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JL 1 weapon system doesn’t have to be seen to be believed. Just as chemical and biological devices were an insidious threat during World War II, and control of the weather could be a weapon system of World War III, the United States ought to begin thinking about oil—specifically Middle East Oil—MEO—as a potential weapon system which someday soon might be zeroed in on our economic heart. For, as things now stand, if we were deprived of this vital source of energy, many, if not most, of America’s wheels, gears, and bearings would soon stop turning, and U. S. industry would be brought to a standstill.
Such a weapon need never be triggered, Ploesti-style, to deny our access to petroleum sources. Eminently more effective and desirable for those who do not wish America well would be the development of an MEO "weapon,” not by acquiring control over the oil fields, but by acquiring control over those who control the fields. In the name of such "friendships,” then, it is conceivable that the United States could find itself cut off from the flow of Middle East oil with the same results the hard-hat diver would experience if cut off from the flow of air from the surface.
An unlikely prospect? Consider the events of the day; the options open to this nation; the actions underway and the additional measures required to ensure the availability, someplace, of an energy source to replace the one that is as increasingly vulnerable as it is vital.
The growing dependence of the United States on Middle East oil threatens to upset the delicate power balance between the superpowers. The current trend of steadily increasing oil imports will reach a critical level of dependence at some time in the near future. The critical level of dependence might be broadly defined as that level of oil imports which, if denied, would seriously threaten U. S. national security. Concurrent with this growing dependence on Middle East oil imports is the emergence of the Organization of Petroleum Exporting Countries (OPEC). The OPEC was formed by the Middle East oil-producing countries to develop common policies in order to deal collectively with the International Petroleum Industry and the customer countries. The OPEC has recently supported Libya and Iraq in nationalizing foreign petroleum holdings. These and future actions are traceable to the
knowledge that world demand is increasing faster than supply, and confidence on the part of the OPEC that their collective and growing foreign exchange reserves are sufficient to withstand the loss of any national market indefinitely. The OPEC has become a vehicle for common action, steadily increasing in sophistication, strength, and influence. In addition to oil, the OPEC countries have as a strong common bond an enmity to Israel that has not been mitigated by the growing presence and influence of the Soviet Union in the Middle East.
The implicit threat in the existence of the OPEC’s capability to interrupt vital oil supplies covers a wide scope of potential applications. Intimidations might range from subtle pressure for a specific position at an international conference, to overt pressure for withdrawal of support of Israel or even a deliberate effort to reduce the capability of the United States to support superpower status. The issue is not the level of probability that such actions would ensue but rather the level of U. S. vulnerability to such action; not the OPEC intentions, but its capability.
The threat to our national security inherent in interruption of oil imports is a function of the degree of dependence on that source. The point in time and the import level at which a critical level of dependence is reached is imprecise. A starting point for the level of imports above which dependence becomes increasingly critical might be the oil import quota system introduced by President Dwight Eisenhower in the 1950s as a national security measure. It restricts imports from overseas to 12% of domestic demand. In 1970, the United States imported 23% of the 15 million barrels per day consumed—approximately one-third from overseas. In a report to the Secretary of the Interior dated July 1971, the National Petroleum Council estimated that oil imports will reach 7.3 million barrels per day by 1975, and 10.7 million barrels per day by 1980, 39% and 47% respectively, of the total domestic demand. Projections are subject to error and the government has available a number of compensating actions to affect both domestic production and consumption. The net effect of both projection errors and these types of actions available to the government, would be relatively small in view of the very large volume of oil required, possibly deferring critical dependence for a year or two. It appears reasonable to assume that a continuation of the trend to increased imports will lead to a critical level of dependence in a national security context within the 1975-80 period. There are a number of broad options, each with its proponents, which might be considered to improve the security of the national energy base and to defer, limit, or counter
the threat. For example, the United States might:
► Continue to raise oil import quotas only as necessary to supply fuel demands above domestic production. This is our current policy. The quota system tends to hold up the price of oil and encourage domestic marginal production and exploration for new fields. Proponents point out that the production from marginal producers and the domestic exploration effort could be increased by an arbitrary increase in oil prices. A modification to this option which has been proposed is to stockpile a six months’ supply of imports. The stockpile and strict rationing could tide us over a temporary interruption of imports. However, construction and maintenance of storage facilities would cost billions of dollars and would present severe siting problems. The national security risk is played down by international oilmen who point out that the Middle East producers are not monolithic. Kuwait, Saudi Arabia, and Iran (a non- Arab state) are conservative and not likely to join the more radical states in an oil cut-off. Implicit in this assessment is the assumption that the character and make-up of the conservative governments will not change. The continuation of present policies does not require difficult political decisions or immediate large scale expenditures—unless stockpiling is adopted. Growth of imports will, however, create an increasingly serious balance of payments problem, estimated to approach $15 billion per year by 1980. Continuation of the present policy accepts the national security risk inherent in critical dependence on imports.
► Reduce energy consumption. The belief that the era of low-cost, plentiful fuel is ending is widely accepted. Fuel prices, relatively stable for some years, are projected to increase at a high rate. Increasing worldwide consumption and the resulting competition for fuel supplies is creating a seller’s market. Higher prices to some extent will slow the increase in consumption, and keep marginal oil and gas production on-line. A further reduction in consumption could be achieved by heavily taxing such items as horsepower and weight of cars, electric consumer goods, and home heating energy; and as a last resort, by rationing. If these measures are imposed, critical dependence on offshore oil imports would probably be deferred, at least for the next fesv years. The concurrent reduction in jobs, the economy, and the standard of living makes this option unrealistic until such titne as the public is fully convinced that a crisis is imminent, and then it only defers the danger point.
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► Seek alternative energy sources. The substitution of other fuels for oil under present usage patterns is limited to residual fuel which approximated 15% of the total oil demand in 1971. Owing to shortages in gas, projected to increase, and the environmental pressures
Middle East Oil: The Subsurface Weapon 21
on coal use, the consumption of residual oil is increasing. A review of other potential energy sources suggests that a massive effort would be required to ease the dependence on oil even by 1985. Nuclear power, oil shale, synthetic oil and gas from coal, and coal with reduced sulfur-dioxide output are candidates. In each case, the basic resource is domestically available. However, development of the necessary level of output, the solution to severe technological problems, and the fundamental changes in user patterns necessary to markedly reduce dependence on oil is optimistically estimated to require 10 to 15 years.
► Diversify foreign dependence. Worldwide oil exploration is continuous. Promising new finds have been reported recently in Indonesia, Latin America, West Coast of Africa, the Northwest Atlantic, and the North Sea. At the same time, demand in the rest of the world is increasing more rapidly than in the United States. The possibility is extremely remote that sufficient proved reserves from these locations will be located to reduce effectively primary dependence on Middle East sources. Even if discovered, development will be responsive to the host nations’ needs and objectives. The severe balance of payments problem would remain.
► Increase domestic production. Here the trend has been a steady decline in proved domestic reserves. Production controls for many years have held annual production in most domestic fields to less than maximum output. In 1971, for the first time, a number of major fields were unable to produce at the allowable level, resulting in a shortfall of approximately 500,000 barrels per day. There seems to be a general consensus in the oil industry that unless drastic changes are made in exploration efforts, domestic production of oil will remain below 1971 levels. Producers take the position that removal of price controls on gas and an arbitrary increase in oil prices would generate increased exploration and discovery. However, even proponents of this proposal suggest that discoveries sufficient to do much more than maintain current levels of production are extremely unlikely in the continental United States. They believe a major effort is necessary to stay where we are. More promising is exploration offshore on the continental shelf, including additional areas in the Gulf of Mexico, as well as the East Coast. Information on the estimated potential of these two general areas is skimpy. Based on'the current level of activity and the lack of pressure for drill permits, at least on the East Coast, it appears that the potential, while fair to good, is not sufficient to generate more than modest activity. Investment will obviously await the several years necessary to develop more positive information. An immediate concentrated effort would probably defer critical dependence on imports for a few years.
► Increase the rate of oil development and production of Alaska and the Arctic. There is evidence that Alaska and the Canadian Arctic including associated offshore areas have potential oil and gas reserves comparable to those in the Middle East. The 10-billion-barrel Prudhoe Bay oilfield is a measure of this promise. In addition, the billion-dollar lease sale subsequent to discovery of Prudhoe Bay oil indicates an industry-wide belief in this promise. Assuming that the potential oil reserves are present, the cost of discovery and development of production levels and transportation systems, sufficient to prevent critical dependence on imports from the Middle East, possibly is beyond the financial resources of the oil industry, even if it were so inclined. The normal orderly sequence of exploration, discovery, development, and marketing would not permit the timely production of Alaskan oil. Foreshortening the process increases the already high risk and cost of the major effort which would be required to put Alaskan oil on stream in time to prevent critical dependence on Middle East oil.
In assessing the options available, there seems to be no attractive choice. If events are allowed to follow a natural course, the United States will almost certainly face an eight- to ten-year period beginning in 1975-77, of critical dependence on Middle East oil. Alternative fuels and substitutions cannot reduce this dependence much before 1985, and even then only if a number of early decisions are made.
There are a number of actions, politically difficult, which might defer critical dependence for a one-to- three-year period, but which in themselves would not materially change the dependency situation. There remains the uncertain, high risk and costly option of an all-out effort to discover and develop additional domestic reserves in Alaska. The national security of the United States then appears to depend on either a successful Alaskan effort or on maintenance of the goodwill of the OPEC, this in the face of steadily increasing Soviet influence in the area.
An examination of the probability of a successful all-out program to develop Alaskan oil as an alternative to critical dependence on the goodwill of the OPEC depends on a number of uncertainties. Initiation of the program would require the following optimistic assumptions: that sufficient recoverable oil is in the area; that existing technology is adequate to explore for and develop production, including those reserves which may be in the offshore ice environment; that sufficient trained personnel for exploration and development can be made available; that an adequate transportation system can be developed; that adequate financial resources are available; that an acceptable level of envi-
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Most technological problems that occur in an Arctic emironment can be overcome. A Sikorsky Skycrane, for example, can transport half a garage, weighing 12,500 pounds, and entire rigs from one drilling site to another; giant cranes and a pair of boats can be winterized to await the summer thaw; and pipes used in oil rigs can be de-iced by steam. But finding and applying solutions to the problems inherent in prying black oil out of the white wasteland are both costly and time-consuming.
ronmental protection can be achieved; and that these conditions can be met in the available time frame.
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The first of these assumptions is the major gamble. Information which would reduce the risk to a normal investment decision is not available. Surveys of the potential oil-producing areas are spotty or nonexistent. Much of the limited information compiled is proprietary and closely held. On the other hand, the one- billion-dollar lease investment subsequent to the Prude- hoe Bay discovery is witness to the belief by the industry that important additional reserves are in place. A recent strike 50 miles south of Prudhoe and a series of oil and gas strikes in the Canadian Arctic from the Mackenzie River Delta to Ellsmere Island near Baffin Bay support the theory that the North American Arctic Basin has vast potential oil and gas reserves. There are other pieces of evidence which are promising. The fact remains, however, that existing evidence and that which could be developed within the available time frame is insufficient for a normally prudent investment decision.
The assumption that current or near-term technology is adequate to achieve the needed production level if the oil is available might be classed as reasonable. Some advances and new techniques have resulted from the limited experience in connection with the Prudhoe Bay and other Arctic activities. However, until production
and delivery of North Slope oil is actually in progress the technological problems yet to be met could prove costly and time-consuming. If the level of oil production needed requires offshore drilling in an ice environment, the odds on difficult technological problems increase.
The assumption that sufficient skilled manpower cache made available is marginal. The manpower pool is limited and more or less fully employed. Diversion of a major sector of the exploration and drilling industry' augments the risk that incremental increases to domestic reserves may be delayed in the process and reduce the time when a critical level of dependence on foreign imports is reached. In effect, sufficient manpower would be required to compress 15 to 25 years of normal exploration and development into three to five yearS'
A transportation system to deliver oil to the continental United States, next to the actual discovery of oil, is probably the key to a successful venture. The assumption that an adequate transportation system can be developed is clouded by the as-yet-unsuccessful effon to build the Alaska pipeline. Even when completed, the pipeline will deliver in the neighborhood of onl)' 600,000 barrels per day. Additional pumping station* are planned and these could raise its capacity to two million barrels per day by 1980. The competitive proposal for a Canadian pipeline down the Mackenzie
Valley is limited to a comparable volume. The decision to select the pipeline system for Prudhoe Bay rather than the alternative icebreaker tanker system appears to have been based on a number of factors. Cost estimates for a two-million-barrel-per-day delivery system were $900 million for the pipeline versus $1.2 billion for the icebreaker tanker system. The pipeline cost has since ballooned to approximately $3.0 billion for 600,000 barrels per day throughout. The estimated time required to complete the system was somewhat in favor of the pipeline. A potential controversy with Canada over use of the Northwest Passage also weighed against the icebreaker tanker system. Probably the clinching factor was management’s confidence in established pipeline technology in contrast to the partially developed technology for the icebreaker tanker system, including the difficult offshore loading facility. Finally, the decision was made in the framework of prudent, sequential, and long-range development of the Alaskan oil fields, with little sense of urgency.
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Middle East Oil: The Subsurface Weapon 23
There is considerable confusion concerning the feasibility of an icebreaker tanker system. Typical is the unsupported conclusion in the Department of Interior environmental impact statement on the Alaska pipeline that an icebreaking tanker system is not technologically feasible. On the contrary, the evidence, while not conclusive, supports the opposite point of view. The two Arctic cruises of the SS Manhattan in 1969 and 1970 were experimental to demonstrate the feasibility of tanker operation in the ice and to gather design data for an icebreaker tanker.[1] The Manhattan was in effect a halfscale model of the eventual design under consideration. Handicapped by propulsion deficiencies—a geared turbine plant with limited power and completely inadequate backing power—as well as a hull modified but not designed for ice operations, she successfully completed both missions. True, her hull was holed in an unreinforced section by a large bergy bit in essentially open water after completion of her primary mission. In the opinion of the project managers, this damage, while unfortunate, did not affect the conclusion on feasibility. Further work on design of a prototype has been temporarily shelved by the parent company pending future need. This decision was apparently based on the belief that the pipeline would be adequate for the sequential development of Prudhoe output until further fields in Alaska were discovered and developed.
The national security goal of a secure domestic energy base will require the capability to transport approximately six million barrels per day within the next
five years. The need is projected to increase 4% to 6% annually. The flexibility inherent in a tanker system would appear to have a number of advantages over the more rigid pipeline in view of the uncertainty as to location and production volume of yet undiscovered resources. A pipeline must be fully completed before it transports while a tanker system can start production upon completion of the first unit. Incremental increases of system capacity can be readily added by building additional ships. The risk in simultaneously building a transportation system based on tankers while still exploring for and developing oil resources is somewhat offset since, eventually, oil is almost certain to be discovered somewhere in the Arctic.
National security is not a corporate responsibility of the petroleum industry and is not a sufficient reason to make the high-risk, multibillion-dollar investment required for the scope of effort under discussion. Thus, any action along these lines would require federal financing. Such government financing, while unusual, is not without precedent. British Petroleum, for example, is 50% government owned; the original investment was made by the British government in response to a national security need when the British Fleet shifted from coal to fuel oil. Pan Arctic, a consortium 49% owned by the Canadian government, was established to explore for and develop oil and gas resources in the Canadian Arctic. Both governments made major capital investments to speed up a process in which normal, sequential, private development could not meet important national objectives. The United States has a similar
but more critical problem; the national security requirement for a secure energy base cannot be met, within the time frame available, by dependence on the resources and initiative of private industry. A federally- owned U. S. oil corporation or some form of public or private corporation would be required to meet the national security objective.
Environmental protection is a major problem in any human activity in the Arctic. A concentrated effort in lieu of gradual exploration and development increases the likelihood of environmental damage. Even with the most vigilant and carefully planned program, accidents will occur. Transportation is generally recognized throughout the petroleum industry as the major source of pollution and environmental damage. The probability of transportation accidents resulting in environmental damage is possibly higher in the Arctic than in the more temperate zones. The environmental risks inherent in pipelines have been thoroughly aired in the Alaska pipeline hearings. The environmental threat of
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tanker operations has not as yet received similar in- depth treatment. There is a tendency to refer to the Torrey Canyon and dismiss tanker operations as too risky.f The limited evidence available, however, suggests that a major tanker spill may be easier to handle in the Arctic than in the open sea. A series of tests with Prudhoe Bay oil in 1970-71 in the Beaufort Sea suggests that heavy ice acts as a containment boom and prevents the rapid spread of oil. Even at the low temperatures of the Arctic winter, pooled oil can be burned with a small residue of inert carbon, if reasonably early—one to two days—ignition action is taken. Equally important in the risk analysis is the built-in protection of the hull strength of the icebreaker tanker. Almost certainly in addition to the heavy plating, an Arctic icebreaking tanker would be basically a double hull design.
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The environmental threat of tanker operations in the Arctic generated concern in Canada during and immediately after the Manhattan voyages. The Northwest Passage, the tanker route under consideration, is through the Canadian archipelago in Canadian contiguous waters. As a result of this concern, and in the absence of an International Convention, Canada has enacted a statute which in effect sets construction and operating standards for all ships operating within one hundred miles of Canadian territory north of 60 degrees North Latitude. There is a body of opinion which views this action as an infringement on the freedom of the seas doctrine and which believes it inhibits development of a tanker system using the Northwest Passage. Unilateral action by coastal states which depart from traditional concepts in the treatment of foreign flag ships for the purpose of environmental protection, is a growing trend, even in traditional sea lanes. The International Law of the Sea Conference scheduled for 1973 will address this general area. It appears logical to anticipate an accommodation between the domestic environmental protection laws of coastal states and the body of International Law dealing with freedom of the seas. Failing agreement, there remains the negotiation of a bilateral or multilateral agreement, similar to man)' in existence, which reserves the standards and enforce- ment to the flag states.
While only indirectly connected with the purpose of this paper, it is noted that Western Europe faces a similar energy crisis. The vulnerability of'NATO to a selective energy squeeze is readily apparent. The high-energy potential of the Canadian Arctic as a possi- ble alternative source to complete dependence on the
Middle East Oil: The Subsurface Weapon 25
Middle East is equally apparent. The rapid development of Alaskan oil, especially the transportation system, should benefit Canadian development accordingly. A dependable energy base in Canada for the NATO countries would contribute to the security and stability of the Western powers.
Proposal. The United States should establish a U. S. oil corporation with a minimum of 50% federal control, for the purpose of exploration for, and the development and delivery of Alaskan oil. Participation by private petroleum companies and the State of Alaska should be invited, with existing lease holdings being accepted as capital. If we assume the discovery of, and production from, proved reserves equal to Prudhoe Bay in three years and double that eventuality in five, we could develop an icebreaker tanker transportation system to meet that schedule. At first glance, the simultaneous investment in a transportation system might appear foolhardy. However, even when the Alaska pipeline from Prudhoe to Valdez is completed, its capacity will be limited to approximately 600,000 barrels per day until additional pumping stations are added. Prudhoe Bay is estimated to be able to sustain a two-million-barrels-per-day production level. The difference, if the development of the field is expedited, could keep the tanker fleet usefully employed as ships are added. The flexibility inherent in a tanker fleet would permit expansion of capacity, in 18 to 24 months, responsive to needs, once the basic system was established.
The cost of the proposal can be only crudely estimated at this time. Using the 1970 estimate of $1.2 billion for a two-million-barrels-per-day tanker system (including the offshore loading facility) and applying a factor for inflation and uncertainties, a $3.0-billion price for the two-million-barrels-per-day system appears reasonable. A six-million-barrels-per-day system suggests a price of $8 billion since some elements of the original system would not have to be duplicated for expansion. Exploration and development costs might run half of that amount, or about $4 billion. The $12.0-billion estimate is purposely high, but is being put forth to give some idea of the large costs involved.
For comparative purposes, the National Petroleum Council in its July 1971 report estimated that the 1985 oil import needs from the Middle East would require 367 tankers of 250,000 tons. The current quoted price for 1975 delivery is $37 million per ship for a total ship investment of $13.5 billion. The relatively high cost of icebreaker tankers for the Arctic run would be essentially offset by the reduced round trip time because of the fewer number of tankers required. While not bearing directly on national security, it should be noted
that a successful Arctic venture would tend to hold import prices considerably below what they will be if a state of critical dependence is reached. The reduced price would amortize the taxpayers’ investment in a relatively few years. If we add the potential reduction of adverse balance of payments in the order of $15 billion per year, the venture approaches economic justification despite its high risk nature.
In summary, then, the United States is approaching a critical level of dependence on Middle East oil imports. At that point in time, the United States retains its freedom of action at the sufferance of the OPEC. The loss of freedom of action, evidenced by dictated foreign policy or drastic changes in the domestic economy, seriously threatens the national security. The alternative is an all-out drive to establish a secure domestic energy base. Concentration of sufficient resources on Alaskan oil development appears to offer a better than even chance of success in the time frame available.
The energy crisis is an extraordinarily complex problem. Involved are broad economic, social, environmental and political factors normally requiring years to resolve, with the eventual development of a national policy and program. This paper is admittedly simplistic, focusing on the national security aspect only. In view of the inexorable approach to critical dependence on Middle East oil and with recognition of the validity of the national security threat, time does not permit the normal procedure of lengthy study, debate, and compromise. A National Project to achieve a secure energy base by 1976—vital for continued independence—would be singularly appropriate for the celebration of the bicentennial of U. S. independence.
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A graduate of the U. S. Coast Guard Academy in 1937, Captain Cass served in the Atlantic and the Pacific Theaters during World War II. He commanded the CGC Castle Rock from 1953 to 1955, was Liaison Officer to the Chief of Naval Operations from 1955 to 1959, and was Captain of the Port, Los Angeles-Long Beach, from 1959 to 1961. After attending the National War College in 1962, he served in Coast Guard Headquarters as Chief of the SAR Division in 1963; as Assistant Chief, Office of Operations in 1964; and then was Chief of Staff, Seventh Coast Guard District, Miami, Florida, until his retirement. He is now with the U. S. Department of Transportation.