ARCHIVES HISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(81)530
Vol.1981/0160

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(81)530 final
Brussels ,1st October 1981
A.'-/
COMMUNICATION FROM THE COMMISSION TOTHE COUNCIL
CONCERNING NATURAL GAS
COM(81>530 final

1.Cow\53O
SUMMARY ANDCONCLUSIONS
/'
1.-NaturalgashasagrowingroletoplayinthecontextoftheCommunity's
evolving energystrategy .
2.Theuseofnaturalgashasdeveloped rapidlyfollowing thediscovery ofthe
hugeGroningen fieldintheNetherlands andsubsequent NorthSeafinds.
Thisearlygrowthwasbasedonsecuresuppliesatcompetitive prices.
3.Forecasts suggestthattherateofgrowthwillmoderatealthoughtheshare
oftotalenergyneedsmetbynaturalgaswillincreaseslightly fromthe
currentfigureof18%to19%by1990.-.
4.TheCommunity production ofnaturalgashasdeclined fromthepeak
levelreachedin1976andafurtherslightdeclineisexpected by
-1990.Increasingly consumption isbeingmetbyimports fromthird
countries.
1
5.Importsaccounted for26%oftotalsupplies in,1980andareforecast
toreach35%by1985andabout46%by-1990.Thesefiguresaresignif­
icantlyhigherforcertain MemberStates.'
6.Thediversity ofcountries fromwhichtheCommunity importsnaturalgas
isverysmall.Algeria,NorwayandtheUSSRaccounted for97%of r.
Community importsin1980(the_remaining importsareaccounted forby
Libyandeliveries toItaly)anddespitethepossibility ofnewimports '■
fromothercountries ,theywillcontinue toaccountformostimportsin
theforeseeable future.
7.Astheproportion ofimported gashasgrownsoassociated problems have
beguntoemerge.Inparticular thedemandfornatural gaspriceparity
withcrudeoilCf.o.b.)byAlgeriaresulted inatemporary suspension ofdeli.ve
risstoFranca(andtheUS).SimilardemandshavebeenmadeagainstItaly
whichiscommitted toAlgerian supplies bytheTrans-Mediterranean pipe­
linenearingcompletion ,andanagreedcontract withundertakings inthe
Netherlands andtheFederalRepublic hasbeenabandoned becauseofAlgerian
unwillingness toinvestintheextraliquefaction plant,preferring
delivery bypipeline .Libyandeliveries toItaly'werealsointerrupted at
thebeginning of1981following afailuretoagreeonprices.

8.Very Large import contracts arecurrently under negotiation by\undertakings inthe
Federal Republic ofGermany ,France ,Italy ,Belgium and theNetherlands with the
Soviet Union .This increases theneed toexamine means ofenhancing the security
ofsupplies . . ( x
\
9.Because ofthe higher transportation anddistribution costs associated with
natural gasover itsmain competitor inthemarket place ,oil,f.o.b .price
parity with (crude )oiIwould make natural gasuncompetitive onthe final
consumers' market and itsmarket share would beexpected tofall .'
10.Anexcessive price fornatural gaswould therefore make long distance importation
contracts uneconomic tothepotential loss ofboth importer andexporter .
11.If,through price rises orother difficulties ,the share ofenergy needs met by
natural gas fell ,the substituted demand would belikely tofall mainly onoil .
12.The twomain problems ,therefore ,which confront the gas industry intheCommunity
andwhich are Likely tobecome more acute inthefuture areprice developments
/and the security ofsupplies .
13.Themeasures necessary toimprove thesecurity ofnatural gassupplies may be
summari sed as :
(i)measures toreduce the importance ofagiven external source ofsupply :
-encourage indigenous production ,exploration ,development
-diversification ofimports '
-development ofSN6 (Synthetic Natural Gas).
(ii)measures tomitigate the short term effects ofaninterruption :
-interruptible contracts r
'-storage (gas orsubstitutes )
-,interconnection oftransport networks
-spare production capacity11.If,through price rises orother difficulties ,the share of
natural gas fell ,the substituted demand would belikely to

-3-
/>• ■ • • ~
14.Underlying allthesemeasures andpossibly themostimportant factoris
-theneedforCommunity solidarity *Clearly MemberStatesarebetter
(
abletoincreasetheirsecurity ofnatural gassupplies anddealwith
unreasonable pricedemandsifthereiscooperation andsolidarity at
Community level.
'15.The.Councilistherefore askedtoadopttheDraftConclusions -asset
outinparas49andSOoftheCommunication *

4.
INTRODUCTION
The Commission submitted tothe Council on "2nd June 1980 aCommunication
concerning Community action inthenatural gas supply sector (doc .(80)
295 final )which wasupdated asat21November 1980 .Thepresent communication
takes account ofsubsequent developments inthenatural gasmarket ,analyses
theproblems which the Community faces inregard toitssupplies ofnatural
gas,andoutlines measures which should betaken inorder toimprove the
security ofsupplies aswell astofoster the use ofgas .Itshould beseen
inthecontext ofanenergy strategy which aims ^atdiversifying away from
oil,stimulating investment andthedevelopment ofnewtechnologies ,reducing
burdens onthebalance ofpayments andmaximising the level ofemployment .
DEVELOPMENT OFNATURAL 6AS ' '
The role played bynatural gas inmeeting intheCommunity 'senergy needs has
grown rapidly following thediscovery ofthe huge Groningen field inthe '
Netherlands andsubsequent North Sea finds . Figure .1shows how this growth
continued through the first oil crisis of1973 /4,encouraged bythe competitive
price ofgasand itssecurity ofsupply . ;
Consumption grew from about 153milliards m"5in1973 toitspeak in1979
of224Tiilliards m^.In1980,however ,consumption fell' forthefirst time,
..to219milliards m"',although this still represehted about 18%ofprimary energy
requirements .The latest figures indicate that consumption for theCommunity
hascontinued to'fall ,although thetrend isnotthesame forallMember States .
Apart from theinfluence ofprice developments which shall beexamined later ,
there isalso thediffering impact ofeconomic recession and,inthe short term ,
thephasing inofnewprojects ,andthe interruption inLNG (Liquefied Natural
Gas )supplies toFrance .Forthe future ,the longer term difficulties are
reflected inareduction inconsumption forecasts over theforecasts made last x
year ,asillustrated inFigure 1.

\
,5. . . ~i
• ■ , *i
4.TheexportofgasbytheNetherlands andsubsequentNorthSeafindsalsohelped,'!
toencouragetherapidgrowthofthecontinental gastransportsystemshowninH
Figure2.PipelinesfeedgastoalltheMemberStatessupplied'by theNetherlands '!
andlinkuptootfjerpipelinesbringinggasfromtheUSSRaswellastheING!j
(LiquefiedNaturalGas)terminalsandtheTransMediterranean pipelinebringing H
gasfrom'Algeria . ■- -t* r\vywtio« • - rj, .-, i.i
. . - '' ■ ■. ,Û.
5.Ofthetwocontinental MemberStateswithoutatransportsystem,Denmarkis [1
developingitsNorthSeafieldsandconstructing agasgridwhilstGreeceis."i{
considering imports .fromeitherAlgeriaortheUSSR 'iif
U
-II
>.Althoughnot.connectedtothecontinental gasgrid,theUKhasexperienced a -It
similargrowthinnaturalgasusageleadingtoanintegratednationalgrid,
firstlybasedonitsown"Southern.Basin"North Seadiscoveries andincreasingly .'[
onfindsfurthernorth,including gasimportedfromtheNorwegiansector. ■?
Whilstrelatively smallinCommunityterms,thereservesfoundintheKinsalefield''
offtheSouthcoastofIrelandwhicharecurrentlyusedlocallyareplannedtobe
suppliedtoDublinandthepossibility ofagaspipelinetoBelfast,NorthernIreland
isunderactiveconsideration atthemoment. " ~
;f'
TheAdvantages ofNatural Gas - .• ' -
Theconsiderable existing infrastructure thisnetwork represents isoneofthe
advantages ofnatural gas.Itisalsotransported unobtrusively andisenviron­
mentally attractive becauseofitscleanliness duringuse.Itisaflexible and
convenient fueltousewhichalsohelpstcexplainitspopulaTity inthedomestic
sectorandincertainspecialised industrial uses.––.
TheRoleofNatural Gas
Theshareoftotalenergyrequirements metbynatural gasvariesfromalmost
onehalfintheNetherlands toabout9%inIreland,^asshowninTable1.The' N*
lowfigureforFranceisduetotheinterruption inLNGdeliveries fromAlgeria,
thefigurefor1979being .11%.Fortheothermajornatural gasconsuming countries ,
theFederalRepublic ofGermany,Italy,Belgium andtheUnitedKingdom,thegas
shareisabout172-20%.FortheCommunity asawhole,thispercentage isforecastf
toriseslightly fromthe"currentvalueof18%tcabout19Xby1990.Thisrepresents ?
aslightlowering fromlastyear'sforecast valueof20%by1990,mainlyreflecting \
thedifficulties overfuturegasimportcontracts .Nevertheless ,eventhismodest t
increase insharebetween 1980and1990represents anannualaverage compound rate |
of3%andanabsolute ,increaseof72milliards m^(55m.toe);" "

6.
TABLE 1
. )
Share ofNatural Gas inGross Inland
■■■ ' .– i. in 11.– ' ... .I.- . .
Primary Energy Consumption
93miIliardsOG )m/%
•.· -1980 1985 19>0
Natural Gas % Natural Gas % Natural Gas •%
1-9 310 m Share 109m3 Shareλ_9310 m Share
D 58.1 177. 65.0 17% 67.6 16Ζ
F 27.3 9Χ 35.2 12Χ '46.7 157.
It.. 30.2 177. 37.6 18% 48.1 '21Χ
Ν 39.6 47% 43.7 437. '43.9 39Χ
Β 11.6 19X.' 12.0 18% 12.5 17Χ.
i
L 0.6 117. 0.7 12% 0.9 13%
UK 51.0 ,20Χ 61.2 21Χ 66.3 *21Ζ 1 '
Ir 1.0 9Χ ■1·* 97. ν 1.48%
DK - - 1i6 6Χ 3.9 ,12Χ
Η - - ■ 0.1- 0.1- ■
E10 219.0 18% 259.0 18% 292.0 19Χ

7.
Consumption i
X
9.Thepattern ofuseofnatural gasvaries considerably between Member States .
Table 2shows that forthemajor continental Member States atleast athird
ofgasconsumption isaccounted forbyindustry ,except intheNetherlands ,
which like theUK,supplies amuch larger proportion tothedomestic sector . \
Theother noticeable factor toemerge from Table 2isthecontinued high use
« *
ofnature !gacforelectricity generation bysome Member States ,notably
inGermany . «
.10.'Because oftherelatively limited supplies ofnatural gastheuseofgasfor'
electricity generation isdiscouraged bytheCouncil Directive ^adopted in
(1)February 1975 .This required theapproval ofthe appropriate national
authorities ofthe Member State for "The conclusion ofnew contracts for the
supply ofnatural gas topower stations ,the extension ofcontracts upon
/ • »
expiry and the construction ofnew power stations using natural gas
Such authorisation may only begranted ioresponse totechnical orenviron -,
mental demands or,for interruptible contracts only ,where the gas cannot be
put toamore profitable use.. ;
»
11. Table 3,which gives forecasts forthe use ofgas forelectricity generation ,
shows anincrease from32,6 to38,1milliards m^fortheCommunity by1985,
followed byafall toalmost the 1980 level by1990 .The increase concerns
most ofthemember states except Belgium and Germany with avery small decrease
from avery high absolute level .This Community forecast does .not seem
satisfactory fromthe standpoint ofthe Council Directive mentioned above and
canonly partly beexplained byexisting long-term conracts and special
environmental conditions .
12.. Theuseofinterruptible contracts forgaswhich continues tobeused .for
electricity generation offers acertain margin for reducing demand inthe .
event ofaninterruption insupplies -asubject that will betreated further
under thesection onsecurity ofsupplies .Indeed all interruptible contracts
give such a.measure offlexibility andshould beencouraged where possible .
CI)Official Journal oftheEuropean Communities No.L178/24

Imports
Themostsignificant development innatural gasistherapidgrowth
inimports.Figure 1showsthatasindigenous production haslevelled
offsoconsumption hasincreasingly beenmetbyimports.Asrecently
as1977only11%ofCommunity consumption wasmetbyimports fromthird
countries .Thefollowing yearthis/figureroseto19%andin1980reached
26%.By1935thelatestforecasts (February 1981)indicate 35%ofgas
willbeimported fromoutsidetheCommunity and46%by1990.

TABLE 2
Natural GasConsumption .1930(Provisional .)
EUR10 t> F It. Ν\Β L UK"■
Ir
.-V_9310m %loV X10V%310m10V %109m3%,n9310m%109m393ίοVX
Industry 78.1 36%22.7 39%12.044%16.254%10.8 27%4.942%0.350%19.4 38%0.548%
PowerStations ■> 32.6 15%17.5 30%1.7 6%2.7 9%7.519% 2.118%0.117%0.6 1%0.552%
Domestic andcommer-·
cial 1-00.2 1,67.17.9 31%13.6 50%I'
11.337%.
/21.3 54%4.640%0.117%31.061%-
Total 219.0 58.1 27.3 30.2 39.6- 11.6 0.6 51.0 1.0

.10,
TABLE3
ShareofTotalGrossNatural GasConsumption usedforElectricity Generation
9310m/%
ι
1980 •1985 1990
GenerationΝ
%of Generation %of Generation %of
.109m3totalcons .-,η93·10m totalcons.1n9310m.totalcons.
D 17.5 30% 16.9 26% 14.3 21%
F 1.7 6% 2.5 7% 2.5 5%
It 2.7 9% Α.2 11% 6.0 12%
Ν 7.5 19% 8.3 19% 6.8 15%
Β 2.1 18% 2.0 16% 1.8 15%
>■ 0.1 16%" 0.3 36% 0.3 29%
Iυκ·
i0.6 1% 0.7 1% 0.7 1%
Ir 0.5 52% 0.8 55% 0.8 55*
DK - - - - - -
Η - - - - – –
ETO 32.6 15% 38.1 15% 33.0 11%

-11-
14.-Thereliance ongasimportedfromthirdcountriesisevenmoremarkedfor
themajorconsuming MemberStateswhicharenotfortunes enoughtohave
considerable reserves oftheirown:
Table4
Imports fromthirdcountries asapercentage oftotalconsumption
1980 1985 1990
FederalRepublic ofGermany
France
Italy
Belgium34%
38%
28%
21%36%
54%
60%
50%39%(48%)*
83%
68%
56%
15.Themainthirdcountries supplying naturalgastotheCommunity areNorway,
theUSSRandAlgeria.In1980theyaccounted for52%,40%and6%ofimports
respectively ,withLibyaaccounting fortheremainder .Algeriansupplies
wouldhavebeenhigherifithadnotbeenfortheinterruption inLNGdeliveries
toFrance.Withathirdnewcontract,deliveries ofLNGwereforecast to
riseappreciably in1980butinfacttheyfellbyabout20%overtheprevious
year. ■
Assuming importsofmilliards mfromUSSRundernewcontract.

12.
Difficulties affecting thesupplyofnatural gas
16.In1980thememberstatesestimatedthatimportsofnaturalgas^wouldreach
110milliards m^in1985and152-157milliards m^in1990.Atthebeginning
of1981theseforecasts werereducedto91milliards m"*in1985and135milliards
in1990.Difficulties whicharelikelytoariseinnegotiating newcontracts ,
-however,putinquestion thepossibility ofachieving eventheserevisedfigures.
I
17.Thefirstproblems overnatural gasimortsbegantoarisefollowing theIranian
revolution in1979.Previously acontract hadbeenagreedforaswaparrangement
involving Iranian gasdeliveries totheUSSRinexchange foethedelivery ofabout
9milliards m^/yearofSovietgastotheFederalRepublicandFrance.Deliveries
werefore'cast tobeginthisyear(1981)butalthough thecontract hasnotbeen
formally rescinded,itisclearthatnoprogressjslikelyInthepresentcircum­
stances .
18.Thesubsequent riseinoilpricesprompted Algeriatodemandpriceparitywith
crudeoil(f.o.b.)foritsnatural gasexports.BoththeUSandFranceexperienced
aninterruption insuppliesafteropposing thesedemands,althoughdeliveries have
nowrecommenced . '
Τ
19.Duringthesameperiodcontracts for19.5milliards m/yearpreviously agreed
betweentheAlgerian exporting undertaking ,.Sonatrach ,andaconsortium ofGerman
importers andGasunieoftheNetherlands ,have,fora11,practica1purposes,been
abandoned becauseofAlgerian unwillingness tobuildtherequired liquefaction plant.
Tocarryoutthecontract wouldtherefore have .meantdelivery ofthegasbypipe­
line,constructed mainlyattheimporters expense.
20.MorerecentlyItaly,whichhasapipeline tobring12milliards ofgasfrom
Algerianearingcompletion ,hasbeenfacedbydemandsforpriceparitywithcrude
oilaswellassimilar demandsfromLibya,whichSuppliesItalywithrelatively
smallquantities ofLNG.
« »
21.Therehasalsobeensomeuncertainty overthecontracts beingnegotiated between
severalEuropeanundertakings andtheUSSR,which^totaloverAOmilliards m^/year.
Inaddition therehave-beenverytoughnegotiations overthepriceofthegasar.
wellasoverrelatedcredittermsandthecostofmaterials whicharetobe
provided bytheimporting countries forthisvastproject.

-13-
22®Thequantities ofgasinvolvedareListedbelowtogetherwiththe
contracted quantities underexisting contracts :
*
Tablef>-Natural GasImport
contracts withtheUSSR
miLliardsm/yr
i
Possible '.. Existing contractsNewcontracts 3
FederalRepublic ofGermany 12 10.7
France 8-1C 4
Italy 10 7
Netherlands . 5 -
Belgium 5 -
40-42 -.21.7
Austria 3 2.5
Switzerland 1
23.Withthenewcontract,importsofnaturalgasfromtheUSSRwillaccount
foramaximumofabout22%ofnatural gasconsumption andabout4%of
totalprimaryenergyconsumption .AscanbeseenfromTable6,thefigures
arehigherforsomeMemberStates., '

Table6
ShareofTotalNatural GasSupplybyCountryofOrigin1990•
%
-
Algeria Norway U.S.S.R.
D, 21%5 14% 16% 34%(4)
F 20% 6% 9% 26% ■
It 2ó% - 15% 35%
Ν 13%(1) 7% - 11%
Β 38% 22% - 38%:
UK 2%(2) 14% - -
E.10. 9% 10% 7% 21%
(3)+7% +5%
(1)Project uncertain #
(2)subjecttorenegotiation ^^,
(3)assuming newcontract for1510m/yearoperative by1990
(4)witfrnewcontract currently undernegotiation .
\
24.Thisbriefresumeoftheproblems whichhavearisenovergasimportsshows
thedifficulties whichfacetheCommunity gasindustry inthecomingyears.
Thegrowingdependence onasmallnumberofsuppliers outsidetheCommunity
increases thevulnerability topossible supplyinterruptions andunreasonable
pricedemands. *
Itistherefore iTcce-ssarytosystc-Worti caIlyconsider thequestions of
security andthepriceofnatural gassupplies .

-15-
SECURITY OFSUPPLIES
Toattainthenecessary reinforcement ofthesecurity ofnaturalgas
suppliestotheCommunity itisnecessary toconsider thefollowing
measures :
(i)measures toreducetheimportance ofagivenexternal "sourceofsupply
-encourage indigenous production
-diversification ofimports ^
-development ofSNG(Synthetic Natural Gas).
(ii)measures tomitigate thes.horttermeffects .o.f-aninterruption :
-interruptible contracts -
.-storage (gasorsubstitutes )
-interconnection oftransport networks
–spareproduction capacity
' •
Indigenous Production - .* ""
26.Theprospects forincreasing indigenous production ,at.Leastinthe
shortterm,areratherlimited.Table7showsthat,giventheesti­
matesofprovenreserves,thereislittlescopeforsignificantly in-.-
creasing production fromthecurrently planned production levels.
Perhapsthemostscopeliesinincreasing thefiguresforproven
reserves byamoreintensified exploration effortandbydeveloping
technology toenablethegasfrom"marginal "fields,suchasthosein
•ι
theNorthSea,toberecovered .

16.
TABLE7
Community Natural GasReserves ,Production andR/PRatios
310m
Estimated
Proven Reserves
1.1.81(1D GrossProduction
1980 1985 1990R/P1980ratio ,
(years)
D
F
It
N
B
L
UK
Ir .
Dk
Κ
E10170
170
1762)
1756
702
27
„113
113
322118.7
8.2
13.4
86.7
39.3
1.0
16719.5
5.9
8.7
81.4
48.5
1.4
1.6
.0.1
16719.5
3.4
8.7
68.5
50.4
1.4
3.9
0.1
1569
21
13
20
18
27
29
1130
19(3)
CD0HandGasJournal 29-12.80
(2)Cedigazreport
(3>Using1990production rate

-17-
Diversification ofImports
27..Thesecurity ofnaturalgassupplies totheCommunity couldbeincreased byawider
diversity ofsupplying countries .Table8,however,whichliststhecountries ofthe
worldwithsignificant natural gasreserves,showsthatbecauseofdistance orother
considerations ,thenumberofpotential suppliers islimited.Nevertheless ,
several Community undertakings areholdingpreliminary talksornegotiations with
severalcountries including Bahrein,Cameroun,CanadaandQatar.Acontract for7.5
milliardsm'VyrhadalsobeenagreedbetweenNigeriaandajonsortium ofundertakings
fromBelgium,theFederalRepublic,France,Italyandthe'Netherlands .Deliveries
weretoheginin1984/5butitlookedasthoughthisdatemaybedelayedbecause
ofdoubtsoverwhethertheNigerian 5yearplancouldsupporttherequired financial -
contribution .Morerecentreports,however,suggesttheproblemhasbeen .overcome .
23.Nigeriaisahinteresting caseinthatitrepresents therecovery ofgaswhichis
associated withoilproduction -andwouldotherwise beflared.IndeedTable8
showstheenormousquantities ofgasLhicharelostinthisway.
»
Canadaisofparticular interest asapossible supplier toEuropewithits
significant reserves andpromising potential forfurtherdiscoveries .The
"Arctic"resources .wouldhavetoberecovered byLNGtankerandwouldthenbe
aboutascloseto-European astoAmerican markets.Considerable activity is
beingundertaken toovercome theformidable technical 'problems presented by
theveryhostileconditions ,althoughitremainsfortheCanadian Government
togiveaclearindication ofnaturalgasexportpolicy.
'30.FurtherimportsfromNorwayalsc represent averydesirable sourceofsupplies ,
aridtheannouncement ofaNorwegian GasGathering Pipeline tolinkintothe
existingpipeline fromEkofisktoEmdeninnorthGermanyisaverywelcome
development .Thispipeline willbringgasfromtheStatfjord,34/10and
HeimdalfieldsasshowninFigure3.IndeedtheNorwegian NorthSeaoffers .
considerable potential withtheexciting recentdiscoveries ,including the

■TABLE «
Countries withsubstantial Natural Gas
Reserves withintradingdistance oftheCommunity
10m
Estimated
Proven
Reserves\
1.1.811980
Gross
ProductionR/P
Ratio
ÍVbjpcIReinjected
GasFlared
.Gas
USSR 26050 135.0 193 - - 13.0
Iran 13730 20.1 683 2.3 .9.5
USA '5410 568.9 10 20.1 2.6
Algeria 3720 36.2 103 9.8 15.6
SaudiArabia 2830 54.3 52 0.3 39.1
Canada 2470 96.8 26 11.0 2.0
Mexico '1830 36.7 50 - 6.1
Qatar 1700 ·". 6.4 266 - 1.2
Norway 1210 27.5 44 1.8' 0.6
Venezuela 1190 . 32.2 ,37 14.9 2.3
Nigeria 1160 26.8 43 - 25/7
Kuwait 870 9.6 91 0.6 2.3
Iraq 780 11.4 68-- 9.6
Libya 670 20.4 33 10.7 4.6
AbuDÍ7¿bi 570 12.6 - - 6.8
Trinidad andTobago■340 5.3 64 - 2.3
Bahrain 250
.I4.8 52 1.2 0.8
TOTAL W03LD 74720 1780 42 86 177

-19-
huge31/2fieldestimated tohavereserves ofatleast560milliards mand
possibly muchmore.However,thecfeveiepmeni ©ffitldawillQepgfid feri
JNorwegian oilandgasdevelopment policy,thetechnical dif.ficultiesandfor
somefieldsthechoiceofpriorities betweenoilorgasdevelopment . •
Synthetic Natural Gas
51.InthelongertermSynthetic Natural Gas(SNG)produced fromcoalcouldbegin
toplayanincreasingly important roleinCommunity gassupplies ..Theobvious
advantage ofSNGistheabundantavailability of,coalparticularlyin.theUKand
theFederalRepublic,although presenttechnology hasnotyetmadeSNGcompetitive
withnatural gas,evenatcurrentprices.Nevertheless SNGrepresents aninsurance
policyaswellasholdingthepossibilityofbecoming competitive throughfurther
technical development .TheCommission isalsoactiveinthisspherethroughits
financial supportofcoalgasification demonstration projects,including two
underground "insitu"projects .Howevertheproblems shouldnotbeunderestimated
andSNGisunlikely tomakeasignificant impact -in'themediumterm..
Interruptible Contracts -
32.Aninterruptible .contract isacontract madebetweenthegasundertaking and
certain consumers (usuallylargeindustry )allowing supplies tobereducedor
interrupted soastodealwithincreased demandbyothercustomers (e.g.the
seasonal -demandofdomestic customers )orashortfall inbulkgassupplies to
theundertaking .
33.Ofcourse,forsuchcontracts,adequate stocksof,orreadyaccessto,substitute
fuelsmustbeassured asmusttheabilityto.usethealternative fuel.Gasburning
powerstations,because oftheireaseofcontrol andopportunities fordualfueluse,
offerasignificant measureofflexibility forsomeMemberStates.Suchmeasures
shouldnotbeconfused withtheLongertermobjective ofencouraging themoveaway
fromoilorgasforelectricity generation ,butshouldbeseenasashortterm
expedient forcopingwithshortages ofnatural gaspartlybasedonthefactthatoil
ischeaper andmoreconvenient tostore. -.
34.Thefiguresbelowsummarise thepercentage oftotalsalesoninterruptible contracts .

20-
Interruptible Contracts (Estimated 1979)
/oftotal Quantity
j. sales miilards m/yr
Belgium 27% 3.3
FederalRepublic ofGermany 11% 6.3
France ' ■ 15% 4.1
Italy _16% 6.5
Netherlands ^ 7% 2.9
UnitedKingdom 18% 9.5
Storage _ ■ ■•
35.Although gasstorageisexpensive,anditmaysometimes befettertostore
substitute fuels(LPG,oil),someMemberStateshavesignificant gasstorage :
UndergrourdStorage milIvards m(Recoverable Gas)
Existing UnderConstruction
Belgium >-- q.2
FederalRepublic ofGermany 1.8 3-1
France 3.7 n/a
Italy • 2.1 1.2
UnitedKingdom - 0.2
36.Thereisalsoacertain amountofstorageinLNGform,particularly atLNGterminals,
althoughthisisrelatively smallandmorefor"operational "requirements .
37."Strategic "gasstoragerequiressuitablegeological stratasuchassaltdomes,
aquifers ordisusedgasfields ,whichoccurtovaryingextentsintheMemberStates.
Becauseofthis,andbecause demandcentresforgascannotbeexpectedtocorrespond
tothedistribution ofnaturally occurring geological strata,somemeasureof
cooperation onstorageataCommunity levelislikelytobemoreefficient .

38.Themaximumrateofextraction andrefilling timesarealsoimportant "
-considerations forgasstorage andshouldbeviewedinconjunction with
spareproduction capacity astreatedinthenextsection.Afterall-the
veffective designation ofanexistingfieldasstoragebyalwayskeepingsomegas
andproduction capacity inreserveisequivalent to,andcheaperthan,
preparing anewstoragestructure andfillingitwithgas.
SpareProduction Capacity -
39.AscanbeseenfromTable7production istodeclineoverthenext
tenyearsforseveral MemberStates,particularly theNetherlands .Indeed
therehasalreadybeensomedecline and^wherethisreflects adeliberate
choicetopreserve natural gasresources ratherthantheirexhaustion ,the
maintenance ofspareproduction capacity couldbeusedtomeetshortfalls in
supplies .Ofcoursethiswillincuracost,asanyinsurance policywill,
anditwouldbeobviously foolishtohave-expensive developments (e.g.
offshore )notworkingatmaximumutilisation ..Nevertheless cooperation in
thisarea,whichisrelatedtothequestion ofstrategic storageofgas,would
greatlyincrease thesecurity ofsupplies .Itshouldalsoberemembered tf\at
somesparecapacity and/orstoVage mustbe builtintodealwith
seasohalvariations ingasdemandthusoverlapping with,andsharingthecostof.//
purelystrategic measures . '. ■ .
1Interconnection - .
40.Furtherpossible interconnection ofthegastransport networkisnotameasure
whichincreases theoverallresources available ,butmerelyallowsalltheother ;
possible measures tobeusedmorewidelyandsometimes moreeconomically .Itis
clearthatifoneMemberStatehasaninterruption insuppliesitwillbeable
tomanagemuchbetterifithaswideraccesstoCommunity resources .

Theneedforinterconnection ,whichasFigure2illustrates isalready
welldeveloped ,ismadeevenmorenecessary bytheunevendistribution
ofnaturalgasresources withintheCommunity .These,together with
Norwegian resources ,areconcentrated tothenorthoftheCommunity and
perhapsspecialattention mustbegiventoenhancing thesecurity ofthe
MemberStatestothesouth.
*
Interconnection byitselfisnotsufficient either.Itisnecessary
tohavethepolitical willtocooperate intheeventofdifficulties in
supplies .Itisalsonecessary tostudythep6ssibledifficulties that
mightarise,howtheycouldbeovercome andwhatsystemimprovements
wouldberequired tohelpdealwiththem.

-23-
IMPORT PRICES .
43.Therapidgrowthofnatural gasinmeeting Community energyneeds
wasbasedonreliable supplies atcompetitive prices.Thisrapid ,
\growthhasbeencheckedpartlybythegeneralpriceriseofenergy
andeconomic recession andpartlybytheerosionofcompetivity and
theuncertainty ofsupplies nowsurrounding gas.
CompetivityofNatural Gas >
44.Ifnatural gasistomaintain orexpanditscurrentroleit,mustremain
competitive onthefinalconsumers' market.ThefuelsWhichcompetewith
gasdependontheexactmarket;broadly speaking ontheindustrial market
themaincompetitor isheavyfueloiIandto'anincreasing extentcoal,
whilstonthedomestic marketthecompetitors aregasoiIandtosomeextent
electricity .Howeverwhilstthemarketgasoilpriceishigherthanthe ■
current heavyfueloilprice,natural gascouldnotjustconfineitself
tothismarket,sinceindustrial salesareessential toprovidethe
steadydemandnecessary fortheeconomicutilisation ofthedistribution
system. ' v .
Transportation Costs
45.Furthermore ,inaddition tothedistribution costs,itisalsonecessary
totakeintoaccountthetransportation costsfornatural gasimported from
thirdcountries .Theseareconsiderably higherthanforoiloverthesame
distance becauseofthe,extracostsassociated withliquefaction plant,
LNGtankers,regasificationplantandLNGstorage orwithnatural gas
transportation pipelines .Becauseofthesehighercostsofbringing gas
tothemarketandbecauseoftheneedforgastoremaincompetitive it,
isclearthatanything approaching FOBcrudeparitywouldleadtoa
declineinthegasmarketandwouldrenderlongrangeimportation contracts
uneconomic .

-24-
Indexation
46.Itisalsoimportant thatindexation clausesshouldnotbeallowed
toerodethedifferential invFOBpricesnecessary tokeepgascompetitive on
thefinalconsumers market.Inparticular thepossibility oftransport and
distribution costsincreasing morethanforoilshouldbetakenintoaccount -
inanyindexation agreement .
47.Similarly toorigidalinkbetweenthepriceofnatural gasandtheprice
ofoilwouldinhibitnatural gasplayingitsfullcompetitive roleonthemarket
anditwouldnotbedeveloped tosuchanextent ,^tothelossof*both
producer andconsumer .
\
48.TheCommunity importers ofnatural gascanonlyconvince theexporting
countries ofthevalidity ofthe.argument onpricespresented aboveifthey,
fortheirpart,adoptaposition ofsolidarity ongassupplies..
Failingsufficient solidarity betweenthegasundertaking 'softheCommunity
thereisariskofoverbidding fo'rgas,which -wouldreducetheplaceofgas
inCommunity energysuppliestothedetriment ofboththeexporting countries
andtheimporting countries oftheCommunity .
Toavoidthisdanger,theCommission believesthatitisnecessary toestablish,
atCommunity level,aprocedure fortheexchange ofviewsandinformation
onnegotiations forgassupplies fromthirdcountries .

CONCLUSIONS ,
OnthebasisoftheCommissions analysis theCouncilisinvitedto
approve :
theprinciple ofincreasing thesecurity ofnaturalgassupplies
totheCommunity byencouraging bothmeasures toreducetheimportance -
ofanygivensourceofsupplyandmeasurestomitigate theeffectsof-
apossible interruption insupplies
theprinciple ofestablishing anappropriate procedure fortheexchange
ofviewsandinformation onnegotiations forthepurchase ofnaturalgas
fromthirdcountries .
TheCommission ,afterconsultation withMemberStatesand,thegas
industry,willmakepropositions withinthenextsixmonthsonreinforcing
thesecurity ofnaturalgassupplies totheCommunityandinparticular :
Ci)measures toreducetheimportance ofagiven -external sourceofsupply
-encourage indigenous production
•-diversificationofimports v
-development ofSNG(Synthetic Natural Gas)
(ii)measures tomitigate the-shorttermeffectsofaninterruption :
-interruptible contracts •■'
-storage (gasorsubstitutes )
Λ
-interconnection oftransport networks
-spareproduction capacity

ANNEXES

320.110 Groningen
300JTheEvolutionofNaturalGasin-f?^e–
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