YAKUTSK NATURAL GAS

Created: 2/23/1977

OCR scan of the original document, errors are possible

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Chairman of tho US Maritime Commission

Lines Overview US and Japanese2 in Lhe development of the Yakutskakhalin natural gas and oil fields.

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MEMORANDUM FOR: Mi Oi

Analysis Federal Maritime CcrTaission

Attached, per your request, are several items for use in tho preparationriefing package for the Chairman of the Maritime Commission.

Of fits;tJJtRTiuc Ktsearoi

February

7

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Yakutsk Natural Gas

oscow proposed that the US and Japan participate in development of Yakutsk gas reserves in East Siberia. El Paso Natural Gas, Occidental Petroleum, and Bechtel Corporationonsortium on the US side. Initial discussions envisaged development costs5 billion for exploration, constructionipeline from the Yakutsk deposits to the port of Nakhodka, gas liquefaction facilities at Nakhodka, andNG tankers to transport gas to Japan and to the US west coast. These costs were to be repaid by delivery ofillion cubicay of LNG to each country forears.

Progress on the Yakutsk LNG project has been slow, largely because of the lack of US Eximbank credits and uncertainty about US energy import policy. Eximbank legislation passed5 limits total credits for Soviet energy projectsillion. US government approval for the project has been sought by all parties, but has not been granted. Japan has been reluctant to undertake the project without US participation.

Proved reserves at Yakutsk are not adequate to support full development, so that further exploration is needed. The exploration was originally to0illion to be supplied by the Soviets0 million each from the US and Japan. The Soviets subsequently decided thatesult of exploration progress they had already made,illion each from Japan and the US would be required. Loans were extended by Bank of America and Japanese banks in The Soviets accepted bids forillion in equipment needed for exploration late last year. No contracts are known to have been let, but US firms will likelyubstantial portion of the equipment.

Once the equipment is purchased, the field survey willears. Thus, it is likely that sufficient information too-ahead decision on Yakutsk will not be available0 at the earliest. At that time, Tokyo will have tolear idea of the US role in the project in order

to decide whether or fjtrc toCHS'US accepts large role, then Japon will likely push ahead with the project. If Japan finds that it must undertake the project alone, it may decide to reduce the scale of the project or scrap it altogether. If the decision is affirmative, several years of planning and construction will bo required, so that the project probably will not be completed before thet the earliest.

UUNrNEffTTAT

Sakhalin Oil and Gas

Discussions between the Soviets and Japanese concerninq exploration and development of gas and oil reserves in the Sea of Okhotsk off Sakhalin Island began In January5 an agreement was initialed for joint exploration by the Sovietsonsortium called the Sakhalin Oil Development Company (SODECO). Gulf oil Corporationmall equity share in SODECO; the rest of the members are Japanese firms.

SODECO agreed to0 million in credits to the Soviets to finance exploration costs, constructionhore base, and purchase of Japanese consumer goods to be sold in the USSR to cover local Soviet costs. SODECO is to be repaid by exports from the oil and gas produced. If deposits located are not adequate, the credits need not be repaid.

If and when the parties involved decide to develop the reserves, Japan will provide on credit the equipment necessary to achieve full production. These credits, valued at someillion,would be repaid by oil deliveries for ten years. SODECO would also be granted an option tof Sakhalin oil production for ten years after the credit is repaid. The oil exported to Japan reportedly will beubstantial discount from OPEC prices.

Western offshore technology is essential to the Sakhalin project, but for security reasons Moscow has strictly limited the number of foreigners permitted in the area. esult, most of the exploration work is being done by Western-trained Soviet crews on ships leased from the West. In6 two Japanese ships and another leasedrench firm conducted geophysical surveys of the Sea of Okhotsk. Full-fledged exploration will begin when the ice melts this April. OffshoreS offshore drilling company, and Japan Drilling have been retained by SODECO to train twenty Russian technicians to operate offshore drill rigs. They hope to drill two or three test wells this year.

The US role in Sakhalin has been small. After joining SODECO, Gulfikely choiceajor role in the exploration. However, negotiations with the Soviets fell through, and Gulf has apparontly shown little interest since. The prospect is that Sakhalin will continue aaapanese-Soviet deal. The US advantage in offshore technology, however, should guarantee that US firms willood share of the equipment for the project.

Results of the survey work completed last susaser are not known, but some US experts believe thattudy of the petroleum geology of tho area, the reserve potential is far too low to interest any major Western oil companyrofitable venture. Soviet geologists, however, have estimated potential oil reserves offshore from Sakhalin under water depths upeters atillion barrels. Although the Soviets and Japanese both seem anxious for the project to progress, significant production will probably not begin before the.

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Original document.

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