about the present level for the next few years and then slowly decline. Even this prognosis is based on successful implementation of secondary recovery methods, which could add some 25 billion barrels to reserves. Venezuelan concern is reflected in a growing strength of conservationist sentiment, which would slow down production from present fields to stretch out the process of depletion. The Venezuelans would thus hope to take advantage of expected higher market prices. in future years and of the fact that 100 percent of the profits will be Venezuela's after 1983. 31. The Venezuelans are counting heavily on the development of new reserves beyond the present concession and service contract areas to improve their long-term prospects. Though estimates vary widely, some 70 to 300 billion barrels may be recoverable from deposits of very heavy crude oil along the "tar belt" bordering the Orinoco River. Beyond this, though definitive surveys are not available and no firm estimates are possible, the Venezuelans hope for several more billion barrels of recoverable reserves in untapped offshore areas. If proved, the total of recoverable reserves from new areas would be enough to increase Venezuelan production substantially and to maintain it at high levels well into the next century. 32. At present, however, little is being done to develop these potential resources. Although service contracts with three companies have been signed for exploration of the southern half of Lake Maracaibo, two of the companies have already suspended drilling operations after sinking seven dry wells. Unless new arrangements are made to revive investment interest, production in these new areas is likely to rise only slowly and reserve levels will remain low. In these circumstances, there would be a slowdown in the growth of Venezuela's income from oil. 33. There is little indication that the Caldera government, or any likely successor, will come up with dramatic new solutions to reduce significantly Venezuela's dependence on oil revenues for economic development. The results of efforts at economic diversification have so far been disappointing. Primary reliance on the present tax system, which places the largest burden on the oil and mining sectors, will probably continue to produce periodic fiscal crises and generally tight government budgets. Yet enormous sums of money will be needed to expand oil reserves and production beyond present concession areas. In addition, the government has recently assumed full control over The technology required to develop the tar belt is within the present state of the art. If the means of development are made available, and sufficient reserves are found to recover the enormous capital costs required, the total cost per barrel produced would be expected to be much lower than that from most other sources of unconventional oil production, e.g., US oil shales or Canadian tar sands. [Footnote in the original.] the development of a liquified natural gas industry. To finance these projects the Venezuelans will require very substantial new sums of foreign investment. D. Venezuela's Position vis-à-vis OPEC 34. As a founding member of OPEC, Venezuela will continue joint efforts with other producing countries to gain maximum advantage from the rising world demand for oil. Yet the country's dependence on the US market will oblige any Venezuelan Government to shape its oil policies in most respects independently of OPEC. Neither major party is likely, at this stage at least, to want to assume the enormous management or marketing responsibilities involved in nationalization à la Iraq and Libya. Neither wishes to run the risk of economic chaos and, as a possible consequence, a return to military rule by taking over an industry which in any case will revert to the state beginning in 1983. The government would probably be interested in a larger measure of "participation" in the industry along lines being pressed by OPEC Arab countries only if it involved minimal financial investment on the Venezuelan side. But Venezuela's position is one of a bystander with respect to current OPEC negotiations on this subject. 35. Similarly, Venezuela would be likely to try to stay on the side lines in the event of a temporary embargo of oil supplies from the Middle East by the Arab OPEC countries. As a founding member of OPEC, the Caracas Government would feel strong pressures towards maintaining OPEC unity. But its almost total dependence on the US market would enable it to plead special circumstances, and it would probably reject any Arab demands to cut off or reduce its level of exports. On the other hand, the country's dwindling proved reserves, its still strong commitment to OPEC objectives, and nationalist pressures against "selling out" to the companies would make it difficult for the Venezuelans to take advantage of a possible Arab embargo. Though the companies would probably be permitted some gradual rise in production, the Venezuelan Government would probably resist an increase which might be large or rapid enough to offend its OPEC partners. 36. In line with its nationalist aspirations, Venezuela seems in fact to be trying to establish new regional arrangements of its own. At a meeting of major Latin American oil consuming and producing countries called by Venezuela in late August, the Caldera government sought a common regional position on pricing and marketing policies. One objective apparently was to ensure a Latin American market for Venezuelan oil and gas, in exchange for increased imports of nonpetroleum products from other Latin American countries. Little was accomplished along this line, largely because of the conflicting interests of producing and consuming countries. But the participating governments are to consider several measures which might lead eventually to closer coordination of supply and demand and terms of trade for petroleum in the region. Another meeting is scheduled for December 1972. [Omitted here are 7 pages: Section IV, Prospects and Implications.] 144. Telegram From the Deputy Secretary of State (Irwin) to the Department of State1 Paris, October 25, 1972, 0954Z. 20276/Depto 15. Subj: OECD Oil Committee High Level Group Meeting. 1. Deputy Secretary Irwin October 24 gave full review in energy field to OECD Oil Committee High Level Group. He told them USG plans move on several fronts in an effort to begin solving our energy problems early in 1973. Many actions we propose can and will be taken by US acting alone; others must be taken jointly. We consider energy problem so grave that purely national solutions of its many aspects are inadequate and inadvisable even for US and a cooperative approach to problem in next two decades is essential. 2. Irwin described Yamani offer;3 said it undoubtedly has attractions for USG but acceptance of full proposals would be counter to current US practice and policies. US wishes to encourage Saudi investment in US and will inevitably accept more Saudi oil. It does not wish to offer Saudi Arabia, or Iran, which had made similar offer two years ago, preferred positions in US market, although we had not rejected the proposal. US had noted that several countries had suggested similar deals with Saudis and other producers. This caused us concern. For any major consumer to try to secure for itself large segment of available oil, to detriment of other consumers, could launch world on competition cycle for oil which we had long sought to avoid. We had no doubt that we would have some success in such a competition for oil, in that we could secure adequate supplies for ourselves, but we would pay more for that than we might otherwise need, other consumers would be hurt and strains would be placed on our relations with our friends. We would strongly prefer a cooperative approach to the energy problems and we would like to hear expressions from Europeans and Japanese on the subject. 3. Akins had had long meetings with Spaak and Haferkamp in Brussels October 23; told them of Saudi offer (which obviously disturbed them considerably); said we might be forced to enter into relationship with Saudi Arabia and Iran if other countries persisted in trying to sew up supplies for themselves. These conversations were discussed with all Community energy officials (including UK) who met in Brussels later that afternoon and they decided there on common approach. 1 Source: National Archives, RG 59, Central Files 1970-73, PET 3 OECD. Confidential. 2 The text of Irwin's statement to the High Level Group is in telegram 213860 to USOECD, November 24. (Ibid.) 3 See Document 140. 4. At OECD meeting October 24 Spaak spoke for entire Community-and he [and] Haferkamp noted at dinner meeting evening of Oct 24 that this had been an important day in Community history and in Community relations with US. US had urged cooperative approach to energy problems and Community had responded for first time with one voice. Spaak said Community was pleased with US frankness and honesty; was impressed by Irwin's arguments and concurred with his conclusion that problem should be faced jointly. 5. British and Germans gave Spaak strong support and Italians urged quick action to meet problems. High Level Group agreed appoint working group to make quick résumé of energy problems to finish work before March, with High Level Group meeting sometime in February to review conclusions and study means of meeting methods of cooperative actions to meet problem. 6. At dinner meeting with Haferkamp and Spaak we reviewed presentations; Haferkamp reviewed Community policy. Both Spaak and Haferkamp were elated at first formulation of Community energy policy and also pleased with decision to move in cooperation with US to solve problems. Haferkamp said these two steps were "strong medicine and must be taken in small doses" but urged frequent meetings and consultations even before energy résumé completed. He agreed the Community would have to develop specific action proposals and would start working on this immediately. 7. From our point of view meetings successful. European analysis of energy problem is essentially same as ours--and clearly influenced by our work-and Europeans for first time have jointly expressed their desire to cooperate with us on broad front to solve energy problems. They were disturbed by possibility of US sewing up energy supplies for itself and they recognize that such an approach would damage them more than it would us; they were pleased and impressed with our initiatives. The Japanese were non-committal. We are more inclined to view this as usual Japanese reluctance to commit themselves rather than rejection of concept of a cooperative approach to problem. Spaak suggested joint US-Community approach to Japanese to convince them of usefulness of cooperation and dangers of unilateral attempts to cover own energy needs. 8. Full account of meetings follows by airgram." Irwin * In telegram 217867 to Tokyo, December 1, the Ambassador was requested "to call on highest appropriate FonOff official to emphasize importance USG places on Japanese participation in cooperative efforts to insure that future world oil supplies are available in adequate quantities and at reasonable prices." (National Archives, RG 59, Central Files 1970-73, PET 3 OECD) 5 A full account of the meeting is in the official report, entitled "OECD HLG and Oil Committee Meetings, Paris-October 25-26." (Ibid.) |