ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(79)118
Vol.1979/0058

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COMMISSION OF,HEEUROPEAN COMMUNITIES
COM(79)118 final
Brussels,7thMarch1979
COMMUNITY ENERGYPOLICY
(Communication oftheCommissiontotheEuropeanCouncil
Paris.12and13March1979)
118final

COMMUNITY ENERGYPOLICY
OilSuppliesandPricesintheShortTerm
1.ThehaltingofIranianproduction attheendof1978causeda
10%reductionintheworld'soilsupplies.Depending onthetimingand
levelofresumedproduction,andonthelevelsustained byotherOPEC
producers,itislikelythatforthefirstsixmonthsof1979theCommu­
nitywillsufferanoverallshortageofatleast6%,or10-12days*supply.
2.Owingalsotothehardwinter,oilstocksbyJunecouldbeup
to20%lowerthannormal.Insomecases,stocksofcertainproductsare
alreadybelowthelegalminimumof90days.Thedangeristhatacontinuing
shortagecouldrestrictre-stocking fornextwinter.
3.Mostoilisstillbeingsoldatofficialprices,butthespec­
tacularandwell-publicized pricesrecentlyobtainedonthesmalland
unrepresentative spotmarketmighttemptproducerstothinkthatafurther
officialpricerisecouldbesustained.Thegeneraleconomicconsequences
ofoilpricedevelopments areoutlinedatAnnexA.Afactualdescription
ofthespecificspotmarketsituationinRotterdamiscontainedinAnnexB.
4.Thegravityofthesituationshouldnotbeexaggerated .Ifit
shouldworsen,theCommunityisnowbetterpreparedtocopewiththedif­
ficultiesinaspiritofsolidarity .Councildecisionscontainprecise
proceduresforsystematicconsultation ,maintenance ofestablishedoil
tradingpatterns,thefixingof.commonsavingtargetsand,inthelast
resort,redistribution ofoilamongMemberStates.

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5.However,weshouldnowconsiderintroducing positivemeasures
which,inconcertwithotherindustrialized countries,wouldreduceoil
demandfortherestof1979,andperhapslonger.
6. Areductionforalimitedperiodneednotcauseadverseecono­
miceffectsandwould:
(a)helptoensureadequatestocksatthebeginningofnextwinter,
(b)demonstrate thatindustrialized countries areconsciousoftheneed
tosaveoiI,
(c)mostimportantly,reducetheupwardspeculative pressureonprices
which,ifleftunchecked,maybetakenbytheproducers asevidence
thatfurtherpermanentpriceincreases cannowbeimposed.
7.Suddenfurtherpriceincreases byproducers wouldbevastly
moredamagingtotheworldandnationaleconomiesthanLimitedmeasures
ofdemandrestraint .
8.TheEnergyCouncil,whichistomeeton27March,willneed
toassessthesituation asitdevelops,andtakeanynecessary measures
toreducethepressureonsuppliesandpricesandtoimpressonindustry
andpublicthecontinuing needtosaveoil.
Longertermaspects
9.Eventshavedemonstrated oncemorethatthesituation ofthe
Community,relyingonimportedoilfor50%oftotalenergysupplies,is
precarious .Economicgrowthof1%currentlyentailsS5-6000million
moreoilimports.Thereforeonlybymajorsubstitution ofoilbyother
sources,andbymoreefficientenergyuse,caneconomicgrowthcontinue
withoutleadingtothemajoreconomicimbalances causedbyextraoilim­
ports.Atbest,thecostofsupplieswillalmostcertainlycontinueto
increase;atworst,therewillberepeatedshortages andperhapsgraver
interruptions ofsupply.

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10.Since1973,energyimportsasapercentage oftotalenergy
consumption havedeclinedfrom63%to56%.Butthisisalmostentirely
duetoincreasesindomesticoilandgasproduction .Otherenergy
policymeasuresaccountforlessthan1pointofthe7pointreduction.
TheCommunity nowneedstosharpenitsresponse,andimplementinconcrete
termsthegeneralpoliciesalreadyagreeduponbytheEuropeanCouncil.
Necessaryaction
11.Actionisnowrequiredonthefollowinglines:
TheCommunityshouldsetalimitonoilimportsby1985at500miotons
ayear.ThiswouldconfirmtheCommunity'scommitmenttotherational
useofenergyandthefullexploitation ofitsownresources.Atthe
sametimethiscouldbeasignaltoothermajorconsumers.
(i)EnergySaving
TheCommunity mustworkforgreatercoherence andequalityofeffort.
Thereisalreadya15%savingtargetfor1985;wemustaimtodo
betterthanthisandtofixamoreambitious newtarget.Greater
effortswillberequired,includingtheacceleration ofcurrentlong
termprogrammes,thepromptexecutionoftheschemeofCommunityaid
fordemonstration projectsandtheadoptionofafurthergroupof
demonstration projectsbeforetheendofMarch.
(ii)Coal
TheCommunity needsmorecapacitytoburncoal,particularly outside
GermanyandtheUnitedKingdom.In1978oilburninpowerstations
increasedfasterthancoalburn.18majoroilfiredpowerstations
arestillunderconstruction .Indigenous coalproductionisdeclining.
Commission proposalstohaltthesetrendsthroughaidofabout220
millionEUAperyearforintra-Community coaltrade,cokingcoal
production andtheconstruction ofcoal-fired powerstationshavenot
sofarbeenaccepted.Developments intheoilsectorhavemadethemmore
urgentthanever.

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Theyshouldbeaccompanied byintensifiedeffortstoperfectnew
usesofcoalincludinggasification,liquefaction andfluidized
bedcombustion.ThiswouldfullyjustifyCommunityexpenditure of
about25millionEUAannually.
<iii)Nuclear
Sincecoalwillbeunabletofillallthegap,wemusthavealsoa
judiciousexpansionofnuclearenergy.Thenuclearprogrammecontinues
toslipandweareunlikelytohavemorethan75-80gigawattsoperating
in1985,comparedwiththe103gigawattsplannedtwoyearsago.No
newconstruction hasstartedforthelastthreeyears,exceptin
France.
Itisnecessarytoworktowardsacomprehensive strategyonthemain
aspectsofnucleardevelopment inthemediumandLongterm,including
increasedeffortinthefieldofnuclearsafety.Particularurgency
isneededtodevelopsolutionsforwastedisposal.Everyeffortmust
bemadetoreducetheconflictbetweenenergyneedsandsafetyfears.
Commissionproposalsonthissubjectandonspent-fuelreprocessing and
thenextgenerationoffastbreederreactors,whichhavebeenbeforethe
Councilformorethan18months,shouldnowbeadopted.
Ifthepresentforecastsofnewnuclearcapacityby1990aretobe
achieved,anannualaverageofabout13newpowerstations(11-14
gigawatts)mustbeorderedoverthenextfiveyears.Anewtranche
ofEuratomloansisneededtomakeacontribution towardsforecast
nuclearinvestmentofabout50.000millionEUAupto1985.
TheCommunityshoulddevelopacoherentpolicytoimproveitsuranium
suppliesandtoencouragecollaboration betweenCommunitycompanies
andthoseofthirdcountries.
(iv)Refining
Inspiteofrecenthigherproductpricesandapparantlyimproved
profitability ofrefineryoperationsintheshortterm,themarket
futureremainsveryuncertainandthebasicproblemofexcesscapacity
remains.Itwilldeterioratefurtherifoilconsumptiondeclines
significantly .TheneedforaCommunityactiondealingwiththe
structuralproblemsisthereforeasimportantasever.

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(v)NewSources
Vigorousstepsmustbetakennowtodevelopnewsourcesofenergy,
whichshouldbecomeincreasingly significant .Presenteffortsat
Community andnationallevelshouldbedoubled.Inthiscontextthe
remainingreserveonCommunityaidtodemonstration projectsinthe
fieldsofcoalgasification andliquefaction andofgeothermal and
solarenergyshouldnowbelifted.
(vi)Researchanddevelopment
ThepresentCommunityprogrammes laystressonworkinalltheabove
fi.elds.Theirroleasacomplementtonationaleffortsandasameans
ofco-ordination shouldbeincreased.Newmultiannual R&Dprogrammes
involving adoublingofexpenditure atCommunitylevelshouldbeapproved
inthefirsthalfofthisyear.
(vii)Investment
Community andnationalenergyinvestment programmeswill.involveatotal
of370/000millionEUAupto1990(excludingenergysaving).The
Communitymustensurefavourableconditionsforthisinvestmenttotake
place.
(viii)Externalaspects
Inviewofrecentdevelopments energycooperation withdevelopingcountries
andacoherentCommunitypolicyinthefieldofexternalenergyrelations
shouldbevigorously pursued.Newfundsshouldbeprovidedfortheimplem­
entationofaCommunitystrategyinthisfield.Particularattention
shouldbepaidtothecloseinterdependence ofenergyproducing and
consumingcountriesandtotheneedforcollaborative effortstoimprove
knowledgeofenergyresources,toincreasenewsuppliesandtopromoteand
protectenergyinvestments indevelopingcountries.
(ix)Convergence
TheCommunity'sobjectivemustbetoachieveacloserconvergence of
memberstates'policiesandprogrammes,bothtoimprovetheenergysituation
andtocontributetoeconomicunity.TheEuropeanCouncil,atitsBremen
meetinghasalreadyemphasizedtheneedforjointappraisalandco-ordination ;
thisshouldnowbemoreeffectively putintopractice.

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CONCLUSIONS
12. Additional impetus isnow required atthe level oftheEuropean
Council tomatch theneeds ofthesituation andtopermit more convergence
ofnational programmes towards agreed Community objectives .
TheEuropean Council istherefore invited
(i) toendorse theanalysis presented toitinthis paper ;
(ii) toagree inprinciple ontheneed foraction onthefollowing
unes :
a)achievement ofshort-term saving ofoil;
b)achievement ofmore ambitious energy saving targets byintensified
efforts ,including demonstration projects ,tosave energy ,parti­
cularly oil,including limitation ofCommunity oil imports in
1985 to500miotons ;
c)more vigorous action oncoal andnuclear energy based onCommunity
strategies forcoal ,nuclear waste ,reprocessing andthenext
generation ofreactors ;
d)Community action tohelp restore thebalance oftherefining
industry andtohelp industrial restructuring ;
e)substantially increased development ,including demonstration
projects ,ofnewenergy sources and adoubling ofexpenditure on
research and'development ;
f)theachievement ofenergy investment intheCommunity ofatleast
370.000 million EUAby1990 ;
g)theprovision ofadequate funds fortheimplementation ofacoherent
Community strategy "forenergy cooperation with the .developing
countries ;
h)theintensification ofwork onthecoordination andconvergence of
Community andnational policies .
(iii)toreview ,bytheendoftheyear ,progress made .

ANNEXA
Economicimplications oftheoilsituation.
1.OPEC'sdecisionofDecember1978toputupthereferencepriceper
barrelofcrudefromt12.70tot14.54in1979placesafurtherburdenon
theCommunity'seconomies.Withallthereservations calledforbysuch
estimates,thisincrease,halfofwhichhasofficiallybeenappliedsince
1January,willhaveapproximately,allthingsbeingequal,thefollowing
impactonthemaineconomicparameters :
-anextra5000milliondollarsontheMemberStates'totaloil
"billforthisyear;
-adeterioration ofsome2500milliondollarsintheCommunity's
current-account balanceofpayments;
-ariseofroughly0.45pointsintheaveragerateofinflation;
-alossofgrowthwhich,throughamplification byinternational
trade,couldamountto0.4points.
2.EveniffortheCommunityasawholetheseimplications maynot
appeardramatic,theywillbemoredamagingtosomeMemberStates,parti­
cularlythosewhichsince1973havebeenbothstronglyenergy-dependent
andsufferingfromhighinflation.
Likewisetheimpactwillbegreaterinthecaseofthoseindustries
whereoilistheessentialrawmaterial,especiallyshouldthecompeting
industriesinsomethirdcountriescontinuetoenjoycheapersupplies.
3.AnewsituationhasnowarisenwiththeIraniancrisis.Asconcerns
theeconomicaspectsofthematter,itmustbenotedthatthiscrisishas
alreadybeenreflectedinlossesofexportsbyMemberStatestoIran-hitherto
oneofthemainOPECbuyercountries-and inasteeperrisethanexpectedin
thecostofcrudesupplies.
Evenifthepresenttensionsshouldnotleadtoamajorofficial
increaseinthepriceofoil,butonlytoaccelerated implementation ofthe
increasealreadydecidedonbyOPECinDecember,theeconomicimbalancesto
besufferedbytheoil-important countrieswouldamplify:theCommunity's
oilbillwouldjumptosomethinglike7000milliondollarsanditscurrent­

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accountbalanceofpaymentswoulddeteriateevenmoresharply,affecting
particularly thoseMemberStatesdependingmostonenergysupplies.
4.Ifofficialoilpricesareraised,eachextradollarperbarrel
abovethepresentofficiallevelwouldmeanapproximately :
3600milliondollarsontheannualoilbill,
3000milliondollarsonthecurrent-account balanceofpayments,
0.3pointsmoreinflationand0.4pointslessgrowth.
•SomeMemberStateswouldfindthemselvesbackindouble-figure
inflation;somewouldhavebalance-of-paymentstrouble;growthwouldsla­
ckenappreciably .InadditiontheUnitedStateswouldsufferserious
deterioration ofherexternalequilibrium .

ANNEXB.
PRICESOFPETROLEUM PRODUCTS ONTHE
ROTTERDAM MARKET
1.SeveralCommunityportshavebecomemajorcentresoftradein
petroleumproducts/thebestknownbeingRotterdam.Theyare"spotmar­
kets",i.e.theydealinspottransactions andhavenothingtodowith
contractdeliveries .Theyarequoteddailyinthespecialized Press.
Togethertheyaccountforsome5%ofCommunityconsumption .
•Thesequotations areimportantinnormaltimes,fortheyhave
becomeareferencebasisforthefixingoftheconsumerpricesofpetro­
leumproducts,eitherbeingtakenintoaccountdirectinthenational
pricingarrangements ,asinBelgiumortheNetherlands,orinfluencing
pricelevelswherethesearewhollyfree,asinGermany.Theyarethus
anindicatorformaintrendsintheoilmarket.
TheCommission hasmadeadetailedinvestigation ofthepattern
ofthismarket,whichhasconfirmedthatthequotations arebroadly
representative ,buthasshownthatthetransactions ,bytheirmarginal
character,couldintheeventofpricefluctuation tendtoamplifythe
truemarketsituations .
2.SinceIranianoilshipments ceasedattheendof1978the
amountsonofferintheinternational markethaveshrunkconsiderably .
Thisshortage,comingatatimeofveryhighdemand,particularly for
heatingfuel,sentpricesrocketing onthesemarkets:since15December
increasesaveraging 70%forallpetroleumproductshavebeenrecorded.
Consumerpricesontheotherhand,thankstothecontrolsimposed
bysomeGovernments,havemovedoverallinlinewiththeriseincrude
supplycosts,butwithoutrelationtotheRotterdammarketpricequota­
tionsofthelastfewmonths.

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3.Thereisaverygravedanger(andthisappearsborneoutby
Pressreports)thattheoil-exporting countriesmakingcost-effective-
nesscalculations onthestrengthoftheRotterdamquotationswilltake
theseasanagreementformakingfurtherpriceincreases.
Thisbeingso,theCommunityshouldinformtheproducercoun­
triesthattheRotterdammarketquotationsareinpresentcircumstances
notrepresentative ,inordertoavoidmisreadings oftherealCommunity
marketwhichcouldresultintheirtakingdecisionsthatwouldbeharm­
fulallround.