COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 18.10.1995 
COM(95)478 final 
COMMUNICATION FROM THE COMMISSION 
EUROPEAN COMMUNITY 
GAS SUPPLY AND PROSPECTS 

TABLE OF CONTENTS 
1. Executive Summary - 1 
2. Conclusions - 6 
3. Present and prospective EC gas supply and demand and external 
relations - 7 
3.1. Evolution of EC gas supply and demand over the past decade. - 7 
3.2. Present EC supply and demand - 7 
3.3. Future supply and demand prospects - 9 
3.4. The external dimension - 11 
4. Market developments and implications for security of supply - 12 
4.1. Developments in the power generation sector -12 
4.2. Developments in the large industrial sector -13 
4.3. Vertical integration along the gas chain - 14 
4.4. Horizontal integration in the gas market - 15 
4.5. Gas pricing mechanisms -15 
5. Security of supply at EC level - 16 
5.1. Introduction - 16 
5.2. Short term aspects of security of supply in the EC - 17 
5.3. Long term aspects of Security of Supply in the EC - 19 
5.4. Transeuropean Gas Networks - 22 
5.5. , Co-operation at EC Level - 22 
Tables 
Annex 
*f dK 

1. Executive Summary 
Introduction 
1. Natural gas is increasing its market share in virtually all EC Member States. For 
the EC as a whole, it is expected to grow from around 19% of today's energy 
balance to around 26% in 2010. At the same time, as indigenous EC production 
declines, so dependence on imports from third countries is likely to rise 
significantly from almost 40% today to around 60% by 2010, and as high as 
75% by 2020. Moreover, the uncertain political situation in certain of these 
major supplying countries gives rise to some concern. 
2. The EC's natural gas industry has to date an exemplary record in the area of 
supply security. There is no reason to believe that this will change in the future. 
Member States have a responsibility for security at national level and the 
European Community has a responsibility at the level of the Community, 
especially in view of the Single Market. 
3. This Communication is part of the framework set out in the Commission's 
Green Paper(1), and subsequent White Paper, in which security of supply is 
highlighted as one of the three pillars of EC energy policy. While this 
Communication is not intended to pre-empt further development of the legal 
framework related to other EC energy policy issues, such as the Internal 
Energy Market and Trans-European networks, it will help to inform the debate 
in regard to these policy matters. 
4. The objective of the Communication is twofold: 
(a) to provide a platform on which to debate the future direction of the gas 
sector in the EC; and 
(b) to examine the issue of security of supply and to assess what may be 
done at EC level to enhance security of supply well into the next century. 
5. The Communication is divided into three main chapters. The first looks at the 
gas demand and supply outlook to the year 2020, the "supply gaps" which 
emerge and the critical question of external relations. The second chapter 
examines certain market developments with reference to their possible impact 
on supply security. Finally, chapter 3 looks at the security measures currently 
available to the gas industry and assesses their effectiveness in the event of 
a major shortfall in supplies. There are no implications for the Community 
budget arising from this Communication. 
6. The International Energy Agency recently carried out a study on Gas Security 
which covered the three main regional OECD gas markets i.e. OECD Europe, 
North America and OECD Pacific. This study shows there are substantial 
differences between these three regional gas markets, in terms of gas supply 
and demand and security of supply. Any conclusions specific to the European 
COM(94) 659 final 
-1 b 
Community can only be drawn based upon a detailed analysis of the European 
situation of the kind contained in this paper. 
7. In preparing this Communication, extensive consultations have taken place with 
industry, individual gas companies and Eurogas, and also with the Member 
States. These consultations have served to add value to the final paper. 
Demand and supply prospects 
8. Contracted gas supplies are more than adequate to meet projected demand in 
2000. Assuming existing supply contracts are extended, there is at present a 
shortfall of up to 20% in contracted supplies to meet expected demand in 2010. 
New supply contracts, in excess of the total amount of gas presently consumed 
in the EC, will be required to meet expected demand in 2020. 
9. However, gas supplies potentially available to the EC, both internal and 
external, are abundant and sufficient to meet demand well into the next century. 
Incremental supplies are most likely to come from the three main external 
suppliers, Russia, Norway and Algeria. All three suppliers have major projects 
to increase substantially gas exports to the EC. 
10. There is no shortage of additional gas reserves accessible to the EC, for 
example from the Middle East and Central Asia, but it will have to be developed 
and transported by pipeline or LNG, over long distances with implications for 
cost and, in the case of pipelines, potential transit difficulties. In the long term, 
these factors may put pressure on gas prices which in turn could slow down the 
rate of increase in gas demand. 
External relations 
11. The EC is currently discussing strategies for the development of closer relations 
with some important energy producers in the FSU and issues like the conditions 
for access to energy products and for the construction of export outlets form 
part of the dialogue with these countries. The European Energy Charter Treaty 
provides a significant framework to encourage east-west gas trade and co­
operation with existing and potential supplying countries. The construction of 
a framework similar to the Energy Charter, southwards, or an initiative by the 
Energy Charter Conference to extend the Charter process to cover other 
regional gas suppliers could reinforce supply security. The forthcoming Euro-
Mediterranean Conference offers an opportunity to take this a stage further. 
12. The consumer-producer dialogue provides a further framework to encourage 
closer ties with suppliers. The EC's growing import dependence and its 
strategic need for closer links with external suppliers should inform and 
motivate external relations policies with those countries. EC co-operation and 
technical assistance programmes, for example TACIS, PHARE and 
Mediterranean programmes, in the energy sector should be increasingly 
governed by such strategic imperatives. 
2 -
13. The countries of Central and Eastern Europe face serious problems in the gas 
sector, not least a fragile security of supply situation stemming largely from 
dependence on a single supplier. These countries will look to the EC for 
increased trade, co-operation, integration and diversification of supply, 
especially with EC membership in prospect. 
Market developments 
14. Over recent years, there has been a tendency towards vertical integration along 
the gas chain, especially in the form of downstream investment by some 
external suppliers. This development is to be welcomed as it demonstrates an 
added commitment to EC markets by the suppliers in question and represents 
a factor for stability and security. At the same time, however, diversity of 
suppliers should be ensured. 
15. There are a number of economic advantages which favour gas for power 
generation. When substituting other fossil fuels, natural gas also has important 
environmental advantages. As a result, the power generation sector may 
account for over 50% of the increase in gas use to 2010, representing almost 
one third of total EC gas consumption at this time. The increased demand for 
gas in power generation and the drive to reduce costs may encourage further 
direct links between power generators and gas producers as well as new price 
formulae reflecting the fact that coal is the main competitor to gas in this sector 
while the development of gas markets will allow new gas pricing concepts. 
Short term security of supply at EC level 
16. it is estimated that at the present time the EC could withstand an interruption 
from the main non-OECD exporters, Russia and Algeria, for periods of 9 and 
20 months respectively. Even if a shortfall in supplies occurs simultaneously 
from both these non-OECD sources, the security period is almost 5 months. 
Full cross-border cooperation between Member States' gas industries using 
existing security measures is needed to ensure this level of security. 
1 7. However, the supply situation differs considerably between Member States in 
terms of the natural gas share in primary energy consumption, domestic gas 
production, diversification of imports, degree of integration into the European 
gas grid, storage volumes and characteristics, market segmentation, share of 
interruptibles and dual-fired capabilities, LNG terminals and cross-border back­
up cooperation with other gas companies. Security measures taken at national 
level vary as a function of these very different supply and demand situations. 
18. The use of the EC dimension improves security of supply. EC gas companies 
already cooperate through cross-border back-up agreements on the basis of 
commercial considerations. The elements of an EC cooperation policy, geared 
to minimising the effects on consumers of a major interruption involves the use 
of a range of measures. These include demand reduction through the use of 
interruptible contracts; production flexibility, both in terms of a country's own 
production and imports from other EC producing countries; and use of the 
available storage at EC level. When applied in unison these measures increase 
- 3 -
the gas available for internal trade at EC level as a consequence of the greater 
import diversity of the EC as a whole as compared to single countries. 
Long term security of supply at EC level: Network integration 
19. To exploit fully the security measures mentioned above, the integration of the 
EC gas system is a prerequisite and therefore, the interconnection of the EC 
gas system is crucial to maintain and assure an adequate security level. 
20. While the EC grid is to a large extent integrated, thanks to the achievement of 
the European gas industry, there are a number of further interconnections 
which would enhance security. 80% of European gas reserves are located in 
the North Sea and the Netherlands. Pipeline projects joining the Continent from 
the North Sea as well as interconnections on the Continent between several 
Member States will provide critical improved deliverability of North Sea and 
Dutch supplies in the event of an interruption of supplies from Russia and/or 
Algeria. 
21. In the event of a major shortfall in supplies, the most vulnerable Member States 
are Finland (Russian interruption), Greece (Russian interruption) and Portugal 
(Algerian interruption). However, Greece is constructing LNG facilities which will 
provide valuable additional security while the problem will be partially offset in 
Finland by dual firing capacity. Portugal may be able to cope with an Algerian 
interruption without LNG facilities but only if the planned new Spanish 
interconnection is completed and capacity in the French mainline system is 
increased. A long term solution for Finland would be a connection with Sweden 
as Nordic markets develop and any eventual development of gas supplies from 
the Barents Sea. 
22. Also vulnerable to a lesser degree are: Spain (Algerian interruption), Austria 
(Russian interruption) and Italy (Russian or Algerian interruption). However, if 
the interconnections mentioned in section 5.3.1. are constructed and there is 
effective use of all the load balancing instruments, swap possibilities and 
reverse flows, as well as alternative LNG in the case of Italy and Spain, these 
Member States could maintain supplies for a considerable period. 
23. In the worst case scenario and unlikely eventuality of a simultaneous 
interruption of both Russian and Algerian supplies, Spain, Italy and Austria 
become much more vulnerable. Moreover Belgium and France might also be 
vulnerable especially if the interconnections mentioned above do not exist. 
Transeuropean Gas Networks 
24. Certain of the strategic interconnections mentioned above are common interest 
or priority projects under the Transeuropean Energy Network programme. The 
development of the TEN policy will permit the enlargement of the list of 
common interest projects to include, as market conditions change, some of the 
"missing" pipeline links and storage projects identified in this report, including 
the needs of the most vulnerable Member States, helping to bolster EC security 
of supply. 
Storage and interruptibles 
25. Bearing in mind the long lead time required for the development of new 
underground gas storage, an analysis of the costs and benefits of creating 
more storage capacity should be undertaken to cope with the increased 
demand, reduced flexibility resulting from declining EC internal production and 
increased external dependence. This is particularly important for Member States 
with less mature gas markets. 
26. While global figures are available, an in-depth investigation of the actual 
amount of industrial and power generation interruptibility among Member States 
is required in order to determine the true level of interruptibility and the 
implications for security of supply in case of a major crisis. 
27. Gas and electricity utilities could share energy during periods of shortage for 
either gas or electricity, as it is very rare that simultaneous gas and electricity 
peaks occur throughout the entire EC. With the potential large increase in 
interruptible power load, this instrument could significantly reduce long term 
vulnerability of almost all Member States. 
Co-operation at EC level 
28. Efforts should be made to ensure that EC co-operation is at its most effective 
in the event of a major gas crisis. A number of ideas may be worth developing 
in this context. One approach could be to agree security targets for Member 
States which could be differentiated provided the overall security objective is 
assured and there is an adequate degree of burden sharing. The security 
targets could be established using the optimal mix of security measures 
available to each, including improved cross-border co-operation. 
29. Whilst security of supply does not present a major problem at present, there is 
no room for complacency. Emergency guidelines may be drawn up at EC level 
to establish a common language and emergency priorities when dealing with 
a major gas interruption. 
30. Work should continue on analysing in-depth the evolving balance of all factors 
affecting security of gas supply at EC level and by Member State. This should 
take into account the costs and benefits of the various options, and cover not 
only developments on the supply side but also the implementation of TENs, 
completion of the Internal Energy Market and developments in external relations 
such as the European Energy Charter. 
•k "k -k 
2. Conclusions 
On the basis of the analysis presented in this Communication, the Commission 
invites the Council to note and endorse the following conclusions: 
1. Gas markets are intrinsically regional in character and the EC's security of gas 
supply can only be properly assessed therefore on the basis of in-depth 
analyses of the gas situation specific to the European region. 
2. Security of gas supply does not present an immediate problem at the level of 
the EC although there are important differences in supply security among the 
Member States. The mix of security measures developed by the European gas 
industry, that is network interconnections, storage, production flexibility, 
interruptible contracts, and cross-border agreements, differs from one Member 
State to another. However, co-operation at EC level could enable measures to 
be applied in a co-ordinated manner exploiting the flexibility of the gas system 
to the full, and thereby improve European security of supply. 
3. The EC external dependence will increase progressively over the period under 
review with a large share of the incremental gas coming from non-OECD 
countries. While there is no shortage of gas reserves potentially available for 
the EC to meet the large increase in gas consumption expected to the turn of 
the century and beyond, the incremental supplies, which may be marketed 
economically, are most likely to come from the present three main external 
suppliers, Russia, Norway and Algeria. In case new suppliers emerge, these 
will also be outside and increasingly distant from the EC. 
4. The completion of the internal market will facilitate the integration of gas 
markets and thereby reinforce security of gas supply. Co-operation and 
solidarity at EC level will give a signal to external suppliers and transit 
countries, and provide further reassurance to existing and potential gas 
consumers in the EC, thereby strengthening the EC's security position. This will 
reinforce co-ordinated responses to supply difficulties, maintain and improve the 
image of natural gas as a reliable fuel, facilitate the realisation of the large-
scale projects needed to bring gas to European markets in the years to come, 
and act as a deterrent to possible shortfalls in supplies. 
5. The flexibility of the gas system in the EC, enhanced by the development of the 
Trans-European Networks, should be kept under regular review, and 
strengthened when necessary, in order to be prepared over time to tackle 
potential shortfalls in supplies within the framework of the single, integrated EC 
energy market. 
The Commission together with the Member States, the European gas industry, and 
other interested organisations, will examine the various issues raised in this 
Communication, keep a close watch on gas developments affecting security inside and 
outside the EC, and report again to the Council. 
-6 
* * * 
3. Present and prospective EC gas supply and demand and external relations 
The table below summarises EC gas supply and demand trends in the years 
to come. 
1. Demand (mtoe) 
2. Indigenous Production % 
3. Import Dependency % 1994 
254 
61 
39 2000 
311/320 
56 
44 2010 
392/411 
41 
59 2020 
432/496 
25/32 
68/75 
Sources - see tables in annex 
3.1. Evolution of EC gas supply and demand over the past decade. 
In the last ten years natural gas consumption in the EC has risen significantly, 
growing by more than 38%, from 184 Mtoe in 1985, to 254 Mtoe in 1994. The 
share of gas in the total EC energy demand currently stands at around 19%. 
Indigenous EC production grew by 25%, from 126 Mtoe in 1985, to 157 Mtoe 
in 1994. Demand has therefore risen more sharply than production, the balance 
coming from imports from the three main external suppliers, Algeria, Norway 
and Russia. Imports rose by 62%, from 61 Mtoe in 1985 to 100 Mtoe in 1994. 
External dependence thus grew from 33% in 1985 to almost 40% in 1994. 
Imports from Russia increased by 150%, from 21 Mtoe in 1984 to 53 Mtoe in 
1994, representing 80% of the increase in external supply requirements. In 
1985, the EC relied on Russia for 34% of total gas imports. By 1994 this 
dependence had grown by more than one third to 52%. 
Imports from Algeria increased by over one third, from 17 Mtoe in 1985 to 23 
Mtoe in 1994, following roughly the same growth rate as EC demand. EC 
dependence on Algerian imports slightly decreased during this decade, from 
28% in 1985, to around 25% in 1994. 
Imports from Norway increased by just 5%, from 22 Mtoe in 1985 to 23 Mtoe 
in 1994. In relative terms Norway's share of EC imported supplies dropped, 
from 36% in 1985 to 25% in 1994. 
3.2. Present EC supply and demand (ref: table 2A). 
In 1994, total EC natural gas demand was 254 Mtoe. Germany and the UK are 
the largest consumers (around 60 Mtoe each); Italy, the Netherlands, and 
France, consume 30-40 Mtoe each, while Belgium, Spain, Denmark, Ireland, 
Austria, Finland and Sweden each consume less than 10 Mtoe. Luxembourg's 
consumption is only 0.4 Mtoe, while Greece and Portugal plan to introduce 
natural gas in the years to come. 
7 
The share of natural gas in the total EC energy balance in 1994 was around 
19%. The Netherlands has the highest gas penetration (49%) followed by a 
group of countries situated around the EC average: Italy, UK, Ireland, Belgium, 
Germany and Austria. France, Denmark and Finland are below the EC average, 
while Luxembourg, Spain and Sweden are situated well below the EC average. 
In 1995 estimated proved reserves of natural gas in the EC stand at around 
3,360 Mtoe (see table 1) although the potential exists to increase these 
reserves through new discoveries and advanced E & P techniques. The 
Netherlands and the UK between them possess more than 73% of total EC 
reserves. A large part of the EC's natural gas reserves is therefore 
concentrated in N.W. Europe. 
Total EC natural gas production was 157 Mtoe in 1994. EC's natural gas 
producers can be divided into three groups. The first is composed of the 
Netherlands, and the UK, each producing over 55 Mtoe each. Italy and 
Germany produce around 15 Mtoe each, while another group consisting of 
Denmark, France, Ireland, Austria and Spain, are much smaller, producing less 
than 5 Mtoe each. Other Member States have no indigenous natural gas 
production. 
Current figures show a reserves to production ratio for the EC of over 20 years. 
However, reserves are not evenly distributed within the EC, indigenous 
production does not cover demand and Europe does not have a fully 
interconnected gas network. Some Member States, particularly those at the 
periphery, find themselves in a relatively isolated position. 
Regarding intra-EC natural gas trade, virtually no gas is exported outside the 
EC. The total amount of natural gas traded within the EC in 1994 was 30 Mtoe. 
The Netherlands is the one large gas supplier with Denmark supplying small 
quantities to Germany and Sweden. The Netherlands supplies Germany, 
Belgium, France and Italy. The UK, the other large producer, is for the time 
being not connected to the Continental European gas market(2). This will 
change once the UK-Continent Interconnector is completed and in operation. 
The EC(15) imports 100 Mtoe in total, from four external suppliers: Russia is, 
the largest, supplying 53 Mtoe in 1994. Algeria and Norway have an almost 
equal share, around 23 Mtoe each while Libya is a very small supplier, 1 Mtoe. 
Germany is the biggest importer of natural gas from external suppliers, 
accounting for around 30% of the EC's total imports. France and Italy also 
import substantial volumes, while Belgium, Spain, Austria, and Finland import 
much smaller quantities from third countries. The Netherlands and the UK, 
although largely self sufficient import small volumes from Norway. 
!2'With the one small exception of the UK offshore Markham field. 
- 8 -
Dependence for the EC stands at almost 40%, but this varies significantly 
between Member States. Finland and Spain are almost 100% dependent while 
Austria and France are 80% dependent on imports from third countries and 
Belgium, Germany and Italy are between 50%-55% dependent. The 
Netherlands and the UK are below 10%, due to their large self-sufficiency. 
Denmark, Sweden, Ireland and Luxembourg do not import at all from outside 
the EC. 
Dependence on non EC suppliers does not tell the whole story from a security 
of supply point of view. Consideration must be given to the sources of supply 
and to the diversity of sources. 
3.3. Future supply and demand prospects (ref table 2B) 
The following projections are intended as a backcloth to the chapters which 
follow. What is important is not so much the figures themselves but rather the 
trends which are revealed, especially levels of external dependence and 
supplies still to be contracted in the future. Data on demand is drawn from the 
Commission services' energy scenarios to 2020. 
These scenarios explore energy futures according to different potential worlds. 
What is significant for the purposes of this paper is that the fundamental issues 
of strong gas demand growth and increased import dependence remain 
constant in all of these scenarios. 
The environmental impact, particularly the level of C02 emissions does however 
differ according to the scenario used. Discussions of the scenarios in relation 
to Community energy policy, taking into account the EU's international 
obligations with regard to greenhouse gas emissions, will take place in more 
specific fora dedicated to this key issue. Moreover, it goes without saying that 
energy and environmental policies which emphasize greater energy saving and 
increased use of renewable energies will ease the problem of import 
dependence and hence improve the EC's security of supply. 
For the object of the Communication which concentrates on gas supply issues, 
average figures or ranges have been used in order to draw out the main 
messages. 
3.3.1. 2000 
Demand is estimated to rise by 22-26% to 311-320 Mtoe. By this time natural 
gas will have been introduced in Greece and Portugal. Gas penetration may 
increase in Germany, Spain, Italy, the UK and Sweden. Gas will represent 
around 2.2% of the EC's total primary energy consumption. 
EC natural gas production is projected to increase by 11% to around 175 Mtoe. 
Production thereafter may start to decline. The Netherlands may still be the 
largest producer, followed by the UK, these two countries representing together 
around 80% of the EC's total production. Denmark may also increase its 
- 9 
production while production in Italy, Ireland, Germany, France and Austria is 
expected to decline. 
The total amount of natural gas traded within the EC could be around 30 Mtoe, 
with the Netherlands still accounting for the vast majority. By this time the UK-
Continent Interconnector should be in operation, potentially supplying up to 18 
Mtoe annually to markets on the Continent. 
The EC is projected to need to import at least 136 Mtoe from third countries, 
representing a 36% rise. Contracted supplies for the year 2000 show that for 
the EC, as a whole, there may be a gas surplus at this time. In 2000, EC 
dependence will have risen to around 44%, with marked differences still 
apparent between Member States. Ireland, Sweden and Greece for the time 
being do not have contracted supplies to meet fully projected demand levels in 
2000. 
3.3.2. 2010 
Demand is estimated at between 392 to 411 Mtoe, representing an average 
rise of 27% from 2000. Natural gas may replace obsolete nuclear power 
generation in the UK, Sweden and Germany. Spain and Italy may also sharply 
increase gas use in power generation. Gas could represent as much as 26% 
of the EC's total primary energy consumption. 
EC natural gas production may decline by 6% from 2000 to around 165 Mtoe. 
The UK may continue to increase its production, to reach more than 50% of 
total EC production. It is likely however that by this time UK production will be 
used exclusively for domestic purposes and may not entirely cover projected 
demand. Dutch production may be in decline by this time. 
The total amount of gas traded inside the EC, may fall to around 28 Mtoe, with 
the Netherlands still supplying almost all of it, while Denmark may provide small 
volumes to Germany and Sweden. 
The EC may by this time have to import at least 227 Mtoe, representing a 70% 
rise over 2000. The EC will still have three main external suppliers. For the 
purposes of this assessment, the assumption is made that supply contracts 
expiring between 2000 and 2010 will be renewed. In this case the total amount 
of contracted supply will be about 168 Mtoe; Russia may account for 66 Mtoe, 
Norway for 57 Mtoe, Algeria for 40 Mtoe. 
By this time EC external dependency may have risen to nearly 60% with 
Finland, Greece, Portugal and Spain totally dependent on external supplies 
and, France, Germany, Italy, Austria and Belgium heavily dependent. By this 
time it is possible that the UK-Continent Interconnector may be being used to 
bring imports into the UK. 
In the case of Ireland and Sweden almost all gas has yet to be contracted to 
meet projected gas demand, while Greece presents a 50% deficit. In the case 
- 10 -
of Portugal one third of the demand has still to be contracted, while for Italy, 
Germany and! the UK demand may be between 10%-20% higher than 
contracted supplies and indigenous production. For the EC as a whole, up to 
20% of expected demand will have to be filled by new import contracts, either 
from traditional or new suppliers. 
3.3.3. Beyond 2010 
All EC Member States face a shortfall to a greater or lesser extent in contracted 
supplies. For the EC as a whole, declining indigenous production combined 
with an expected large increase in demand may lead to an EC import 
dependence of up to 75% by 2020. The new supply contracts required to meet 
expected demand in 2020 could well be in excess of today's total EC gas 
consumption level. 
3.4. The external dimension 
3.4.1. Relations with external suppliers 
The potential of the EC's three main external suppliers (Russia, Norway and 
Algeria) is large enough to cover much, if not all of this incremental demand. 
In addition, new suppliers will sooner or later enter the EC gas market. Small 
LNG quantities have already come from as far afield as the Gulf countries and 
Australia. By 2010 Nigeria may be providing Italy and Spain with LNG. In 
addition there are pipeline and LNG projects which might eventually bring gas 
to Europe from the Middle East, Central Asia, and even Central and Latin 
America. It has been estimated that some 200 mtoe per year of gas is available 
to European markets under these various new projects 
In any case, in the future more and more gas will have to be transported 
increasing distances to EC markets. Large investments, in the order of several 
billion ecus, will have to be made in order to establish production facilities and 
create the necessary pipeline and/or LNG infrastructure. As distances increase, 
so do costs and the security risks associated with transit across national 
borders. These factors may eventually put pressure on gas prices which in turn 
could affect gas demand in the long term. 
The EC's import dependence will in any case increase considerably, making the 
EC dependent for an increasing share of its total gas demand on non-EC 
countries. Norway, a member of the EEA and the OECD, will remain a major 
EC gas supplier in the years to come. It is important to encourage close ties 
and friendly relations with the main non OECD suppliers, Russia and Algeria 
and also any new suppliers. Downstream integration in EC gas markets by 
external suppliers may strengthen security of supply (see chapter 4). 
The European Energy Charter Treaty provides a significant framework to 
encourage energy trade and cooperation with signatory gas supplying countries, 
such as Russia, the New Independent States of Central Asia and of course 
Norway. The provisions of the Treaty on transit are especially important in the 
light of the EEC's growing gas import dependence. The construction of a 
- 11 -
framework similar to the Energy Charter southwards, or an initiative by the 
Energy Charter Conference to extend the Charter process to cover other 
regional gas suppliers could reinforce supply security. The forthcoming Euro-
Mediterranean Conference offers a suitable forum to take this a stage further. 
In addition, the on going consumer-producer dialogue provides a further 
framework for stability and the establishment of closer ties. 
The way to long-term security of supply is the diversification of supply sources 
and routes together with an external relations policy which encourages close 
links and mutual dependence between the EC and its external suppliers. The 
EC's growing import dependence and its strategic need for close ties with 
certain key external suppliers should motivate the EC's external political and 
commercial external relations policies with those countries, including technical 
assistance programmes. These programmes already include EC projects aimed 
at the rehabilitation of gas production, for example, projects launched under the 
TACIS programme for the Newly Independent States, and the promotion of 
energy efficiency. 
3.4.2. Central and Eastern European Countries (CCEE) (ref: Table 2C) 
In the time horizons considered in this report, many of the CCEE should 
become members of the EC. Excluding large international transit pipelines, it 
is estimated that CCEE countries will require at least 3 billion ecus of 
investment funding for transportation and storage projects over the next 15 
years as well as around 100 million ecus for technical assistance associated 
with these projects. Moreover, CCEE countries will remain heavily dependent 
on gas imports from Russia, especially as indigenous gas production in the 
region declines in absolute terms, bringing the question of supply security 
sharply into focus. CCEE countries will be looking increasingly westwards to the 
EC to help solve their problems in the form of increased gas trade, integration 
and co-operation as well as economic assistance. The CCEE countries occupy 
a strategic location on the main transit routes linking eastern reserves with EC 
markets which should not be overlooked. 
* * * 
4. Market developments and implications for security of supply 
This chapter aims to touch upon some present market developments which 
may affect security of supply. 
4.1. Developments in the power generation sector (ref: table n° 3) 
According to most projections, the power generation sector will account for over 
50% of the increase in gas to 2010. It is thus useful to examine this 
phenomenon in more depth. 
An EC Directive prohibiting the use of gas for power generation, giving instead 
priority to domestic and industrial uses, was withdrawn in 1991. The use of gas 
12 -
for electricity production in recent years has increased due to the economic and 
environmental advantages of gas. 
New developments in technology and the introduction of advanced materials 
have resulted in the introduction of Combined Cycle Gas Turbines (CCGT) in 
power generation. CCGT power plants have a much higher production 
efficiency, above 50%, than conventional gas turbines (around 35%), or coal 
fired plants (around 40%). 
The cost of building and maintaining the gas-fired power plants is another 
advantage. Small and compact preassembled gas fired units, can be built in a 
much shorter time span than coal fired, or nuclear plants. This enables power 
generators to monitor and match electricity supply and demand more closely 
and therefore in a more cost effective manner. 
The use of natural gas for power generation substituting other fossil fuels, 
presents a number of important environmental advantages as well, including 
lower C02, S02 and NOx emissions, while dust emissions and waste are 
negligible. Natural gas is itself, however, a "greenhouse" gas and therefore 
particular attention must be given to the reduction of leakage at all stages of 
the production, transmission, distribution and utilisation chain. 
Due to these advantages, gas use for power generation may increase from 
around 15% of total gas demand today to 32% in 2010 and perhaps even 
higher by 2020. 
This increased share of gas in power generation and the drive for cost 
efficiency may encourage further direct links between power generators and 
gas producers as well as new price formulae to reflect the fact that coal is the 
main competitor to gas in power generation while the development of gas 
markets will allow new gas pricing concepts. 
A precondition for direct purchases of this kind will be access to the 
transmission infrastructure to ensure reliable deliverability and the availability 
of surplus capacity in that transmission system. A few such direct contracts are 
already in place, mainly involving Norwegian gas suppliers on the one hand 
and the electricity undertakings, SEP in the Netherlands, Scottish Power and 
National Power in the UK on the other, but also between the Algerian producer 
Sonatrach and the Italian electricity utility ENEL. 
4.2. Developments in the large industrial sector 
For energy-intensive industrial undertakings environmental charges account for 
an increasing share in their cost structures and are therefore an important 
factor in the drive to remain competitive. Minimising environmental costs by the 
increasing use of natural gas, is already common in Member States which have 
strict environmental standards. The more mature the market, the less the 
geographic location of the large consumer will constrain the choice of supply. 
Contractual relations other than long term could develop which could add 
- 13 -
flexibility and diversity to the market. The opportunity to build pipelines and the 
benefits of more competition upstream may give possibilities for large 
industrialists or groups of industrial undertakings to participate financially in 
supply projects which In turn might enhance diversification of supply sources. 
4.3. Vertical integration along the gas chain 
External suppliers are increasingly investing downstream. Downstream 
investments take the form of joint ventures of various kinds, participation in 
transmission companies, investments, direct sales to end users, and 
agreements on transfers of technical know-how. The most notable current 
examples are the Norwegian gas suppliers and Russia's Gazprom. 
Norwegian gas suppliers' downstream activities allow them to accommodate 
new gas export volumes. Examples of this policy are the Netra joint venture 
and the small stake taken in the VNG transmission company, all in Germany, 
and the emergence of a gas marketing joint venture, Alliance Gas, with BP, in 
the UK. The increased role of Norwegian suppliers should enhance the 
deliverability of gas to European markets, which in turn will have a positive 
effect on security of supply. 
Recent years have seen an increased presence of Gazprom in the markets of 
Western, Central and Eastern Europe. Examples of such joint ventures are 
Wingas in Germany, Prometheus in Greece, Gasum in Finland, the UK-
Continent Interconnector, EuroPolGas in Poland, Panrusgas in Hungary and 
Volta in Italy. The formation of joint-ventures of this type is assisted by the 
opportunities created in these countries for external suppliers, and by 
Gazprom's historical links with Eastern Europe. Gazprom also owns assets in 
Moldova and Belarus. Whether Gazprom can fulfil its apparent strategy of 
increasing its downstream involvement in European gas markets will depend 
upon a number of factors including political developments in Russia, future 
revenues from gas sales and the availability of investment funds. 
Sonatrach, the Algerian gas supplier, appears to be concentrating more on 
attracting the technological and financial resources needed to develop 
production, and not for the time being on downstream investments. 
While the upstream involvement of EC gas companies is less common than the 
downstream involvement of gas producers, there are cases where the 
transmission companies are looking to gain access to gas reserves. There are 
also indications that oil companies are devoting more attention to gas projects 
than in the past. Implementation of international treaties like the Energy Charter 
Treaty and/or financial needs of external suppliers will, in the future, facilitate 
such a development. 
It may be argued that security of supply benefits from the vertical integration, 
downstream and upstream. The added value derived from downstream and 
upstream investment indicates a greater commitment to the market in question 
and therefore to providing it with a regular and reliable supply of gas. However, 
- 14 -
downstream investment by external suppliers could carry risks if not 
counterbalanced by the presence of alternative suppliers. 
4.4. Horizontal integration in the gas market 
The process of horizontal integration at the distribution level, in particular in the 
smaller Member States (examples are the Netherlands, Denmark, Belgium) was 
prompted by the Single Market. It is forcing utility service companies to 
economies of scale in the form of mergers or other forms of co-operation, 
enhancing efficiency and cost control in combining their gas, electricity and in 
some cases other public services. In other Member States, there has been a 
tendency towards fewer but bigger and more diversified and integrated regional 
or local utilities. 
Differences in the industrial and commercial culture between the European 
electricity and the gas industries has been a reason why cross shareholdings 
or joint activities, for example in new gas fired generation capacity or gas 
transmission lines, have been slow to develop. The increase in gas-fired 
generating capacity could well lead to change in the next few years, given the 
potential mutual benefits and risk limitations for both industries. In the UK, for 
example, electricity distribution companies have taken advantage of the 
liberalised environment to secure direct access to North Sea gas supplies for 
power generation and to enter the gas supply market, often in the form of 
consortia. 
4.5. Gas pricing mechanisms 
Gas prices to final consumers in continental Europe are determined by using 
two approaches, the cost-based pricing method and the market value pricing 
system, with indexation mechanisms linking gas prices to the prices of the 
alternative competing fuel(s). 
In a number of contracts for gas sales in the electricity generation sector, new 
pricing formulae have been used. Indexation clauses, for example against coal, 
electricity, general inflation have been developed as an alternative or in addition 
to oil-linked indexation and new pricing concepts could develop. Any decoupling 
of gas from oil prices in the power generation sector with the present market 
structure may not necessarily lead to lower gas prices. To avoid the greater 
volatility of oil-linked gas prices, power producers may be inclined to pay a 
premium for gas when the price of this is linked to a more stable fuel like coal. 
Moreover, the alternative fuel for electricity generation in the case of CHP and 
CCGT is light oil distillates which means gas is priced at a premium in this 
instance. These developments could facilitate the implementation of new gas 
supply projects. 
In the UK gas prices are decoupled and determined by market forces of gas 
supply and demand for commercial, industrial and power generation users. 
Competition among suppliers determines the gas price, while the alternative for 
consumers is a wide range of competing gas suppliers. In addition to oil, other 
- 15 -
forms of indexation can now be found. Spot market deals have emerged and 
it seems only a matter of time before reference to spot market prices for longer 
term gas contracts will occur. 
* * * 
5. Security of supply at EC level 
5.1. Introduction 
Gas security of supply may be defined as the ability of the gas system to 
provide a continuous and reliable supply of gas to customers on an economic 
basis and to cope with interruptions whether of a technical, economic or political 
nature. 
Despite its advantages as a fuel, gas would not have won its significant position 
in the energy market if customers had not been able to depend on it for their 
needs. Demonstrated security of supply has ensured the growth of the industry 
to its present importance in a number of European countries and will help 
markets to develop in other countries of the EC. 
Over the years, companies have developed packages of measures, geared to 
the requirements of their business, for both the long and the short term. 
Security of supply has a price. The challenge of the gas industry is to ensure 
the optimal balance between risk-minimising measures and the price which the 
market is prepared to pay. Long term measures include forward planning of 
markets and supply volumes, diversification of supply, storage and interruptible 
customers(3). Negotiations on import contracts and the undertaking of large 
construction projects with long lead times are also part of a company's regular 
activities to maintain supplies. In the shorter term, security of supply is achieved 
through efficient management of the transmission and distribution networks and 
operational decisions to meet changing demand levels. Decisions to secure 
supply to customers are as much part of routine management as of long term 
strategy. 
The increasingly interconnected grid and the integration of markets will tend to 
result in natural gas markets in Europe with a dimension larger than a national 
one. The Commission, in its Green Paper, has stated that this increasingly 
interconnected European gas grid and the diversified nature of the gas 
infrastructure and sources of supply among Member States require that 
advantage should be taken of the Community dimension to enhance security 
of supply. The Green Paper goes on to say that short-term security of supply 
in the gas sector requires a careful and in-depth examination of the specific 
measures necessary to respond to a gas supply crisis. This chapter is a first 
( 5)Gas companies supply to some of their bigger customers on the basis of interruptible contracts which allow 
them to reduce the demand during periods of peak consumption. These interruptible customers are generally 
industries and power generation plants which, in exchange for a lower gas price, have backup fuels and facilities 
with which to face the gas interruptions. 
- 16 -
attempt to do this, analysing security of supply from the point of view of the EC 
single market as a whole. 
5.2. Short term aspects of security of supply in the EC 
A diversified situation 
The supply situations differ considerably between countries in terms of levels 
of indigenous natural gas production, diversification of imports, degree of 
integration into the European natural gas grid, storage volumes, market 
segmentation, share of interruptible supplies etc. Security measures taken at 
national level, in order to safeguard gas supplies, vary as a function of these 
very different demand and supply situations within the EC. As a result, short-
term shortfalls in supplies in all European Community countries can be 
prevented or coped with in one way or another. Information collected and 
consultations with the gas industry demonstrate, at least qualitatively, that the 
current operational practices, contractual arrangements and supply 
infrastructure are adequate to cope in the short-term with a major shortfall in 
supplies to one external supply source, at least in the more mature European 
gas markets. Over time this will also be the case for the newer markets where 
similar infrastructures and practices are developing. 
The measures available to ensure supply security vary widely between Member 
States as shown in table n°4 in annex. 
Crisis simulation 
In the case of a major shortfall in supplies, a combination of measures can be 
taken with the object of minimising the effects on consumers. Such measures 
include the use of interruptible sales contracts, flexibility of supply from both 
indigenous production and imports, underground storage and mutual assistance 
and co-operation between neighbouring gas companies. A study undertaken by 
the Commission services in consultation with the gas industry takes into 
consideration the effect of these individual security measures on the overall 
security of the EC. When evaluating the EC dimension, it has been assumed 
that full cross-border co-operation between gas industries which are 
interconnected has been fully utilised. The demand and supply conditions 
prevailing during the first quarter 1994 were taken as a basis, being the most 
recent year for which detailed information is available. This period is not 
representative of the most severe weather conditions so that results should be 
considered as indicative only. 
The risk of supply shortfalls from Norway, an EEA and OECD member, has not 
been considered. 
According to the origin of the shortfall in supplies, the results of the exercises 
are as follows: 
shortfall in supplies from the FSU 
The application of the security measures concerned (interruptibles and 
production flexibility) only by the countries directly affected by the shortfall in 
- 17 -
supplies, have an effect equivalent to a 29% reduction of the EC imports from 
the FSU. 
Co-operation and joint implementation on a Community-wide basis of the same 
security measures to use the added value of the EC dimension, increases this 
figure to 36% of the EC imports from this source. The EC storage cover is, in 
this case, 283 import days(4) . 
shortfall in supplies from Algeria 
Under the same assumptions the effect of the security measures is equivalent 
to a 26% reduction of the EC Algerian imports when applied individually by the 
countries concerned by the supply cut but a 56% reduction when the added 
value of the EC is taken into consideration. The corresponding EC storage 
cover is 625 import days of Algerian gas. 
shortfall in supplies from all non-OECD suppliers 
Co-operation on a Community-wide basis would reduce the overall non-OECD 
import needs by 21% and the EC storage cover would be of 136 import days. 
Conclusions from the analysis may be drawn as follows: 
The interruption of supplies from a main non-OECD supplier are solved more 
effectively when there is co-operation at a European level to cope with the 
supply shortfall. Therefore, the use of the EC dimension improves security of 
supply. 
EC gas companies already co-operate through cross border back-up 
agreements. However, there is little available data on them and it is not 
possible to establish if they would exploit the EC dimension to the full in the 
case of crisis affecting several Member States. 
The elements of such EC co-operation involve the use of measures such as 
demand reduction through the use of interruptible contracts; production 
flexibility, both in terms of a country's own production and imports from other 
EC producing countries; trade of gas made available as a consequence of the 
greater import diversity of the EC as a whole as opposed to single countries; 
and use of available storage at EC level. 
To exploit fully the measures mentioned, the full interconnection of the EC 
system of transmission lines linking the different EC sources of supply is 
crucial. 
As an example, the effects of the planned UK - Continent Interconnector on 
security of supply have been analysed. During the reference period, in the case 
of a FSU cut in supplies, the Interconnector would allow for a partial substitution 
:4) Cover days are calculated by dividing the estimated strategic storage capacity by the volume of 
FSU imports per day needed after applying the security measures. 
- 18 -
of the supplies lost from this source. In that way, the EC imports from the FSU 
could be reduced by half and the EC storage cover increased a further 6 
months. 
- Use of the measures referred to above, exploiting the EC dimension to the full, 
would take place in the normal commercial and operational environment in 
which the gas industry functions. However, though higher prices will ensure that 
markets clear, even in a crisis situation, this may create political strains. 
Consideration should be given to emergency guidelines at EC level which might 
help to tackle such problems in an orderly manner. 
5.3. Long term aspects of Security of Supply in the EC 
The supplies available at any given time are a function of the deliverability of 
all available sources to the EC. The actual proven reserves of gas available to 
the EC from the EC's own production plus Norway provide security, but proven 
reserves are no indication of current deliverability. Short term security of supply 
is dependent on deliverability and available pipeline and storage capacity. Long 
term security of supply is more a function of marketable proven reserves and 
long term planned increments to pipeline and storage capacity. 
To maintain security of supply in an expanding market, strategic decisions to 
develop new sources of gas and to enhance the pipeline and storage 
infrastructure must be made years in advance. The short term and long term 
perspective of gas security are in fact interrelated. 
The following analysis examines the security of supply implications of further 
interconnections within the European network and alternative sources of supply 
as well as the load balancing needs and potential in terms of storage and the 
interruptibles market. The information provided by Member States on gas 
transport and storage infrastructure under Council Regulation 1056/72(5) is a 
starting point in such an analysis. 
5.3.1. Network integration possibilities 
Additional interconnections between European transmission grids and 
alternative interconnections with sources of supply will improve the transmission 
deliverability and will provide additional diversity of supply. Further integration 
of the European grid will improve the key elements of security of supply -
improved gas market interruptibility, increased storage capability, improved 
economic feasibility of distant supply sources and potentially improved flexibility 
in producer contract negotiations (see map in annex of existing network and 
pipeline projects). 
There are a number of key interconnections which will be vital to increased 
security of supply. Approximately 80% of European reserves are located in the 
North Sea and the Netherlands. Therefore, the critical issue is the ability to 
(5) OJEC L120 25.5.72 p.7 
- 19 
deliver these reserves. The two most important elements of this deliverability 
are production capability and pipeline capacity. 
The EC is well placed with regard to the geographical distribution of world 
reserves: 70% of all known gas reserves are less than 4000 to 5000 kms from 
the centre of Europe. In addition to the three largest suppliers, others are 
starting to emerge in the Middle East, Latin America, Africa and Central Asia. 
The analysis in Annex I emphasises interconnections which maximise 
transmission deliverability from the North Sea and the Netherlands which are 
considered the most reliable sources in case of a shortfall in supplies from 
Russia, Algeria or both. It also reviews the most significant new supply projects. 
5.3.2. Producer Incentives on Security of Supply 
Sufficient transmission deliverability is only useful if there is adequate supply 
potential. The proven reserves of the North Sea production area appear to be 
more than adequate to meet any shortages for a substantial period. However, 
proven reserves do not necessarily imply supply deliverability which requires 
that the reserves are "onstream", with production capability in place. 
Production deliverability from the North Sea has been expanding in recent 
years. In particular, production from the UK offshore has been expanding at a 
rapid pace. Norway is about to bring the massive Troll platform into production, 
significantly enhancing Norwegian deliverability. 
However, some exploration and production policies currently inhibit producer 
incentives. Policies requiring state participation in exploration and production, 
the landing of gas onshore, the national transmission company right of first 
refusal, and exclusive rights over a gas production area are all examples of 
policies which may hamper overall supply deliverability. 
The EC Exploration and Production Directive (94/22/EC)(6), and the 
implementation of the European Energy Charter Treaty will assist in providing 
producers with greater opportunities to explore and produce within Western 
Europe. 
5.3.3. Storage and Interruptibility (ref. table 4) 
Another important ingredient of security of supply is swing deliverability which 
comes primarily from storage and interruptibility. These associated instruments 
in the sales and transportation of gas are utilised to make up differences in the 
production and consumption streams. 
(6) Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the conditions for 
granting and using authorizations for the prospection, exploration and production of hydrocarbons (OJEC L. 164) 
-20 -
The development of storage in Western Europe has largely tracked the 
development of gas markets in each of the individual countries. Countries which 
have domestic supplies have a different approach from countries which rely 
heavily on imports as the former can rely on the production flexibility of their 
own gas fields. 
Member States in the EC rely extensively on storage to meet winter peak 
demands. Current storage can at maximum cover two months of peak winter 
demand. However, storage capacity alone does not necessarily demonstrate 
which countries are most vulnerable. Member states have different approaches 
to security of supply as discussed in the sections above. 
Historically, Europe's own large gas fields provided both short and long term 
supply security. In the long term as the fields begin to decline, this cushion of 
security will progressively diminish. 
The future storage plans of the gas industry will almost double the total existing 
working storage volume of the EC in a time horizon from 2000-2015. However, 
while this expected increase is higher than the expected gas demand increase, 
the level of storage relative to external import dependence will be lower in 2010 
than today. 
Storage projects are long term projects and therefore an analysis of the costs 
and benefits of creating more storage capacity should be undertaken to cope 
with the increased demand, reduced flexibility inherent in declining EC internal 
production and increased external dependence. This is particularly important for 
the less mature gas countries. 
Similar to storage, interruptibility plays a key role in swing deliverability, and as 
such, interruptible customers provide a critical role in meeting security of supply 
needs. 
Most European transmission companies maintain a significant amount of 
industrial and power generation interruptible customers. Interruptible contracts 
typically vary in length from one week up to three months or the entire heating 
season. 
Transmission companies tend to aim to maintain a high quality of service to 
large industrial users in order to convince them not to switch to fuel oil. Different 
types of interruptible contracts exist in the Member States and the use of them 
also seem to vary greatly among them. Industrial sectors affected would be 
different from country to country and so priorities of interruption need to be 
analysed. In order to determine the true level of interruptibility and the 
implications for security of supply in case of a major crisis, an investigation of 
the actual amount of interruptibility among Member States would be required. 
5.3.4. Mutual support of gas and electricity systems 
Power generation gas use could play a future role in improving security of 
supply in the EC. For example, if a significant percentage of the power 
generation market was equipped with long term dual fuel capability, such that 
a large number of power generation users were capable of performance without 
gas for a portion of the winter season, the security of supply implications would 
- 21 -
be significant. The forecast increased share of CCGTs in the generating system 
may however limit this flexibility as in the case of CCGTs the alternative fuel 
used is higher value gas oil. 
The power generating capacity of electricity utilities usually includes a reserve 
margin necessary to ensure system reliability. This excess generating capacity 
allows flexibility in the choice of individual generating units. Therefore, if the 
availability of natural gas to a particular region is reduced it is usually possible 
to reduce the load on gas fired generating units and shift the load to non-gas 
powered units so as to accommodate the reduced gas availability or to make 
more gas available for end users other than electricity generation. Thus, 
significant substitution exists within each power network. 
Another consideration is the lack of constant demand for electric power. 
Demand varies both on a seasonal, daily and hourly basis. Such variations are 
also not identical from region to region in Europe due to a number of factors 
such as weather, regional primary fuel mix, levels of industrialisation and the 
local prevailing utilisation of technologies. Therefore, if one region in the EC 
is experiencing a reduced availability of natural gas, the electric transmission 
system can allow for power to flow into that region from other regions which 
may have a more secure gas supply or excess non-gas powered generation 
capacity. By utilising the electric transmission system, a local reduction in gas 
availability may be accommodated to some extent by the substitution of 
electricity from one region to another. The role of energy sharing combined with 
the anticipated gas fired power generation growth appear to be powerful tools 
to be utilised in addressing security concerns, and should be investigated 
further. 
5.4. Transeuropean Gas Networks 
The above section has put in evidence the importance of an integrated EC gas 
system (networks and storage) to improve supply security. 
The EC Treaty introduced, in Art. 129B, a new Community policy on 
Transeuropean networks including energy networks. 
Some of the strategic projects of network interconnection and storage projects 
mentioned in the above section have in fact already been agreed by the 
institutions of the Community as common interest or priority projects as they 
fulfilled the criteria set down in the implementing TEN regulations, including the 
economic viability requested. 
The continuation of this policy in the future will allow the Community's 
institutions to set priorities on other projects which are equally important from 
a security of supply point of view, and may include some of those projects 
referred to above. 
5.5. Co-operation at EC Level 
The above analysis shows that the Community dimension could have added 
value when dealing with potential major gas supply shortfalls. It seems, 
therefore, appropriate to consider ways to verify and improve existing co­
operation in this area. 
22 
- Work should continue on analysing in-depth the evolving balance of all 
factors affecting security of gas supply at EC level and by Member State. 
This should take into account the costs and benefits of the various options, 
and cover not only developments on the supply side but also the 
implementation of TENs, completion of the Internal Energy Market and 
developments in external relations such as the European Energy Charter. 
- A number of ideas may be worth developing in this context with Member 
States, the European gas industry and other interested organisations, 
namely: 
1. The United States, which is largely self-sufficient with regard to gas 
supplies, has a curtailment plan, used by the US Federal Energy Regulatory 
Commission, which provides useful guidance on an equitable approach to 
interrupting customers according to priority of need. A similar plan may be 
appropriate as EC Emergency Guidelines which each Member State is 
encouraged to implement, taking into account national characteristics. 
2. Some national transmission companies already have what are known as 
Mutual Assistance Agreements which could be structured in order to meet 
a recommended curtailment plan. However, it would be desirable to 
investigate how to optimise these Mutual Assistance Agreements from an 
EC perspective and to ensure that such agreements are enforceable at 
times of crisis. 
3. Another approach could be to establish Security Targets. For example, a 
target might be that each Member State would ensure that they have either 
sufficient storage, interruptible capability, production/import flexibility, 
internally or through back-up or other arrangements for access to supply in 
other Member States to cope with an interruption of supply from the non-
OECD suppliers during the 6 winter months. Another target could be to 
establish the provision of "x" days of total gas consumption. These targets 
could be differentiated provided the overall security objective is assured and 
provided there is an adequate degree of burden sharing. The Security 
Targets approach would require an investigation into which are the most 
vulnerable Member States and what are the potential damages in case of 
a gas loss. The analysis could then concentrate on the most economically 
feasible mechanisms for each Member State, including the added value 
offered by full use of the EC dimension. 
These various approaches need to be discussed fully with Member States, the 
gas industry and other interested organisations before any EC guidelines could 
be drawn up. 
23 
TABLE 1 
EC PROVEN GAS RESERVES (1994) 
in Mtoe 
BE - Belgium 
DE •• Germany 342 
DK-Denmark 121 
EL - Greece 
ES - Spain 20 
FR - France 35 
IRE-Ireland 17 
IT - Italy 301 
L - Luxembourg 
NL- Netherlands 1874 
O - Austria 21 
P - Portugal 
SF - Finland 
S - Sweden 
UK - United Kingdom 630 
EUR 15 3361 
Source Oil and Gas Journal 1995 
24 
Table 2A 
Break-down by Member States for 1994 
1. Natural gas demand 
(mtoe) 
2. Share of natural gas 
demand % 
3. Indigenous production 
in Mtoe 
4. Intra-EC exchanges 
in Mtoe 
5. External deoendency 
a) mtoe 
b) % 
of which in mtoe 
Alnoria 
Libya 
Norway 
Russia BE 
9.5 
19.2 
0 
4.2 
5.3 
56.8 
3.5 
-
1.9 
-DE 
61.2 
18.0 
14.0 
17.8 
33.5 
54.7 
-
-
9.4 
24.1 DK 
2.7 
12.9 
4.3 
-2.5 
0 
-
-
-
-
-EL 
-
-
-
-
-
-
-
-
-ES 
6.2 
6.6 
0.1 
-
6 
96.7 
4.0 
1.1 
0.9 
-FR 
13.0 
2.7 
3.2 
22.7 
80 
6.9 
-
6.3 
9.5 IRE 
21.6 
2.2 
-
-
-
-
-
-
- . IT 
HU.I 
27.6 
16.4 
3.9 
20.6 
50 
8.9 
-
-
11.7 L 
n A U.*+ 
3.5 
-
0.4 
-
-
-
-
-
-NL 
49 
59 
-28.7 
2.3 
7 
-
-
2.3 
-0 
A n 
19.1 
1 
-
3.9 
80 
-
-
-
3.9 P 
-
-
-
-
-
-
-
-
-SF 
o n 
10.3 
-
-
3.3 
100 
-
-
-
3.3 S 
1 . w> 
2.5 
-
1.3 
-
-
-
-
-
-UK 
en 
26.7 
57.9 
-
2.4 
4 
-
-
2.4 
-EUR 15 
254 
19.4 
157.6 
-
100.1 
39.4 
23.3 
1.1 
23.2 
52.5 
Totals do not add up due to storage 
Sources: Eurostat, EC Commission, IEA 
-25 
TABLE 2B 
EC GAS DEMAND AND SUPPLY SCENARIOS 
2000 2010 
1. Natural Gas Demand (mtoe) 311/320 392 / 411 
2. Share of Natural Gas in total 22% 26% 
demand (average) 
3. Estimated Indigenous Production 175 165 
(mtoe) 
4. Intra EC Gas Trade (mtoe) 30 28 
5 External Dependency - mtoe 136/145 227 / 246 
-_% 44/45 58/60 
6. Contracted Volumes * - Russia 66 66 
- Algeria 39 40 
- Norway 48 57 
- Others 5 5 
- Total 158 168 
7. Deficit mtoe - -59 / -78 
Sources: EC Commission (2020 analysis) 
Member States 
IEA 
* mtoe 
26 
TABLE 2C 
GAS SUPPLY AND DEMAND - COUNTRIES OF CENTRAL AND EASTERN EUROPE1) 
IN MTOE 
DEMAND 
PRODUCTION 
IMPORT REQ. 
SUPPLY3) 
Total gap 1993 
62 
28 
34 
41 20002) 
67 
22 
45 
41 
4 20052) 
71 
18 
53 
41 
12 20102) 
81 
16 
65 
41 
25 
Source: EC Commission 
1) Includes Albania, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, 
Romania, Slovakia and Slovenia. 
2) The central scenario between high and low scenarios. 
3) (assuming a long term supply commitment of 41 Mtoe/yr of CIS gas imports through the 
existing infrastructures) 
27 
TABLE 3 
GAS IN POWER GENERATION 
EUR 15 
mtoe 39.0 
PRESENT 
% of PG in total gas demand 15-3 
mtoe 83-102 
2000 
% of PG in total gas demand 27-32 
mtoe 150-154 
2010 
% of PG in total gas demand 37-38 
mtoe 161-216 
2020 
I % of PG in total gas demand | 37~43 | 
Sources: EC Commission (2020 Analysis) 
28 
Table N°4 
Diversity of Supply Situations and of Security of Supply Measures Applied in EC Member Countries 
Natural gas sales in Mtoe 
Natural gas share in PEC 
Domestic gas production (%)2i 
Net non-EC import 
dependency (%)21 
Number of supply countries, 
inci. inland production 
Number of inlet points for 
cross-border/shore supply 
Share (%) of gas sold for 
power generation 
Share of interruptible sales in 
1993(%) 
Formulated security of supply 
policy7 
Number of storage facilities 
Maximum working volume, 
mill m3 
Maximum withdrawal 
capacity, mill rrrVday 
Storage volume in % of 1993 
sales 
plannedj: 
Back-up cooperation with 
other companies'' 
Special features Austria 
4.9 
19.1 
20 
SO 
4 
3 
334 
na 
yes 
6 
2,500 
23.3 
33.8 
yes 
yes 
Large storage 
capacity in de­
pleted fields Belgium 
9.5 
19.2 
0.0 
55 S 
3 
6 
26.7 
27% 
yes 
3 
527 
appr. 19 
4.7 
1,100 
yes 
Gas grid increa­
singly inter­
connected Germany 
61.2 
18 
22.9 
57.7 
5 
some 15 
21.2 
na 
yes 
33 
10,314 
262 
14.4 
19.000 
yes 
Weil integrated. 
Balanced supply Denmark 
2.7 
12.9 
100.0 
0.0 
1 
1 
6.4 
industry 25% 
All power pis. 
yes 
2 
440 
18 
15.3 
1.200 
yes 
Self sufficient. 
Storages Spain 
6.2 
6.6 
3.2 
967 
5 
4 
7 
17% 
yes 
1 
460 
3.6 
51 
4,500 
yes 
Increasing 
storage 
capacity France 
29 2 
13 
92 
80 
5 
5 
2.9 
Industry 20% 
yes 
15 
10,300 
170 
28.1 
14,000 
yes 
Large storage 
capacity in 
aquifer structures U.K. 
60 
26 7 
96.5 
4 
2 
5 
7.3 
16% 
yes 
7 
3,566 
141.8 
56 
yes in function 
of market 
yes 
Well integrated. 
More than 50 
fields Italy 
40.7 
27.6 
40.3 
SO 
4 
many 
20.3 
Industry 25% 
Some power pi. 
yes 
8 
14,000 
appr. 250 
28.0 
21,000 
yes 
Large storage 
capacity in de­
pleted fields Ireland 
2.2 
21.6 
100.0 
0.0 
1 
2 
45 
na 
yes 
0 
0 
0 
00 
under study 
yes 
Interconnected 
with UK system Netherlands 
32.6 
49 
100.0 
0.0 
3 
5 
26 
Some power 
Pi 
yes 
1 (LNG) 
appr. 75 
appr. 31 
0.2 
7,000 
yes 
More than 
130 fields + 
Groningen Sweden 
1.3 
2.5 
0.0 
0.0 
1 
1 
16.8 
10-20% 
yes 
0 
0 
0 
0.0 
R&D in lined 
rock caverns 
yes 
Small market 
with dual 
firing back-up Finland 
3.3 
10.3 
0.0 
100.0 
1 
1 
51.2 
90%+ 
yes 
0 
0 
0 
0.0 
Has been 
studied 
yes 
Few but large 
customers. 
SNG plants Average/ 
Total 
253.8 
20.5 
62 
39.4 
14 
many 
15.3 
na 
yes 
77 
42,200 
appr. 920 
139 
73,900 
yes 
1) PEC = Primary Energy Consumption 
2) In % of total gas supply 
3) The future storage volume referred to in this 
Sources Eurostat and Eurogas ne is the expected working volume at different points in time over the 2000-2015 time horizon. 
-29 
ANNEX I 
Potential Interconnections to improve North Sea and Netherlands deliverability 
and significant new supply projects. 
The potential interconnections, ranked in terms of probability of construction, are the 
following: 
North Sea supply interconnections 
Europipe*** 
UK/Continent Interconnector*** 
Norwegian pipeline to Dunkirk*** 
Interconnections between the Dutch offshore and the UK offshore* 
Interconnections between Zeepipe and Dunkirk to the UK and 
other places on the continent* 
Continental Europe interconnections 
Interconnections between Spain and Portugal*** 
Looping and further interconnections between Belgium and 
German, French and Dutch systems*** 
Additional French/Spanish interconnections (Maghreb II)* 
Enhancement of TENP (Trans Europa Naturgas Pipeline) from the 
Netherlands to Italy or Italian/French interconnection in the north* 
Southeast France/Northwest Italy interconnection* 
Finland/Sweden interconnection* 
Extension of Maghreb II to Germany or increase capacity in the 
French mainline system* 
Additional Austria/Germany interconnections or looping* 
Under construction or planned with a high probability of construction 
Planned construction but still in the development stage 
No firm plans for construction 
North Sea Interconnections 
The Europipe, due to come onstream this year with an annual capacity of 
12bcm(7), will increase the flow of North Sea gas to Germany. 
The proposed UK/Continent interconnector will allow up to 20 Bern annually to 
be delivered to the Continent with economically viable access to most of the 
North Sea. It is anticipated that surplus deliverability will be available from the 
North Sea via the Interconnector from 1998. The UK/Continent interconnector 
is a strategic pipeline. The parties constructing the line are providing the 
'' 1 billion cubic metres (bem) is equivalent to 0.9 million toe. 
capacity prior to assurances of dedicated downstream markets, thus taking the 
risk that they will find a market once the pipeline is built. 
The planned pipeline from the Norwegian sector of the North Sea to Dunkirk 
(France) with an annual capacity of 12 Bern will increase the availability of 
North Sea gas supplies to France and other EC countries. 
The connections between the Dutch and UK offshore which are only under 
discussion, would further enhance North Sea deliverability. Other 
interconnections could link the existing Zeepipe line and the planned Norway 
to Dunkirk pipeline and the UK offshore system at Bacton. 
These interconnections would all create surplus deliverability. 
Continental Europe Interconnections 
Additional interconnections in Continental Europe would enable this surplus 
deliverability to move downstream to the most import-dependent markets in the 
European Community. Some Dutch/Belgian/German/ French interconnections 
are planned, as are two interconnections between Spain and Portugal. 
However, currently unplanned additional strategic capacity would assist France, 
Italy, Austria and Finland. 
For example, gas coming in from the Maghreb line (a TEN pipeline whose first 
phase will be operational by 1996) via a potential new interconnection between 
Spain and France (Maghreb II) would be a critical security of supply 
interconnection for the Southern EC. 
In the case of a Russian shortfall in supplies, volumes from this line could serve 
not only southern France, but, if an interconnection were constructed between 
Southeast France and Northwest Italy, volumes could also be transported along 
the French coast to Northern Italy. Pipelines normally supplying Western Italy 
from Austria could be reversed to supply Austria from Italy. German 
interconnections could assist Austria in the northern part of the country. 
This Maghreb II pipeline is also of strategic importance in the case of an 
Algerian cutoff. Without this pipeline or an LNG terminal, Portugal would be left 
in an extremely vulnerable position. The only source of supply would be the 
Lacq, France to Zaragoza pipeline which is insufficient to meet the needs of 
Spain and Portugal. However, the loss of Algerian supplies might be handled 
by reversing the flow of the Maghreb I! to serve Spain and Portugal using 
Russian and North Sea supplies. 
In the highly unlikely worst case scenario of a simultaneous interruption of 
Russian and Algerian supplies, the interconnections discussed above would be 
vital to prevent major shortfalls in supplies in some EC Member States. 
This worst case scenario would present an extremely difficult situation for 
Finland, Portugal, Greece, Spain and Austria. Also, in the short-term, until the 
UK/Continent Interconnector and the Norway to Dunkirk lines are in service, 
Belgium, France and Italy might be vulnerable. The Spanish/French, 
French/Italian, German/Austrian interconnections referred to above and some 
looping of the French mainline system would all be necessary. An unplanned 
line linking Dunkirk/Zeebrugge to Lyon and Turin could extend secure North 
Sea supplies to Italy. The full use of all security measures, referred to in section 
5.2. would also be required. Spain, Italy, France and Greece could seek out 
possible alternative LNG sources. Finland would have to rely on its 
interruptibility and dual-fuel system. A long term solution for Finland would be 
a connection with Sweden which may be a possibility as the Nordic market 
develops and any eventual development of gas supplies from the Barents Sea. 
These scenarios indicate that it would not be possible for a very large portion 
of the gas available from the North Sea through the various pipelines to be 
transported through the southern French system. A potential solution would be 
to extend the proposed Spanish/French interconnection to near Strasbourg and 
the Midal System (already linking supplies from Russia and Norway). This 
interconnection would complete a strategically significant pipeline link between 
the three main external EC gas suppliers. 
Additional Pipeline Capacity via Swaps, Displacement and Exchange 
In addition to the potential capacity from additional construction, capacity is also 
made available by cooperative efforts among traders. If and when the 
interconnections mentioned above are realized the potential for swaps or 
transportation by displacement of gas supplies in the EC will increase 
significantly. 
Long term potential sources of supply 
The proposed Yamal-Europe pipeline from Russia through Belarus and Poland 
has been identified as a TEN project. It will provide a second major export route 
for Russian supplies to the EC and an alternative to supplies through the 
Ukraine. The construction of the Yamal pipeline system will take place in stages 
with the sections in Germany, Poland and Belarus to be finished first. When 
finally completed in the next century, planned capacity of the pipeline to Europe 
may reach over 50 bcm. In the long term it is possible to imagine a new 
East/West line which, crossing the Centra! and Eastern European countries, 
would extend the gas from Yamal to southern markets in France, Italy and 
Spain. 
A pipeline from Turkmenistan through Iran or the Caspian Sea has been under 
discussion for some time although the distance to EC markets may give rise to 
economic and transit difficulties. The only Member state which may be within 
economically feasible pipeline reach is Greece. 
LNG from Nigeria, Trinidad & Tobago, Venezuela, Yemen and Qatar are all 
potential sources to Europe. The realisation of these projects would increase 
the flexibility of supply available to the EC. 
The bringing on stream of new supplies is limited principally by economics 
(either project costs or price levels in Europe) and will not be realised unless 
justified by market development. In the case of long distance pipeline projects, 
transit across several national borders may present a further difficulty. 
EUROPEAN NATURAL GAS NETWORKS 
EXISTING NETWORKS 
TEN's COMMON 
INTEREST PROJECTS 
OTHER PROJECTS 
(UNDER CONSTRUCTION 
OR PLANNED) 
EXISTING LNG TERMINAL 
LNG TERMINAL 
(TEN's COMMON 
INTEREST PROJECT) 
Lisbo. 
D I R F CIORATF GENERAL Q^ FOR E N F R G Y 
3^\ G X V : ! I 

ISSN 0254-1475 
COM(95) 478 final 
DOCUMENTS 
EN 12 
Catalogue number : CB-CO-95-536-EN-C 
ISBN 92-77-94616-4 
Office for Official Publications of the European Communities 
L-2985 Luxembourg