Offshore North Sea 1974
Technology Conference and Exhibition
Stavanger - Norway Sept 3rd - 6th
5 JUNI
Lab.
v. Scheepsbouwkunde
RCHIEF
Technische Hogeschool
ECONOMY,
DI1974-6
JAW, ENERGY,
MARKETING
O N S - 74
COPYRIGHT:
REPRODUCTION IS PROHIBITED WITHOUT WRITTEN
CONTENTS-ECONOMY, LAW, ENERGY, MARKETING SECTION
E-III/1 NORTH SEA HYDROCARBON RESOURCES
AND THE ENERGY MARKET 1 - 15
C. P. Dalton birector T. White Director
Petroleum Economics Limited, U.K.
E-III/2 NATURAL GAS SUPPLY AND DEMAND IN
WESTERN EUROPE 1 - 20
Malcolm W.H. Peebles
Manager Planning and Finance Div. Shell International Gas Limited, England
E-III/3 CAPITAL REQUIREMENTS OF ENERGY
SUPPLY 1 - 12
E. Symonds Vice President
First National City Bank, U.S.A.
E-III/4 EXPLORATION AND DEVELOPMENT OF
THE NORTH WEST EUROPEAN CONTINENTAL SHELF
-METHODS OF FINANCE AND SOURCES OF FUNDS
M.J.K. Belmont Partner
R.G. Johnson
Manager of North Sea Dept. Cazenove & Co., U.K.
E-III/5 ECONOMICS OF THE NORTH SEA VENTURES
::Itor,te
1 - 18
A. Hols
Head Production Division
Shell Internationale Petroleum Maatschappij N.V.,
The Netherlands
I -
Code Title Pages
E-III/6 OIL INDUSTRY/GOVERNMENTAL
RELATIONSHIP
,A
au,te
/
E-III/7 PRODUCTION FROM FIELDS CROSSING /- /0
BOUNDARIES
T. Aakvaag ,exa vre
Director Petroleum Division Norsk Hydro a.s,
Norway
E-III/8 THE EXPLOITATION OF MINERAL
/-RESOURCES IN THE SEA BED AREA. THE EXTENT OF THE RIGHTS OF COASTAL STATES.
PRESENT SITUATION AND DEVELOPMENT IN RELATION TO DEEP SEA AREAS
J. Evensen wctaLAtite
Minister of
The Royal Norwegian Ministry of Commerce and Shipping
ONS
74EIII/1
NORTH SEA HYDROCARBON RESOURCES AND THE ENERGY MARKET
C.P. DALTON AND T. WHITE Directors
THE AUTHORS' INTENTION IS TO PRESENT A SHORT RESUME OF THE IDEAS CONTAINED IN THIS PAPER IN ORDER TO ALLOW AMPLE TIME FOR QUESTIONS AND DISCUSSION. IT IS THEIR INTENTION THAT THIS PAPER SHOULD BE THE BACKGROUND FOR A FORUM.
I. INTRODUCTION
A year ago, when asked for a summary of this paper, we wrote "The remainder of this century is likely to be a period of intense activity on research and development of a variety of energy forms which have so far
played little or no part in satisfying the world's increasing requirements
for energy. In spite of this effort, oil and natural gas will.almost certainly remain the dominant energy form for many years."
Despite the sequence of dramatic events which was to be set in train by oil-exporting countries within a month of these words being written, we would not today wish to change them in any particular.
This is not due to the gift of some second sight which allowed us specifically to forecast the reopening of hostilities in the Middle East on the 6th October last, and the associated and effective use of the oil weapon which resulted in a fourfold increase in the average cost of oil. Rather, it is due to the intuitive recognition of a fundamental inconsistency between an exponential growth rate for a depleting natural resource, which is currently available in significant quantities from only a relatively
limited number of countries, leading to the inevitability - at some reasonably proximate stage - of a process of substitution.
However, the forecasters' skill lies not in predicting the
inevitable but in getting the timing right. Between awareness of the problem and remedial action in this instance there were, at the time of writing the original summary, the formidable barriers of relative costs, technology and inertia to impede a rapid increase in the rate of substitution between energy forms.
Events since last October, however, have brought into short-term focus the previously distant and ill-defined economic and political incentives to reduce the dependence of importing countries on oil concentrated in the
hands of a limited number of producers,and have given a major incentive to overcome the problems of substitution within the limits of practicality.
2
-substitution of hydrocarbons from supply sources deemed as "secure" for
those from sources of supply which carry greater risks.
It is against this background that we propose to review the
significance of North Sea hydrocarbon resources for the energy markets of
Western Europe. We shall deal in turn
with:-- the implications of oil-exporting country developments
since October 1973.
consequential pressures on the evolution of the European
energy market.
the interdependence between relevant national energy
11. THE IMPLICATIONS OF OIL-EXPORT1NG COUNTRY DEVELOPMENTS
SINCE OCTOBER 1973
What are the main developments?
The acting in concert by a group of oil-exporting countries.
The exercise of cutbacks and embargoes on production and
exports.
The use of higher prices to transfer economic rent from
oil consuming to oil producing countries.
The assumption by producer country governments of majority
control over crude oil production and, to a lesser extent,
their entry into transportation and crude oil marketing
and their growing interest in refining more particularly
at source.
What are the relevant implications?
1. Increased emphasis on security of supply. Europe is in no
position to mount a "Project Independence" but we shall probably see some, or all, of:
efforts to develop "secure" alternatives but ones which
are costly in terms of real resources: nuclear power and coal primarily, shale, etc.
research and development expenditure on remote and
potentially even more costly possibilities: geothermal and solar power.
insurance policies: security stocks.
the search for interdependence through deals with OPEC
countries.
2. Pressure on consumer country balances of payments due to
the transfer problem. This is a subject for a paper in itself, but the aspects which are relevant to the present paper are the influence of balance of payment problems on
economic growth, energy demand growth rates and on national policies for developing North Sea resources.
3. A significant increase in the general level of energy costs:
the resource cost of Middle East oil is very low, but
is now geared up by a factor of around 100 due to the
level of producing country government take.
this gearing-up in the effective cost of Middle East oil
to the consumer will correspondingly increase the value
of North Sea hydrocarbons since the latter may be
equated to the c.i.f. cost of the crude oil they
displace from the dominant Middle East supply source. At present levels this lies in the range of $10 to $12
a barrel - almost a fourfold increase over the past year. the effect of this relatively high cost of oil to the
consumer will be to increase the apparent competitiveness of substitute energy forms such as nuclear power and coal, and thus lead to a diversion of investment funds in
particular and economic resources in general into the
substitute forms as well as into research and development
for new alternatives. However, there will necessarily be a time lag before any accelerated development of alternatives to oil can take effect.
4. Some slackening in energy demand growth:
little is known about price elasticities but such large increases in energy costs seem almost certain to restrain
demand growth. This effect will be reinforced if the
longer-term economic consequence of the consumer countries' transfer problem is to moderate the increase in economic
growth and living standards.
conservation/fuel efficiency policies will take hold, encouraged by the economic incentive to husband energy
- the industry will not be reshaped overnignt, if only
because of the essential and unique nature of the
contribution of existing international operators, but
their downstream activities will gain in relative
importance to upstream - the traditional source of
profit flow - and margin in relative importance to
volume.
- the location and pattern of facilities and oil flows could be significantly affected by the construction
of refineries, petrochemical plants etc. in the resource
6
III. CONSEQUENTIAL PRESSURES ON THE EVOLUTION OF THE EUROPEAN ENERGY MARKET
1. The current structure of the European Energy Market: (See Table attached)
Western Europe, after North America, is the second most important energy consuming area of the world (excluding the Soviet Union, Eastern Europe and China).
its current primary energy requirements of almost 25 million b/d oil equivalent account for nearly 30% of this total.
oil is the dominant energy form in Western Europe accounting for
almost two-thirds of total primary energy requirements.
natural gas accounts for somewhat over 10%, so that total hydrocarbons
represent some 75% of total primary energy requirements.
the remainder consists primarily of solid fuels, hydro/nuclear power
being under 5% of total.
2. Changes in the structure of the European Energy Market to 1980:
as a result of the events of 1973, the most fundamental change likely to occur during the remainder of this decade in the development of European primary energy requirements will be a slowing down in the
rate of growth of total demand accompanied by a stabilisation in the share of oil.
whereas prior to October 1973 it appearedreasonable to expect a
total growth in primary energy requirements between 1973 and 1980 of per annum, this growth is now unlikely to exceed 4.3%.
moreover, oil's share of Western Europe's total primary energy
requirements is now expected to stabilise at around 63% instead of rising to around 66%.
part of this slowing down in the rate of growth of oil demand will be made up by an increase in that of natural gas (largely but not
entirely based on indigenous supplies), so that hydrocarbons together are now anticipated to account for 80% of total instead of the earlier estimate of 82%.
in spite of the international oil developments outlined above and international
as the dominant energy form for the remainder of the decade.
this is largely due to the capital intensive nature of investments
in all energy forms and the consequential time delays between project
development and project realisation, delays which nowadays are
elongated by environmental considerations; there is not much scope
to accelerate nuclear power in this time span, while the best that
can be expected for coal is a check to the decline of indigenous
production wherever practicable.
these statements of tendency represent the sum of assessments made
by us for individual European countries on the assumptions that a
major international economic disturbance can be avoided, that there
will be no collective policy to restrict demand, and that some
solution will be found to the monetary problems resulting from the
new cost level of imported oil. We are aware that our model
provides only one of the many views on the future growth in energy demand arising from recent developments in international oil, but
the broad conclusions derived from most of the alternative views are
not essentially dissimilar with those outlined above.
$. Changes in the Structure of Hydrocarbon Supplies
the principal change that will be taking place during the remainder
of this decade is in the pattern of hydrocarbon supplies, Europe's
degree of self-sufficiency almost doubling during the period, passing from some 18% to 35%.
at the present time only 3% of Europe's oil requirements of almost
15 million b/d are met from within Europe whereas 96% of its
natural gas requirements of nearly 3 million b/d oil equivalent are
indigenous.
by 1980 somewhat over 20% of estimated oil requirement of almost 20
million b/d could be met from indigenous sources, while natural gas self-sufficiency would have dropped to some 80% of an estimated consumption which will have doubled to nearly 6 million b/d oil equivalent.
this transformation in the source of hydrocarbon supplies, particularly
8
IV. THE INTERDEPENDENCE BETWEEN RELEVANT NATIONAL
ENERGY POLICIES AND
THE DEVELOPMENT OF NORTH SEA RESOURCES
1. Location of North Sea resources:
the principal area of the North Sea is bounded by five
countries:-Norway, U.K., Netherlands, West Germany, Denmark.
the bulk of resources so far discovered lie in the Norwegian and U.K. sectors.
moreover, the main oil province seems to lie in the northern part of the North Sea which is within the Norwegian and U.K.
sectors.
the southern part has so far produced principally gas.
availability of the North Sea resources in the next decade will, therefore, depend primarily on the development policies
of two countries - the U.K. and Norway. Present indications are that broader considerations, exercised for example
through the E.E.C.,
are unlikely to have any overriding influence on
purely national
considerations.
2. Factors affecting Norwegian attitude to
development of North Sea: Norway's energy requirements are in part
determined by its narrow
population base.
with around 4 million people, it is one of the smallest
countries in Western Europe in terms of population, accounting
for around
1% of total.
its GNP per capita,at around $3,500, ranks about
sixth in the area.
in terms of primary energy consumption, currently running
at around
300,000 b/d oil equivalent, Norway accounts for just over 1% of total Western Europe.
hydropower has so far played a large part in meeting Norway's primary energy requirements and currently represents
about one third of the total; the potential for further rapid expansion
of this form of energy is, however, considered limited.
on the basis of existing development plans for North Sea oil and
gas fields doscovered prior to 1974, Norway could count on
production by 1980 of around 2 million b/d oil equivalent; this
would represent about seven times the amount that Norway could
possibly use for domestic requirements by that time.
thus on its existing North Sea hydrocarbon resource base, Norway
would become a major exporter, with total net exports of oil and
gas on the basis of existing plans accounting for around 7% of
total Western European oil and natural gas consumption by the end
of the decade; this moreover does not take into account the
development of new discoveries including some which have already
been made in early 1974.
while relatively limited in terms of Western European total energy
demand, the Norwegian North Sea resources would nevertheless have
undoubted significance insofar as they help to limit the rate of
growth of demand for oil imported from areas such as the Middle
East and Africa during the next couple of decades while Europe
builds up its nuclear power availability,the only major source
of quasi indigenous primary energy but one which calls for
important changes in the structure of energy end use.
the choice for Norway as a net exporter is far from simple, the
alternatives being: a) to maximise exploration and production during the next two decades when European needs would appear to
be most acute, or b) to adopt a longer term policy seeking to
space out the development of these indigenous resources (not
necessarily for its own use) the better to suit the general economic
development of the Norwegian economy.
this choice can be restated in terms of accumulating cash in the
short term to use for the economic development of the country in the
longer term, or conserving the reserves in the ground until needed for this purpose; it is a fundamental choice facing all producers of
depletable resources.
whereas the risk of playing the short term - or "European" - card
cash balances at a time of rapid inflation, those of playing the
longer term lie in the uncertainty over the nature and speed of
the development of alternative primary energy resources and over
the future worldwide availability and price of hydrocarbon
resources themselves.
- in the longer term, comparative cost trends of different energy
resources are of considerable importance: whereas the technical costs of producing and bringing to market the North Sea resources
so far discovered are competitive with those of most other primary
energy resources currently available with the major exception (in
spite of their locational disadvantage) of the large low cost
onshore reservoirs of the Middle East and some of those in Africa,
this may not necessarily be the case in ten or fifteen years' time. The rapid technological progression of nuclear power, a reduction in the economic rent currently being extracted by the Middle East
and North African producing countries, and the technological
frontiers which will have to be overcome further to develop newer areas
of the North Sea are all major risk factors that must be weighed in the decision.
these can be considered the principal parameters which will help to
determine Norwegian policy for the development of the North Sea; because of the nature of these parameters it can be anticipated that
the state will need to be in a position to influence directly the
speed and direction of future developments.
another paper is being presented by Mr. Hauge on this subject which
will no doubt help to clarify Norwegian attitudes to these problems.
3. Factors affecting U.K. attitude to development of North Sea:
The U.K. is virtually at the opposite pole from Norway in terms of
population, GNP and energy requirements.
with somewhat over 55 million people, it is the second most populated
country in Western Europe after Western Germany, accounting for 14% of the total for the area compared with Norway's 1%.
the U.K. has a diversified energy economy based on imported oil and indigenous coal and natural gas from the southern sector of the North Sea, to which will be added further important investments in nuclear power in the course of the next few years; at the present time these indigenous sources meet 50% of the country's primary energy requirements, and this share is unlikely to change during the 1970s; furthermore, the development of the northern North Sea's hydrocarbon resources will ensure the country's virtual energy
self-sufficiency given that total primary energy by 1980 could rise to around 5.5 million b/d oil equivalent.
such forecasts assume that there will be no significant delays in bringing to market the resources so far discovered; bottlenecks in getting facilities completed on time (which are not entirely
unlikely) could delay the achievement of self-sufficiency by a year or so.
although different in so many other respects, Norway and the U.K. have in common that the northern North Sea will have enabled them to
achieve 100% energy self-sufficiency by the end of this decade.
However, whereas in the case of Norway, North Sea investments already decided will ensure that the country will be a significant net
exporter so that its policy options are a matter of degree, in the case of the U.K. the resources of the northern North Sea so far discovered, superimposed on the U.K.'s existing energy resources, present the government with a wider range of options.
North Sea reserves could initially be developed rapidly so as to reach a plateau of energy self-sufficiency without undue pressure on less elastic energy resources such as nuclear power and coal.
thereafter, the U.K. could remain in balance and, with its sizeable population and relatively low GNP per capita, use its indigenous energy to accelerate economic development in general and export-orientated industries in particular - in other words, to export goods instead of energy.
12
-additionally, by a more rapid development of its energy resource
base and some reshaping of the domestic energy market, the U.K. could aim to become a significant exporter of energy.
in determining its policies, the U.K. will have to consider their
impact on its E.E.C. partners in the context of the variety of its
relationships with these partners in other fields such as finance,
monetary policy, regional policy, agricultural policy, etc. The considerable dependence of virtually all its E.E.C. partners on
imported energy will undoubtedly create certain pressures for the
U.K. to reach rapidly an energy exporting situation; to a certain
extent the potentially conflicting objectives of the U.K. and its
E.E.C. partners could in part be resolved by the intermediate step
of exporting petroleum products instead of crude oil, thereby
achieving at least the benefit of the refinery "uplift" for the U.K.
for a variety of reasons it could be anticipated that the U.K. would
adopt a more expansionist policy to North Sea hydrocarbon developments
than may well be the case in Norway, although it cannot be expected to be expansion at any cost having regard to the alternatives
involved.
if this broad assessment of the U.K.'s policy objectives proves
accurate, the U.K. government may be expected to adopt a reasonably cooperative attitude in working through and with the oil industry
in order to achieve the desired rate of development.
i. Factors influencing the attitude of the current North Sea "Have Nots":
The energy situations of the Netherlands, Western Germany and Denmark are significantly different.
The Netherlands has important onshore natural gas resources which are used not only for indigenous requirements but also for export:
Total natural gas production: '000 million cubic metres of which exported
Natural gas share of total Dutch primary energy consumption
1973 1980 67 100
49% 55%
dependence on oil imports; moreover, the Netherlands has an
export-oriented oil refining industry which would be more securely based
if indigenous oil were available.
if there were a serious possibility of oil being found in the Dutch
sector of the North Sea, it could be anticipated that active
exploration would be encouraged, but, for as long as major discoveries are considered probably to be gas, development of
offshore exploration is likely to be pursued cautiously. Such a policy would allow the Netherlands to increase the share of total Dutch
primary energy consumption covered by natural gas to the extent structurally possible, but would not entail a dramatic increase in
exports; in this way the Dutch and Norwegian approach may prove to be
- West Germany's high dependence on oil and gas imports could be
expected to accelerate the pace of exploration in the German sector of the North Sea, although the current availability of drilling rigs
is likely to prove a limiting factor initially; the frontiers of the German sector of the North Sea were finally resolved only in 1972. Denmark's indigenous energy resources are extremely limited; at the present time virtually the whole of its primary energy requirements of
around 500,000 b/d oil equivalent are covered by imported oil and the situation is not expected to change to any significant extent during the remainder of this decade; some North Sea oil and gas have been discovered but are unlikely to meet more than 5% at the very most of total primary energy requirements by 1980; thus a more active exploration programme offshore Denmark could be envisaged in the new energy climate.
comparable.
West Germany has indigenous coal, oil and natural
gas:-1913 1980
Indigenous coal, oil, natural gas:
million b/d oil equivalent 2.3
2.1
Share of total primary energy consumption 46% 31%
Oil self-sufficiency 5% 3%
CONCLUSION: THE NORTH SEA AND WESTERN EUROPE
although situated in Western Europe, North Sea hydrocarbons are not a
common European resource; because of their geographical location, their
development will be influenced largely by the national and international
considerations of Norway and the U.K., although significant quantities
may be expected to be made available to other countries in Western
Europe.
on the basis of current discoveries and taking account of development
possibilities, total North Sea hydrocarbons are likely to meet around
17% of Western Europe's estimated primary energy requirements of just
over 30 million b/d oil equivalent in 1980; by the mid-1980s this could
rise to something of the order of 25%, depending in part on the policies
of the relevant countries involved, primarily Norway and the U.K.
this would mean that the rate of growth of hydrocarbon imports into
Western Europe between 1973 and 1980 would be reduced to no more than
about 2% per annum, compared with around 6% per annum in the early years
of this decade; moreover there would exist the possibility that such a
lower rate of growth of imports would be maintained throughout the early 1980s.
although the impact of the North Sea development will be uneven between
the countries in Western Europe, there is no doubt that it could have
a far from negligible effect on the Western European area as a whole
and on the international oil scene in general.
finally, the events of recent months should not be allowed to Obscure
the fact that the economic development of the higher cost areas such as the North Sea (as well as other energy forms) rests in large measure on
the economic rent element in the cost to Europe of oil from competing locations. Since it cannot be said with certainty that the current level of prices for Middle East oil in particular will always be
maintained in real terms, the evolution of the European energy market in
general and the North Sea in particular must imply some degree of
Degree of European Primary Energy Self-Sufficiency 1980 = million b/d = % of total consumption 1973 estimate 1974 estimate
1 million b/d oil equivalent
= 50 million tons oil equivalent p.a.
= 75 million tons coal equivalent p.a.
1980
1970 1973
I
II
million million million million
b/d % b/d % b/d % b/d Oila) 12.5 61.0 14.7 63.1 21.4 66.5 19.7 62.7 Natural Gas 1.4
6.8
2.7
11.65.0
15.5
5.517.5
Solid Fuel6.0
29.3 5.2 22.34.4
13.748
15.3 Primary0.6
2.9
0.7
3.01.4
4.3
1.4
4.5
Electricity Total 20.5 100.0 23.3 100.0 32.2 100.0 31.4 100.0 1970 1973Tndigenous Indigenous Indigenous Indigenous Production Production Production Production
(a) (b) (a) (b) (a) (b) (a) (b)
Oil
0.5
4.0
0.5
3.4 3.1 14.5 4.2 21.3Natural Gas
1.4
100.0 2.6 96.34.0
80.04.5
81.8 Solid Fuel5.0
83.34.6
88.5 3.9 88.64.2
87.5 Primary Electricity0.6
100.00.7
100.01.4
100.01.4
100.0ONS-74
E-111/2
NATURAL GAS SUPPLY AND DEMAND IN WESTERN EUROPE
Mr. Malcolm W.H. Peebles,
expectations and imports, and some of the supply and demand considerations and future prospects facing the industry. The paper concludes with some comments on pricing and possible supplementary sources of supply.
It should be noted that this paperwas written in April 1974 and at a time when the
world's energy environment is particularly unsettled and experiencing radical changes. Some developments may therefore well arise in the intervening five months before publication which may change the emphasis of certain aspects as now foreseen of this rapidly developing and highly complex inter-acting industry.
Finally, throughout this paper theexpression "Europe" should be taken to mean the whole of Western Europe, that is to say Continental Europe and the United Kingdom, but excluding East European communist countries. All volumes of gas have been stated in milliards (109) of cubic metres (mrd m3). Where possible such volumes have been corrected
to a standard unit of 9,500 kcal/m3 butin certain cases, in particular but not exclusively in
respect of reserves data, original units have had to be used thus some inconsistencies of data regrettably and inevitably exist. The following equivalents (approximate values only) may be helpful:
1 mrd m3 0.04 TCF (trillion (101 2 ) cubic feet) 900,000 tons fuel oil
I mrd m3 p.a. 100 MMcf/d (millions of cubic feet per day) 17,000 barrels per day of oil
1 TCF 27 mrd m3 1 TCF p.a. 2,700 MMcf/d
Compared with coal and oil, natural gas is a relatively new source of energy supply for Europe in that most of the important developments in respect of natural gas have occurred within the last ten years or so. They are:
Late 1940's/early 1950's discovery and subsequent development of reserves in the Po Valley, Italy, and at Lacq in France.
discovery of the Groningen field in the Netherlands. first deliveries of Groningen gas to the Netherlands market. first deliveries of Algerian LNG to the UK.
first deliveries of Algerian LNG to France.
first discoveries of gas in the UK sector of the North Sea.
first deliveries of Groningen gas to West Germany and to Belgium. first deliveries of Groningen gas to France.
-- first deliveries of North Sea gas to the UK. - first deliveries of Soviet gas to Austria.
-- first deliveries of Libyan LNG to Spain and to Italy. --- discovery of the Frigg field in Norwegian waters.
first deliveries of Soviet gas to West Germany. -- first deliveries of Soviet gas to Finland.
The most significant of the above "milestones" has undoubtedly been the discovery and subsequent development of the huge Groningen field in the Netherlands which currently supplies some 451'; of the total volume of natural gas consumed in Europe and which is
likely to remain for many years to come the largest single source of natural gas supply for the region as a whole.
Prior to the 1960's the gas industry in Europe, with one or two exceptions, relied upon high-cost, low-calorific value gas manufactured from coal and in some instances, notably the UK. also from gas made from oil feedstocks. Many of the gas distribution systems were only suitable for handling "wet" manufactured gas at low pressures over relatively short distances from the location of the gas manufacturing plant. Oil products were in plentiful supply and were considerably cheaper, even after allowing for excise duties and taxes, than the
delivered price to consumers of manufactured gas; the latter was also affected adversely by the rising cost of coal. In consequence the gas industry found it increasingly difficult to expand its market outlets, and was very largely restricted to supplying small consumers, in
particular the traditional cooking and water heating domestic market, where the gas
industry was experiencing increasing competition from electricity. Without over dramatising the situation it is fair to say that many European gas companies prior to the 1960's were in a poor shape and fak..ed a gloomy future.
The discovery of large reserves of natural gas in North West Europe in the 1960's, together with the earlier discoveries in Italy and France, offered the gas industry a new lease of life as it had done so in North America some twenty years earlier. The E-uropean gas industry was quick to recognise from the experience of its American counterpart that here Wati all opportunity to revitalise itself based on a secure, indigenous resource. This is not to
1959 1963 1964 1965 1966 1967 1968 1971 1972 1973 1974
gas to natural gas was taken without detailed study and an awareness of the problems involved, but undoubtedly the experience of the effect that this changeover had had in the United States and Canada helped to convince the gas companies concerned that this was the right and logical course to take.
The problems involved in converting many millions of customers from a low-calorific value wet gas to a high-calorific value dry gas, building new high-pressure, large-diameter transmission systems, the reinforcement, replacement or extension of distribution networks and the many other associated tasks are well documented and do not require repetition here. Suffice it to say that the necessary steps to convert to natural gas were taken and that the gas industry moved at an increasing pace from an essentially high-cost manufacturing
activity, supplying small amounts of energy to a large number of mainly domestic consumers, to a distributing and marketing orientated activity which could compete successfully with alternative fuels, not only in the expanding domestic market, but also in the large volume commercial and industrial markets.
The point has been reached today where the European gas industry is now fully
committed to natural gas with conversion from manufactured gas to natural gas complete, or virtually complete, in the Netherlands, Belgium, Luxembourg, France and Italy and well advanced in the UK, West Germany, Austria and Spain. No doubt other countries, for example Finland and Switzerland, will shortly be embarking upon conversion as the availability of natural gas spreads with the introduction of new supply sources.
The growth of the gas business in eight European countries (in particular that of natural gas, although of course manufactured gas still plays an important role in some countries) between 1965 and 1972 is illustrated in Table 1.
Table 1
Gross Consumption of Natural and Manufactured Gases In millions of cubic metres at 9,500 kcal/m3
Source: United Nations Annual Bulletin of Gas Statistics for Europe.
E-III/2
1965
1972
Country Nat. Gas Mfd. Gas Total NG % Share Nat. Gas Mfd. Gas Total NG% Share Austria 1,748 77 1,825 96 3,619 572 4,191 86 Belgium 74 59 133 56 6,951 1 6,952 100 France 5,496 762 6,258 88 13,498 1,277 14,775 91 W. Germany 2,973 1,327 4,300 69 25,339 4,160 29,499 86 Italy 7,473 274 7,747 97 14,726 669 15,395 96 Netherlands 1,574 165 1,739 91 30,241-
30,241 100 Spain 3 175 178 2 831 319 1,150 72 UK 862 6,279 7,141 12 27,227 10,510 37,737 73 Total 20,203 9,118 29,321 69 122,432 17,508 139,940 884
From Table I it is apparent that in the period from 1965 to 1972 sales by the gas industry, for the countries listed, have grown nearly five-fold, i.e. from 29.3 to 139.9 mrd m3, and that within this total growth picture the volumes of manufactured gas have nearly
doubled whereas natural gas has increased over six-fold. A truly remarkable transformation from the rather static situation that prevailed in most countries in the 1950's.
Another measure of the growth of natural gas can be seen from Figure 1 which shows the actual consumption of primary energies in Europe from 1950 to 1973. From a negligible contribution in 1955 natural gas today supplies some 12% of Europe's total inland energy supply.
Bearing in mind that (Western) Europe embraces many countries where natural gas is not yet available, it will be appreciated that natural gas's contribution to the energy supply of certain individual countries, of which the Netherlands is a notable example, is significantly greater than the average for Europe as a whole. Figure 2 shows the contributions in percentage terms that natural gas is expected to achieve in seven European countries in 1978. The
forecast primary energy consumption for Norway is also shown for comparison purposes.
Manufactured gas does not of course feature in Figures 1 and 2 as it is by definition a secondary energy derived from coal or oil.
So much then for this very brief review of the development of the natural gas business during the last ten to fifteen years. Let us now consider the indigenous resources, which
together with existing and prospective imports, provide the base for the continued develop-ment of the natural gas business in Europe.
3.1 Indigenous Reserves
There are no generally accepted definitions of natural gas reserves and wide variations in both terms and estimating procedures are employed by different countries and companies. Further complications arise in quantifying exploitable reserves where gas is found dissolved in crude oil or in contact with underlying crude. Both are known as "associated natural gas" and the amounts that can be recovered from a given reservoir will depend mainly on the rate and the extent of oil production. Even in the case of non-associated gas fields the total amount of gas recovered over the life of the field can vary depending on the rates and methods of production employed.
For the above and other reasons what one country may classify as "proven" reserves cannot necessarily be compared with any degree of exactitude with the "proven" reserves of another country unless the definitions, quantification methods, calorific values, composition, etc., are clearly stated. Due to insufficient detailed data it is not possible to state in precise terms the proven natural gas reserves or resource base for Europe, or more importantly the actual amount of recoverable reserves that are available to the market.
Bearing in mind these qualifications, and the fact that the data published by governmental and international organisations is almost invariably a few years out of date, the author has selected one of the generally recognised authoritative neutral sources to indicate the broad order of magnitude and geographic distribution of European provengas reserves. These are shown, together with reserves in North Africa, in Figure 3.
3.2 The Reserve Base in Relation to Production
It will be seen from Figure 3 that total European reserves (i.e. excluding North Africa) at end 1973 were assessed to be approximately 5,500 mrd m3 which when compared with an
estimated production from indigenous resources for that year of about 130 mrd m3 (the balance of consumption being imported gas) gives an arithmetic reserves : annual production ratio of 42:1. On the face of it this ratio may seem healthy from the long-term supply point of view and might appear at first sight to augur well for the future expansion of the gas
business in Europe. However in practice this overall reserves : production ratio masks the true situation which varies significantly from country to country, but more importantly it is a rapidly changing ratio for a region where annual increases in production are running at around 30%. For example, if there are no additions to reserves during the next few years the reserves : annual production ratio will have declined to about 25:1 by 1976/77 and of course would progressively decline thereafter.
The position is further highlighted by the fact that apart from some recent discoveries in the northern North Sea virtually all known gas reserves, including Norwegian Ekofisk and Frigg gas, are now committed against long-term supply contracts and that by the mid/late 1970's most of these reserves will be at or near their peak annual production levels. At that time, unless substantial new reserves of gas are discovered in and around Europe, it will mean that total indigenous supplies will flatten off and subsequently will begin to decline in
absolute terms. Given a continued, if possibly uneven, growth in total energy demand through the 1970's and the 1980's the consequences of this peaking out in indigenous gas supply are
clear. They are that either the contribution that natural gas can make to Europe's energy demand in percentage terms will decline at an ever increasing rate commencing in the late
1970's, or the gas industry must turn to imports, supplemented by synthetic natural gas (SNG) from coal and/or oil, to a far greater extent than hitherto in order to maintain an adequate resource base.
This is liot of course the complete story in that it takes no account of possible future indigenous discoveries.
3.3 Future Expectations
Many speculative estimates have been published of the possible extent of the reserves remaining to be discovered in and around Europe. They inevitably range from low
(pessimistic?) levels to very high (optimistic?) levels. It would be foolhardy and adding to speculation for the author to opine which of these many estimates he considers has the highest probability of realisation. The simple truth is that nobody really knows and only
time and the drilling bit will prove who has made the best guess.
All one can say at this time is that Europe is a relatively new exploration area and that most probably new gas reserves will be discovered in one or several of such areas as the North Sea, the Western Approaches, the Celtic Sea, the Mediterranean or the Adriatic, and possibly on-land as well. However, given that the most interesting prospects are likely to be in offshore acreage, and quite possibly in deep-water and in difficult locations some distance from tht.s main markets, such discoveries are unlikely to make any worthwhile contribution to Europe's existing gas supplies before the early 1980's. It is also interesting to note that in
spite of some of the optimistic forecasts of future prospects that have been made, no potential customer (i.e. mainly the gas distribution companies in the first instance) has regarded such prospects with sufficient confidence to offer the explorers advance payments to secure first option on such new reserves as is quite common practice in North America.
To summarise. the main points that can be drawn so far from this short discourse on the resource base, are that:
proven reserves data are seldom sufficiently consistent or up-to-date to provide an accurate measurement of the resource base;
reserves : annual production ratios are not particularly meaningful yardsticks in
relatively new and r4pidly expanding markets;
with few exceptions all known European gas reserves are nowcommitted to market under long term contracts;
production from existing European reserves will, for the region as a whole, plateau
off in the late 1970's;
the prospects of discovering new reserves are thought to be good but such prospects cannot yet be quantified with any degree of precision;
it is unlikely that any new discoveries could make a measurable impact on the market much before the early 1980's.
evident that they broadly reflect the views of most European gas companies given the latter's keen interest in acquiring supplies from any new discoveries and their growing and continuing search for new supply sources outside Europe.
3.4 Imports
Imports fall under two broad categories. The first is intra-European movements of gas which so far are confined to the export of Dutch gas to Belgium, France and West Germany. During the next few years these existing intra-European movements will be augmented by exports of Dutch gas to Italy and Switzerland, and by exports of Norwegian gas to the UK, West Germany, the Netherlands, Belgium and France. Important, indeed vital, though these internal European movements of gas are to the gas supply pattern of the countries concerned, they do not of course change the total indigenous gas resource base available to Europe as a whole. In this respect only, they can therefore be set aside for the purposes of this particular discussion.
On the other hand imports into Europe from outside sources do of course represent a net addition to the resource base available to the various markets within the region. In 1973 such imports, comprising liquefied natural gas (LNG) from Algeria and Libya and gas by pipeline from the USSR via East Europe, amounted to less than 9 mrd m3, or say some 6%
of Europe's estimated total natural gas consumption of approximately 138 mrd m3 in that
year. Although such imports were relatively small in terms of volume and their percentage contribution to total gas supply in 1973, they are expected to become increasingly
significant in the years ahead. For example, total natural gas consumption in Europe in 1978 is expected to be around 245 to 250 mrd m3 of which some 38 to 40 mrd m3, or say 15 to 16%, will be imported from North Africa and the USSR. Looking ahead beyond 1978 these existing/firnily contracted imports will probably be supplemented by imports, either by pipeline and/or as LNG, from perhaps Nigeria, Iran (and maybe from some other Middle East countries also), as well as by additional imports from the USSR and North Africa. It is of course difficult to state with any degree of precision the total quantities of natural gas that may be imported by Europe in the 1980's from such sources given that the aspirations of the prospective importing companies/countries concerned will be conditioned in the final analysis by the then prevailing political and economic climate, also by the degree of success achieved in exploration for new gas within Europe itself. Nevertheless an attempt has been made to list the known schemes in Table 2 and from this it seems clear that Europe is becoming and is likely to remain for many years to come a significant importer of natural
gas.
8
Table 2
Existing Import Schemes and Schemes under Discussion All figures in mrd m' expressed in original units
EXISTING IMPORT SCHEMES (including supplies under contract/option)
NEW SCHEMES UNDER DISCUSSION
Source Supply Method Markets 1975 1980 1985
USSR by pipeline Austria 2.0 2.0 2.0
by pipeline France 2.5 2.5 by pipeline Finland 1.0 2.0 3.0 by pipeline Italy 3.0 6.0 10.0 by pipeline W. Germany 2.2 7.0 7.0 Sub-Totals 8.2 19.5 24.5 Libya as LNG Italy 3.0 3.0 3.0 as LNG Spain 1.1 1.1 1.1 Sub-Totals 4.1 4.1 4.1 Algeria as LNG Austria 0.7 2.0 as LNG Belgium 1.1 3.0 as LNG France 4.0 5.1 7.0 as LNG Spain 1.0 1.5 1.5 as LNG Switzerland 0.4 1.0 as LNG W. Germany 2.2 6.5 Sub-Totals 5.0 11.0 21.0 Totals of 17.3 34.6 49.6 Existing Schemes USSR by pipeline by pipeline by pipeline by pipeline Austria Belgium Sweden W. Germany 2.0 4.0 4.0 11.0 Sub-Totals , 21.0 Iran by pipeline and/or as LNG Belgium, France and/or W. Germany 30.0
Algeria by pipeline Italy 11.0
as LNG Spain 1.5 4.5 as LNG Netherlands/ 5.5 12.0 W. Germany Sub-Totals 7.0 27.5 Totals of 7.0 78.5 New Schemes GRAND TOTALS 17.3 41.6 128.1
During the early and middle 1960's the demand for natural gas in Europe was constrained principally by the need and hence time required to build large-capacity high-pressure
transmission pipelines to connect the producing areas with the main centres of consumption, followed by the necessity to adapt distribution systems and to convert customers' appliances from low-calorific value manufzictured gas to high-calorific value natural gas. By the late
1960's a substantial part of the main transmission pipelines necessary to transport Dutch gas to Belgium. France and West Germany, and North Sea gas to the UK market, were completed and important extensions had also been made to the existing transmission network in West Germany, France, Italy and Austria. The expansion of the distribution systems and the conversion of customers' appliances had also been completed in the Netherlands and was well advanced in other countries by that time.
It was in the late 1960's that the demand and hence consumption of natural gas really began to accelerate. This is illustrated by the fact that between 1969 and 1972, despite generally mild winters, natural gas consumption in Europe as a whole increased by an average annual rate of 30% compared with only a 5 to 6% annual increase for total energy over the same period. This rapid growth of natural gas is further illustrated in Figure 1 referred to earlier in this paper.
These developments took place against the background of abundant and cheap supplies of oil which further underlines the impressive stridesmade and the effort mounted by the gas industry in bringing this new source of energy supply to market.To some extent this rapid expansion of the gas business was at the expense of the growth rate of the oil business, in particular of fuel and gas oil. However the coal industry was harder hit by the inroads of natural gas, not only by direct replacement in the market place, but also by the increasing loss of the coal it had historically supplied as a feedstock for the manufactured gas industry. Further factors favouring the development of natural gas were the increasing move towards the use of cleaner fuels to combat pollution and the improving prosperity and living
standards in Europe with the concommitant desire for central heating and similar comforts. The consequence of these developments was that by 1973 natural gas was supplying, as
mentioned earlier in this paper, some 12% of Europe's total inland (i.e. excluding ships' bunkers and international aviation fuel requirements) primary energy demand.
Turning now to the future, it is reasonable to postulate that in the absence of any political, legal, supply or other constraints, the demand and hence consumption of natural gas could grow to about one-third of Europe's
total primary energy demand by the mid-1980's. Assuming that Europe's energy demand over the next ten years or so grows at an average annual rate of between 3 and 3.5% this would mean a natural gas demand of some 500 to 550 mrd 1113 in 1985. It is interesting to note that for the last few
years natural gas has supplied approximately one-third of the United States' energy consumption and there is no reason to suppose that Europe could not match this achievement in the absence of any supply
or other constraints, though the advisability of doing so is perhaps debatable in the light of
the current problems being experienced by the US gas industry. However putting such
considerations to one side, while on the one hand as alreadystated it is reasonable to postulate a potential demand for natural gas in Europe at around one-third of total energy demand in
10
the mid-1980's, it is equally clear that the existing resource base, plus firmly planned imports, will be insufficient to satisfy a demand of this magnitude. Thus the assessment of the
potential demand some years ahead represents the target, or more accurately speaking, the
potentialscope for the expansion of the gas business as foreseen at this moment in time. In
practice zind over time demand must inevitably match available supply and the simple truth that one cannot have what does not exist (or is readily available) is too often ignored in many forecasts. In other words the potential demand for any particular commodity does not remain inviolate indefinitely, either the demand dissipates and/or other commodities take
tiwir opportunity and fill the gap.
Given that in the author's opinion the growth prospects for natural gas in Europe are, above all other considerations, constrained by supply availability, at least during the short and medium term, what level of actual penetration can one reasonably expect by the
mid-1980's? On the basis as discussed in Chapter 3 of this paper that any new discoveries of gas and itk.w import schemes are unlikely to make any significant contribution to Europe's existing supply base much before the early 1980's, and assuming that the depletion patterns
of existing fields remain consistent both with good technical practice to achieve the maximum recovery of reserves in-place and with existing sales commitments, then one can postulate a lower and an tipper level of supply availability - see Figure 4 both of which would be well under the theoretical demand potential of some 500 to 550 mrd m3.
Taking the lower level first, this assumes that the technical problems in producing and bringing gas from offshore locations will be more difficult than currently envisaged and henci.s pushed back in time, also that some of the import schemes under consideration will nin into either technical and/or political difficulties and hence may not materialise to the full extent expected. On these somewhat conservative or pessimistic assumptions total availability may only amount to some 300 mrd in3 by 1985, or say 18% ot' Europe's total energy demand at that time.
For the upper level it is assumed that new offshore gas can be brought to market within 5 years of discovery and that import schemes would materialise from inception in much the same sort of timescale, i.e. political and/or technical delays would not be excessive. On this basis total availability is assessed to be about 350 mrd m3 by 1985 or 21% of Europe's total energy demand.
At first sight the above range of volumes appear to be modest increases over the
consumption expected in 1978 of 245 to 250 mrd m3 (see section 3.4). However it should be remembered that most of the gas fields in France, Italy, West Germany and Austria are already at or very near their plateau rates of production and will be in absolute decline by the late 1970's. Also that the Groningen field in the Netherlands, and some of the older gas
fields in the North Sea, will be at plateau production rateswithin the next 3 to 4 years. Thus by 1985 supplies from new fields and from import schemes will not only have to fill this
increment in availability but also replace some of the supplies currently produced from older fields.
The author is very conscious that these assessments of future demand potential and supply availability are highly subjective. However hard any forecaster may endeavour to look
any appraisal of future prospects. It may be that another Groningen is discovered tomorrow which would change the picture radically, but most geologists are agreed that such an event is highly improbable, whereas the difficulties and delays in developing new reserves and mounting new import schemes are well founded in fact.
Let us now turn to prices which of course have a substantial influence on the demand and supply position.
1 2
5. PRICING CONSIDERATIONS
Up until the early 1970's the pricing of most of the natural gas contracts for sales to industrial consumers have, with one or two notable exceptions, very roughly followed movements in competitive oil prices. This is not to say that such natural gas prices have
necessarily reflected their full market value, but simply that they followed the upward or downward trends of oil pricing and that there was in most cases, but not all, some reasonably consistent relationship IN.' tween oil and gas prices in the market place by indexing the latter with the tOrmer.11owever. in the case of supplies to the domestic market many of the contracts were based on a !midi more static pricing arrangement of a flat selling price at the
city gate which was not related directly nor indexed to the prices of alternative competing fuels. In the early years such pricing arrangements, although not ideal, at least had the merit of enabling the gas distribution companies to formulate and implement their marketingplans and conversion arrangements in the knowledge that their cost of supplies would be relatively stable and competitive.
However, more recently a number of profound and far reaching changes have taken place which invalidate the original pricing concepts. First, there has been the very dramatic change in oil prices resulting from the massive, unilateral increases in host government take. Oil prices have suddenly shot through the ceiling and even where gas prices are tied to oil prices, because of the inevitable time delays in reflecting such changes and/or because of arbitrary limits to such indexation provisions, there are very few instances where gasprices have moved in step with this sudden upsurge in oil prices. In most European countries gas is now considerably cheaper than oil with the natural consequence that there is an even greater demand for gas than that which would ex ist under normal economic, political, commercial and technical conditions.
The second fundamental change is that most of the "cheap- gas now appears to have bet.n discovered and that most of the exploration effort for new gas is being carried out in
technically difficult and very expensive locations. Worldwide inflation has further aggravated the situation to the point where there is virtually no economic incentive to explore for new gas reserves unless the full market value for any discoveries can be realised.
The third t'actor is that imported gas, whether by long distance pipeline from say the Middle East or as LNG from North or West Africa, is a highly capital intensive and hence costly form of supply. Here at.,,ain there is little prospect of such supplies coming to t'ruition unless the selling price structure in the market place can absorb this high cost gas.
Thus the situation exists today where the differential between oil and gas prices is widening leading to an excessive demand for natural gas both for industrial and domestic
uses.
It is quite possible that by the time this paper is published some steps will have been taken to bring gas prices nearer to their true market value and this would help to reduce the current pressure on available supplies, encourage exploration and stimulate imports.
Certainly in the absence of such corrective action on gas prices, either the pressure on
supplies will become intolerable or some form of governmental rationing on available supplies would have to be introduced.
benefit of hindsight it is now widely recognised that the regulation of gas contracts in the United States has been detrimental to the gas industry's and to the consumers' long-term interests. In the opinion of many responsible observers the maintenance of low wellhead prices for gas moving in the predominant inter-state market has reduced the incentive to search for new supplies. One consequence of this low pricing policy is that indigenous reserves of this premium fuel have been depleted faster than the rate of discovery of new reserves to the point where today existing market demand in the US can no longer be supported. The lessons learnt in the US are becoming very clear, let us hope that Europe can heed and benefit from these lessons before it is too late.
14
6. SUPPLEMENTARY SUPPLY SOURCES
Apart from LNG, which all said and done is simply natural gas in the liquid state, there are three main possible supplementary sources of supply, namely low-calorific value gas from coal, synthetic natural gas (SNG) from oil or coal, and methanol derived from natural gas.
6.1 Low-Calorific Value Gas from Coal
It is probable that, if the natural gas supply shortages discussed earlier in this paper materialise to the tilll extent envisaged, and if oil supplies remain constrained in the years ahead, that low-calorific value gas manufactured t'rom coal could make a comeback in the
European gas scene. Obviously such gas could not be distributed through the now converted gas transmission systems and distribution networks on technical grounds, quite apart from economic considerations, but it is possible that low-calorific value gas could be utilised near its point of manufacture for certain specific purposes such as for power plants or for
individual industrial complexes where the direct burning of coal is not practicable for one reason or another. Such gas might also be used to a limited extent for blending with, and hence reducing the calorific value of, very high-calorific value natural gases. While the technology of manufacturing low-calorific value gas from coal is of course well known-, there is nevertheless appreciable scope for technical improvements to existing processes and research and development work is in hand in this regard.
6.2 SNG from Oil
The manufacture of high-calorific value SNG from oil feedstocks (in particular naphtha) presents no major technical problem. Such gas can be made in a form which is compatible with natural gas and many proposals were announced in the United States and elsewhere in
the early 1970's. The cost of such gas is however highly sensitive to the cost of the oil feedstock used and as a result of the rapid rise in oil prices in late 1973, coupled with the shortage of oil supplies, most of these proposals have been abandoned or postponed
indefinitely. It would seem unlikely in the present climate of high oil prices that SNG from oil can be expected to make a significant contribution to total gas supply.
6.3 SNG from Coal
SNG from coal is less sensitive to feedstock costs and there is an abundance of coal available in the world. The problem here is essentially of devising suitable processes to handle a wide range of coal classifications and of finding suitable locations for such plants which need to be close to the market and to ample supplies of water (which is not recoverable).A
tremendous research and development programme is now under way in the United States in seeking solutions to the technical problems, but most informed observers are agreed that commercial processes for the manufacture of SNG from coal are unlikely to come on-stream much gefore the early 1980's. Even when such gas becomes available it will not be cheap and
could cost ex-plant well in excess of US cents 200 per million Btu depending, inter alia, on
the cost of the coal feedstock at that time.
6.4 Methanol
Methanol or methyl fuel derived from natural gas for either direct burning as a fuel or for reforming into natural gas in the country of receipt, is attracting much interest. Basically, it is an alternative method to LNG of transporting natural gas over long sea distances. Methanol has certain advantages and disadvantages over LNG. These can be summarised as follows:
Methanol is capable of being transported in conventional oil tankers, is easy to store and thus is substantially cheaper to transport and handle than LNG. A methanol scheme can offer a degree of operational flexibility not found in the closed-loop nature of an LNG scheme.
Main Disadvalltages
Methanol manufacture requires, per equivalent amount of useful energy produced, an appreciably greater investment in manufacturing plant; it also requires ahigher input/output
energy ratio than LNG production i.e. about 20% of thermal input is used in liquefaction compared with about 40% for methanol. Methanol would have a lower delivered value to gas utilities than LNG as it would require reforming before use as a gas. It is toxic and
hygroscopic and can be corrosive, thus special tankers, handling and storage facilities may be necessary.
In general it can be said that the closer the source of gas is to its potentialmarket, the less attractive a methanol scheme will be compared with an LNG scheme. Present indications
are that, all other things being equal, LNG is to be preferred over methanol where the single-trip voyage between gas source and market is less than about 7 to 8,000 miles, and
conversely of course above this distance methanol would be more economic.
6.5 Conclusions
The conclusions that can be drawn from the foregoing are that low-calorific value gas manufactured from coal, SNG from coal and oil, and methanol, should all have a part to play in the gas supply pattern not only of Europe but also of the United States and Japan. Ilowever, for some of these potential supplies there are real and challenging technical problt.sms yet to be resolved. They all require long lead times and are capital intensive activities. It is clear that the contribution that such supplies could make to the immediate gas supply shortages that already exist in the United States and are beginning to emerge in Europe, is negligible in the short term. Even in the post 1980's such supplies are always likely to remain supplementary to gas delivered by pipeline from indigenous sources. Their
importance in the future gas supply picture should not be under-rated but equally they are not a panacea.
7. SUMMARY
On the basis of existing proven indigenous gas reserves it seems inevitable that the supply availability for the European market will reach a plateau in the late 1970'S and decline both in absolute terms and as a percentage of Europe's total energy consumption at an accelerating rate commencing from the early 1980's. However, indigenous supplies are already being supplemented by imports from outside Europe and by further schemes due to come on-stream progressively from the late 1970's and through the 1980's.
A fundamental imponderable is the extent and timing of new indigenous gas reserves. Most responsible observers agree that further gas remains to be discovered in and around Europe but opinions differ widely as to the quantities that might be found and the possible locations of such new gas. What is less contentious is that such new gas will take some years to rind and bring to market and thus can have little impact on supply availability in the immediate years ahead.
Bearing in mind the probability of finding some new gas reserves and the expected realisation ot' additional imported supplies, coupled with the possibility of introducing supplementary sources, e.g. SNG, methanol, etc., in the medium term, it can be expected that the gas business in Europe will continue to grow for at least another 10 to 15 years. It is
far less certain however whether the supply base will be sufficient in quantity to satisfy the
ñu market potential.
The pricing structure for gas in Europe is currently out of tune with altemative competitive energies, in particular oil. Some corrective action is already in hand or under contemplation and hopefully this will extend to all other areas where inflexible, and artificially low pricing arrangements still exist due either to out-dated contractual
arrange-ments or imposed by statute. Gas pricing on true market value considerations at eachand every phase of the business activity is necessary to encourage exploration and to hasten the
development of all reserves discovered. It is also necessary in order to dampen demand in those market sectors where gas has little or no advantage over alternative fuels, e.g. for steam raising, etc., so that the available supplies can be channelled increasingly into those premium market sectors where its inherent qualities can be utilised to the maximum benefit of the community.
The European gas industry has undergone a radical change since the doldrumsit experienced in the 1940's and 1950's. It has developed over the last ten years or so into a highly professional, energetic, well-managed and rapidly expanding industry. Given an adequate supply base its prospects are very bright and in the new energy climate that Europe
and the rest of the world is now experiencing its contribution is becomingincreasingly significant.
109m3 (9,500 kcal/m)
1,500
1,200
900
600
300
Nuclear power
Hydro power
Natural gas
Petroleum fuels
Solid fuels
O1950
55
60
:;:.N.B. Excludes ships° bunkers and international aviation.
Figurel
Western Europe- inland
energy
Consumption and forecast 1950-1978
106 b/d o.e
27
24
21 18 15 129
6
3
65
70
73
78
Forecast of inland energy consumption
in 1978
Milliard(109)re
Natural gas equivalent
Hydro/Nuclear
Solid fuelsNatural gas
Oil Netherlands95
Bel/
Lur--19% 70
18%\I1 5°%
Norway
Austria
20
25
Italy
195 13% France225
Iminewmar 011114.1110116 ::::.: U K270
Figure 2
Germany
315 11111111111M, 17% ,t t24"?-21. 4.45Morocco
Source of Data NI and Gas Journal
Dec 1973 Fraroce 190 Algeria 3,000 Figure 3
EST. Natural Gas Reserves in 1973.
Western Europe Et North Africa
milliards (109) m3
2.800 Mediterranean sea Netherlands Ii W. Germany \. Tunisia N Th./ 20-7
r
)
Austria j\
. b\ yaEILI 2
ApproximateIndications Total Industry
109m3 1012 ft3 Austria 20 0.6 Denmark 50 1.8 France 190 6.5 W. Germany 350 12.4 Italy/Sicily 150 5.3 Netherlands 2,600 92.0 Norway 650 23.0 Spain 20 0.6 United Kingdom 1,420 50.0 Yugoslavia
- -
50 i.e 5,500 184.0 -Algeria 3,000 108,0 Libya 770 27.0 Tunisia-
50 1.8 3,820 134.8 2/74400
300
200
100 OFigure 4
European natural gas supply/demand 1965-1985
Upper level represents 350 mrd.
m3 in 1985 or 21 °/o of total energyLower level represents 300 mrd. m in I985or 18% of total energy
Milliard (101 m3 p.a.
500
Potential scope for
1
t
new indigenous gas Et
i
ciiiiii:
other new supplies
1:::::::::::, ... .:::::: t:¡:.::::::::: ... ye..Imported supplies
