205. Memorandum From the Under Secretary of State for Economic Affairs (Casey) to Acting Secretary of State Rush1

    • Meeting of the NSC Committee on International Aspects of Energy

The NSC Committee on the International Aspects of Energy met on Monday, September 17, to review ongoing work related to emergency oil sharing and the Soviet LNG projects. Phil Odeen chaired the meeting.

Emergency Oil Sharing

Work on a possible emergency oil sharing formula is going forward in the OECD. So far there is little agreement. While the US would limit sharing to overseas imports (thereby excluding indigenous production and imports from Canada) Japan is holding out for a formula based on total consumption. The French have come forward with a new “vital needs” approach that would allocate oil supplies on a sliding scale by sectors; their proposal is unacceptable to us because in its present form it gives insufficient weight to the role of the private automobile in US transportation. Except for Canada and Australia, there is little support for the US position from other countries.

The Japanese have suggested bilateral talks with us, possibly before the next meeting of the OECD Working Group (now scheduled for October 11–12), and have spoken in general terms about a possible compromise.

I noted that the Working Group’s mandate very explicitly was to develop options rather than to work out an agreement, which should be settled at a political level, presumably in the High Level Group of the OECD Oil Committee.

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There was consensus that the OECD Working Group will reach an impasse at its next meeting unless the US offers a new approach, but that the reasons for seeking a sharing arrangement among consumers remain valid. There is pressure in the OECD High-Level Group to reach an agreement on sharing before the end of the year. A study group, consisting of Interior, State, Treasury and CIA, is analyzing the entire range of issues, including possible compromises such as an adaptation of the French “vital needs” formula.

Soviet LNG Projects

The meeting then considered the draft interim report on the Soviet LNG projects.2

Present studies seem to indicate that the two gas projects—North Star and Yakutsk—may be marginally attractive, but could also be very expensive in relation to other alternatives. The question of price, therefore, is central. All the present information is based on US company data, and there remains considerable uncertainty about the economic aspects of these projects. (The companies will be assured of a reasonable return as long as high cost Soviet gas can be folded into lower priced domestic gas by local distributors.) Critical also is what kind of assurances the Soviets are willing to provide, that a given price would be maintained.

Some concern was expressed that the negotiations have developed considerable momentum; a critical point will be reached in six to nine months when the consortium for North Star requests a preliminary commitment for ExIm financing. The House Ways and Means Committee appears to have strong reservations about the projects, in view of the very large amounts of ExIm financing involved.

Secretary Shultz and I plan to visit Moscow after the Nairobi meeting. It was agreed that a revised draft of the study should be prepared in time to be available for briefing purposes during our visit there.3

  1. Source: National Archives, RG 59, S/SNSC Files: Lot Files 80 D 212, NSSMs etc., 1/1/69–1/1/80. Secret. Drafted by Ruser.
  2. Not attached. A copy of the draft, entitled “Study of Soviet LNG Projects Interim Report,” September 14, is appended to a September 19 memorandum from Scowcroft to Kissinger, which itemized issues for Kissinger to discuss with Shultz in their luncheon meeting that day. (Ibid., Nixon Presidential Materials, NSC Files, Box 290, Agency Files, US Treasury, Vol. IV, Sept 19, 1973–December 1973)
  3. On February 7, 1974, Flanigan submitted to Kissinger a February 4 study, “Economic Review of Soviet North Star Liquefied Natural Gas Project.” According to Flanigan, the study concluded that it was not economically sensible to continue North Star discussions. Among the reasons cited was that investments in Soviet energy as a “secure” source of supply or in the context of Project Independence could not be justified, and that the United States had cheaper sources of domestic energy. (Ibid., RG 56, Records of Secretary of the Treasury George P. Shultz 1971–74, Box 3, GPS Council on International Economic Policy C–1974) For Project Independence, see Document 237.