INTERNATIONAL ENERGY BIWEEKLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80T00702A001200020005-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 16, 2016
• Document Release Date: September 22, 2004
• Sequence Number: 5
• Publication Date: November 1, 1978
• Content Type: REPORT

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,A' esst", :.,...t
...,.'~` Center
International Energy
Biweekly Review
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INTERNATIONAL ENERGY BIWEEKLY REVIEW
1 November 1978
Overview .............................................................................................
Iranian crude oil production and exports have been seriously disrupted by
widespread strikes. The cutbacks are introducing new pressures into an
already tightening world oil market.
Iranian Strikes: Impact on World Oil Market ...........................................
RArAnt rrue1A nil output in Iran was do n to about 1.5 million b/
variety of reasons, most underutilized productive capacity outside of Iran
will not be immediately available as a substitute for Iranian oil. Prolonged
strikes will have a severe market impact, and OPEC price hawks will be
encouraged to hold out for a substantial price Increase.
Israel: Energy and the Return of the Sinai .............................................. 13
With the return of the Sinai oilfields to Egypt, Israel will remain totally
dependent on oil imports for the next several years. Tel Aviv probably will
try to negotiate access to at least some Sinai oil and gas.
Japan: Reaffirming Links with the Middle East ....................................... 27
Prime Minister Fukuda's September trip to the Middle East highlighted
Japan's continuing effort to maintain good economic and political rela-
tions with its Middle East oil suppliers. While the trip was a diplomatic
success, no significant new economic or energy commitments were
made.
Sweden: Road Cleared for Further Nuclear Development ......................... 33
The replacement of the Center Party by the new Liberal Party government
opens the way for accelerated progress on Stockholm's nuclear power
program.
Sweden: Energy Conservation ................................................................ 37
Increased energy prices provided the main impetus to conservation.
Energy consumption in Sweden in 1976 was 1 million b/d of oil equiv-
alent, 4 percent below what it would have been if pre-embargo trends in
energy efficiency had continued. Energy savings were, however, lower
relative to total energy consumption than in most major foreign countries.
i
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Iranian crude oil production and exports have been severely disrupted by
widespread strikes
The government has attempted to satisfy striking workers by granting wage and
benefit hikes as high as 50 to 100 percent, but its conciliatory attitude has only led to
walkouts by additional workers. A full settlement does not appear imminent.
Oil inventories among non-Communist countries currently are in good shape,
with stocks amounting to about 74 days of normal consumption as of 30 September
The cutbacks in Iran, however, compound an already strained supply situation
resulting from a surge in demand in anticipation of a yearend price increase by
OPEC. Increases in output from Saudi Arabia, Iraq, and other producers in OPEC
probably would have accomodated the increase in demand, but the Iranian export
cutback introduces new pressures into the market.
Even if the strike is relatively short lived, the impact will spill over at least into
first quarter 1979 by keeping demand for OPEC oil high. The tightening of the oil
market will also encourage the price hawks at the December OPEC meeting. If the
strike is sustained, the market impact will be severe. Spot prices for oil will rise further
and supply shortages could develop. Even so, and even if other OPEC deliveries are
not increased, a shutoff of all oil exports from Iran would have to continue unabated
for about six months to produce the same loss of oil on the world market as during the
1973/74 embargo.
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IRANIAN STRIKES: IMPACT ON WORLD OIL MARKET
Situation in Iran
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The most severe labor problems are in the oilfields, where all rank and file
workers and staff personnel are now on strike.
Various groups of employees of the state-owned National Iranian Oil Company
(NIOC) have participated in the strikes over the past several weeks. Settlement of a
strike by blue collar workers was followed by a walkout by office workers and marine
pilots at Kharg Island. The marine pilots settled their strike, but production workers at
several major oilfields took up the cudgel. The government's response to strikers in the
oil and other sectors has been uniformly conciliatory in an effort to avoid increasing
the ranks of those in opposition to the Shah. But wage and benefit hikes as high as 50
to 100 percent given to some groups have encouraged additional workers to stage
walkouts.
Government negotiator and NIOC chairman Ansary believes he has satisfied the
economic demands of most striking personnel and that a small minority insisting on
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political concessions are preventing a full resolution.
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4 SECRET 1 November 1978
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The oil market was tightening even before the Iranian problems became
apparent. Preliminary reports in October had spot tanker charterings at near-record
levels. Demand for OPEC oil (including natural gas liquids) in the fourth quarter was
expected to average about 33 million b/d, up from 30.5 million b/d in the third
quarter and 29 million in first-half 1978. This increased demand reflects normal
seasonal increases along with increased purchases in anticipation of a yearend OPEC
price increase.
Demand for OPEC oil in 1979 is tentatively projected to increase by 1 million to
2 million b/d over average 1978 levels-to about 32 million b/d. This estimate
assumes a 3-percent increase in Free World oil consumption, a normal stock buildup,
continuation of US and Japanese imports for strategic stockpiles, and an increase of
about 1 million b/d in non-OPEC supplies, primarily from the North Sea and Mexico.
Free World oil stockpiles at the end of third-quarter 1978-some 3.8 billion
barrels-were slightly less than at the end of September 1977 and represented 74 days
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of normal consumption.
Reduced Iranian Supplies: Impact on the Market
The loss of Iranian oil exports will further tighten the short-term oil market,
encourage OPEC hawks to hold out for a substantial price increase, and produce sharp
increases in the price of oil traded in world spot markets. Spot market prices were
rising already; they spurted when the first news of the Iranian cutbacks reached the
market. If experience during the 1973/74 embargo holds true, the rate of increase will
grow sharply if the Iranian strike lengthens and the scramble for oil supplies
intensifies. In the near term, however, the market activity will reflect speculative
buying more than real shortages because Free World oil inventories are currently in
good shape.
Even if the strike is relatively short-lived (for example, a settlement is reached in
the next week or two), the impact will spill over into at least first-quarter 1979. Prior
to the Iranian problems, demand for OPEC oil was expected to fall off in the first
quarter as oil companies worked off inventories built up during the pre-price increase
period. Now many buyers will have a harder time purchasing desired quantities of oil
in the fourth quarter. They also will be reluctant to draw down inventories in first-
quarter 1979 if, as expected, the uncertainty in Iran continues.
If the strike is sustained, with Iranian oil exports curtailed beyond Thanksgiving
and other OPEC suppliers unwilling or unable to make up the gap, the market impact
will be severe. On the other hand, even if other OPEC deliveries are not increased, a
complete shutoff of oil exports (crude and products) from Iran-about 5.2 million b/d
during September 1978-would have to continue unabated for more than six months
to produce the same total loss of oil to world markets as during the 1973/74 embargo.
During the October 1973-April 1974 Arab oil embargo, slightly more than 1
billion barrels of oil, or about 4.7 million b/d, were withheld from the market. At the
peak of the crisis in December, oil output in countries actually participating in
production cutbacks * was 13.1 million b/d, 5 million b/d below the September 1973
rate. Iran was the only non-Arab producer able to boost output during the supply
interruption; by yearend, it posted a gain of 300,000 b/d over the preembargo level.
Although Arab production restrictions were eased beginning in January 1974, it was
not until May that OAPEC production was back to near preembargo levels.
* Dubai and OAPEC members, except Bahrain and Iraq.
1 November 1978 SECRET
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In some respects, oil consuming countries are better prepared to withstand a
supply interruption similar to the embargo. For example, oil stocks measured in days
of consumption are higher now than in 1973 and the International Energy Agency
(IEA) has set up an oil-sharing scheme.* Company experience in dealing with the
embargo is also a positive factor.
On the other hand, the ability of the major consuming countries to easily reduce
oil consumption is probably less now than during the embargo. During fourth-quarter
1973 and first-quarter 1974, the major oil-consuming countries reduced consumption
by about 5 percent compared with year earlier levels; oil inventories were actually
higher at the end of the 1973/74 embargo than at the beginning. Thus, the widespread
conservation measures that major consuming countries have implemented since 1973
have already realized the easiest savings.
Major Importers of Iranian Oil, 1977
Imports as a
Imports from Percent of
Consumption' Iran Consumption
South Africa ................ 300, 240 80
Israel ................................................ 135 100 74
Netherlands g, .. 745 270 36
Spain ........................ .......... 943 220 23
Japan ......:.. ........... ....... 5,401 870 16
Italy ... ......... 1,893 293 15
United Kingdom ............................ 1,809 259 14
France ........................,: ..... 2,286 189 8
United States ... ..._ ..... .... ..... 18,418 786 4
Including bunkers.
Y Estimated.
The Netherlands is a large oil export refining center. Imports from Iran as a share of total supply amounted
to about 20 percent in 1977.
Moreover, as in 1973/74, the supply shortfall is occurring when oil stocks are
normally drawn down to meet high winter oil consumption. During the October-
March period, oil consumption is normally about 3 million to 4 million b/d higher
than during the rest of the year. A particularly cold winter would exacerbate the
problem, and a rapid stock drawdown probably would result in spot shortages,
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particularly for heating oil. In sum, a cold winter combined with a prolonged supply
shortfall would have a potentially serious impact both politically and economically.
The countries with the heaviest import dependence on Iranian oil, South Africa
and Israel, have sizable oil stockpiles, especially South Africa. Other importing
countries with a high dependence on Iranian oil include Spain, the Netherlands,
Japan, Italy, and the United Kingdom.
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The prospective return of Israeli-controlled Sinai territory to Egypt would keep
Israel almost totally dependent on imported oil for its energy needs at least for the
next several years. An oil-producing area discovered last year off the Israeli-controlled
portion of the Sinai, although it will only save Tel Aviv $20 million in foreign
exchange in 1978, could have supplied most of the country's oil needs by the first half
of the 1980s and have saved about $500 million a year in foreign exchange. A recently
found gas deposit in the northern Sinai could have more than filled Israel's current
industrial demand for natural gas.
Under the terms of a peace treaty, Tel Aviv may have to pay some type of
reparation to Cairo for the 2.9 million barrels of oil extracted thus far this year. Israel
might claim a right to share the area's mineral resources because of its discovery and
exploration efforts. Egypt, on the other hand, consistently has protested-with formal
US support-that Israeli development of natural resources in occupied territory is
illegal. In any event, Tel Aviv probably will try to negotiate access to at least some of
the Sinai's mineral resources because Egyptian supplies would be cheaper than buying
from other, more distant, suppliers. Moreover, oil purchases from Egypt would be
symbolic of a major change in political relationships.
Even if Tel Aviv makes a deal with Cairo and thus starts to import much of its oil
from the Sinai, any future cutoff of Gulf of Suez oil would not pose a major security
problem. Substitute supplies probably could be obtained elsewhere, most likely from
Iran and Mexico-major current suppliers. Even if there were some difficulty in
setting up new supply lines, Tel Aviv could operate for at least seven months by
rationing oil in stock.
Over the longer term, Israel is searching for various alternatives to reduce
dependence on oil imports. Coal-fired electrical generating plants already are under
construction and should provide about 40 percent of Israel's electrical power needs by
1983. Other efforts such as government support for a conservation policy to moderate
energy consumption and funding of research and development of nonoil energy
sources are not likely to bring about a major reduction in oil demand before the late
1980s.
The capture of the Sinai oilfields in the 1967 war with Egypt was a boon to the
Israeli economy. Egypt had been producing 90,000 b/d from the Abu Rudays and
other Sinai fields. After pumping at less than half this rate for several years, output
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under Israeli control reached 100,000 b/d in 1974 which made Israel almost self-
sufficient in oil.After the 22 September 1975 Sinai II accord, which entailed the return
of all producing fields to Egypt, Tel Aviv began an intensive exploration program in
the remaining Israeli-controlled parts of the Gulf of Suez and the northern Sinai. This
effort culminated in 1977 with oil and gas strikes of commerical size; oil production in
the Gulf began in November 1977, but gas exploration awaits completion of a pipeline
scheduled for next summer.
With the return of the Sinai to Egypt, Israel will remain almost totally dependent
on imports of oil for energy supplies until the early 1980s. At present less than 2
percent of energy demand is filled from sources within Israel proper. Domestic gas
and oil production is equivalent to only about 2,000 b/d of oil. The domestic oilfields,
moreover, are almost depleted, and gas production probably will decline significantly
in the next two years; a small amount of solar energy is used for hot water heating.
Israel: Energy Supply and Demand
Estimated
1970
1977
1978
1979
1980
1982
1982
1983
1984
1985
Energy consumption
104
135
142
153
164
175
187
200
214
229
Oil and gas ............................
104
135
142
153
154
164
155
157
171
186
Coal ........................................
0
0
0
0
11
11
32
43
43
43
Energy supplies ..........................
104
135
142
153
164
175
187
200
214
229
Domestic oil and gas... ...........
4
2
2
1
1
1
1
1
1
1
Sinai oil and gas' ........ ..:.......
45
0
15
0
0
0
0
0
0
0
Oil imports ............................
55
133
125
151
152
163
154
156
170
185
Coal imports ............................
0
0
0
0
11
11
32
43
43
43
' After 1978, Sinai production is assumed to revert to Egypt; potential Sinai output could provide the
following Israeli imports in thousand bid oil equivalent:
1979
1980
1981
1982
1983
1984
1985
Gulf of Suez oil ..................................................................
55
85
115
145
150
150
150
Sinai gas ................................................................................
2
4
4
4
4
4
4
Tel Aviv's remaining energy needs in 1978 are being provided by crude imports
of 125,000 b/d mostly from Iran and Mexico and by 15,000 b/d from the recently
discovered Alma field in the Gulf of Suez. About half of the imported oil is converted
to heavy fuel oil, largely for electricity generation. Two refineries with a combined
capacity of 180,000 b/d produce almost all of the fuel oil and other oil products
needed. Both of these refineries are equipped to process high-sulfur crudes and can, in
fact, use most of the common crudes available worldwide.
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Israel: Energy Consumption
Domestic oil,
135 gas and solar
* Oil ranges from 30? API with 1.7 percent sulfur to 32.5? API with less than 1 percent sulfur; oil of this quality sells at
between $12.00 to $12.50 per barrel on the open market.
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This article is the first in an aperiodic series on economic and political relations
of major oil importers with their Middle East suppliers.
Prime Minister Fukuda's visit to Iran, Saudi Arabia, the United Arab Emirates
(UAE), and Qatar in September reflects Japan's continuing effort to maintain good
relations with the Middle East, the region that supplies 75 percent of Japanese crude
oil needs. While the trip was a diplomatic success, neither Fukuda nor his hosts made
any significant new economic or energy commitments.
Japan's Approach
Fukuda used his Middle East trip-the first ever by an incumbent Japanese
Prime Minister-to demonstrate high level interest in Japan's substantial stake in the
Middle East. Japan's diplomacy toward the Middle East has matured considerably
since its initial scramble to secure oil supplies in the wake of the 1973 oil embargo and
subsequent oil price hikes. Then Tokyo quickly dispatched several high-ranking
delegations to the oil-producing states to offer aid and technical assistance in the hopes
of winning supply guarantees. Since that time, Tokyo has pursued a more measured
and calculated approach to further its economic interests in the region.
Japan's oil needs, combined with the attraction of the lucrative Middle East
market, produced a quadrupling in Japanese trade with the region between 1973 and
1976. Japan now provides roughly 10 percent of the region's imports. The Middle East
purchases some 12 percent of Japan's worldwide exports, primarily heavy industrial
Japan: Oil Imports, January-June 1978
Imports ................................................................
4,751
649
5,400
Middle East ......................................................
3,587
358
3,945
Saudi Arabia ..................................................
1,549
174
1,723
Iran ................................................................
883
37
920
Kuwait ............................................................
424
98
522
United Arab Emirates ................................
456
11
467
Iraq ................................................................
153
1
154
Qatar ............................................................
110
0
110
Algeria ............................................................
6
0
6
Libya ............................................................
6
0
6
Bahrain ..........................................................
0
37
37
Indonesia ............................................................
621
60
681
China ..................................................................
129
0
129
Other ................................................................
414
231
645
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goods and textiles, compared with less than 5 percent in 1973. More than 80 percent of
Japan's trade in the region is conducted with its primary oil suppliers-Saudi Arabia,
Iran, Kuwait, the UAE, and Iraq.
Tokyo's only official oil agreement-involving an Iraqi guarantee to supply
180,000 b/d of crude oil over 10 years in return for $1 billion in commercial and
official credits from the Japanese for Iraqi development projects-has proved
unsatisfactory to both sides. Japan's failure to meet its promised oil import levels from
Iraq in 1975, the complexities of dealing with the Iraqi Government, and the resultant
Japanese reluctance to commit funds to specific Iraqi development projects under the
agreement, have convinced both countries that any future oil supply arrangements
would have to be more flexible and less costly. Another official agreement, with Iran,
has also been disappointing to Tokyo. Japan's sizable financial commitment to several
Iranian development programs has failed to produce any flexibility from Tehran on
the price of Iranian oil.
Japanese Government officials now give clear priority to private sector dealings
over government-to-government economic arrangements. Tokyo has used tax incen-
tives and official insurance guarantees to stimulate several large-scale private invest-
ment projects. It has also encouraged the flow of Japanese capital toward its primary
oil suppliers; Saudi Arabia, Iran, Iraq, and other Persian Gulf states account for about
75 percent of roughly the $1.5 billion in direct Japanese fixed investment in the
Middle East.
Several Japanese companies are engaged in oil production and development in
the Middle East. Although operations are small, the Middle East accounts for 60
percent of the more than $4 billion spent by the Japanese in overseas oil exploration
and development over the last two decades. The most successful all-Japanese operation
Japan: Overseas Oil Producers Operating in the Middle East
Japanese Participant
1977 Crude Oil
1977 Shipments
Operating
(Percent Ownership of
Production
to Japan
Company
Operating Company)
Country
Fields
(Thousand b/d)
(Thousand b/d)
Abu Dhabi Oil Co....
Daikyo Oil Co.
Abu Dhabi
Mubarras
20
20
Maruzen Oil Co. I (76%)
Nippon Mining Co. Other Japanese interests (24%)
Arabian Oil Co .............
Arabian Oil Co. (100%)
Saudi Arabia-Kuwait
Neutral Zone
Khafji,
Hout
170
100
Abu Dhabi Marine
Japan Oil Development Co.
Abu Dhabi
Zakum,
520
195
Areas ..........................
(12%)
Umm Shaif
Al-Bunduq Oil Co. ..
United Petroleum Development
Abu Dhabi/Qatar
Al Bunduq
20
20
Co. (33.3%)
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has been run since 1958 by the Arabian Oil Company, which works in the Saudi-
Kuwaiti Neutral Zone and produced 170,000 b/d of crude oil in 1977. Japan's largest
single outlay for an overseas oil venture-$780 million-was spent in 1973 to purchase
part of a British share in a producing concession in Abu Dhabi that now produces
about 520,000 b/d. Some 335,000 barrels of crude per day were shipped to Japan in
1977 from Middle East fields that Japanese companies operate in whole or in part.
Although Japan's policy focuses on the oil producers, Tokyo has also undertaken
some modest initiatives to enhance relations with other Middle East states. Encourage-
ment from both the Arabs and the United States has prompted Tokyo to increase its
assistance to Egypt over the past year. Fukuda had intended to visit Cairo but
canceled because of the Camp David talks; instead, Tokyo announced a new loan of
$160 million to Egypt for commodity assistance in 1979. At Saudi suggestion, Tokyo is
exploring a joint venture with Saudi Arabia to assist Sudan. The Japanese are also
examining the establishment of a Japanese-Arabian cultural center to be built in Cairo.
Fukuda's Trip
Fukuda ostensibly achieved his political objectives during his visit to Iran, Saudi
Arabia, the UAE, and Qatar. He established personal relationships, reasserted Japan's
pro-Arab position on Middle East issues, and emphasized Japan's willingness to
cooperate in the economic development of the region, especially in the four countries
visited. Most of all, the trip boosted his stock at home, where he faces a general
election toward the end of the year.
On the economic front, Tokyo is clearly concerned about protecting its share of
Middle East markets. Last year Japanese industrial plant exports to the Middle East
plummeted by 36 percent to $1.8 billion, in large part because of increased
competition, appreciation of the yen, and a general weakening in demand. But,
Fukuda probably did not seek any special treatment from his hosts, particularly since
the main thrust of his trip was to emphasize Japan's willingness to be helpful. On the
other hand, he asked for and received Arab and Iranian assurances of "reasonable-
ness" in OPEC price deliberations.
? In Saudi Arabia, Fukuda promised that if a feasibility study proves
encouraging, the Japanese Government would vigorously promote the
proposed Saudi-Japanese petrochemical project at Jubail as a "national
project." This designation would allow the Japanese Government to partici-
pate in the consortium and extend loans. The Jubail project has been a sore
point with the Saudis since 1976 when Mitsubishi suspended preparations for
its implementation because of skyrocketing construction costs and question-
able world demand for petrochemicals. The company feared a $500 million
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loss during the first decade of the plant's operation. Although Japanese
companies have succeeded in winning Saudi contracts for a number of
projects-such as cement plants, desalination facilities, and electric power
plants-they have been slow to fulfill promises they made shortly after the
oil embargo to participate in a number of other major projects, including a
large oil refinery and a steel mill, as well as the petrochemical plant.
? In Iran, Fukuda engaged in general discussions focusing on the terms of
Japanese financing for the $2 billion Kalingas liquefied natural gas (LNG)
project. The Japanese hold a 48 percent equity share in a consortium that
will operate Kalingas. Under consideration since 1974, Kalingas is to supply
Japan with 2.6 million tons of LNG annually for 20 years starting in 1982. A
liquefaction plant construction contract has been signed, but the date for
beginning construction has not yet been set. The Japanese are involved in
two other major projects in Iran: a $3 billion petrochemical complex under
construction at Bandar Shahpur and a $2.5 billion export refinery, which is
still in the planning stage.
Iran unsuccessfully pressed Fukuda to buy more of its oil. Tehran wishes to
maintain output at full capacity because of its revenue needs. But output has been well
below capacity this year and Tehran has been frustrated by a steady decline in its
share of Japanese oil imports from a preembargo level of 32 percent to 16 percent in
1977, while the Saudi share has grown from 24 percent to 32 percent during the same
period.
? Fukuda's visit to the United Arab Emirates coincided with the signing of
a joint agreement for the development of the small Umm Al Dalkh offshore
oilfield. The Japan Oil Development Company (JODCO) and the Abu
Dhabi National Oil Company (ADNOC) are 50:50 partners in the venture,
which is expected to yield 50,000 b/d of crude. More importantly, both
companies plan multibillion-dollar expansion of productive capacity at the
giant Zakum offshore oilfield. The Japanese also are involved in an LNG
project on Das Island, which has been in operation since May 1977. Fukuda
promised economic cooperation in a number of other projects, including
desalination plants and development in agriculture and the fishing industry.
? In Qatar, he agreed to the formation of a joint committee of experts and
technicians to discuss Qatar's economic development and the role Japan can
play. The Emir asked for Japanese participation in natural gas development,
while Fukuda offered cooperation in Qatar's desalination project. The
Japanese currently are not involved in any major economic project in Qatar.
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Fukuda's itinerary excluded Kuwait and Iraq, two major suppliers of oil to Japan.
Japanese companies are heavily involved in construction work in Kuwait and are
known for their promptness in completing projects. One of the largest is a desalina-
tion/electricity generation complex.
Tokyo reiterated its interest in Iraq in early 1977 by agreeing to double the size of
government credits to a total of $2 billion. Thus far, a $300 million chemical fertilizer
plant is under construction, and $200 million has been committed for a thermal power
station at Hartha. Other possible projects for the remaining credits include a
petrochemical plant, natural gas concentration plant, oil refineries, and liquefied
petroleum gas (LPG) plant.
Although Japan is pushing energy exploration elsewhere in the world and is
actively examining ways to boost alternative energy sources, Tokyo will continue to
rely on the Middle East for a major share of its energy supply for the forseeable future.
Given that dependence and the general recognition among the Japanese that there are
few options available to further underwrite the security of their stake in the region,
Tokyo is unlikely to reduce its emphasis on its important economic ties with the
Middle East. The Japanese will continue to focus on stimulating private sector
involvement in bilateral dealings with the oil producers, while maintaining a low but
constructive posture toward the more basic questions of security in the region.
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SWEDEN: ROAD CLEARED FOR FURTHER NUCLEAR DEVELOPMENT
The departure of the Center Party from the Swedish Government clears the way
for accelerated progress on Stockholm's nuclear power program. Former Prime
Minister Falldin led his party out of the three-party coalition-the first nonsocialist
government in four decades-because he could not fulfill the party's 1976 promise to
stop all nuclear power development in Sweden and eventually to dismantle those
reactors already in operation. The new government, formed by the small Liberal
Party, favors nuclear development, as do the other major Swedish parties. Despite its
problems during Falldin's tenure, the nuclear industry did not scale down its
capabilities; it is primed for the construction and operation of the remaining reactors
envisioned under a 1975 plan.
In 1975 Olaf Palme's Social Democratic government, seeking to combat the high
cost of imported energy and to spur economic growth, adopted a program designed to
triple nuclear power production by 1985. Nuclear power was already well established
in Sweden, and it appeared to offer the best hope for expanding indigenous energy
sources since hydroelectric potential was limited and Sweden possessed no fossil fuels
except peat.
By late 1977, however, the nuclear program was meeting strong resistance.
Continued recession suggested that earlier estimates of future electric power needs
were too high. Falldin-who felt he had a clear mandate from the voters to curb the
nuclear industry-imposed stringent waste disposal requirements that led to delays in
startup of completed reactors. His coalition partners went along with that measure but
not with Falldin's basic strategy of postponing decisions on nuclear expansion and
hindering operations of new facilities. Compromise became a way of life in dealing
with nuclear issues.
The disagreement on basic strategy, however, proved too deep to remain
submerged indefinitely. In the days before his resignation, Falldin accepted a
compromise on technical conditions for the startup of two new reactors. To his
dismay, the Moderate Party-which was the third partner in his coalition-publicly
interpreted the move as a victory for nuclear development. The even more sensitive
question of funding another reactor still in the development stage was looming.
Foreseeing a pre-election year of repeated policy crises that would result either in
further expansion of the nuclear industry or in his forced resignation at a time too late
to protect his party's credibility, Falldin opted to resign immediately.
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Energy Trends
A substantial shift toward nuclear power has taken place in Sweden in the last
few years. Energy consumption increased by only 3 percent between 1973 and 1977,
thanks to a combination of conservation and low economic growth.* In 1973, the
nuclear contribution was only three percent. By 1977 nuclear plants were generating
Sweden: Electricity Generation by Source
1973
1977
1985
1990
Hydroelectric
77
60
52
49
Nuclear ........................
3
22
36
42
Thermal ........................
20
18
12
9
Total ..........................
100
100
100
100
about 22 percent of all electricity produced and satisfying about 9 percent of total
energy demand. Hydropower still generated about 60 percent of Swedish electricity in
1977, but its share of total production has been falling since 1973. The expansion of
nuclear power apparently has also permitted a small reduction in the use of oil-
burning power plants.
According to government projections, nuclear power will supply over 40 percent
of Sweden's energy in 1990. Dependence on oil will decline markedly and the volume
of oil imports is expected to be 16 percent less in 1990 than in 1978 if the nuclear
Sweden: Total Primary Energy Requirement
1973
1977
1985
1990
Oil ..:......... ..................
60.1
56.0
47.2
36.9
Hydroelectric ..............
28.7
24.5
24.6
24.2
Solid fuel .... ...................
10.1
10.3
10.8
16.4
Nuclear ........................
1.0
9.2
17.3
20.7
Other ............................
0.1
0
0.1
1.8
Total ..........................
100
100
100
100
program is fully implemented. Coal imports will grow, and use of domestic wood and
peat supplies will increase. Hydroelectric production is expected, at best, to maintain
its relative share of the energy supply even with the addition of new capacity; two-
thirds of the hydroelectric potential has already been exploited.
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Falldin's departure probably removes the only serious threat to completion of
Sweden's nuclear power program. Of the 13 reactors envisioned under the 1975 plan,
eight have been completed, including the two awaiting government permission to load
fuel. The commitment to nuclear development of Palme's Social Democrats-likely to
be returned to power in the next general election-has not diminished. Moreover,
popular support for nuclear power has grown dramatically in the last two years and
the majority of the population now favors development of nuclear power.
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This is a supplement to our series of analyses on energy savings in the major
foreign countries. Sweden was selected because of its reputation as an energy
efficient country.
Energy consumption in Sweden in 1976 was 1 million b/d of oil equivalent, 4
percent below what it would have been if pre-embargo (1969-73) trends in energy
efficiency had continued. Increased energy prices, reflecting higher costs and taxes,
have provided the main impetus to conservation. Despite Sweden's reputation for
being energy conscious, however, government conservation measures were imple-
mented slowly, and energy savings in Sweden were lower relative to total energy
consumption than in most major foreign countries in 1976.
Sweden. Energy Consumption by Sector, 1976
Residential/
Commercial,
Public
Services, and
Total Industry Transportation Agriculture Energy
Thousand b/d of oil equivalent
1969-73 consumption trend
extrapolated .......................... 1,060 365 115 315 265
Growth-adjusted consumption 1,075 320 115 330 310
Actual consumption .................. 1,028 310 113 295 310
Implied savings ........................ 47 10 2 35 0
Savings as a share of growth-
adjusted consumption ......... 4.4 3.1 1.7 10.6
* Including bunkers and statistical difference.
Preembargo Efficiency Trends
Energy consumed per unit of industrial production increased at an average
annual rate of 0.5 percent in 1969-73 reflecting a structural shift in output toward
more energy-intensive products. During 1969-73, for example, output in the pulp and
paper and chemical industries rose at average annual rates of 6.5 and 8.0 percent
respectively, compared to the 4.9 percent increase for all industry. The pulp and
paper industry accounts for about 40 percent of industrial energy used in Sweden. In
contrast, output in another energy-intensive industry, steel, rose at an average annual
rate of only 2 percent.
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Energy consumed per dwelling unit increased at an average annual rate of 1.9
percent in 1969-73. This trend reflected a sharp rise in real disposable income which
encouraged the Swedes to make wider use of electrical appliances.
During this period energy used per registered motor vehicle declined slightly. It is
not clear if this change resulted from an improvement in automobile efficiency or a
reduction in miles driven per vehicle. Data on such trends are not available.
Post Embargo Planning
Dependent on imports for two-thirds of its energy consumption, Sweden began
promoting energy conservation after the 1973 embargo, and a major energy program
was passed by Parliament in May 1975. This program called for the annual growth of
energy consumption to fall to 2 percent by 1985; zero growth was established as the
goal for 1990. The program's conservation measures were directed mainly at the
residential and industrial sectors; Stockholm increased the funds available for
conservation incentives and for energy research and development programs; it raised
energy taxes; and it passed new conservation legislation.
Energy conservation was given even more priority after 1976 as opposition
intensified to nuclear energy as an alternative to imported oil for electricity
generation. In late 1976 popular concern about waste disposal, safety, and environ-
mental problems associated with nuclear energy development contributed to the
ouster of the Social Democrat Government that had approved expanded nuclear
energy use in the 1975 energy program. The Center Party, the leading party of the
new coalition government, looked to conservation as one alternative to nuclear energy
and continued to push these elements of the 1975 program. With the withdrawal of
the Center Party from the coalition in October 1978 because of its refusal to
compromise on the nuclear issue, nuclear development is now more likely to proceed
as approved in the 1975 program; but conservation has wide support in Sweden and
should continue as a major national goal.
Savings by Sector, 1976 *
Residential/Commercial, Agricultural, and Public Services Sector
Savings in the combined residential/commercial, agricultural, and public services
sector amounted to an estimated 35,000 b/d of oil equivalent in 1976, with
consumption 11 percent below what it would have been had the 1969-73 trend
persisted. Energy consumption per building decreased by an average 0.7 percent per
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year between 1974 and 1976. As in France, Japan, and Canada, relative savings in this
sector were at least twice the savings in any other sector. Many countries concentrate
energy conservation efforts in this sector because they believe the greatest energy-
saving potential exists in reducing energy used for space heating in buildings.
The savings reflect increased fuel costs and higher energy taxes, the weighted
average price for fuel consumed by this sector having increased 40 percent between
1974 and 1976. The price of heating oil, which supplies 85 percent of residential
energy requirements, increased 50 percent during the period.
Stockholm hopes to achieve still greater savings in space heating, which represents
90 percent of all energy use in this sector. State retrofitting programs for improvement
in building energy efficiency cost $342.3 million * in the residential portion alone
between mid-1974 and mid-1978. These programs provide 20-year low-interest loans
and up to $700 in grants for each dwelling for insulation improvements, and grants of
up to 35 percent of the cost for improvements in commercial buildings.
Based on a study conducted by the National Board of Physical Planning and
Buildings, a bill has been presented to Parliament substantially increasing loan and
grant programs for existing dwellings and commercial buildings. The Board estimates
that an expenditure of $18.4 billion to $20.7 billion for retrofitting over a 20-year
period could eventually save as much as 300,000 to 350,000 b/d of oil equivalent. This
program appears overly ambitious given current and projected budgetary constraints.
A retrofitting program in the public services portion of this sector decreased
energy consumption by about 15 to 20 percent per year between mid-1974 and the
end of 1976, according to Physical Planning and Building Board estimates. Stockholm
spent $39 million on this program between mid-1974 and mid-1978. In 1976
Stockholm set maximum temperatures of 20?C for public buildings and imposed
restrictive electricity use standards.
Taxes on electricity used for space heating were tripled between September 1975
and March 1977, and the State Power Board recently imposed an 18 percent rate
increase for households having electric heat. Stockholm is also considering banning
installation of electric heat where district heating exists or is planned.
In January 1977, Stockholm legislated building standard regulations for structures
constructed or extensively renovated after July 1977. The regulations, which are
expected to increase construction costs by 5 percent, aim for a 40 percent improve-
ment in energy performance through:
* All conversions are based on the average 1976 exchange rate of US $1=4.3559 Swedish kroner.
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? A toughening of insulation standards.
? Automatic control devices to regulate and improve distribution of energy
and/or air flow.
? Waste heat recovery.
? Increased boiler efficiencies.
? Unit metering of utilities in multifamily dwellings.
? Manuals for optimum building utility management.
The State Planning Board has recommended mandatory government inspection of
buildings to enforce the regulations.
Industrial Sector
Savings in the industrial sector were an estimated 10,000 b/d of oil equivalent in
1976; consumption was 3 percent below the level suggested by preembargo trends.
Savings as a percent of industrial energy consumption in this sector were less than in
West Germany, Japan, and Canada, but were equal to or slightly higher than in the
United Kingdom, Italy, and France. Higher energy costs and government conserva-
tion measures were the primary incentives. The weighted average price of fuel used
by the industrial sector increased 100 percent between 1974 and 1976; oil supplies
almost half of industrial energy requirements. Output declined in the major energy-
intensive industries-pulp and paper, iron and steel, chemicals and petrochemicals,
and cement.
Government conservation efforts in this sector have eschewed tough energy
pricing and taxation policies in an attempt to avoid further deterioration of industry's
weakened export position. Energy-intensive industries are protected by regulations
limiting energy taxation to less than 3 percent of the product sales value; 175 industries
have been exempted entirely from taxes on oil, electricity, and coal although plans are
being considered to reduce such exemptions.
Stockholm uses grants to encourage industry to accelerate energy efficiency
modifications that otherwise would be deferred until energy prices rise to the level
necessary to make such conversions economical. Between mid-1974 and mid-1978
grants totaling $121 million were provided to industry. Stockholm also requires
government approval for siting new energy-intensive industries as a means of
controlling industrial energy use.
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Transportation Sector
In 1976 the transportation sector saved an estimated 2,000 b/d of oil equivalent,
or 2 percent less than it would have consumed based on preembargo trends. Energy
savings relative to consumption in this sector trailed those of five of the six major
foreign industrial countries previously examined.
The savings reflect higher fuel prices, a 22 percent increase in gasoline taxes
between late 1973 and 1976, and government actions to encourage the use of smaller
cars and public transportation. Between late 1973 and 1976 gasoline prices increased
55 percent; in 1976 a gallon of regular gasoline cost $1.43, half of which was tax. The
average annual amount of gasoline consumed per vehicle declined at an average
annual rate of 1.8 percent between 1974 and 1976, faster than during the preembargo
period. Road transportation accounts for about 85 percent of energy use in this sector.
Stockholm also has continued policies in effect prior to the embargo to encourage
energy efficiency in the transportation sector. These include vehicle efficiency
standards, speed limits of about 90 to 110 kilometers per hour (55-70 miles per hour)
steep purchase taxes, annual weight taxes on vehicles, elimination of free parking in
cities, high parking fines, mass-transporation lanes, and streets restricted to pedestrian
use.
Energy Sector
No savings were obtained in the energy sector. Indeed, energy efficiency trends
deteriorated between 1974 and 1976 in electricity generation and petroleum refining.
Electricity conversion loss accounts for roughly 75 percent of energy consumption in
this sector. The amount of energy used per unit of electricity output increased at an
average annual rate of 0,9 percent between 1974 and 1976. This trend stems mainly
from a rapid increase in nuclear power which in Sweden has been less efficient than
thermal power. From 1973 to 1976 the share of nuclear power in electricity
generation rose from 3 percent to 18 percent.
Stockholm hopes to reduce energy conversion losses through greater use of waste
heat from industrial complexes and combined electricity and heat (cogeneration)
plants. Waste heat currently supplies 20 percent of total residential space heating
through district heating networks. Stockholm projects waste heat availability of about
70,000 b/d of oil equivalent by 1990 from the major industrial energy consumers-the
pulp and paper, iron and steel, and chemical industries. During the past year
Stockholm substantially increased long-term state loans to municipalities for develop-
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ing district heating networks and grants to homeowners for linkups to existing district
heating systems.
The National Industrial Board conducted two studies in 1976 and 1977 on energy
savings through use of back-pressure turbines for energy-intensive industries. * The
studies projected that, at a cost of $528 million, 20 percent of total industrial oil
consumption, or about 8 percent of total industrial energy use, could be saved over a
five-to-ten year period by subsidizing up to 35 percent of the cost of industrial
Sweden: Conservation R&D Budget
1975-78
1978-81
Residential/Commercial, Public Services, and Agriculture ......
12.0
35.6
Industrial .......................................................................................
8.3
19.7
Transportation
................... ............ .................... ....:...
6.4
7.3
Total ....................... ....................................................................... .
26.7
62.6
conversions to back-pressure power generation and other energy-efficient processing
modifications. Because industrial electricity tariffs are relatively low, purchased
power can be more economical than self-generation in back-pressure systems.
Stockholm, therefore, is considering supplemental loans to make such a major energy-
saving expenditures more attractive to industry. In late 1977, the State Power Board
also raised industrial electricity rates by 25 to 35 percent.
Prospects are good for Sweden to improve its energy-use efficiency, and policy
emphasis is likely to continue to be placed on conservation. Sweden is currently
developing an energy program for the 1980s scheduled to be presented to Parliament
early in 1979.
? Expansion of district heating using heat generated by nuclear and peat
sources.
? State grants for solar-heated homes and obligatory use of solar energy for
other specified applications.
* Back-pressure systems can produce steam at sufficiently high temperatures after generation of electricity to serve as
the heating medium in industrial processes and, when spent, as input to district heating networks.
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? Reduction in the number of private motor vehicles by imposing higher
taxes and fees.
? Tax breaks for light cars.
? Transition to new fuels and engines with better gas mileage, encourage-
ment of carpooling, staggered commuting patterns to avoid traffic tieups,
and resumption of trolley bus service.
? More efficient street lighting and restrictions on electricity use.
? Control of energy used for luxury items, such as a ban on the use of oil for
heating vacation homes and mandatory solar heating for swimming pools.
Stockholm believes annual energy consumption growth will be cut to 2 percent by
1985. The Swedish Ministry of Economy now anticipates that by 1985 annual GNP
will be growing at about three-fourths the projected rate of 3.5 to 4 percent in the
1975 energy plan. Moreover, an expected lag in the growth of energy-intensive
industries, retrofitting of existing buildings, and the impact of the 1977 bill to improve
energy efficiency in new buildings are expected to hold energy use growth below the
earlier forecasts.
APPENDIX: Methodology
Savings Record by Sector
Our estimate of energy savings from conservation-47,000 b/d of oil equivalent
in 1976-is derived by subtracting actual energy consumption in each of four
economic sectors from estimates of what energy consumption would have been if pre-
1973 relationships had continued through 1976. These 1973 relationships are:
? In the residential/commercial, agricultural, and public services sector, the
equation for energy use per dwelling as a function of real disposable income
and temperature is
Log of (residential/commercial, agricultural, and public services energy
use = housing stock) = 12.15980 + 0.29626 (log of real disposable
income) + 1.27295 (log of degree-days).
? In the industrial sector, the equation for industrial energy use as a function
of industrial output and temperature is
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Log of industrial energy consumption = 9.94172 + 1.01476 (log of
industrial output) + 1.27295 (log of degree-days).
? In the transportation sector, the equation for energy use as a function of
registered motor vehicles and real disposable income is
Log of transportation energy consumption = 0.80626 (log of real
disposable income) + 0.22638 (log of registered motor vehicles).
? In the energy sector, the relationship of energy consumption to final
energy use is
Log of energy consumption = - 2.75729 + 1.32526 (log of final
energy use).
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 Secret
Secret
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