A Soviet Pipeline to the West

By Alexander Taylor

Siberian gas to warm Europe causes some shivers

The Yamal Peninsula is a barren stretch of perpetually frozen soil that extends like an icy finger from Western Siberia about 400 miles toward the Arctic Ocean. Temperatures fall to -60DEG C during the nine-month-long winter, and the only inhabitants are a few Russians and Mongolian reindeer herders. During Stalin's reign of terror, the Soviet Gulag penetrated the region. Beneath tundra and scrub forests lie the world's largest untapped, proven reserves of natural gas, estimated to total 26 trillion cubic meters.

Last week the Yamal gas reserves were the subject of intense negotiations in Paris, Brussels and The Hague, and of high-level worries in Washington. The Soviet Union has proposed building a natural-gas pipeline from the remote Siberian peninsula, 3,000 miles across the heart of Central Russia to Western Europe. Its partners in the project are to be the major Continental countries. They will lend the Soviets $10 billion to $15 billion to cover the entire construction cost of the project, and provide their best technology and equipment in return for a supply of 40 billion cubic meters of natural gas annually, starting in 1986 at the earliest.

The deal represents the largest commercial transaction in history between East and West and a technical challenge of unparalleled magnitude. It also raises anew questions about Europe's dependency on Soviet energy and the dangers of business arrangements between Communist and Western countries.

The daunting climate, the remoteness of the location and the size of the undertaking will make this one of the most complex engineering projects ever undertaken. In the harsh winters of the Yamal, roughly 150 miles above the Arctic Circle, rubber turns as hard as armor plating and steel rods snap like peppermint sticks. The permafrost is so thick during most of the year that the toughest of excavating equipment must be used to break through it; yet in summer the ground can turn into a quagmire that blocks both man and machine.

The Soviet plan calls for the construction of either two small pipelines or one single line of high-tensile steel pipe perhaps 5 ft. in diameter. Some 40 large compressors will be required to pump the gas from the wellheads to a terminal in Waidhaus, West Germany. Says Heinz Durr, chairman of AEG-Telefunken, the big West German firm that may supply the compressors: "Even the American experience with the Alaskan pipeline, which is only one-quarter as long, is nothing compared with what we face here."

Lacking the machinery and the experience to build the project on their own, the Soviets have been seeking out Western contractors and suppliers, who are only too eager to help. The steel mills of Western Europe are now operating under capacity, and large manufacturers like Mannesmannroehren-Werke see big profits from the sale of expensive gas pipe. Two American firms are also looking for a share of the construction contract: Caterpillar Tractor hopes to get as much as $1 billion worth of business for road-building and pipelaying equipment, and International Harvester sees potential sales for compressor-station components.

Financing the huge deal has become an even more difficult task than engineering it. For the past 24 months, Yuri Ivanov, head of the Soviet Foreign Trade Bank, has been canvassing financiers from Tokyo to Duesseldorf and Paris for loans. Already, a consortium of 20 West German banks has been assembled to provide $5.2 billion, and a group of French banks is expected to contribute $4 billion. But Ivanov is a hard bargainer. He is willing to pay only 7.75% interest over ten years, while the current market rate for such loans is 9.75%, and the term is customarily 8 1/2 years.

The Soviets, though, are in an extraordinarily, strong bargaining position. Western Europe, which imports about 50% of its total energy supplies, badly needs the new fuel, even though it would increase its dependence upon the Soviet Union. For instance, West Germany, which already receives 12 billion cubic meters of gas annually from the Soviet Union, would get an additional 12.5 billion cubic meters from the new pipeline. That would represent 30% of its projected total gas consumption in 1986. France, which proposes to take 10 billion cubic meters from the new line, would be receiving 30% of its gas from the Soviets in five years. Overall, Western Europe would get close to one-quarter of its natural gas from the Soviet Union after the pipeline is built, as compared with 9% in 1980.

Such dependence makes many Western observers uneasy. Only last fall, a Soviet trade official at the Hanover Fair in West Germany was heard to threaten to halt existing gas deliveries if the West Germans failed to be "cooperative" in opposing Western trade sanctions against the Soviet Union following its invasion of Afghanistan. The Frankfurter Allgemeine Zeitung recently wrote in an editorial that it would be wiser for West Germany to build four additional nuclear reactors, which would provide an equivalent amount of energy at the same price as the Soviet gas deal.

The Yamal pipeline arrangement has drawn criticism in Washington. Reagan Administration officials warn privately that the pipeline is an enormous security risk. Says one Energy Department official: "We think it will be very unfortunate if the net overall European dependence on Soviet energy increases as much as it probably will when the pipeline is complete." A report by the Senate Energy Committee warned last December that the pipeline could split the NATO alliance because it would reduce Western European resistance to Soviet pressure. The report concluded: "The U.S.S.R. can strengthen its economic influence over the West and reduce cohesion among the U.S. and its allies on political, economic and military matters to the extent that it can increase its gas exports to Western Europe."

There is no doubt that the pipeline will help efforts by the Soviets to tap their own energy resources and ease any future fuel shortages. Soviet oil production has been growing more slowly in recent years, and some Western experts predict that the country might become a net importer of oil by the mid-1980s. The pipeline will alleviate the situation by sending gas to the Soviet Union's more populated regions like Minsk.

The pipeline will provide many other benefits for Moscow. Once the Soviets have paid off the loans made to finance its construction, within eight to ten years, gas sales to the West will supply badly needed foreign currency. The pipeline will also furnish the infrastructure for the overall development of natural-gas fields and oilfields in Siberia, where progress has been stunted because of the region's remoteness and hostile climate.

Western European countries have been buying gas from the Soviet Union since 1974. The flow of gas has been interrupted only during peak winter months because of "technical reasons," according to the Soviets. European experts tend to believe the Soviets on this point and feel that they have little to fear from future cutoffs of the new pipeline. The Soviet Union is considered a far more reliable supplier of natural gas than Algeria, Nigeria, Iran and other potentially large suppliers. Said Count Otto von Lambsdorff, the West German Economics Minister: "I have complete confidence that the Soviets will fulfill their responsibilities."

A number of steps that could reduce the exposure of Western Europe to the threat of energy blackmail are now being discussed. Storage caverns like those in Italy could be filled as a security reserve. Production in some currently producing gasfields in The Netherlands might be cut back to retain the fuel for emergency use. Factories and generating plants could be fitted with dual-capacity burners that would use both gas and oil. Joseph Nye, a Harvard government professor who has closely studied the pipeline deal, says that if such steps are taken, "energy dependence would not necessarily mean vulnerability."

Western Europe clearly faces the frustrating choice of dependence upon unstable Middle East supplies or questionable Soviet ones. Says British Energy Expert Jonathan Stern: "Western critics simply don't acknowledge the realities of Europe's energy dilemma. Europe is a big net energy importer, and it has to get its fuel some place." Given that situation, the West European decision seems unavoidable. -- By Alexander Taylor.

Reported by Gary Lee/Washington and Bruce van Voorst/Brussels

With reporting by Gary Lee, BRUCE VAN VOORST

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