policy now in the President’s Energy Message.

The General Problem and Relevant Issues

The major cause for concern is the projected sharp increase in the nation’s dependence on foreign energy sources under current policies.

• —Oil imports will double by 1980 and more than triple by 1985. About 25–30 percent of total energy supplies could be supplied from Middle Eastern sources.
• —Some think world prices of oil will continue to increase because of the growing power of the OPEC cartel nations creating a drain on our balance of payments in 1985 (abut $16B or 30–40 percent of today’s imports).
• —Imports of natural gas will also increase sharply. Under today’s constrained domestic prices, U.S. gas production is projected to fall resulting in a need for major imports of Soviet and Algerian natural gas (which costs about five to six times current U.S. prices).

Obviously, this increased dependence on foreign energy sources projected under current policies could be substantially reduced if we set out to do so. Our ability to control oil imports through a combination of measures designed to limit demand and increase domestic supply is significant as shown by the maximum and minimum import cases done for the Flanigan work:

Projected Oil Imports

(Millions Barrels Per Day)

	1970	1975	1980	1985
Current Policies  (Maximum Imports)	3.4	9.7	16.4	19.2
Limited Imports  (Minimum Imports)	3.4	7.2	5.2	3.6

Thus, over the near term (through 1975) little can be done to prevent major increases in imports but much can be done to reduce imports beyond 1980.

For example, under the minimum import case, imports as a percent of total U.S. oil consumption drop from today’s 26 percent to 18 percent (compared with 65 percent if current policies remain unchanged).

The broad national security implication of this unavoidable near term increase in imports and of the alternatives we face has not yet been adequately addressed. Until this is done, we have an insufficient basis for making a firm policy decision on many of the issues that must be addressed in the President’s Energy Message and the objective in the message will be to ensure options are kept open. With respect to other issues, policy can be made now with a full appreciation of the national security implication because:

• —We know the national security implications are not significant, or
• —Policies are consistent with a general attempt to increase national self-sufficiency and thus enhance national security without conflicting with economic, political, environmental, or other legitimate concerns.

1. Natural Gas

The natural gas analysis concludes that imports of foreign gas will increase because the supply of domestic gas will not keep pace with growth of demand. This results from government regulation that has kept the price of domestic gas at an artifically low level inflating demand and discouraging domestic supply.

The paper, therefore, recommends that we remove existing price controls and deregulate the price of natural gas. This will stimulate domestic gas exploration and domestic supplies, limit the growth of demand and could result in future imports close to zero.

According to the Flanigan analysis, domestic supply and demand would equalize at a price of about two to three times current prices but still far below the price of expensive Soviet or Algerian natural gas. Thus, the paper argues against importing Soviet or Algerian liquified natural gas at a cost of over $1.10 per MCF⁴ while charging the current low price of only $0.20–0.70 for domestic gas.

The main issues here are economic and political. National security concerns would argue for deregulation and I believe this issue could be addressed in the President’s statement. (Imports of Soviet and Algerian LNG can be analyzed separately.)

2. Outer Continental Shelf

The Flanigan work also recommended that exploration of the outer continental shelf be expanded to increase domestic supplies of both oil and gas. The shelf contains major deposits of both oil and gas and this policy also appears to be consistent with a general policy of limiting future imports.

This issue could, therefore, probably be addressed by the President without further analysis on national security aspects. However, we need to take into account the President’s Oceans Policy which commits us to give revenues from exploration to an appropriate international development agency.

Another issue concerns the bidding scheme to be used in auctioning of the rights—an issue of purely economic interest which I assume does not concern you.

3. Coal

Although the nation’s most plentiful energy source, the use of coal is limited to supplying 18% of today’s total energy needs largely because of environmental concerns centered around strip mining and the Clean Air Act passed by Congress last year. Most available coal has a high sulphur content and, therefore, contaminates the air when burned or can only be mined economically using strip mining.

Thus, the current recommendation is to expand the use of domestic coal by relaxing the enforcement of the Clean Air Act but without violating its provisions or making an attempt to go before Congress to change its standards. This act may limit the use of plentiful high sulphur coal.

You may want to press DiBona on the possibility of pressing for more initiatives which will increase the use of coal perhaps including an administration attempt to change the Clean Air Act or delaying enforcement of standards.

Specifically, you should question DiBona regarding the degree to which national security factors were taken into account in this early analysis and the need to do this kind of broad analysis before a final policy can be announced.

4. Energy Agreements with Venezuela and Canada

The Flanigan analysis recommends that we conclude energy agreements with Canada and Venezuela if the security of U.S. supplies in a crisis can be guaranteed. Progress is well underway with respect to Canada. However, the impact of pursuing such a policy on the other major producer countries or our Allies has not been explored.

The analysis does not consider the impact of such agreements on price, supplies, or the OPEC countries nor the impact of a potential scramble for special relationships with producer countries.

I would recommend that announcements in the President’s message regarding special arrangements with producer nations be limited to general statements to the effect that options are being investigated pending more analysis that will be provided under the auspices of the NSSM you signed last week.⁵

5. Oil Import Quotas

The fifth major issue concerns the mandatory oil import program that was established in the 1950s to provide security of U.S. supplies by limiting imports and encouraging U.S. internal exploration.

Since domestic production is at a maximum, future growth in demand will be met only by increasing imports. The import program appears to be the only tool available to the government, short of rationing, which can deal with the immediate shortages we will face in the next several years and there is very little that can be done over the near term to prevent the needed increases in imports.

Thus, the key and as yet unanswered question is how we can ensure our national security concerns are protected despite these rising imports. These vital concerns should be addressed in the President’s energy statement, if as recommended by the Flanigan analysis, a policy of expanding oil import quotas is to be announced. This is true even if the discussion is necessarily limited. You may want to question DiBona on this.

Other minor issues addressed by the Flanigan work, but only indirectly important in their implication for our national security, include: Energy conservation—which has a critical impact on overall imports; deepwater ports and associated supertankers that reduce the cost of importing large quantities of oil; and, oil shale, energy R&D, nuclear power, and other longer term programs.

All these programs would build long term domestic self-sufficiency and can be discussed in general terms by the President’s statement even though we are not yet in a position to announce detailed policies.

Further Work

A major problem is that we are not yet prepared to treat purely national security concerns in the President’s Energy Message. This will require substantial new work to look into factors such as:

• —The broad implications of unavoidable near term increases in oil imports on (a) our Alliances, (b) the Soviets, and (c) other policies including Israel.
• —The implications of policies that would limit imports compared to continuation of current policies.
• —The likely regional distribution of our future international oil supplies and ways to influence that distribution so that adverse impacts on diplomatic and foreign policies are minimized.
• —The best way to limit control in national vulnerability to boycott or direct attack. For example, under what conditions should we follow a strategy of (a) allowing imports to rise while storing sufficient quantities of domestic oil against the threat of a boycott, or (b) pursue the strategy recommended by the Flanigan analysis of making an all out attempt to limit imports by developing and depleting domestic resources. If the price of imported oil is low, it may be best to import oil and pay for the storage.
• —We need to investigate the likely future actions of the OPEC cartel and how we can best design policies to limit its power. Previous work assumed the OPEC cartel will remain effective and remain capable of keeping international oil prices at 10 to 15 times cost. Opinion is widely divided on the question of whether or not the cartel can continue and some believe as production expands, it could break down with competition leading towards lower world oil prices. This unexamined possibility is critical to the formulation of a sensible energy strategy for the future.
• —How does energy fit into our other diplomatic policies? What can we retrieve in other areas as a result of concessions in this area?
• —Finally, we need to address the impact of Japanese and European energy needs on the Mid-East market and on our overall relations with our Allies. There is no overall analysis of total demand or ways of limiting competition between the U.S. and our Allies for potentially scarce Middle Eastern oil.

The Energy NSSM

In addition to discussing these specific issues with DiBona, you could mention the Energy NSSM you signed last week which has recently been distributed to the agencies. After coordinating within the NSC, I intend to hold a working group meeting Friday⁶ to consider a detailed outline and task the early analysis. You may want to tell Di-Bona that before doing so I plan to meet with him to get his views.

Finally, you may want to question DiBona on the feasibility of delaying the Energy Message until some of the NSSM analysis becomes available in April.

Attached also are:

• —Detailed summary of the issues covered by the Flanigan work which DiBona plans to discuss, Tab C.
• —A copy of the NSSM study directive, Tab B.
• —A brief talking paper, Tab A.⁷

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 250, Agency Files, National Energy Office, Vol. II, March 73–July 73. Secret. Sent for action.
2. On March 14 at 10 a.m., Kissinger met with DiBona and Scowcroft to discuss energy. A very incomplete draft memorandum of conversation is in the Ford Library, National Security Adviser, Memoranda of Conversations, Box 1, March 14, 1973.
3. A paper entitled “Summary of Flanigan Issues and Options Paper,” undated, attached at Tab C, is not printed. Flanigan’s paper was not attached and has not been found.
4. Million Cubic Feet. [Footnote in the original.]
5. Document 171.
6. March 16.
7. Tabs A and B are attached but not printed.