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Vol. 1984/0 226 
  
 
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concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
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In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the openi ng to the public of the historical archives of the European Econom ic 
Community and the European Atomic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), this f ile is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februar 198 3 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
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COMMISSION OF THE EUROPEAN COMMUNITIES
COM(84) 583 final
Brussels, 26 October 1984
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL
CONCERNING NATURAL GAS
COM(84) 583 final

I N D E X
Page
1. Introduction 1
2. Recent Developments 2
3. Place of Natural Gas in the Total Energy Balance 3
4. Future Supplies and Security 6

1.Introduction
1.1. In a Communication from the Commission to the Council concerning  
natural gas (C0M(84) 120) of April 1984, attention was focused on  
natural gas supply prospects to the year 2000 and the development  
of security measures.
1.2. The Communication was discussed by the Council (Energy) on 22 May.  
In order to facilitate discussion on policy guidelines for natural  
gas at the next meeting of the Council (Energy), the Commission  
was asked to study the role of natural gas in the total energy  
balance and to develop further the themes of supply diversification  
and security measures.
1.3. In carrying out this study, the Commission obtained valuable  
assistance from Member States' experts.

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2. Recent Developments
2.1. Before discussing the main issues, it is necessary to update the picture  
by outlining some of the more important developments since last April.
2.2. The recovery of natural gas demand, first observed in 1983 after three  
years of decline, continued in 1984. In the first eight months an  
increase of 8.1% on the previous year was registered.
2.3. Imports from third countries during the same period increased by over  
20%; and there was a rise of 2.5% in indigenous production.
2.4. Negotiations between the Governments of the United Kingdom and Norway  
on the purchase of Sleipner gas have continued but no agreement has  
been reached.
2.5. Negotiations between Ireland and the UK (Northern Ireland) on the sale  
of natural gas from the Kinsale field collapsed on the issue of a  
review, requested by the United Kingdom, of the purchase price initially  
comtemplated.
2.6. In May 1984, Italy completed a renegotiation of the outline agreement  
reached with the USSR in 1981. Under the revised terms, offtake  
obligations and price were reduced. The Federal Republic of Germany  
also renegotiated the volume and delivery conditions of its contract  
with the USSR with comparable results.
2.7. The USSR offered Belgium short-term deliveries of natural gas geared  
to supplying the Belgian fertilizer industry. Belgium finally did not  
take this gas as the Netherlands offered a special arrangement.

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3. Place of Natural Gas in the Total Energy Balance
3.1. Earlier this year the Commission, in its review of progress towards  
attainment of the Community's 1990 energy objectives CD, presented  
the latest available projections by Member States of energy supply  
and demand up to the end of the decade. Underlying many of those  
projections was an assumption of a return to substantial and  
sustained levels of economic growth from the mid-1980's (an average  
of 2.4% a year) and a continuation of improvements in energy use per  
unit of output, although at a lower rate than in the past few years.
The net result was an expectation that energy demand would increase  
by some 17% over 1982-1990, with natural gas growing at a slightly  
higher rate and therefore increasing somewhat its market share over  
the period. Similar projections underlay the figures and analysis  
given in the Commission's last report on natural gas supplies.
3.2. More recent information from Member States suggests that there is now  
greater uncertainty about the likely evolution of energy demand
and about the prospects for individual fuels in the medium and long term.  
There is particularly uncertainty about trends in economic growth, about  
the likely evolution in the structure of industry and its impact on energy  
demand, and about energy prices, particularly in the medium term. The  
result is less consensus about future economic and energy conditions,  
complicating the framework within which policy development for particular  
sectors, including gas, must be pursued.
3.3. In preparation for Council discussions to identify energy objectives  
for a horizon going beyond 1990, the Commission services are undertaking  
a comprehensive analysis of future energy supply and demand relationships  
to 2000. This work will be discussed with experts from Member States.
3.4. At present, the share in total primary energy demand held by natural gas  
stands at 18%. It is possible, on the basis of unchanged conditions, to  
foresee natural gas sustaining this level of market share. However,  
conditions will not necessarily remain on the present course and important  
changes may occur.
(1) Docs. C0M(84) 87 final  
C0MC84) 88 final

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3.5. In contrast to the uncertainty concerning the future development of demand  
for natural gas in the Community, there does appear to be widespread  
agreement that, within the natural gas market, an increasing proportion
of gas will be consumed in the public distribution sector. There is,  
however, more uncertainty regarding the development of natural gas  
consumption in the industrial and public power plant sectors.
3.6. In looking to future developments in demand for natural gas, it is helpful  
to distinguish between the medium and longer term prospects. There is at  
present a surplus availability of natural gas in the Community, which is  
expected to set the pattern for the short term. Since 1980 demand for  
natural gas has decreased, in line with demand for energy in general,  
without a corresponding reduction in supply. Many of today's supply  
contracts, concluded in the 1970's when optimism was high regarding future  
prospects for demand and end-use prices, have inflexible price and delivery  
conditions. This has led to a situation in which more gas is contractually  
available than is required. Member States are dealing with this situation  
in different ways. In countries such as Belgium, Denmark, Ireland, Italy  
and the Netherlands, some of the surplus is being sold to public power  
plants. In addition, import contracts are being renegotiated with a view
to obtaining greater offtake flexibility and indigenous production is at  
lower levels than planned. The present situation of surplus availability  
may last for some years to come and each Member State will respond in its  
own way.
3.7. Prospects for natural gas demand in the longer term are more difficult to  
assess, but clearly the level of demand will depend upon the relationship  
of natural gas prices with those of competing fuels in end-use markets.
A critical factor in the future will be the supply prices which Community  
gas companies pay to producers over the long term. The more Community  
importers can take advantage of the potential competition between gas  
producers, the greater the possibility of assuring present markets and  
indeed of growth in market share. On the other hand, however, if in the  
longer term import contracts remain inflexible, in terms of price and  
delivery conditions, natural gas will lose competitivity in the market  
place. This would result in the loss of markets, irretrievably in some  
cases, and a steady decline in market share.

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3.8. Although price is a key element influencing the share of the market held  
by natural gas, it is not the only determining factor. Natural gas enjoys  
certain inherent advantages over rival fuels. These include respect for  
the environment from the point of production to the point of end-use, easy  
control and high efficiency. The gas industry has recognized that it must  
exploit these inherent advantages. As a result, advances have been made
in the technical field, for example in the development of condensing boilers  
and gas-fuelled heat pumps. The quality of marketing employed by the gas  
industry will play an important part in influencing future sales of  
natural gas vis-à-vis competing fuels.
3.9. Given the potential availability of natural gas in the longer term, and  
the Community's continuing policy to diversify away from oil, it is in  
the Community's interests that natural gas should in the future continue
to play an important part in satisfying the Community's energy requirements.  
To the extent that Community importers can take advantage of competition  
between gas producers as mentioned above, the Commission would favour  
further penetration of natural gas in the total energy market, provided  
that there is no overdependence on non-OECD sources.

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4. Future Supplies and Security
4.1. The Long-term supply situation of the Community was analysed in depth  
in the Last Communication to the Council.
4.2. Despite the increased uncertainty regarding demand development discussed  
in the previous section, import dependence of the Community is expected  
to reach 40% in 1990 and at least 50% in 2000. Against this background  
the Council (Energy), at its meeting on 22 May, stressed the need for  
security measures including the diversification of supply sources and  
close cross-border co-operation.
4.3. The availability of gas based on indigenous production and contracted  
imports is such that the gas market is likely to remain in surplus for  
several years.
4.4. The outcome of the renegotiation of existing import contracts, which  
will take place in the coming years, especially those concerning Algeria  
and the USSR, will be of great importance to the development of demand  
in Member States' markets. As noted above, these contracts were con­
cluded when expectations about achievable prices in the end-use markets,  
the growth of energy consumption and particularly the growth of natural  
gas consumption, were all high. This resulted in price and minimum take  
provisions which are not compatible with the realities in the end-use  
markets of today and tomorrow. It appears to be in the interest of both  
the Community and its suppliers to find solutions which will permit  
natural gas to get that share of the energy market which is in line with  
its potential availability.
4.5. Natural gas is increasingly facing inter-fuel competition and transmission  
companies need greater flexibility in price and delivery conditions  
vis-à-vis their suppliers. The Commission feels that the competitiveness  
of natural gas in the various end-markets in the years to come is a  
critical issue.

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4.6. One of the risks inherent in the present surplus availability, in  
association with the uncertainty regarding the development of demand,  
is a negative impact on indigenous exploration activities, leading  
perhaps to lower indigenous production in the longer run. Against the  
background of the expected increase in gas import dependence, and in  
line with the Community's objective to reduce further its dependence on  
oil, it seems important that Member States should continue to stimulate  
and ensure a high level of exploration activities.
4.7. Imports of additional supplies of natural gas will be needed from the  
early or mid-1990's onwards. The traditional suppliers, i.e. Norway,  
Algeria and the USSR, appear to be in the strongest position to meet  
these import requirements. Nigeria, Cameroon and the Ivory Coast might  
also supply some gas before the turn of the century. Canada, Abu-Dhabi  
and Qatar appear as longer-term prospects, more likely to come on stream  
in the next century. For Canada, the recent deferment of the Arctic  
Pilot Project by its developers reinforces this view. All in all,  
potential supply from external sources far exceeds expected import needs.
4.8. From the point of view of supply security, imports should be diversified.
4.9. The outcome of current negotiations by the Netherlands to supply  
additional exports to continental customers and to the UK, of the  
negotiations between Norway and the UK regarding Sleipner, and of the  
expected negotiations on Troll between Norway and various European  
transmission companies, will have a significant impact on the  
Community's supply security in the 1990's and thereafter.
4.10. For Troll in particular, long lead times must be taken into account.
Decisions will have to be taken before long if Troll is to contribute  
to the Community's supplies in the second part of the 1990's. Production  
from this field could eventually account for about 20% of the Community's  
total gas supply in the early years of the next century.

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4.11. Both the USSR and Algeria could, at relatively low incremental costs  
and at short notice, make large additional volumes available to the  
Community. The USSR will be able to export substantial additional  
volumes to Europe without the need for new transport capacity. With  
increased transport capacity, even greater volumes could be made  
available. Additional volumes could easily come from Algeria as LNG  
and/or through the Transmed pipeline in Italy on the basis of spare  
capacity in the existing infrastructure.
4.12. Therefore, if decisions on new import deals are delayed until such  
time as the demand evolution becomes clearer, the likely fallback  
suppliers who can supply quickly and at reasonably low additional  
expense will be the non-OECD suppliers, Algeria and the USSR.
4.13. On the other hand, the timely conclusion of a contract for the purchase  
of Troll will depend critically on the negotiation of an equitable gas  
price and other delivery conditions, sufficient to stimulate develop­
ment of the reserves and yet competitive with other sources and with  
other fuels.
4.14. Although the dilemma described above has been recognized for some time,  
negotiations between the Norwegian and Community gas companies have  
not yet commenced.
4.15. The Commission has had bilateral discussions with the Norwegian Government  
on energy and natural gas questions. It plans to include in these talks
a discussion on the reasons for lack of progress in the development of  
Troll. Clearly such discussions, the results of which would be reported  
to the Council, should not prejudice the negotiations of specific contracts  
between the gas companies concerned.
4.16. The Commission believes that it would be inadvisable for the Community to  
allow its degree of dependence on imports from non-OECD countries in the  
1990's to exceed the level already envisaged for the period up to 1990,  
unless Member States concerned had first provided for specific additional  
arrangements to provide for back-up supplies in an emergency.

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4.17. In C0M(84) 120 it was argued that the Community's supply security could 
be considered adequate until the early 1990's on the basis of imports 
from existing contracts on the one hand, and security measures already 
taken and/or planned by Member States' gas industries on the other. In 
view of the expectation of lower natural gas demand than forecast, the 
security situation for the immediate future has improved.
4.18. In addition to supply diversification, security measures foreseen in the 
earlier Communication include surge capacity from indigenous production, 
interruptible sales, storage and cross-border standby arrangements. The 
standard of security adopted was the capability of the gas industry to 
deal with a major interruption of supplies (at least 25% during a period 
of six consecutive months) with a minimum of repercussions for the final 
consumer.
4.19. To the extent that the import dependence of the Community, and more 
particularly the dependence on non-OECD sources, will further rise in 
the 1990's, this standard of security should then be adapted accordingly.
4.20. The expected increase in natural gas demand in the public distribution 
sector is a further reason to pay close attention to the standard of 
security. It is in this sector that customers would be more directly 
affected by an interruption as there is very limited possibility for 
them to switch to another fuel.
4.21. In order to maintain a watch on the Community's natural gas supply and 
its security, the Commission considers it desirable that certain key 
topics are regularly analysed and discussed between national gas experts 
and the Commission. Such topics would include the development of the 
natural gas supply situation as a whole, diversification of supply sources 
and security measures, and procedures to be adopted in the event of an 
emergency.