Impact of the Common Market on the Petroleum Industry
Authors: Meredith James B. 
Published: December 2007

The European Common Market is rapidly shifting from a coal-oriented to an oil-oriented economy. Because of this shift in fuel use, and because oil is largely imported, the six countries have resolved to develop an over-all energy policy. The suggested policy aims at low-cost energy, free competition and free consumer choice of type of energy, but recognized the security problems associated with imported energy. Individual Common Market members have widely varying interests in the negotiations on these matters, and the outcome on many issues is uncertain. The oil and coal industries will both be keenly affected by developments in coming months.

Introduction

The European Common Market is now shifting from a coal-oriented to an oil-oriented economy. The proportion of energy supplied by oil has increased from only 13 per cent in 1950 to 38 per cent in 1962, and will approach 50 per cent by 1970. In the past five years, Common Market petroleum demand has increased 15 per cent/year compared with only 3 per cent/year in the United States.

Reasons for Shift to Oil

The rapid shift to oil can be explained by looking at oil's competition. First, there is simply not enough indigenous European energy-natural gas, coal and hydroelectric power-to meet the demand. Secondly, oil's primary competitor in the Common Market is coat and Community coal is high- priced-it costs more than 2 1/2 times as much as U.S. coal at the pithead. The third reason for the shift to oil is consumer preference for the convenience and cleanliness of liquid fuels. As these reasons suggest, much of the shift to oil and the resulting growth in demand would have occurred with or without the existence of the Common Market organization. On the other hand, almost certainly the Common Market, by stimulating general economic growth, has caused higher over-all energy consumption, and oil has been the beneficiary of most of this growth. .In 1962 cot and oil together supplied almost 90 per cent of the Community's energy requirements, with coal having the larger share, or about half of the total energy market. These two sources of primary energy are each other's major competitors. Thus, in order to assess the impact of the Common Market on oil, coal must be considered.In recent years the Common Market's coal industry has become increasingly protected from competition by quotas and tariffs on imported coal, and by high taxes on competing petroleum products. Coal's protection has been thought necessary by the governments involved since many of the Community's coal mines have become noncompetitive in the decline of energy prices which has occurred. The problem lies in the high costs of the Community's coal mines. Production totals only 60 per cent of that of all U.S. coal mines, but four times as many men are employed as in the U.S. coal industry. One man produces only 2 metric tons per shift, contrasted with U. S. production of 12 metric tons per man shift.It must be emphasized that mining costs are high due primarily to the difficult geological characteristics of European coal deposits. The seams lie farther underground and are thinner than in the U. S. They are frequently twisted, faulted and irregular. There is more water drainage than in U. S. mines. In Belgium, for instance, ground surrounding the mines has had to be artificially frozen to prevent water penetration from causing cave-ins.On the average, European mines are more gassy than U. S. mines. In short, European coal mining requires more physical effort and is less adaptable to mechanization than U. S. coal mining. Compounding these problems is the fact that prior to 1957 Community mines sought to extract the largest possible quantities of coal with minimal emphasis on maintaining quality and on modernization. In the then existing circumstances, this policy was not unreasonable since there were large demands for coal both during the war and for postwar reconstruction. Moreover, a tight balance- of-payments situation in Europe insured high demand for coal by placing a brake on imported energy. But this policy did not help coal to prepare for the stiffly competitive situation that developed after 1957.

New Attitudes Toward Energy Problems

Recently, governmental thinking on energy in the Common Market has been changing.

1. The wisdom of a high energy cost policy has come under fire. Until two or three years ago, the approach to coal's problems was to think of coal as the major source of energy and of oil as a helpful but less important newcomer.

JPT

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