Europe in a scramble to rely on Russian energy

Press, 14 May 1981, Page 24

Europe in a scramble to rely on Russian energy

By

ROBERT MAHONEY

Paris In spite of the cooling in East-West relations since the Soviet move into Afghanistan, Western European nations are competing to grab a share of a multi-billion-dollar gas pipeline project that will increase their dependence on Soviet energy. Japan and the United States are also expected to play leading roles in building the $l2 billion pipeline to bring natural gas from the isolated Yamal Peninsula in northern Siberia to the borders of Western Europe. Washington’s post-

Afghanistan sanctions against Moscow have not stopped a United States company winning a lucratibe order to supply equipment for the scheme, but the main competition is between France, West Germany, Austria, Italy, Belgium, the Netherlands, and Switzerland. These countries. are engaged in what has been described as a “poker game,” vying with each other to provide financial and technical assistance in return for long-term gas supply contracts. The 5000 km pipeline, which should be working by 1986, will carry between 40 and 45 billion cubic metres of. natural gas a year, reducing Western Europe’s dependence on Middle East oil imports.

The “poker game” description, coined by a spokesman for West Germany’s largest gas supplier, Ruhrgas Ag, has been echoed by Western banking sources. Moscow would probably play off French and West German banks against each other in order to get the most favourable loan terms, they said.

But the West is also using the pipeline as a bargaining chip. NATO Foreign Ministers indicated recently that they would consider cancelling the project if the Soviet Union intervened in Poland.

France, which already meets about 15 per cent of its annual needs with Soviet gas, has so far taken the lead in negotiations. The French Government is backing a $3.4 billion loan to the Russians from three French banks to finance buying pipeline equipment. The French State gas authority, Gas De France, plans to buy about 10 bil-

lion cubic metres a year of the Siberian gas, in addition to the four million cubic metres it already buys from Moscow.

Western bankers said the French banks were probably first to clinch a deal because access to Government subsidies for contracts with the Soviet Union might have enabled them to offer lower interest rates than West Germany.

French industry has been quick to take advantage of the credit. A spokesman for the engineering company Creusot Loire said it hoped to clinch a contract worth several million dollars to supply compressor stations for the pipeline. West Germany is negotiating a credit of up to S 5 billion for the scheme, to finance deliveries by German firms of pipeline and allied equipment. Western banking sources said a consortium of 20 West German banks, led by Deutsche Bank Ag, had offered its most favourable terms to the Russians, but they were unwilling to seek Government subsidies to improve their offer. Discussions on the loan would resume in 19SI but the banks were unlikely to accept Government participation other than in underwriting a deal. Ruhrgas wants to buy between 12 and 15 billion cubic metres of gas a year and a group of German companies, led by the Mannesmann steel concern, wants to supply pipes, compressors, and cooling systems. The banking sources said West Germany holds a key position in the success of the project because the pipeline will have to pass over its territory.

The scheme has been attacked by opposition Christian Democrats in West Germany who described it as “using a questionable loan for questionable gas deliveries at a politically sensitive time.” Industry analysts esti-. mate that once the pipe* line is completed West Germany will rely on the Soviet Union for 30 per cent of its gas needs. The Bonn Government, however, has said it has no strategic objections since West German dependence on Moscow for its total energy requirements would remain at what it considers a safe level.

The banking sources said other countries had been awaiting an agreement between France or West Germany before negotiating loans for the project.

A number of these nations have • indicated that they will be seeking gas from the pipeline. Italy’s State-owned Ente Nazionale Indrocarburi, which already buys seven million cubic metres of Soviet gas a year, wants to take the same amount again.

Belgium’s Disrigaz would like five million cubic metres annually, as would the Netherland’s Gasunie. Austria and Switzerland are also negotiating for supplies. Neither the United States nor Japan will take gas from the project but cooler East-West relations have not prevented them looking for a share in the scheme.

In November, the Carter Administration approved a possible billion-dollar sale of equipment by a United States company when it granted the Caterpillar tractor company an export licence to sell pipelaying equipment.