Pipeline for Western Europe

Go-ahead for the biggest East-West deal ever

Two days before Soviet President Leonid Brezhnev flew to Bonn last week for talks with West German Chancellor Helmut Schmidt, officials of Ruhrgas A.G., the major West German natural-gas company, gave a boost to the meeting by signing a 25-year agreement for the annual purchase of 10.5 billion cubic meters of Soviet gas.

That accord is part of the largest commercial deal ever made between East and West: an estimated $15 billion plan to construct a 3,000-mile gas pipeline that will stretch from the icy reaches of Siberia to the heart of Western Europe. The venture is basically a pipeline-for-gas swap. The West will provide the materials and technology to build the structure in exchange for the huge quantities of natural gas that the pipeline will carry.

Under both President Reagan and his predecessor Jimmy Carter, the State Department argued that once the pipeline entered service in 1984, Western Europe would become vulnerable to threatened Soviet gas cutoffs. Moscow will eventually be shipping 40 billion cubic meters of gas annually to Western Europe, or about one-fourth of the area's estimated natural-gas needs. Warned Assistant Secretary of State Robert Hormats: "In the past, the Soviet Union has used energy exports as a political lever, interrupting supplies to Yugoslavia, Israel and China, among others." Only last month, Myer Rashish, the Under Secretary of State for Economic Affairs, trekked to Europe for some last-minute lobbying to block the deal.

But Europe did not take seriously American concerns for its security and pointed out that the Soviet Union is unlikely to be a less reliable supplier than the Continent's other potential suppliers of natural gas, which include Algeria, Iran and Libya. Most of Europe's natural gas now comes from the North Sea. For years the Soviet Union has already been the main natural-gas supplier outside Western Europe.

The U.S. argued that Europe could meet its energy needs by increasing use of nuclear power, Norwegian gas and U.S. coal, but the Europeans maintained that such alternatives were not available. Opposition to nuclear energy is widespread in Europe; Norway has been slow to develop its natural-gas potential; and the U.S. does not have the capacity to ship enough coal to Europe.

In addition, the Soviet agreement means more jobs in Western Europe at a time when unemployment is 8.8%, the highest level since 1946. The contract will result in work for thousands in Europe's depressed engineering industries. In France, the newspaper Le Monde observed: "The American arguments would have carried more weight if the U.S. had adopted a more responsible attitude on energy pricing; if several years ago they had developed the means to export their abundant coal reserves; and if, finally, Mr. Reagan had not in the name of the sacrosanct laws of the market, compromised the financing of synthetic fuels on the grounds of profit."

Europeans have been pursuing other parts of the agreement in recent weeks. Gaz de France, the French government-owned gas company, has reportedly signed up for 7.8 billion cubic meters per year. Italy, The Netherlands, Belgium, Austria and Switzerland are also expected to buy large amounts of gas from the pipeline. Contracts worth about $1 billion for the construction of compressor stations have been awarded to West German and French firms. Still to be negotiated are the contracts for 3.25 million metric tons of steel pipe worth more than $2 billion.

In Washington, officials had little alternative but to swallow hard and accept their policy defeat. The U.S. was able to take some comfort in the fact that American firms will also benefit from the project. About half of the compressors used to propel gas through the pipeline are of U.S. design, and all of the 125 turbines driving them will be built by European firms under license from General Electric. In addition, the Soviets have decided to buy the equipment that will haul and lay the heavy sections of 56-inch pipe from the Caterpillar Tractor Co. qed

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