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  4. Document 295

295. Telegram From the Department of State to the Embassy in the United Kingdom1

Washington, January 8, 1981, 2313Z.

5142. Subject: North Sea Oil Prices. Ref: (A) London 119, (B) Kuwait 48.2

1. Embassy is requested to advise HMG at an appropriate level of our continuing concern over oil prices, including those for the North Sea.3 While we appreciate BNOC’s relative moderation, we regret that it apparently feels constrained to match Algeria’s and Nigeria’s $3 increases. We understand that commercial considerations require BNOC and other North Sea producers to relate their prices to those for African crudes, but believe that an increase somewhat below $3 would still meet these considerations while strengthening consumer country efforts vis-à-vis OPEC to slow the oil price spiral. We trust that in any case, the new forties field marker price will not exceed the $39.25 level mentioned in ref A. Many analysts believe the more extreme increases (e.g. Libya) may prove to be excessive if current market conditions prevail.

2. FYI: Our concern over price movements is a general one, and we appreciate the fact that BNOC has not taken the lead in price increases [Page 935] recently. However, we believe that it is valuable to give the British an expression of our continuing concern. It may also be useful in our contacts with certain OPEC countries (e.g. Kuwait) to be able to say that we have expressed concern to the UK about North Sea prices.4

Muskie
  1. Source: National Archives, RG 59, Central Foreign Policy Files, D810011–0674. Confidential; Immediate. Drafted by R. Knickmeyer (EB/IEP/EPC); cleared by Bullen and in EUR/NE, EUR/RPE, EB/IEP/ECC, E, and the Department of Energy; and approved by Morse. Repeated Priority to Oslo, Kuwait, and Jidda.↩
  2. In telegram 119 from London, January 5, the Embassy reported that the British National Oil Company made its quarterly adjustment in the price of North Sea crude oil, which, effective retroactively to January 1, was “likely to settle at $39.25 per barrel,” a $3 increase. The Embassy added that the British Government and the BNOC “waited to move until the post-Bali price conduct of West African light crude producers became apparent,” including Libya’s $4 increase to $41 per barrel, Nigeria’s $3 increase to $40 per barrel, and Algeria’s $3 increase to $40 per barrel. (Ibid., D810007–0113) In telegram 48 from Kuwait, January 6, the Ambassador commented: “If British National Oil Corporation makes quarterly upward adjustment in price as indicated in reftel, I hope Department will express same public and private criticism that price increase is not justified as it has to OPEC governments for price decisions taken at OPEC meetings.” (Ibid., D810007–0077)↩
  3. The Embassy in Oslo was instructed to take the same approach with the Norwegian Government. (Telegram 6139 to Oslo, January 9; ibid., D810012–1137) Embassy officers met with Johan Nic Vold, Deputy Director General of the Energy Policy Department of the Ministry of Petroleum and Energy, who promised to bring the views of the U.S. Government to the Minister of Petroleum and Energy. Vold stressed that Norway’s overall interests placed it in the ranks of “nations which favor oil price moderation,” but added: “At the same time, given present private nature of Norwegian oil trade, GON had little ability to restrict private firms from acting with a maximum of freedom in a market whose terms of reference are heavily influenced by the African producers.” (Telegram 274 from Oslo, January 19; ibid., D810027–0875)↩
  4. The Embassy in London replied that it had previously “urged HMG to use as much price moderation as possible,” and did so again using the arguments provided by the Department. It concluded: “To review, the ability of HMG and BNOC to maneuver is limited by the existing mandatory participation agreements. These are a legacy of the former Labor government, but they are continued under the current government and will also be a feature of contractual obligations for oil discovered under current exploration licensing rounds. They enable BNOC to pre-empt up to 51 percent of all oil produced; in return, BNOC is obligated to pay the companies market prices for the oil. If BNOC does not, the companies can go to arbitration.” (Telegram 609 from London, January 12; ibid., D810016–0197)↩