The President has approved your recommendation of June 25, 1971 and
authorizes you to respond favorably to the Federal Power Commission’s
request for views on applications to import gas from Algeria.
Attachment
Memorandum From the President’s Assistant for National Security
Affairs (Kissinger) to President Nixon
Washington,
undated
SUBJECT:
- Natural Gas Imports from Algeria (El Paso)
Secretary Rogers (Tab A)
recommends that you authorize State to inform the Federal Power
Commission (FPC) that on foreign
policy grounds it has no objections to the approval of the
applications of three U.S. firms to import natural gas from
Algeria.
Issues
There is general agreement that the U.S. will require natural gas
imports from foreign sources to meet future requirements, that U.S.
exports will benefit from the project (Ex-Im has already approved a
preliminary commitment of $256.5 million for construction of
facilities for the project in Algeria), and that it would improve
relations with Algeria while reducing Soviet influence and
strengthening elements within Algeria who favor closer ties with the
U.S. The security risk of depending on foreign supplies is minimal,
since these imports from Algeria represent only about 1.5 percent of
U.S. consumption, a large number of foreign sources are being
actively considered as future sources of natural gas, gas is not
essential to our military machine, and domestic gas by virtue of its
lower price will be favored over foreign gas.
The major issue concerns the question of
Algeria expropriation of foreign property,
both U.S. and non-U.S. After discussing the expropriation problem
with Secretary Connally you directed that we hold up on this
project. However, I now believe that the expropriation issue should
not stand in the way of our approval. Several important changes have
occurred:
- —U.S. Expropriated Property—Algeria
recently settled all expropriation claims with U.S. petroleum
companies. Some smaller claims remain unresolved; but Algeria
has indicated a willingness to settle these claims, making
payments through El Paso revenues.
- —French Expropriated Property—Last
February Algeria nationalized French gas interests, including
part of the field which will be the origin of [Page 3] gas exports to the U.S. In March,
President Pompidou asked
that we take no action that would complicate Franco/Algerian
relations while negotiations for nationalized properties were
under way. In April (Tab B) you replied through Ambassador
Watson that there would be no preliminary Ex-Im Bank commitment
to Algeria for six or seven weeks, that State Department would
have to give the FPC its views
on gas imports from Algeria in response to a standard
requirement of the FPC, and that
we did not expect a final FPC
decision until September. In response, Pompidou expressed
disappointment but made no further request.
- —Since your April message:
- . We have honored our word to Pompidou. (The Ex-Im
Bank preliminary commitment for financing the El Paso
project was not given until more than six weeks after
your message was conveyed to Pompidou, and State believes that the
French are reconciled to Ex-Im’s assisting Algeria with
the project and our importing the gas there
from.)
- . French companies have continued to invest in
projects for new gas exports from Algeria to France and
have continued to import gas into France from
Algeria.
- . Algeria has just completed an agreement settling the
claims of one of the two expropriated French companies,
and settlement with the other company is likely to
follow. (Tab C)
Proposed Scenario
FPC hearings on the applications
will be completed in early July. State therefore must submit its
views as soon as possible, since the FPC staff cannot make its recommendations without them.
Further delay might mean postponement of the FPC decision until after September, in which case
construction costs—totaling more than $1 billion—would increase and
contracts might have to be renegotiated or canceled (cost increases
will ultimately be passed on to U.S. consumers). A delay would cause
serious frictions in our relations with Algeria and might jeopardize
the entire project, which would be a serious setback for our
relations with Algeria.
Because of the progress which has been made in negotiations between
the French companies and U.S. petroleum interests, the expressed
willingness of Algeria to settle with the other U.S. firms, and the
important foreign policy [Page 4]
gains of improving our relations with Algeria, I believe that
Secretary Rogers’
recommendation should be approved. Peter Flanigan and Pete Peterson
concur.
RECOMMENDATION:
That you approve Secretary Rogers’ request authorizing State to respond as soon
as possible to the FPC that it has
no objection on foreign policy grounds to approval of applications
to import natural gas from Algeria.
Approve [Haig signed for HAK
for Pres.]
Disapprove
