WEST EUROPEAN ENERGY REQUIREMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000600450001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 48
• Document Creation Date: December 22, 2016
• Document Release Date: July 22, 2010
• Sequence Number: 1
• Publication Date: May 9, 1983
• Content Type: MEMO

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yJ
Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
9 MAY 1933
MEMORANDUM FOR: Ambassador Richard Fairbanks
Office of the Special Middle East
Peace Negotiator.
Department of State
Deputy Director of Global Issues
SUBJECT West European Energy Requirements
1. Attached is a final version of our study of 25X1
European energy requirements. As you probab y know, we provided 25X1
a draft version in early April to Deputy Assistant Secretary
Wendt, John Ferriter, and Bill Martin. F 25X1
assistance, please feel free to contact me
2. If you have any questions or if we can be of further
Western Europe: Implications of Energy Import Dependence
GI M 83-10116, May 83
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Central Intelligence Agency
Washington. D. C. 20505
DIRECTORATE OF INTELLIGENCE
9 MAY 1983
MEMORANDUM FOR: The Honorable Allan Wallis
Under Secretary for Economic Affairs
Department of State
Deputy Director of Global Issues
SUBJECT West European Energy Requirements
1. Attached is a final version of our study of
European energy requirements. As you probably know, we provided
a draft version in early April to Deputy Assistant Secretary
Wendt, John Ferriter, and'Bill Martin.
assistance, please feel free to contact me
2. If you have any questions or if we can be of further
Attachment:
Western Europe: Implications of Energy Import Dependence
GI M 83-10116, May 83
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SUBJECT: Western Europe: Implications of Energy Import
Dependence
Distribution:
Orig - Ambassador Richard Fairbanks
Orig - The Honorable Allan Wallis
1 - SA/DDCI
1 - ExDir
1 - DDI
1 - NIO/Econ
1 - D/OGI
1 - Ch/SRD
3 - EIB
OGI/SRD/EIB:
Ch/PES
OGI/PS
(9 May 83) 25X1
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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
9 May 1983
Western Europe: Implications of Energy Import Dependence
Summary
Our analysis of recent industry forecasts indicates that
Western Europe will continue to rely on imports for 40 to 50
percent of total energy supplies through the end of the
century. Imports will account for three-fourths of total oil
demand throughout the period. One-third of 1990 gas needs are
expected to be met by imports, and these could rise to as much as
50 percent of total requirements at the end of the century. As a
result, Western Europe will remain vulnerable to energy supply
disruptions especially if the energy market begins to tighten in
the early 1990s as most of these forecasts project. Should oil
prices continue to remain weak over the next few years or decline
further, several gas projects might be postponed or delayed.
Such developments would enhance the Soviet Union's ability to
increase gas sates in the 1990s unless West European purchasers
were willing to make a political commitment to subsidize high
cost indigenous projects to encourage timely development of these
supplies.
Almost all forecasts argue that West European oil
consumption will hold fairly steady or decline over the balance
of the century. Oil's share of total energy is projected to
decline as well. By the end of the century, however, oil is
still expected to account for 35-45 percent of total West
European energy needs. As a result, OECD West European countries
will remain heavily dependent on the Persian Gulf as a source of
oil supply.
Despite the prospects for a soft energy market over the next
few years, all recent forecasts expect substantial increases in
West European gas use in every major country except the United
Kingdom. Domestic production is expected to decline or remain
flat at best, indicating that West European dependence on imports
will rise substantially. By 1990, Western Europe is expected to
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rely on the Soviet Union for 20 percent of total gas requirements
with West Germany, France, and Italy relying on Moscow for 30
percent or more of their gas supplies. Unless steps are taken
soon to increase indigenous gas production or contract for
supplies from other non-OECD sources, Western Europe's dependence
on v' t gas could be even higher by the turn of the century.
Continued weak demand has already forced a drop in oil
prices and further declines are a distinct possibility. The
improved competitiveness of oil resulting from a price decline
would initially dampen non-oil energy demand, increase West
European dependence on imported oil supplies, and lead to the
delay or cancellation of several high cost projects aimed at
increasing West Europe's indigenous energy production. Because
of long lead times required to bring'gas reserves on stream, no
new North Sea gas supplies would be available if energy demand
recovered'in the early 1990s as most of these forecasts now
expect. Such developments would enhance the Soviet Union's
ability to capture a greater share of the West European gas
market, given Moscow's hard currency needs and ability to step up
deliveries in a relatively short period.
The tightening market conditions forecast for the early
1990s will increase Western Europe's vulnerability to an energy
supply disruption. Although the odds are against a major
internal or external disruption in energy supplies in any
particular exporting nation or region, the probability of some
sort of disruption occuring is quite high. Since a large portion
of oil and gas supplies will be imported from non-OECD sources,
the risks associated with a disruption especially from the Middle
East will remain high. While West European gas importers
probably have enough flexibility to offset a simultaneous six
month disruption in Soviet and Algerian gas supplies in 1990
through fuel switching, stock drawdowns, and surge production,
some price pressures are likely to develop. A simultaneous
cutoff of middle East oil supplies and Soviet gas would entail
extremely high economic and political costs for Western Europe.
Because of their high import dependence, West European
countries probably will remain reluctant to actively support
certain US positions in negotiations with energy producers.
Concern over ener y security is also likely to cause several
governments to intervene in the marketplace and impose artificial
restraints such as export controls whenever isruption or the
threat of a loss of supplies occurs. 25X1
In addition to measures already in place, West European
countries have several other options available to them to help
lessen the potential dangers of energy supply disruptions. If
undertaken in the near term, West European countries would lessen
the potential impact of supply disruption in the 1990s.
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o To the extent possible, diversify oil supplies away
from the volatile Middle East region.
o Undertake a political commitment to guarantee
development of indigenous gas reserves in the North
Sea.
o Pay a premium to the Netherlands to extend gas
contracts in the early 1990s in exchange for an equal
volume of Norwegian gas later in the decade.
o European gas importers might also pay a premium to the
Netherlands to maintain strategic gas reserves to be
used in the event of a disruption.
This memorandum was prepared by
Energy Issues Branch, Office of Global Issues.
The information contained herein is 'Updated to 9 May 1983.
Comments may be directed to Chief, Energy Issues
Branch,
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Western Europe: Implications of Energy Import Dependence
Current Situation
Despite lower energy use and increased production of oil and
nuclear power, Western Europe still relied on imported energy for
more than 40 percent of energy requirements last year.
Preliminary country data indicate that West European primary
energy consumption fell to about 1205 million metric tons oil
.equivalent (mtoe)* in 1982, about 5 percent below year-earlier
levels. Nuclear power output rose while use of other fuels held
steady or declined. A four percent decline in oil consumption
pushed its share of total energy down to less.than 50 percent.
Natural gas use also dropped--for the third consecutive year--to
about 165 mtoe or. some 10 percent below peak 1979 levels.
Based on OECD and individual country data, West Germany,
France, Italy, and the United Kingdom account for about two-
thirds of total West European energy demand. The United Kingdom,
West Germany, the Netherlands, and Norway combined account for
roughly 70 percent of total European energy production (Table 1).
o Oil accounts for about half of total West European
energy requirements, varying from 40 percent of total
energy use in the United Kingdom to 67 percent in
Italy.
o Natural gas accounts for about 14 percent of European
energy use. West Germany, the United Kingdom, and.the
Netherlands combined account for almost two-thirds of
West European gas consumption. Domestic gas
production, mostly from the United Kingdom, Norway, and
the Netherlands, supplied Europe with almost 90 percent
of gas requirements in 1980.
o Coal consumption amounted to about 290 mtoe in 1980 or
about 22 percent of overall energy use.
o Nuclear and hydropower combined supply about 11 percent
of energy requirements.
West European countries as a group relied on net imported
-energy--mostly oil--for about 13 million b/doe or about half of
total energy requirements in 1980.
* Data converted at 1 billion cubic meters (bcm) = .82 mtoe and 1 25X1
mtoe = 7.3 barrels oil equivalent'and 1 billion cubic meters
(bcm) = 16,4000 b/doe.
GI M 83-10116
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Western Europe:
Energy Requirements, 19801/
Western
Euro
e
West
G
France
Italy
United Nether- Norw~
p
ermany
Kin
d
g
om lands
Energy Consumption 1273.5
E
275.1
202.3
146.3
204.0
75
0
24
3
nergy Production 648.8
E
124.0
54.4
25.4
198.2
.
72
7
.
61
4
nergy Imports 936.9
N
t I
185.0
166.7
132.9
70.8
.
88
6
.
8
9
e
mports(Exp) 647.2
155.5
151.8
120.7
12.3
.
3.1
.
(36
7)
.
Oil Consumption 673.0
138.0
115
8
98
4
8
Domestic Prod 122.0
I
4.7
.
2.4
.
1.8
3.0
81.0
39.8
1
6
9.8
24
5
mports 607.3
P
i
140.7
127.3
108.3
57.2
.
80
0
.
8
0
ers
an Gulf 345.7
41
3
78
5
47
.
.
Oth
.
.
.1
33.8
33
5
1
1
er OPEC 131.7
T
36.7
21.2
26.7
2.6
.
13
9
.
0
8
otal OPEC 477.4
USS
78.0
99.6
73.8
36.4
.
47
4
.
1
8
R 56.5
Oth
7.4
8.4
6.9
1.2
.
6
8
.
0
2
-
er Non-OECD 59.3
94.4
6.6
22.3
7.3
.
7
2
.
0
8
OECD 6.8
43
4
12
8
.
.
E
.
.
5.1
12.3
18
6
5
2
xports 45.7
Net I
7.4
13.9
11.8
55.5
.
41
8
.
22
7
mports (Exp) 561.2
133.3
113.4
96.5
1.8
.
38.2
.
(14.7
Natural Gas
Consumption 179.0
43.3
22
8
22
5
41
1
Domestic production 159.5
I
14.6
.
6.3
.
10.5
.
31.9
31.0
70
2
0.9
23
7
mports 26.0
Al
37.8
17.4
11.7
8.2
.
3
3
.
0
geria 3.9
L
0.
1.8
0.
0.
.
0
.
0
ibya 0.
US
0.
0.
0.
0.
.
0
.
0
SR 21
0
8
9
3
3
.
.
.
Oth
.
.
5.7
0.
0
0
er Non-OECD 1.1
OECD
0.
0.
0. 6
0.
.
0
.
0
(of which)
28.9
12
3
.
.
N
th
.
5.4
8.1
3
3
0
e
erlands
N
20.3
9.6
5.4
0.
.
0
.
orway
8
6
1
9
.
0.
Total E
.
.
0.
8.1
3
3
0
xports 0.
Net Im
7.5
0.2
0.
0.
.
42.1
.
26
9
ports (Exp) 26.0
30.3
17.2
11.7
8.2
(38.8)
.
(26.9)
Coal Consumption 279.9
D
83.9
36.5
13.4
76.2
4
1
omestic production 225.8
I
90.3
14.6
1
3
74
9
.
0
1.4
mports (of which) 62.1
8.1
22
8
.
.
.
0.6
South Africa 13.2
1.0
.
6
2
12.6
4.3
5.6
0.9
Poland
.
2.3
negl
0.2
0
12.4
U
1.3
2.3
1
5
0
3
0
7
.
SSR 3.0
0.2
0
5
.
.
.
0.
Other Non-OECD
3
.
0.7
negi
0.
0
.3
OECD
2.0
7.9
3.8
0.6
1
6
.
(of which) 29.7
3.6
10
7
.
0.
U.S
23
.
6.7
3.4
3.4
0
.
.1
1.5
5.0
4.2
2
0
1
.3
Australia 6.0
0.5
1
1
.
.8
0.
.
0.8
1.4
0.7
0.
Exports
Net Im
o
t
(E
14.5 .
0.9
0.5
3.0
1
6
p
s
r
xp) 62.1
(6.5)
21.9
12.1
1.3
.
4.1
0.1
0.8
Hydro 91.1
4.3
16.6
11.3
1.3
0.
12.6
Nuclear. 50. 5
10.1
14.4
0.5
9.0
0.9
0.
1 Most recent year for which complete data was available.
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o Net oil imports of about 560 mtoe amounted to 80
percent of oil requirements and about 45 percent of
energy consumption. Reliance on supplies from the
Persian Gulf region alone amounted to about 345 mtoe or
more than 50 percent of oil imports (Figure 1).
o Natural gas imports from the USSR and Algeria accounted
for about 12 percent of European gas use in 1980
(Figure 2).
o Coal imports in 1980 amounted to about 62 mtoe or 20
percent of consumption. About half of coal imports
come from OECD countries (Figure 3).
Reliance on imported energy among individual West European
countries varied widely. Italy, France, and West Germany
imported 83, 74, and 55 percent of total energy requirements in
1980, respectively. At the other extreme, the United Kingdom,
the Netherlands, and Norway remained almost self-sufficient in
net energy trade.
Sectoral Demand
The industrial and residential/commercial sectors each
accounted for about one-fourth of total energy demand in Western
Europe according to OECD data. Oil and natural gas combined
supply 55 percent of industrial energy needs and about tio-thirds
of requirements in the residential and commercial sector (Figure
4). The transportation sector consumed mostly oil and accounted
for about 16 percent of total energy use. Fuel used in
generating electricity accounted for the remaining 30 percent of
European energy consumption with coal and hydropower accounting
for almost two-thirds of fuel inputs. Oil and natural gas
combined supplied only about 25 percent of power plant
consumption (Figure 5).
Energy Market Outlook
The success of long term forecasts in predicting outcomes in
the world energy market has been minimal. Because of
uncertainties regarding economic performance, price trends, and
consumer response to higher prices, most forecasts have
substantially overestimated energy demand in recent years and
understated the energy savings from conservation and
technological change. Recent long term forecasts remain
vulnerable to the shortcomings of past projections because most
of the results are based on assumptions about highly uncertain
variables such as economic growth, energy prices, and the degree
of response of supply and demand to changes in prices.
1 Excluding electricity generated by oil and gas.
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Figure 1
WESTERN EUROPE: OIL IMPORTS BY SOURCE, 1980
Percent of Told
Legend
? NON-OPEC
? OTHER OPEC
M PERSIAN GULF OPEC
? SAUDI ARABIA
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Figure 2
WESTERN EUROPE: NATURAL GAS IMPORTS BY SOURCE, 1980
Percent of Total
Legend
? OTHER
? NORWAY
? NETHERLANDS
? USSR
? ALGERIA
S
1 Excludes intra European Trade.
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Figure 3
WESTERN EUROPE: COAL IMPORTS BY SOURCE, 1980
Percent of Total
Legend
? OTHER
? OTHER EAST EUROPEAN
? POLAND
? SOUTH AFRICA
? AUSTRALIA
90 UNITED STATES
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Figure 5
WESTERN EUROPE: ELECTRICITY GENERATION, 1980
Percent
Legend
? NUCLEAR
? HYDRO
? COAL
PO NATURAL GAS
? OIL
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Key Assumptions
Long term energy market projections are sensitive to
critical assumptions about economic growth and prices. Even
small changes in either variable over the period can cause
substantial changes in projected energy requirements. We have
examined the key assumptions and, in our view, they appear
reasonable. Key assumptions from the available projections we
examined are:
Prices. Most of the energy supply/demand projections assume
declining real oil prices to 1985, flat real prices from 1985-
1990 and real price increases of 1.5-3 percent per year through
2000. While most forecasters agree on the general trend of crude
oil prices, they point out that the price path may not be a
smooth one. Forecasters believe that oil prices are more likely
to rise as a result of a supply disruption rather than continued
growth in oil consumption.
The continuing soft oil market has led many forecasters to
scale back price assumptions from year earlier levels. Last
year, for example, the consensus forecast of the 1990 benchmark
oil price ranged from $34-40 per barrel in constant 1981
dollars. In current projections, the benchmark OPEC oil price is
expected to range from $24-29 per barrel in 1985 (1981 dollars)
and from $26-31 per barrel in constant 1981 dollars for 1990.
Price assumptions for 2000 vary from $31-40 per barrel in
constant 1981 dollars.
Assumptions about other energy prices are generally less
precise. Indeed, most forecasts do not explicitly treat the
potential for interfuel substitution, citing only assumptions
about relative price levels and in some cases indicating where
potential supply constraints may exist. In general, prices of
other fuels are expected to move in line with oil prices.
Growth. The forecasts assume average annual real economic
growth of 1.8-2.5 percent during the 1980s for Western Europe.
Given economic performance since 1980 and expectations for 1983,_
GNP in Western Europe would have to average about 3 percent
annually through 1990 to achieve a 2.1 percent annual growth rate
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for the decade as a whole. Forecasts point to an average annual
growth rate of 2.4-2.8 percent during the 1990s. Year to year
variations in growth due to the effects of the business cycle are
not accounted for in these forecasts. Variability above and
below the average growth for the period can'account for sizable
swings in energy consumption.
Demand Forecasts
Recent forecasts continue to reflect downward revisions of
energy requirements, indicating only moderate demand growth in
Western Europe through the end of the century. The decline in
energy consumption in recent years is expected to bottom out this
year and West European energy consumption is projected to rise at
an average annual,rate of 1-1.6 percent during this decade to
1387-1427 mtoe by 1990 (Summary Tables). During the remainder of
the century, forecasts call for European energy consumption to
grow at an average annual rate of 1.7 to 2.5 percent with total
energy consumption for 2000 ranging from 1540 to 1712 mtoe. Most
of the increase in West European energy demand through the end of
the century is expected to be met by non-oil fuels.
Oil. Oil consumption in Western Europe is expected to hold
fairly steady or decline through 1990. Forecasts of West
European oil consumption in 1990 range from 533 to 640 mtoe.
Although oil's share of total energy is projected to decline
during the decade, oil will continue to account for about 40-45
percent of total energy requirements by 1990. West European oil
use in 2000 is projected to range from 421-670 mtoe, still some
35-45 percent of energy requirements.
Increased oil use in the transportation sector is expected
to be offset by lower oil use in most other sectors. Oil use in
the electricity generation sector is expected to fall from more
than 78 mtoe in 1980 to less than 50 mtoe by 2000. Despite a
projected decline in oil use, the residential/commercial and
industrial sectors still will rely on oil for about 25 percent
and 15 percent respectively of energy requirements by 2000.
Forecasters expect West European oil production to range
from 118-144 mtoe in 2000 compared to actual production of 122
mtoe.in 1980. During the period, UK oil production is expected
to peak at 125 mtoe in 1985 before declining to 68-105 mtoe in
1990 and 77-85 mtoe in 2000.
Natural Gas. Given the soft oil market outlook and an
expected escalation in the price of gas relative to other fuels,
most government and industry analysts have revised downward long
term projections of West European gas consumption. Forecasts now
project the region's gas demand to rise from 179 mtoe in 1980 to
about 196-227 mtoe in 1990. Natural gas use is expected to
continue to grow during the 1990s and range between 230-255 mtoe
by 2000. All major countries except the United Kingdom are
expected to register substantial increases in gas use. West
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Next 1 Page(s) In Document Denied
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West Germany
1980
1990 2000
range range
Energy consumption
275
268-300
Net imports
156
152-158
Oil consumption
133
98-128
Oil production
5
4-5
Net imports
133
94-123
Natural gas consumption
43
42-55
Natural gas production
15
10-15
Net imports
30
32-41
Coal consumption
84
85-105
Coal production
90
90-92
Net imports (exports)
(6)
4-15
Hydro-Nuclear
14
25-37
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1980
1990
2000
range
range
Energy consumption
202
220-246
241-281
Net imports
152
Oil consumption
113
87-111
Oil production
2
2
Net imports
113
85-98
Natural gas consumption
22
24-35
Natural gas production
6
3-4
Net imports
17
20-28
Coal consumption
36
16-39
Coal- production
15
11-16
Net imports
22
5-23
Hydro-Nuclear
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Italy
mtoe
1980
1990
2000
range
range
Energy consumption
146
159-182
Net imports
121
134-154
Oil consumption
98
76-101
Oil production
2
2
Net imports
96
74-99
Natural gas consumption
23
30-34
Natural gas production
10
6-10
Net imports
12
20-26
Coal consumption
13
23-36
Coal-production
1
1
Net imports
Hydro-Nuclear
12
34-35
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United Kingdom
1980
1990
2000
range
range
Energy consumption 204
204-221
214-251
Net imports (exports) 12
(7)-(23)
Oil consumption 83
70-80
Oil production 81
68-105
Net imports (exports) (2)
(18)-(25)
Natural gas consumption 41
44-48
Natural gas production 32,
37-40
Net imports 8
4-9
Coal consumption 70
68-85
Coal production 75
77-84
Net imports (exports) 1
1-(3)
Hydro-Nuclear
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Germany, Italy, and France combined are expected to account for
over half of all West European gas consumption in both 1990 and
2000.
Most of the growth in West European gas demand probably will
occur in residential/commercial sector. One major firm expects
this sector to account for half of European gas demand in 1990
and 2000 while the West German gas association forecasts that the
number of households hooked up to gas will rise from 5.4 million
in 1980 to 9 million by 1990. DRI projects the share of gas in
the residential/commercial sector will rise from about one-fourth
to about one-third by 2000 and that oil and gas combined will
supply about two-thirds of energy requirements in this sector.
The ability of gas to penetrate the industrial sector will be
limited, however, by price competition with residual fuel oil.
Power plant usage of natural gas is expected to continue to fall
in absolute terms as higher gas prices relative to competing
fuels--particularly nuclear and coal--make it difficult for power
companies to expand gas use.
- West European gas production is expected to approximate 143-
165 mtoe by 1990, and to range from 123-165 mtoe by 2000. Dutch
output is expected to fall from 70 mtoe in 1980 to about 50 mtoe
in 1990 and 25 mtoe in 2000. These lower production estimates
reflect current Dutch policy to ban new gas export contracts. It
is possible, however, that the recent slump in domestic gas
sales, and future government revenue requirements could lead to
some relaxation of the ban on new export sales. Norway, with its
huge North Sea reserves, will have the ability to increase gas
production sharply in the 1990s. Recent projections put
Norwegian'production as high as 32 mtoe in 1990 and 43 mtoe in
2000. These estimates assume, however, that continental buyers
will be willing to pay some premium for Norwegian gas in order to
diversify their sources of supply.
Coal. Forecasts of West European coal consumption in 1990
range from 298-389 mtoe. Projections for coal use in 2000 range
Nuclear and Hydro. Nuclear and hydro production combined
are expected to double during this decade to 264-297 mtoe. Based
on expectations of expanded nuclear plant construction,
consumption of these fuel sources is expected to reach 330-396
mtoe by 2000.
Implications for Energy Trade
Despite substantial progress in reducing energy needs
through conservation and substitution since early 1970s, industry
projections point to continued high Western European dependence
on imported energy supplies, especially oil and natural gas,.
through the end of the century. During the period, most
forecasts expect Western Europe to depend on imported energy for
40-50 percent of total energy requirements. Reliance on imported
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energy in individual West European countries will vary widely.
The United Kingdom, Norway, and the Netherlands will basically
remain self-sufficient in net energy trade. In contrast,
dependence on imported energy in West Germany and France is
expected to approximate 50-60 percent and reliance on imports in
Italy is projected to exceed 80 percent through 2000.
West European reliance on imported oil'is expected to fall
to 402-490 mtoe in 1990 and 300-553 mtoe by 2000. Based on the
mid range estimate, imported oil as a percent of energy
requirements will fall to roughly 30 percent in 1990 and about 25
percent in 2000. The major West European countries will remain
heavily dependent on imported oil.
o France is expected to depend on imported oil for 34-45
percent of total energy requirements through the end of
the century.
o West German dependence is expected to trend downward
but remain at about 30-40 percent of total energy.
o Net oil imports as a share of total energy in Italy is
expected to range from roughly 50-60 percent in 1990
and 35-40 percent in 2000.
Future oil import patterns are difficult. to predict. Flows
will depend in part on political developments' and contractual
arrangements. Although no estimates are available for sources of
imports for 1990 and beyond, most forecasters indicate that OPEC
will retain its position as the principal supplier of
internationally traded oil. Most long term forecasts indicate
demand for OPEC oil will approximate 25-30 million b/d or roughly
half of Free World oil supplies between 1990-2000. Because
Persian Gulf OPEC countries account for nearly 60 percent of Free
World oil reserves, Western Europe's reliance on this region will
remain substantial. 25X1
Natural Gas
Recent forecasts project West European gas import needs as
low as 40 mtoe and as high as 77 mtoe in 1990. Based on the
midpoint estimate of natural gas consumption and indigenous
production in these forecasts, we estimate the region's natural
gas import demand will approximate 71 mtoe in 1990 or about one-
third of anticipated total gas requirements (Tables 3-8).
o The USSR is expected to supply about 40-45 mtoe or
about 20 percent of total gas requirements. France,
West Germany, and Italy will be the major importers of
Soviet gas. France and Germany have already signed
contracts for additional supplies of gas from the USSR
which could push dependence on Soviet gas above 30
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West Europe Natural Gas Supply and Demanda
mtoe
1980b 1990 2000
mid range mid range
estimate estimate
179 212
Production 159 141 110
of which Netherlandsc 70 47 26
Norwayc 24 24 14
United Kingdom 32 39 40
other Europe 34 31 29
Import Demand 26 71 134
Non OECD Contracted Supplies 26 63 to 71 64 to 71
Sovietd 40 to 45 40 to 45
existing 21
Urengoi 21 21
minimum 19 19
maximum 24 24
Libya 3 3
Algeriae
minimum 4 20 20
maximum 23 23
Other 1
Supply Gap 0 to 8 63 to 70
potential supplies
Algeria 23 to 29
Norwayf 3 53
Netherlands 16 14
LNG 19
USSRg 8 to 12 8 to 1'2
a. Numbers may not add to totals shown due to conversion and rounding
b. 1980 data is actual trade. Discrepancy between supply versus
consumption is stocks and losses in transformation.
c. Export contracts plus domestic consumption. Netherlands consumption
assumed at 30 mtoe in 1990 and 20 mtoe in 2000.
d. Soviet contract estimates include Italy.
e. Algerian contract estimates do not include Spain, as contracts are
being renegotiated.
if. Norway potential includes Sleipner; Troll and several other small
fields.
g. USSR supply potential is for existing export capacity only.
Note: 1 bcm = .82 mtoe.
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1980b
1990
2000
mid range
estimate
mid range
estimate
Demand
48
49
Production
15
14
Import Demand
Contracted Supplies
38
37 to 39
25 to 27
Soviet
9
17 to 19
17 to 19
existing
9
10
10
Urengoi
minimum
7
7
maximum
9
9
Libya
Algeria
minimum
maximum
Netherlands
20
12
Norway
9
8
Supply Shortfall (Surplus)
a. Numbers may not add to totals shown due to rounding.
b. Actual trade.
Note: 1 bcm = .82 mtoe.
West Germany Natural Gas Supply and Demanda
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France Natural Gas Supply and Demanda
1980b
1990
2000
mid range
estimate
mid range
estimate
Demand
23
30
Production
6
4
Import Demand
17
26
Contracted Supplies
17
19 to 21 19
to 21
Soviet
8 to 10 8
to 10
existing
3
3
3
Urengoi
minimum
5
5
maximum
7
7
Libya
Algeria
minimum
maximum
Netherlands 10
Norway 2
3
Supply Shortfall (surplus)
5 to 7 8
to 10
a. Numbers may not add to totals due to rounding.
b. Actual trade.
Note: 1 bcm = .82 mtoe.
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Italy Natural Gas Supply Demanda
Demand
Production
Import Demand
1980b 1990 2000
mid range mid range
estimate estimate
22 32
10 6
12 26
Contracted Supplies 13 28 to 30 23 to 25
Soviet 11 to 13 11 to 13
existing 6 6 6
Urengoi
minimum 5 5
maximum 7 7
Libya 1 2 2
Algeria 10 10
minimum
maximum
Netherlands 6 5
Norway
Supply Shortfall (Surplus)
a. Numbers may not add to totals shown due to rounding.
b. Actual trade.
Note: 1 bcm = .82 mtoe.
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United Kingdom Natural Gas Supply and Demanda
1980b 1990 2000
mid range mid range
estimate estimate
Demand
41
45
Production
32
39
Import Demand
9
6
Contracted Supplies
9
10
Norway
8
10
Algeria
1
Supply Shortfall (Surplus)
a. Numbers may not add to totals shown due to rounding.
b. Actual trade.
Note: 1 bcm = .82 mtoe.
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Belgium Natural Gas Supply and Demanda
1980b 1990 2000
mid range mid range
estimate estimate
Demand
Production
Import Demand
Contracted Supplies
10
4 to 6
4 to 6
Soviet
existing
Urengoi
minimum
maximum
Netherlands
8
Norway
2
2
2
Algeria
minimum
2
2
maximum
4
4
Supply Shortfall (Surplus)
a. Numbers may not add to totals shown due to rounding.
b. Actual trade.
Note: 1 bcm = .82 mtoe.
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percent of requirements. Italy is also expected to
contract for an additional 5-6.5 mtoe bringing Italian
reliance on Soviet gas to about 36 percent by 1990.
o Based on current contracts, Algeria is expected to
supply Europe with 20-23 mtoe of natural gas in 1990--
about 10 percent of total requirements. Most of this
gas will go to France and Italy.
o Libya is expected to export about 3 mtoe of liquefied
natural gas (LNG) to Italy and Spain in 1990.
While we believe contracted supplies should be ample to meet
projected demand in Western Europe through 1990, the situation
varies across individual countries.
o Italy probably will cover import needs through 1990 if
they sign to take additional Soviet gas.
o France has supply contracts to cover 80 percent of gas
import requirements but will need to get an additional
6 mtoe to meet projected demand. Paris may be able to
rely on Dutch contract flexibility to meet at least
part of this shortfall.
o Based on current estimates of gas demand in 1990, West
Germany could have surplus gas supplies of 1 to 2
mtoe. German utilities probably will eliminate this
surplus by exercising their option to reduce purchases
of Siberian gas by 20 percent. A decision by the
utilities on this matter has been deferred until
October 1983.
o Belgium has firm supply contracts for about half of
expected requirements and is seeking additional Dutch
gas to meet part of the projected 4-6 mtoe shortfall by
France, Belgium, and Italy could realize a shortfall in
contracted supplies from Algeria because of production problems
in Algeria's largest gas field. We estimate that on average
Algeria will meet only about one-half of its annual gas export
commitments in the late 1980s and early 1990s. If demand
materializes as expected, such a shortfall probably would
encourage additional European purchases of-Soviet gas late in the
decade or force higher levels of domestic production.
1990s
If the mid-range demand estimate of 244 million mtoe in 2000
proves accurate, we believe Western Europe will need to contract
for additional gas supplies for the 1990s. Based on existing
contracts and estimates of indigenous production, total gas
availability in Western Europe will approximate 174-181 mtoe:
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o The USSR will supply 40 to 45 mtoe of gas to Europe
through 2000.
o Algeria will export 21-23 mtoe of natural gas annually
to Europe through the end of the century.
o Libya is committed to export about 3 mtoe to Western
Europe to 2000.
o Norway has contracted to supply about 14 mtoe of
natural gas to Germany, France, Belgium, and the
Netherlands to 2000.
o The Netherland's export contracts expire before 1995;
the Dutch are expected to produce only 26 mtoe in 2000
to meet domestic requirements.
o Other West European production--mainly from the United
Kingdom--is expected to approximate 71 mtoe.
Given demand estimates from recent forecasts, Western Europe
will need to contract for an additional 63-70 mtoe for the 1990s
to balance gas needs. Unless gas demand is sharply below
anticipated levels and/or future gas export availability from
North Sea producers is higher than currently projected, West
European countries will have a difficult time holding dependence
on a single supplier to no more than 30 percent of requirements
as recommended recently by the IEA.
Potential Suppliers
Several gas producers are in an, excellent position to supply
any incremental gas to the West European market in the 1990s
because of their substantial gas reserves. Norway, Canada, Iran,
Nigeria, Algeria, and the Soviet Union have all viewed the
European market as a potential outlet for new gas sales. Except
for Moscow and Algiers, however, decisions must be taken soon to
ensure deliveries by the early 1990s.
Norway
The Norwegian Government, which has traditionally pursued a
go-slow attitude toward offshore petroleum development, has
recently underscored its willingness to make substantial volumes
of gas available to Western Europe in the 1990s. Norway has two
major natural gas fields available for development in the 1990s,
the Sleipner field and the Troll field, and sufficient gas
reserves to support expanded production after 2000. Sleipner and
Troll combined contain natural gas reserves of over,1,640 mtoe.
Sleipner could potentially produce 16 mtoe per year by 1995 and
production from Troll could approximate 33 mtoe by 2000. Gas
from neither of these fields is currently contracted for,
however, and new large North Sea projects of this type are likely
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to be quite costly compared to supplies available from other
sources.
Further complicating examination of potential Norwegian gas 25X1
supplies available to Western Europe is the fact that the
continental and UK gas markets are physically separate and
compete for Norwegian gas. Although a decision has not yet been
made, there is a good possibility that Sleipner gas will be
landed in the UK, leaving only Troll gas as an additional
Norwegian source available to the continent in this century.
State Department reporting indicates that the current thinking in
Oslo is to move forward quickly with negotiations for the sale of
Troll gas--probably in 1984--without waiting for completion of
exploratory drilling on neighboring blocks. 25X1
Algeria. Despite near-term problems with gas production and
exports., we believe declining oil and natural gas liquids
production in the 1990s will force Algeria to seek expanded
markets for natural gas.1 Although committed to exports of only
about 23 mtoe in 2000, Algeria's gas reserves could permit an
additional 23 to 29 mtoe of natural gas exports by the end of the
century. Any expansion in gas exports will require sizeable
investments in numerous new production wells and gas pipelines.
Libya and Other Potential LNG Suppliers. Although committed
to supply about 3 mtoe of gas to Western Europe through 2000,
Libya could potentially export an additional 9 mtoe by either
increasing LNG export facilites or constructing a pipeline to
Europe. As much as 10 mtoe of LNG could also be available from a
variety of other suppliers including Cameroon, Nigeria, Qatar,
and possibly Canada. Most of these projects are still being
studied, however, and we believe prospects for several of these
projects appear increasingly doubtful because of the weak energy
The Soviet Union. Vast natural gas reserves in West Siberia
indicate that total potential natural gas supplies from the USSR
to Western Europe are probably limited only by European demand
25X1
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for Soviet gas. By minimizing hard currency outlays and
accepting relatively low returns on domestic resources, the
Soviet Union is capable of delivering gas to western Europe at
prices which are competitive with all other fuels. Moreover, to
ensure hard currency earnings, we believe the Soviets will
continue to price their gas at or below prices offerred by
competing suppliers. The apparent readiness of the USSR to agree
to more flexible delivery patterns also enhances the competitive
strength of Soviet gas in the European market. Because of
surplus capacity in the existing export pipeline system, the
Soviet Union already has the capability of delivering. at least 8-
12 mtoe of additional, gas to Western Europe and continues to seek
new markets for gas.
The Netherlands, currently Europe's largest gas supplier, is
the most reliable and economical source of additional gas. Under
current government policies designed to conserve gas resources,
Dutch gas for exports will dwindle to zero by 2000. Contract
flexibility and Dutch revenue needs could alter this situation.
o Gas deliveries under existing contracts--due to be
phased out in the early 1990s--can probably be
stretched through at least the mid-1990s by deferring
gas deliveries from earlier years when available
supplies exceed demand. Both France and Italy, for
example, have recently cutback Dutch imports to
conserve these reserves for strategic purposes.
o Given the size of Dutch gas reserves--about 1,722 mtoe- 25X1
-and the budgetary pressures confronting the Hague, a
new gas policy is being formulated, and we believe new
export contracts might be authorized.
however, any additional exports will 25X1
probably be at a premium price.
In absence of a change in current government export policy,
the Netherlands could still act as a potential offset in the
event of a supply disruption. We believe the Dutch, however,
would likely demand compensation to hold strategic reserves for
other countries.
Coal. Rising consumption combined with fairly flat domestic
production is expected to increase to West European dependence on
imported coal to 200-300 mtoe by 2000--about 15 percent of total
energy requirements. Coal trade within the region is expected to
decline gradually with the bulk of the increase in imports
projected to come from other OECD countries, primarily the United
States and Australia. Other sources of supply will likely be
South Africa and new coal exporting countries like Colombia.
West European imports of coal from Poland and the Soviet Union
could increase by a small amount.-
25X1
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Impact of Lower Oil Prices
Continued weak demand has already forced a drop in oil
prices and a further decline remains a distinct possibility.
Should this occur, future energy supply and demand patterns could
be considerably different from current projections. The improved
competitiveness of oil initially would dampen non-oil energy
demand relative to oil, and increase West European dependence on
imported oil supplies.
Even if lower energy prices eventually resulted in greater
economic growth and increased energy consumption as expected,
they would also reduce the amount of new energy projected to come
from high cost indigenous production. In particular, lower oil
prices could lead to the delay of major new North Sea projects
such as the Norwegian Troll field because low returns would make
these large capital investment projects highly uneconomic. At
crude oil prices of $25 per barrel'and below, for example,
residual fuel oil prices would approximate $3.60 per million Btu
or less while new gas deliveries from Norway would cost about $5
per million Btu. Investments in some high cost North Sea oil
projects would be similarly affected.
we estimate that a
fall in the price of crude oil to $25 per barrel--15 percent
below our base case--would lead to an increase in energy demand
of 50 mtoe in Western Europe by 1990. Because nearly all the
increase is in the demand for oil, gas demand remains virtually
unchanged. Unless gas producers were confident of a substantial
rebound in energy prices or gas development projects were
subsidized, Norwegian and other projects probably would be
postponed.
Because of the long lead times required to bring gas
reserves on stream, no new North Sea gas supplies would then be
available if energy demand recovered in the early 1990s. Such
developments would enhance the Soviet Union's ability to capture
a greater share of the West European gas market, given the
Soviets' surplus capacity in existing pipelines and considerable
flexibility in directing gas from domestic pipelines. We believe
Moscow's need for hard currency earnings would ensure that its
gas would be priced competitively with other fuels to guarantee
access to the European market. When market conditions did
tighten again, however, the Soviets could then be expected to
raise prices to maximize revenues.
Policies to Increase Energy Security
Since 1973, West European governments have recognized the
need to reduce reliance on imported energy, particularly oil.
Most countries have encouraged conservation, substitution,
increased indigenous production and diversification of import
sources, although policy emphasis among the major governments has
varied. West Germany has relied on a free market to spur
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conservation. France has pushed conservation and development of
nuclear power and the UK has emphasized development of indigenous
supplies.
Oil. Most West European governments have concentrated on
measures to reduce dependence on imported oil and have instituted
compulsory oil stock regulations to cope with supply
disruptions. The EC Commission, for example, requires each
member country to maintain onshore stocks of oil products
equivalent to 90 days of last year's inland oil consumption. In
the UK and France, the oil industry has to meet virtually the
entire compulsory stock requirement. Public companies have been
established in West Germany and the Netherlands to hold part of
compulsory stocks. Based on industry analysis, we estimate
compulsory stocks in excess of minimum operating levels in
Western Europe are equal to roughly 41 to 55 mtoe. The West
Germans have also established a government-owned stockpile
containing about 8 mtoe.
Some measures governments have considered or implemented to
cope with disruptions include:
o relaxation of oil price controls--in part to assure a
fair supply of oil during an emergency,
o contingency plans to allocate or ration petroleum
products during major disruptions, and
o use of the IEA and EC sharing plan. I 25X1
Gas. In response to the large and increasing share of gas
imports in total gas consumption, some European countries have
also begun to implement policies designed to minimize the impact
of an interruption in gas supplies. These measures include
diversification of supply sources, conservation of indigenous gas
resources, increased storage of natural gas, increasing the
number of interruptible contracts, and reliance on the
Netherlands for increased supplies during an emergency.
o In West Germany, most new industrial gas customers are
now offered only interruptible contracts. Recent
estimates indicate that from 20 to 25 percent of German
industry has the capability to switch from natural gas
to alternative fuels--primarily oil. In the event of a
supply disruption, gas utilities would require
customers with dual-fired capability to switch to
alternate sources of energy. We estimate this could
amount to roughly 6 mtoe annually by 1990.
o Current French government plans call for doubling
storage capacity to 9 mtoe by 1990, about one-half
dedicated to meet peak winter requirements. Gaz de
France intends to increase the amount of gas it sells
under interruptible contracts from 15 percent of
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current sales to 20 percent in 1990 or about 5 mtoe
annually.
o Italy plans to increase gas imports in this decade and
shut in about 4-5 mtoe of domestic production for use
in an emergency. Storage capacity is expected to
approach 6.5 mtoe in 1990 but about half of this is
committed to meet seasonal needs.
Risks of Disruptions
Although the odds are against a major internal or external
disruption in energy supplies in any particular exporting nation
or region, the probability of some sort of disruption occuring is
quite high--particularly for oil and natural gas. Since 1950,
for example, oil supplies from major exporting countries have
been interrupted on 13 occasions. Since a large proportion of
the oil used by Western Europe will continue to be imported, the
risks associated with a disruption will remain high.
Increased dependence on natural gas imports from a few
countries also raises the potential cost of a gas supply
disruption. Western Europe will be importing substantial volumes
of natural gas from three potentially insecure sources, the USSR,
Algeria, and Libya. Natural gas is less flexible than oil
because transmission systems are fixed and supplies are
limited. While the international community has limited
experience in dealing with gas disruptions, Soviet gas supplies
have been disrupted on several occasions in the past during the
peak winter demand period because of technical problems and
Moscow's own pressing needs for domestic consumption. In the
event of a future cutoff, consumers are unlikely to know, at
least initially, either the size or duration of a disruption and
these uncertainties could lead to severe pressures to take
actions.
Specific conditions prevailing at the onset of an oil or gas
supply disruption--such as the level of commercial and strategic
stocks, position in the business cycle, the level of
international cooperation and political leadership abilities--can
also have an important impact on the nature of the market
reaction. Perceptions regarding the uncertainties which will
probably surround most disruptions along with the specific
environment in which the disruption takes place have the
potential to turn even seemingly minor problems into major
crises.
Oil Disruptions
Based on our survey of recent market forecasts, the gradual
erosion of excess productive capacity later in this decade will
leave the oil market increasingly vulnerable to supply cutoffs
around 1990 and beyond. The oil industry believes a 2-3 million
b/d of surplus capacity is needed to keep the oil market
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stable. Although stocks will play a role in mitigating impacts,
the cushion of surplus commercial stocks will likely be far below
current levels by 1990. In addition, consuming countries have
shown a reluctance to drawdown compulsory or strategic stocks
during an interruption. Even so, the potential for a drawdown in
these stocks could have a dampening effect on prices. We have
examined three possible oil disruptions in 1990, each lasting six
months and under forecasted market conditions.
A 13 million b/d loss in.productive
capacity. For example, a supply cutoff from
the Middle East.
A 5 million b/d loss in capacity associated
with an event such as a major war in the
Persian Gulf area.
A 2 million b/d loss in capacity in a single
country or in several countries for
technical or political reasons.
Economic Impacts of Oil Supply Disruptions
for 1990, a net oil shortfall was calculated for each of the
three hypothetical disruptions. The CIA model was then used to
measure the impact on price, GNP, and energy demand. The result
of the simulations for the first year effect on Western Europe
compared against a base case (no disruption) are as follows
(Table 9).
from a supply disruption
Based on the mid-range of projected supply demand levels 25X1
impacts such as consumer stockbuilding behavior. We have
attempted to measure the order of ma nitude of economic impacts
Previous oil supply disruptions in 1973 and 1979 caused
major economic impacts. Oil prices rose sharply and in the
months following the disruption there was a noticeable increase
in inflation, a slowdown in economic growth and a rise in
unemployment. The precise economic impacts of future supply
disruptions are difficult to gauge because of structural changes
that have occurred in the relationship between energy use and
economic growth and the inability to estimate psychological 25X1
Class I
GNP
and
base
loss amounts to 3.8 percentage points
oil prices rise 52 percent above the
case level.
Class II
GNP
is reduced by 1.4 percentage points and
oil
case
prices rise 18 percent above the base
level.
Class III
GNP
is reduced by 0.6 percentage points and
oil
case
prices rise 7 percent above the base
level. (C)
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Table 9
Disruptions: Effect on Crude Oil Price in 1990
(percentage increase from base case)
Oil Oil and Gas
Middle East Plus Saudi Arabia Plus
Class I Class 2 Class 3 Soviet Union Soviet Union
52 18 7 53
Effect on GNP in 1990 in Western Europe
(percentage point change in GNP from base case)
-3.8 -1.4 -0.6 -3.9 -2.5
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Gas Supply Disruptions
Based on expected levels of gas consumption and imports,
growing dependence on imported gas in the late 1980s could pose
problems for Western Europe. A disruption in gas supplies from
the Soviet Union or from the Soviet Union and Algeria would
sharply reduce gas availability if measures are not taken to
limit vulnerability. The Soviets might be inclined to disrupt
gas supplies to Western Europe for several reasons.
o To pressure West European governments to adopt policies
more favorable to the Soviet Union.
o To countervail economic sanctions, including a grain
embargo.
By 1990,, gas supplies from Algeria and the Soviet Union could
supply one-third of overall gas demand in Western Europe, and a
much higher percentage in France and Italy. A gas supply
disruption in Europe, therefore, is potentially quite serious,
particularly in the event that suppliers were to act in
concert.
The seasonal nature of gas requirements would tend to
magnify the potential impact if a disruption occurred in the
winter. West European winter gas consumption in 1981, for
example, averaged about 720 million cubic meters per day (215
mtoe annually),while summer requirements declined to about 360
million cubic meters per day (107 mtoe annually). Because most
of the growth in gas use is expected in the residential sector,
fluctuation in seasonal demand will likely be even more
pronounced in the future.
West German imports of gas from the Soviet Union are
contracted to be as much as 17-18 mtoe or about 36 percent of
projected gas supplies in 1990. French imports could be 9-10
mtoe or about 32 percent of gas needs and Italy will probably
rely on Soviet supplies for 9-10 mtoe or 36 percent of
requirements. The Soviet Union and Algeria together could be
providing almost 70 percent of total Italian gas supplies and
almost 60 percent of French requirements by 2000. Although a
combined-Soviet-Algerian disruption is unlikely, we believe joint
action cannot be ruled out. In a more likely case, a major
interruption from one supplier would result in higher prices but
continued supplies from the unaffected country.
We have examined a gas supply disruption during the winter
of six month duration. To assess the impact, we estimated the
following possible supply offsets to determine the vulnerability
of the key individual countries.
o the level of potential surge capacity from excess-
indigenous production,
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o the volume of gas available from cutting off
interruptible contracts,
o surge capacity from the Netherlands, and
o stock draws from gas storage. 25X1
The amount of supply offsets were estimated based on
government plans and/or industry projections. In the case of
additional supplies from the Netherlands, we have assumed export
capacity is approximately equal to deliveries during the winter
of 1979-1980 when Dutch production and exports peaked at 223
million cubic meters/day (see Figure 6).
Our analysis indicates that Italy would have a more
difficult time than France and West Germany in coping with a loss
in Soviet and Algerian gas supplies in 1990. Italy's flexibility
is limited mainly by the lack of opportunity to increase Dutch
imports during a disruption. Italian imports of Dutch gas are
already scheduled to approximate peak levels in 1990. Even
France and West Germany would require a cutback in supplies to
some customers and sharp inventory drawdowns. Both would also
have to rely on incremental Dutch production to offset
interrupted supplies. Because precise engineering data on the
gas transmission system is not available, it is uncertain whether
sufficient capacity exists to deliver the extra volumes of Dutch 25X1
gas to all affected customers. Indeed, a study by the Rand
Corporation indicates that France could have problems drawing on
Dutch supplies because of physical limitations in the grid.
A total cutoff of Soviet gas in the winter could amount to
about 150 million cubic meters per day, about one-sixth of
anticipated winter demand in 1990. Possible estimated supply
o Increased indigenous production of 49 million cubic
meters per day mainly from West Germany and Italy.
o An additional 150 million cubic meters per day of surge
production from the Netherlands.
o Cutting off customers with interruptible contracts
which could equal about 80 million cubic meters per
day.
o Drawdown of surplus inventories of 52 million cubic
meters per day mainly from Italy and France. 25X1
On balance the available offsets appear adequate to offset a
Soviet gas disruption in 1990. This does not preclude, however,
some upward pressure on energy prices. Fuel switching could add
upward pressure on oil prices and because of the linkage between
oil and gas prices, the latter could increase as well. Energy
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WESTERN EUROPE: GAS FLGv%S FROM THE NETHERLANDS,. 1980
WESTERN EUROPE
230
223
200
173
130
123
u 100
v 73
5 ao
23
0
PEAK 4v+-"
NlONTd *
230-
223-
200-
173-
ISO-
123-
100-
73-
301
23
0
I TALY
230
250
223
225
200
200
173
175
1450
100
125
123
100
100
73
73
ao
50
245
23
= 0
0
VEST GERMANY
PM JAN-*M 2980
MCND*
BELG I UM-LUXafOLRG
44.9 40.5
PEAK 444-" 1980 PEAK .W+-"
A i1* Rio
FRANCE
230
225
200
173
130
123
100
73
50
25
0
PEAK 4v+-" 1980
A Il
*The peck month Is January for a
countries except France - Novato
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prices in and of themselves might be bid up because of the
uncertainties regarding the length of a disruption.
Simultaneous Oil and Natural Gas Disruptions
A simultaneous energy supply disruption involving oil and
natural gas would pose very serious problem for Western Europe,
particularly in the 1990s. We have examined two possible
scenarios (see Table 9):
o a cutoff of middle East oil and Soviet gas supplies,
and
o a cutoff of oil supplies from Saudi Arabia and Soviet
supplies. 25X1
The impact of either disruption in 1990 on Western Europe
would be severe. In the first scenario Western Europe would be
deprived of about 15 percent of total energy supplies in 1990 and
in the second scenario, total West European energy supplies would
ffced by about 10 percent. 25X1
oil prices would rise by more than 50 percent and the GNP 25X1
loss in Western Europe would amount to about 4 percentage points
under the first case. These results, however, understate the
impact because the model is able to capture the impact of lost
gas supplies only to the extent that gas users are able to
convert to oil. 25X1
A dual-fuel supply disruption, particularly in the winter,
would eliminate most of Western Europe's contingency plans for
coping with a supply cutoff since the bulk of fuel switching
capability in industry is between oil and gas. In addition to a
likely sharp runup in energy prices, availability would be
severely limited, especially in the residential sector.
According to one study, oil and gas combined will supply about
two-thirds of energy consumption in the residental sector in
Western Europe by'1990 and 75 percent by 2000 (Figures 7-10).
Residential sector dependence could approach 80 percent for
Italy.
Future Policy Options
Decisions made in the next few years will determine Western
Europe's dependence on imported energy to the end of the century.
Measures already taken probably will reduce oil's role in total
energy consumption but Europe will continue to rely heavily on
oil imports from the Middle East. Although probably little can
be done about substantially increasing indigenous oil production,
European countries can to the extent possible diversify supplies
away from the Middle East. European countries will have to
import increasing amounts of natural gas over the balance of.the
century. Unless indigenous supplies are developed in the
Netherlands and Norway, European dependence on Soviet and
Algerian gas supplies could exceed 50 percent by 2000.
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Figure 7
WESTER\1 ELOFL ENERGY CONSLffWI1ON
BY SECTOR, 1990
,r
R ,end/cam f;a,
I
VON,
KIM
OMNI'
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222 aMrTaarr
M COAL
00 NAnRAL GAS
40~' /0-k 4P
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Figure 8
WESTERN EUROPE ENERGY CONSUMP11ON BY sECroR, 2000
Pffced
Rya/cad Twsp