Report No. 814/84 PRI81484 v5 Price Prospects for Major Primary Commodities (In Five Volumes) Volume V: Energy September 1984 Commodity Studies & Projections Division Economic Analysis & Projections Department Econom ics and Research Staff FOR OFFICIAL USE ONLY Document of the World Bank This document has a rpstricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Notes and Definitions --Commodity market-price descriptions are shown on inside of back cover. --Dollars are United States dollars unless otherwise specified. --All tons refer to metric tons (1,000 kilograms) unless otherwise noted. --Differences may occur between data in detailed and summary tables as a result of rounding. Abbreviations and Symbols TONS metric tons L8 pounds CUM = cubic meters NA not available KG kilograms .. 1--1 = no data Economic Classifications Industrial Countries* North America ··· includes Canada, United States. EEC-9 ··· includes Belgium-Luxembourg, Denmark, France, Federal Republic of Germany, Ireland, Italy, Netherlands, United Kingdom. Other Western Europe ··· includes Austria, Finland, Iceland, Liechtenstein, Norway, Spain, Sweden, Switzerland. Asia and Oceania ··· includes Japan, Australia, New Zealand. Centrally Planned Economies USSR Eastern Europe ··· includes Albania, Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania. Developing Countries* Southern Europe ··· includes Cyprus, Greece, Israel, Malta, Portugal, Yugoslavia, Turkey. Africa ··. includes South Africa. Latin America and the Caribbean ·.· includes Cuba. Oceania ··· excLudes Australia and New Zealand. Asia ··· excludes Japan; includes China, Democratic Kampuchea, People's Democratic Republic of Korea, Lao People's Democratic Republic, Mongolia, Viet Nam. ,', Also includes American Samoa, Guam, Pacific Islands, Puerto Rico, US Virgin Islands with North America; Bermuda, Channel Islands, Faeroe Islands, Falkland Islands, French Guiana, French Polynesia, Gibraltar, Greenland, [sle of ~an, Martinique, New Caledonia, Reunion with EEC-9. FOR OmCIAL USE ONLY PRICE PROSPECTS FOR MAJOR PRIMARY COMMODITIES Report No. 814/84 VOLUME v: ENERGY This document bas a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ENERGY Table of Contents Preface ENERGY ·························································· 1 PETROLEUM ······················································ 38 NATURAL GAS ···················································· 70 COAL ··························································· 98 Contributors to this Volume were as follows: Boum-Jong Choe (Coal); Fappokh Najmabadi (Energy, Petroleum, Natural Gas) PREFACE 1. This volume is part of a five-volume report which reviews the market prospects for the major primary commodities exported by developing countries. Since 1980 this Report has been published each two years. Volume I examines the movements in commodity prices over the past two years and compares the forecasts made two years ago with prices realized in 1982 and 1983. It also describes the macro-economic assumptions which lie behind the forecasts made in this Report. As well, Volume I presents an overview of this set of forecasts of commodity prices, production, consumption and trade for all commodities and for the various country groupings. Volume II covers the commodity-specific discussions on the outlook for production, consumption, trade and prices of food products and fertilizers up to the year 1995. Volume III presents the outlook for agricultural raw materials, while Volume IV covers metals and minerals and Volume V presents the outlook for the energy commodities (oil, coal and natural gas). 2. The forecasts are mainly used in forecasting the balance of payments of countries that borrow from the World Bank Group and in appraising invest- ment projects that include these commodities as inputs or outputs. Because of the mUltiple purposes they are intended to serve, the price forecasts are presented in current (nominal) as well as 1983 constant dollar (real) terms.ll Up to 1986 the forecasts are in terms of actual prices expected. For the years 1990 and 1995 the price forecasts are forecasts of the average levels expected for that period. 3. Many commodity prices are highly variable in response to variations in demand and supply. The forecasts are conditional on the various macro- economic and commodity-specific assumptions used--a11 of which are subject to uncertainty. Bank staff assessments of the likely growth of the world economy to 1995 and of expected rates of inflation over that period have been revised since the 1982 Report. These revisions, together with major changes in the factors likely to affect certain commodity markets, have led to substantial changes in the forecasts for some commodities. Users of the forecasts should keep in mind the underlying assumptions made and the degree of commodity market instability experienced in the past. 11 Commodity prices have been deflated by the World Bank's Manufacturing Unit Value (MUV) index, and the US GDP deflator. The MUV index is the CIF index of US dollar prices of industrial countries' manufactured exports (SITC 5- 8) to the developing countries and may be regarded as a useful deflator to measure changes in the barter terms of trade of developing countries highly dependent on exports of primary commodities. The US GDP deflator may be a useful deflator to use in circumstances where the US inflation rate is believed to be an appropriate measure of changes in the price or cost level. ENERGY Sununary 1. In the wake of two oil price shocks and a sustained worldwide recession, the global energy economy has undergone a dramatic change. Energy consumption that had grown at a rate of 5.6% p.a. between 1961 and 1973 slowed down considerably to around 1.6% p.a. for the period 1973-1982. The shares of the major economic regions in total conunercial energy consumption also changed substantially. While the share of industrial countries dropped sharply from $63.8% in 1961 to 52.2% in 1982, that of the centrally planned economies and developing countries increased during the same period from 21.6% and 14.6% to 24.5% and 23.3%, respectively. 2. During the 1960's and early 1970's, the global energy picture was characterized by coal losing ground primarily to petroleum and, to a lesser extent, natural gas. In the post-1973 period it was the share of petroleum in total energy consumption that declined: from 49.1% in 1973 to 42.6% in 1982, while that of natural gas, coal and primary electricity rose from 17.7%, 26.5% and 6.6%, respectively, in 1973 to 18.8%, 28.2% and 10.4% in 1982. The rapid increase in the share of primary electricity was due to the considerable growth of the nuclear power industry. 3. Developing countries are projected to increase their share of the total conunercial energy consumption from 23.3% in 1982 to 29.3% in 1995. In contrast, the share of industrial countries is expected to decline sharply to 47% in 1995, down from 52.2% in 1982. This is not only a reflection of different rates of economic growth expected during the period, but also of the anticipated decline in energy intensity of production in industrial coun- tries. Industrial countries will still consume the major port ion of the global supplies, while the consumption share of centrally planned economies is projected to decline, if slightly. 4. Given the enormous proven reserves and excess production capacity, no serious constraints are anticipated in the supply of coal in industrial countries. Although much of the conversion programs, from oil and gas to coal have already been implemented and many of the new electricity generating facilities are coal-based, coal faces competition from nuclear power in many industrial countries, particularly France, Japan, the United Kingdom and the Federal Republic of Germany. In the industrial sector, too, as substitution possibilities are exhausted in industrial countries the penetration of coal is likely to decelerate--unless innovative coal utilization technologies can remove the obstacles to its rapid development. In the developing countries, supplies will continue to be a function of the extent to which financial resources can be allocated for development of coal reserves, transportation facilities and coal-burning plants in the established coal producing areas. Because the coal resource base is shifting eastward into Siberia and the Asian Republics, and since most of the new reserves are considered to be of low calorific value, supplies of coal are not expected to grow rapidly in the - 2 - USSR. As a result the share of coal in total global energy supplies is expected to increase only marginally from 28.2% in 1982 to 28.8% in 1995. 5. Natural gas supplies are projected to increase very rapidly in the centrally planned economies--primarily the USSR--and the developing coun- tries. During the projection period, production in the centrally planned economies and developing countries is anticipated to grow by 68% and 171%, respectively. Growth of production in industrial countries is expected to be marginal, due mainly to the projected decline in the supplies from the United States. The share of natural gas in total world energy supplies is projected to increase to 20.4% in 1995, up from 18.8% in 1982. 6. Notwi thstanding the present uncertainties about the future of the nuclear industry in the United States, nuclear power is projected to substantially enhance its share of the power generation, primarily in industrial countries and centrally planned economies. The share of primary electricity in total energy supplies is projected to grow in all three major economic regions. During the projection period, supplies of primary electricity are anticipated to increase by 69%, 139% and 159%, respectively, in industrial countries, centrally planned economies and developing countries. The share of primary electricity in global energy supplies is expected to grow from 10.4% in 1982 to 14.6% in 1995. 7. While petroleum is expected to remain the major fuel in the foreseeable future, its share in total energy is anticipated to drop from 42.6% in 1982 to 36.2% in 1995. Since it is unlikely that the production of liquid fuels will grow, either in industrial countries or centrally planned economies, the task of supplying the global requirements for petroleum will increasingly fall on oil-exporting developing countries, particularly OPEC. In fact, in the face of a peaking/declining supply situation in industrial countries and centrally planned economies, production of liquid fuel in developing countries is projected to increase from 1,452 mtoe in 1982 to 2,029 mtoe in 1995. Despite the anticipated significant petroleum production increases in Mexico and, to a lesser extent, in other non-OPEC developing countries, total production in these countries is projected to increase by only 154 mtoe (3.1 mbdoe): from 459 mtoe in 1982 to 613 mtoe in 1995. OPEC is, therefore, expected to supply nearly 73% of the increase in petroleum production from developing countries. As a result, OPEC's share in total petroleum supplies, which had dropped from its peak of 54% in 1973 to around 35.4% in 1982, is projected to increase gradually beyond 1985 to reach 36.4% by 1990--thereafter rising more rapidly to 42.2% by 1995. Total worldwide petroleum supplies are projected to grow from 2,804 mtoe in 1982 to 3,358 mtoe in 1995. 8. Global trade in energy commodities will continue to be dominated by petroleum, though its share is projected to drop from 80% in 1982 to 71% in 1995. The shares of natural gas and solid fuel s are expected to increase correspondingly. Trade in electricity is likely to remain substantially at its present level of around 2%. - 3 - 9. Because of the dominant position of petroleum in the international energy markets, energy prices are likely to reflect the movement of petroleum prices. In the short and near-medium term, given the magnitude of surplus capacity in OPEC countries and the capability of greater production from non- OPEC producers, it is anticipated that petroleum prices will initially decline in real terms to around $26 per barrel in 1985/86, increasing gradually thereafter to $29.5 per barrel in 1990 and, more rapidly in the 1990's to reach $36 per barrel in 1995. Coal prices are expected to follow a similar movement, dropping in the short and medium-term then recovering to around $45 per ton by 1995. A Decade of Turbulence 10. Over the past decade, two oil price shocks and, later, a sustained worldwide recession have fundamentally altered the global energy economy. In the post World War II period, up until the early 1970's, low and declining energy prices provided strong incentives for its substitution for other inputs. During this period, energy demand in industrial countries grew at about the same rate as national income. The rate of growth of energy consumption was somewhat higher in the developing countries. In the centrally planned economies, however, due to the structure of economic activity and the considerably lower share of the transportation sector in total energy consumption, energy elasticities (growth of primary energy consumption divided by the growth of GOP or Net Material Product) remained below unity. 1/ As a result, the share of developing countries in total global energy consumption grew, while those of the industrial countries and the centrally planned economies declined (Table I). TABLE 1: SHARE OF ECONOMIC REGIONS IN GLOBAL ENERGY CONSUMPTION COUNTRIES/ECONOMIES 1961 1973 1979 1982 INDUSTRIAL 63.8 61.9 56.5 52.2 CENTRALLY PLANNED 21.6 20.9 22.6 24.5 DEVELOPING 14.6 17.2 20.9 23.3 SOURCE: UNITED NATIONS ENERGY STATISTICS; WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT 1/ Energy elasticities are estimated at 1.06, 1.15 and .75 for industrial countries, developing countries and centrally planned economies, respect- ively, for the period 1961 to 1973. - 4 - 11. As petroleum prices rose sharply in the early 1970's, prices of other fuels also went up and a process of global adjustment ensued; this process was accelerated when oil prices once again increased steeply in 1979-80. There were, of course, different responses to these developments in the various major economic regions. The industrial countries relied, by and large, more heavily on the interplay of prices to temper demand, though certain government policies were adopted. Among the common policy objectives initiated by industrial countries were: first, development of domestic energy sources; second, diversification of energy sources; third, substitution of oil by other fuels; and, fourth, increased efficiency of use of all forms of energy. To achieve these policy objectives, industrial countries introduced a variety of measures, such as fiscal incentives for energy-efficient investment (tax credits, grants, loans), standards for energy use (building codes, efficiency targets for vehicles and other durable consumer goods), excise taxes, and outright prohibition of oil use in new industrial boilers and utilities. Combined with the rapid pass-through of higher energy prices to end-users, these measures resulted in a dramatic decline in the energy intensity of production (i.e. energy consumption per unit of output) by nearly 18.5% between 1973 and 1982. 11 It now appears that many of the low-cost energy- saving measures (switching off lights, lowering heating temperatures) and some of those that require modest capital investment (retrofitting) have already been achieved; but those that require sizeable capital investments such as the replacement of energy-inefficient and obsolete capital goods and buildings as well as the adoption of new processes and the shift to alternative fuels are still in progress. 12. The decline in pnmary energy consumption in industrial countries between 1973 and 1982 was the result, not only of the permanent improvement in energy efficiency (primarily induced by rising energy prices and government policies), but also the outcome of the recent worldwide economic recession (Table 2). Since this process has been accompanied by a marked structural change (a shift in economic output from more to less energy-intensive sectors), available data only provide a sketchy picture of the most important contributory factors. There is, however, sufficient empirical evidence to suggest that the decline in the energy-efficiency of production is likely to continue as new investments result in the introduction of more energy- efficient capital goods. In fact, it is in periods of sustained recession that the adjustment process is seriously impeded, as the replacement of old and inefficient equipment is postponed. 13. The centrally planned economies adopted policies characterized as follows: faster development of indigenous resources, particularly coal, gas and nuclear power; conversion of oil-burning plants to coal; programs of fuel and energy saving, notably in oil consumption; and, international cooperation in the field of energy, both on a bilateral and multilateral basis. Given the 11 Energy consumption per thousand dollars of GOP declined from .615 toe in 1973 to .5 toe in 1982. - 5 - TABLE 2: ENERGY CONSUMPTION BY MAJOR ECONOMIC REGIONS MTOE COUNTRIES/ECONOMIES 1961 1973 1979 1982 INDUSTRIAL 1,930 3,584 3,849 3,480 CENTRALLY PLANNED 652 1,210 1,544 1,631 DEVELOPING 442 998 1,423 1,550 WORLD 3,024 5,792 6,816 6,661 SOURCE: UNITED NATIONS ENERGY STATISTICS; WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT. planned nature of their economies, a certain degree of intra-regional realloc- ation of industries was also undertaken, whereby energy-intensive industries were directed towards sites with abundant energy resources. Until 1979, the intensive industrialization of Eastern European centrally planned economies resulted in an acceleration of the rate of growth of energy consumption relative to the growth of the Net Material Product; but programs of fuel and energy saving were gradually introduced subsequent to the second oil price increase. 14. The adjustment process in the oil-importing developing countries has been varied, slow and painful. The responses have ranged from reliance on the price mechanism to quantitative controls, but in almost all cases they were combined with a strong mix of governmental policies. Although est imates indicate that the energy intensity of output has not changed materially in these countries after 1973, 1/ there is evidence that a few of the larger countries of this group, notably the exporters of manufactures, have not only reduced their commercial energy intensity in the last few years, but have also shifted toward non-petroleum fuels. It is noteworthy, however, that energy pricing policies in the oil-importing developing countries have, in general, been reflective of the increased costs of both indigenously produced and imported fuels. 15. The situation in the oil-exporting developing countries has been somewhat different. Given their energy resource endowment, most countries in this group have opted for energy-intensive industries as a part of their development strategy. In many countries, planners have been aggressively introducing projects which will utilize the hitherto flared associated gas. 1/ The energy elasticity for oil-importing developing countries is estimated at 1.25 for the 1961-73 period. This figure remained almost the same for the period 1973-82. - 6 - Together with a subsidized fuel prlclng policy, this has resulted in a sizeable increase in the energy intensity of production after 1973. In fact, the income elasticity of energy demand for the oil-exporting developing countries has risen by nearly 50% from .86 in the 1961-73 period to 1.32 in the 1973-82 period. 1/ 16. Recent studies have shown that the intercountry differences in per capi ta use of energy can be related to differences in per capita GDP and population, economic structure, petroleum product prices and winter tempera- ture--with per capita GDP representing the most important factor. Since the second oil price increase, many developing countries (both oil-importing and oil-exporting) have become increasingly aware of the enormous potential that exists for improving energy efficiency. Although few have embarked on comprehensive conservation and energy demand management programs, strategies other than total reliance on market forces such as fiscal incentives, regulations, promotional and educational programs are being considered and, in certain instances, implemented. 17. Combined wi th the global increase in energy efficiency, there has been a strong shift from petroleum to other fuels, especially in the period following the second oil price increase of 1979/80. While this shift has been more pronounced in industrial countries (the share of oil in total commercial energy consumption declined from 51.8% in 1979 to 45.3% in 1982), it has resulted in a decline of around 1. 7 percentage points of the corresponding share in centrally planned economies and developing countries. Much of this shift has been accompanied by either the retrofitting or replacement of existing oil-burning capital goods or the introduction of new equipment that uses non-petroleum fuels and that are more energy-efficient. Globally, the share of petroleum in total primary energy consumption has dropped from 47.3% in 1979 to 42.6% in 1982. 18. In the power generation sector, petroleum has been progressively replaced by other fuels: notably coal and nuclear energy in industrial coun- tries; natural gas and nuclear energy in centrally planned economies; coal, hydropower and, in isolated instances, nuclear power in oil-importing developing countries; and natural gas in oil-exporting developing countries. Recent estimates indicate that for a sample consisting of 26 major energy consuming developing countries 2/ the share of oil in total energy consumed for power generation has declined form 29.4% in 1971 to 25.4% in 1982. While 1/ Since in many countries in this group oil sales/exports constitute a large part of GDP, the recent decline in oil revenues since 1980 would tend to give a somewhat blurred picture of the real change in elasticities. 2/ Argentina, Brazil, Chile, Mexico, Venezuela, Colombia, Peru, Egypt, Nigeria, Algeria, Morocco, Zambia, Zimbabwe, Kuwait, Iran, Iraq, Saudi Arabia, Hong Kong, India, Indonesia, Malaysia, Pakistan, Singapore, Republic of Korea, Thailand, the Phillipines. Source: lEA Statistics, World Bank, Economic Analysis and Projections Department. - 7 - petroleum has remained the most convenient fuel in the transportation sector, it has been losing ground to natural gas, and electricity in the residential and commercial sectors. In industrial sector, too, petroleum has met strong competition from coal and natural gas, both of which have progressively claimed a larger share of this sector's energy requirements worldwide. Although coal will continue to expand its share in the power generation and the industrial sectors, global trends in fuel substitution during the projection period will be dominated by a shift toward primary electricity. Demand Outlook 1/ 19. Global energy demand is projected to grow at an average rate of around 2.6% per annumn from 6,661 mtoe in 1982 to 9,275 mtoe in 1995. This rate, which compares with the 6% p.a. experienced during the 1960' s and the 3.1% p.a. of the 1970's, is a reflection of the assumed economic growth path as well as the expected changes in energy intensity of output in the major economic regions. Although a sharp decline in energy intensities is only noticeable in industrial countries, energy pricing policies and other demand management measures in the developing countries are beginning to bear results. The recent economic recession has, however, partially delayed the replacement of old inefficient equipment in many parts of the world, notably the industrial countries, with the result that further sizeable declines in energy intensities will only come after a few years of sustained recovery. 20. During the projection period, the share of petroleum in the global energy consumption is projected to decline from 42.6% in 1982 to 36.2% in 1995; the share of coal is expected to remain significantly unchanged around 28-29%; natural gas and primary electricity are anticipated to increase their shares, from 18.8% and 10.4%, respectively,in 1982 to 20.4% and 14.6% in 1995 (Table 3). 21. Industrial Countries. Energy demand in industrial countries is projected to grow at an average rate of 1.7% p.a. between 1982 and 1995 (from 3480 mtoe to 4360 mtoe). After very slow growth until the mid-1980's, energy consumption is expected to recover somewhat in the following decade (Table 4). Introduction of more energy-efficient technologies (together wi th a fai r1y undistorted energy market structure, and possibly, a gradual shift in economic output away from more energy-intensive sectors) is likely to lower further the energy intensity of output in industrial countries. Thus, the share of this region in global energy consumption is anticipated to decline from 52.2% in 1982 to 47% in 1995. 8y comparison, industrial countries accounted for 64% of worldwide energy consumption in 1960. 22. The growing demand for energy 1n industrial countries wi 11 be met mainly by expanding primary electricity production and increased use of coal: by 1995 the share of primary electricity should increase to 18.1% (from 13.4% 1/ See Annex for a description of the forecasting framework used. TABLE 3: GLOBAL ENERGY CONSUMPTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 1982 1990 1995 ---------------- --------------- --------------- -------------- ---------------- FUELS MTOE % MTOE % MTOE % MTOE % MTOE % ------------------------------------------------------------------------------------------------------------------ LIQUID FUELS 1,156.9 38.3 2,324.5 46.6 2,839.9 42.6 3,113.1 38.4 3,357.9 36.2 NATURAL GAS 408.6 13.5 847.6 17 .0 1,249.1 18.8 1,625.8 . 20.1 1,894.2 20.4 (Xl SOLID FUELS 1,273.5 42.1 1,494.5 30.0 1,881. 2 28.2 2,341. 2 28.9 2,668.6 28.8 PRIMARY ELECTRICITY 184.6 6.1 318.7 6.4 690.6 10.4 1,023.1 12.6 1,354.2 14.6 TOTAL 3,023 .6 100.0 4,985.3 100.0 6,660.9 100.0 8,103.2 100.0 9,274.9 100.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). TABLE 4: ENERGY CONSUMPTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 1982 1990 1995 COUNTRIES/ECONOMIES MTOE % MTOE % MTOE % MTOE % MTOE % INDUSTRIAL 1,929.9 63.8 3,142.0 63.0 3,479.9 52.2 3,978.0 49.1 4,359.9 47.0 \.0 CENTRALLY PLANNED 652.0 21.5 1,052.6 21.1 1,630.7 24.5 1,967.4 24.3 2,200.5 23.7 DEVELOPING 441.7 14.6 790.7 15.9 1,550.3 23.3 2,157.9 26.6 2,714.5 29.3 WORLD 3,023.6 100.0 4,985.3 100.0 6,660.9 100.0 8,103.2 200.0 9,274.9 100.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). - 10 - in 1982) and that of coal should grow from 21.9% to 24.7% over the same period. Conversely, the share of liquid fuels is projected to decline steeply (from 45.4% in 1982 to around 38.6% in 1995), while natural gas should have a marginally lower share in total energy consumption in the industrial countries (Table 5). 23. The relative buoyancy of demand for coal and primary electricity in industrial countries is basically the result of the anticipated faster growth of electrical energy consumption compared with total energy consumption. The main source of the projected demand for coal is substitution of coal for petroleum and natural gas in thermal power generation (in this sector the share of thermal coal is anticipated to increase from 65% in 1982 to 81% in 1995) and, to a lesser extent, in industry. In addition, metallurgical coal consumption is projected to increase in line with the increase in production of metal smelting industries. Toward the end of the projection period, as substitution possibilities are increasingly exhausted, the market penetration of coal is anticipated to decelerate--unless coal utilization technologies can enhance the share of coal in the industrial sector. The share of industrial countries in global coal consumption is projected to remain almost unchanged at around 40.5% between 1982 and 1995. 24. Although industrial countries have been successful in reducing the share of oil in total energy consumption and this tendency is expected to continue, the absolute level of petroleum consumption should increase by around 0.5% p.a. between 1982 and 1995. To meet these requirements, net imports of liquid fuels into this region would have to rise from around 828 mtoe in 1982 to 973 mtoe in 1995. By the end of projection period the share of these imports, which amounted to nearly 24% of total energy consumption of these countries in 1982, will be approximately 22%. Despite the massive efforts in accelerating the transition from petroleum to alternative fuels, industrial countries' reliance on imported petroleum is not likely to change materially between 1982 and 1995. The share of industrial countries in worldwide liquid fuels consumption is projected to decline to 50% in 1995, down from 55.6% in 1982. 25. The important factors affecting the future demand for natural gas in industrial countries remain availability, cost and security of supply. Despite the existence of fairly extensive resources in the region and the potential for imports of large volumes from both the centrally planned economies and the developing countries, natural gas is likely to lose ground to coal and nuclear power in the power generation sector (except for Japan) wherein these alternative fuels have a substantial cost advantage. In addition, because of the'fact that natural gas prices are expected to remain linked to crude and petroleum product prices, and given the relatively tight future supply situation in the United States, the share of natural gas in total primary energy consumption of industrial countries is projected to decline marginally from 19.3% in 1982 to around 18.6% in 1995. As a result, the share of industrial countries in global natural gas consumption will diminish to 42.8% in 1995, down from 53.9% in 1982. TABLE 5: ENERGY CONSUMPTION BY ECONOMIC REGION AND MAJOR FUEL, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) ------------------------------------------------------------------------------------------------------------------ 1961 1910 1982 1990 1995 COUNTRIES/ ---------------- --------------- --------------- -------------- ---------------- ECONOMIES/FUELS MTOE % MTOE % MTOE % MTOE % MTOE % ------------------------------------------------------------------------------------------------------------------ INDUSTRIAL 1,929.9 100.0 3,142.0 100.0 3,419.9 100.0 3,918.0 100.0 4,359.9 100.0 LIQUID FUELS 811.3 42.3 1,622.8 51.6 1,511.1 45.4 1,621.0 40.9 1,680.4 38.6 NATURAL GAS 322.0 16.1 605.8 19.3 613.5 19.3 161.3 19.3 810.1 18.6 SOLID FUELS 645.8 33.5 685.3 21.8 161.6 21.9 948.1 23.8 1,019.0 24.1 PRIMARY ELECTRICITY 144.8 1.5 228.0 1.3 461.1 13.4 635.6 16.0 189.8 18.1 .... .... CENTRALLY PLANNED 652.0 100.0 1,052.6 100.0 1,630.1 100.0 1,961.4 100.0 2,200.6 200.0 LIQUID FUELS 150.5 23.2 325.1 30.9 543.3 33.3 582.6 29.6 609.5 21.1 NATURAL GAS 68.2 10.4 188.9 11.9 436.6 26.8 601.6 30.6 119.2 32.1 SOLID FUELS6 416.1 64.0 503.0 41.8 514.2 35.2 649.2 33.0 685.1 31.2 PRIMARY ELECTRICITY 16.5 2.4 35.6 3.4 16.1 4.1 133.9 6.8 186.1 8.4 DEVELOPING 441.1 100.0 190.1 100.0 1,550.3 100.0 2,151.9 100.0 2,114.6' 100.0 LIQUID FUELS 189.1 42.9 316.5 41.5 119.1 46.4 903.5 41.8 1,068.0 39.4 NATURAL GAS 18.4 4.1 52.9 6.1 139.0 9.0 256.9 11.9 364.3 13.4 SOLID FUELS 211.0 41.8 306.2 38.1 545.4 35.2 143.9 34.5 903.9 33.3 PRIMARY ELECTRICITY 23.2 5.2 55.1 1.0 146.8 9.4 253.6 11.8 318.3 13.9 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED) · - 12 - 26. Industrial countries have already adopted broad energy policies which are likely to result in a further diversification of the energy demand picture thus reducing their vulnerabilities to energy supply shocks. In addition to encouraging domestic energy production, they are pursuing policies that should enhance interfue1 substitution--basica11y away from petro1eum--with a special emphasis on both coal and nuclear power. Further penetration of electricity in the energy market has been recognized as a major vehicle for the use of non-petroleum fuels. Industrial countries still face many difficulties in their quest for enlarging the role of coal and nuclear power. While regulatory, institutional and financial issues may be resolved in time, the need for finding satisfactory schemes for disposal of nuclear waste remains extremely urgent. The debate about the environmental impact of coal is, once more, reaching new heights, threatening to impede expansion of coal use, notably in the industrial sector. There is great need for developments in, and wider utilization of, new coal-burning technologies such as fluidized bed combustion in order to maintain coal t s momentum in the energy markets. In general, the trend of energy demand in industrial countries will continue to dominate the evolution of international markets for petroleum, coal and natural gas during the projection period. The overriding objective of industrial countries has been to ensure the smooth transition of their energy systems from being based on cheap and abundant oil, towards greater energy economy and efficiency, greater reliance on indigenous energy sources, diversification of supplies, and a shift away from petroleum. Maintenance of a healthy economic growth rate would appear to be a condition sine qua ~ of success in these efforts. At growth rates much below those assumed, a stronger oil bias in the energy economy might, paradoxically, ensue. 27. Centrally Planned Economies. Historically, the industrial sector has claimed the largest share of energy consumption in the centrally planned economies. Throughout the 1970's and early 1980's, this share remained around 64-65% in the USSR and nearly 54% in the other Eastern European countries. Conversely, the transportation sector accounts for the smallest share: 12-13% and 7-8% in the USSR and other Eastern European centrally planned economies, respectively. While the share of residential and commercial/public sectors in total energy consumption in the USSR is around 22-23%, it is almost of the same magnitude in Eastern and Western Europe--38-40%. 28. In the USSR, over half of the industrial energy is consumed in three sub-sectors, namely: oil refining, the chemical industry and the iron and steel industry. Despite the enormous energy saving potential in this sector, there still seems to be more emphasis on meeting production targets than achieving energy savings. The structure of energy consumption in the transportation sector differs widely between the USSR and the developed market economies. In contrast to industrial countries where freight accounts for only 25% of the energy consumption in the transportation sector, the share is around 75% in the USSR. Further electrification of railways may reduce the relative preponderance of petroleum consumption in the freight system (presently relying on petroleum for 75% of its requirements), while on the other hand, increasing incomes and living standards should increase the amount of passenger transport, particularly by automobiles. - 13 - 29. As in industrial countries, the bulk of residential energy demand in the USSR is for space heating; a large portion of this demand is being met through centralized supply systems including combined heat and power plants and district heating. Although these systems are, as such, more efficient than individual heating systems, they suffer from the existence of a highly inefficient capital stock which needs to be retrofitted or, in most cases, replaced. Further penetration of gas for home cooking--already more than 80% of all dwellings in the USSR are connected to gas networks--should also decrease the residential energy intensity. 30. Past trends in energy consumption in the USSR indicate that, despite the enormous technical potential, conservation and energy efficiency targets remain generally unfulfilled. Given the competing demands on capital investments and the scarcity of capital, the planners appear to have, by and large, opted for increasing the supply as compared with conservation. The uncertainty surrounding future oil production may have gradually brought about a change in priorities. Although natural gas development, based on gigantic resources, may free sufficient quantities of oil for export, the USSR economy can ill-afford the current wasteful practices in energy consumption. The increased penetration of natural gas in all economic sectors may provide the opportunity for introducing more energy-efficient equipment. 31. The energy demand situation in the other Eastern European centrally planned economies will evolve in the context of their overall energy deficiency and the need for the USSR to cover most of their energy import requirements. In view of the constraints imposed by the slow progress in domestic energy production and the increasing costs of energy imports on their economic growth, an increasing number among this group are attempting to introduce serious conservation measures. Efforts as sophisticated as electrical energy load management are being contemplated in one or two countries. Many plans for retrofitting industrial plants have commenced where the aim is to utilize the most up-to-date (often imported) equipment. It is anticipated, therefore, that these countries will become relatively more successful in gradually lowering the energy intensity of their economies. 32. Energy demand in the centrally planned economies is projected to grow at the rate of 2.3% p.a., from 1,631 mtoe in 1982 to 2,201 mtoe in 1995. This compares with 5.5% p.a. in the 1960's and 4.1% p.a. in the 1970's. The bulk of this growth is projected to be supplied by natural gas whose share in total energy consumption is likely to increase from 26.8% to 32.7% during the period. Primary electricity, too, is projected to enhance its share from 4.7% in 1982 to 8.4% in 1995. In contrast, the share of petroleum and coal will decline from 33.3% and 35.2%, respectively, in 1982 to 27.7% and 31.2% in 1995. The share of this region in global energy consumption is anticipated to decline marginally from 24.5% in 1982 to 23.7% in 1995. 33. Developing Countries. Although energy conservation and improved energy efficiency offer the developing countries the potential for both short and long term gains in their energy economy, it is only in the context of a well-structured energy policy framework that these countries can aspire to effectively manage the future demand for energy. In recent years an - 14 - increasing number of developing countries have not only become aware of the issues and options, but have also gradually introduced appropriate measures including the implementation of a less-distorted pricing policy. Despite these efforts, the structural change towards more extensive and deeper industrialization, characterized by the implantation of energy-intensive industries, is likely to increase their energy intensity of production. As industrialization continues to lead the development process in many countries in this region, the industrial sector provides, in most instances, the highest potential for energy conservation. The income elasticity of demand for energy will vary, depending on the stage of development and the economic structure of each developing country, but it is likely to remain higher than in the industrial countries and the centrally planned economies. 34. In the developing countries, not unlike the centrally planned economies, interfuel substitution is more a matter of public policy and supply availability than a market-oriented response to price changes. Since switching away from petroleum is almost always concomitant with capital investment, large scale interfuel substitution appears unlikely for most oil- importing developing countries (except, perhaps, in some of the newly industrializing countries>, under the current strained global financial situation. A combination of factors that goes from the needs for large front- end loaded investments for energy development--often burdened by huge infra- structural requirements such as railways and ports--high interest rates and the anticipated decline in the real price of oil in the short to medium-run is bound to slow down fuel substitution and to prolong the dependence on imported oil. Even in countries where large resources of non-petroleum fuels such as natural gas have recently been discovered, due to investment constraints the production of gas in many instances runs well below the level that could be technically sustained. However, in absolute terms, demand for natural gas in the oil-importing developing countries is still projected to grow almost threefold, from 45 mtoe in 1982 to around 131 mtoe in 1995. 35. Between 1982 and 1995, energy consumption in the developing countries is anticipated to regain some of the momentum that was lost in the years immediately following the second major oil price increase. Energy demand is projected to grow at an average rate of 4.4% p.a. during the projection period. Although the anticipated additional demand is projected to be mainly met by coal and liquid fuels--each supplying nearly 30%--and, to a lesser extent, by natural gas and primary electricity--around 20% each--the share of liquid and solid fuels in total energy demand of developing countries is projected to decline from 46.4% and 35.2%, respectively, in 1982 to 39.4% and 33.3% in 1995. In contrast, natural gas is projected to account for 13.4% of total energy consumption in 1995 compared with 9% in 1982; the share of primary electricity will rise from 9.4% in 1982 to 13.9% in 1995. 36. Given their prospective economic growth, developing countries will gradually claim a larger share of global energy consumption. Their share is projected to grow from 23.3% in 1982 to 29.3% in 1995. In both petroleum and coal, developing countries will account for almost one-third of global demand in 1995. More significantly, while the dependence of oil-importing developing countries on imported energy will have been somewhat reduced--from 23.2% in - 15 - 1982 to 20.6% in 1995--net imports will still constitute around 60% of their consumption of petroleum. Supply Outlook 37. During the 1960's and early 1970's abundant supplies of inexpensive oil and natural gas resulted in an increase of their share in total energy production from around 52% in 1961 to 67% in 1973. This gain in the share of hydrocarbons was entirely at the expense of coal whose share dropped from 41. 7% in 1961 to 25.3% in 1973. Primary electricity showed only a marginal gain during this period. 38. The oil price shocks of the last decade have materially altered these trends. Between 1973 and 1982, the declining trend in coal's share was reversed. By 1982 coal's share in total energy supply had risen to 28.8% while that of primary electricity had grown to 10.3%, mainly on account of a flour- ishing nuclear power sector. Conversely, the share of hydrocarbons had shrunk to around 61%, with natural gas marginally increasing its share from 17.5% in 1973 to 18.9% in 1982; the share of petroleum dropped sharply from 49.6% to 42.0% in the same period. In contrast to the earlier period 0961-73), all other fuels gained market share at the expense of oil, whose production actually dropped from 2,880 mtoe in 1973 to 2,804 mtoe in 1982. The slowdown in the growth of energy production from 5.5% p.a. between 1961 and 1973 to 1.6% p.a. between 1973 and 1982 was mainly in response to a slower expansion of energy demand which, in turn, was caused by the steep increase in energy prices and the worldwide stagnation in economic activity. 39. For the remainder of the 1980's and early 1990's world energy production is projected to grow at a faster rate (2.6% p.a.) than during the 1973-82 period (1.6% p.a.). While primary electricity and natural gas production is anticipated to rise at rates in excess of the average for total energy supply--5.3% p.a. and 3.2% p.a., respectively--that of oil will be considerably lower at 1.4% p.a. Production of coal is projected to grow at about the same rate as total energy supplies--2.6% p.a. 40. A major change in the relative supply position of the main economic regions is anticipated. While industrial countries accounted for about one half of the world's energy production in 1961, their share had declined to 39% in 1982 and is projected to drop further to 35% by 1995. The share of centrally planned economies had grown somewhat between 1961 and 1982, but is anticipated to drop marginally to around the 25% level. The bulk of the increase will, therefore, be supplied by the developing countries whose share in total global energy supplies is expected to increase from around 35% in 1982 to over 40% in 1995 (Table 6). During the projection period, natural gas and primary electricity will increase their share in global energy supplies: from 18.9% to 20.4% in the case of natural gas, and from 10.3% to 14.5% in the case of primary electricity. While the share of coal will remain virtually unchanged at around 28.8%, that of liquid fuels is projected to decline from 42.0% in 1982 to 36.2% in 1995 (Table 7). TABLE 6: ENERGY PRODUCTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1910 1982 1990 1995 COUNTRIES/ECONOMIES MTOE % MTOE % MTOE % MTOE % MTOE % INDUSTRIAL 1,539.4 50.8 2,143.0 42.6 2,591.5 38.9 2,980.3 36.8 3,243.4 35.0 ..... 0- CENTRALLY PLANNED 696.1 23.0 1,121.5 22.3 1,162.0 26.4 2,082.4 25.1 2,219.5 24.5 DEVELOPING 192.6 26.2 1,161.9 35.1 2,313.5 34.1 3,040.6 31.5 3,152.0 40.5 WORLD 3,028.1 100.0 5,032.4 100.0 6,673.1 100.0 8,103.2 100.0 9,214.9 100.0 ----------------------------------------------------------------------------------------------------------------- SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). TABLE 7: ENERGY PRODUCTION BY MAJOR FUELS, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 1982 1990 1995 FUELS MTOE % MTOE % MTOE % MTOE % MTOE % LIQUID FUELS 1,166.6 38.5 2,360.1 46.9 2,803.6 42.0 3,113.1 38.4 3,357.9 36.2 ...., I-' NATURAL GAS 412.7 13.6 857.4 17.0 1,258.2 18.9 1,625.8 201 1,894.2 20.4 SOLID FUELS 1,264.3 41.7 1,496.4 29.7 1,920.7 28.8 2,341.2 28.9 2,668.6 28.8 PRIMARY ELECTRICITY 185.1 6.2 318.5 6.4 690.6 10.3 1,023.1 12.6 1,354.2 14.5 TOTAL 3,028.7 100.0 5,032.4 100.0 6,673.1 100.0 8,103.2 100.0 9,274.9 100.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). - 18 - 41. Prospects for Coal Supplies. The main source of additional coal supplies to meet future requirements outside the centrally planned economies will be the current low-cost coal producers--North America, Australia and South Africa. Production in excess of domestic demand in these countries will be determined mainly by the cost competitiveness of each country relative to the others in the expanding international market for thermal coal. Because of close cost-competitiveness, market shares of these countries can be highly sensitive to the changes in the relative cost configuration that can be brought on not only by changes in factor costs, but also by exchange rate changes and transport costs. Given the enormous proven reserves and excess production capacity, no constraints are anticipated in the supply of coal in industrial countries. Coal's established competitive edge over other fuels, notably petroleum and natural gas, in power generation will help deepen its penetration in this market. In the industrial sector, coal can effectively compete in a few sub-sectors such as cement production, while it has a captive market in the iron and steel industry. 42. Major producers of coal among the centrally planned economies are the USSR, Poland and the Democratic Republic of Germany. In recent years pro- duction in the USSR has repeatedly fallen short of planned output, indicating serious technical and infrastructural problems. As reserves of traditional coal producing areas located in the Western regions of the USSR deplete, the resource base shifts eastward into Siberia and the Asian Republics. Since most of these new resources are reported to be of low calorific value, their transport to the European parts of the USSR appears to be uneconomic. In addition, large-scale development of these deposits would require enormous investments. Given the relative economies of gas production and transport- ation to the Western Regions of the USSR, it appears that natural gas enjoys priority while low-grade coal is slatad to be consumed at the mine-mouth for electricity generation. 43. To the extent that financial resources can be allocated for develop- ment of coal resources, transportation facilities and coal-burning plants in the established coal producing developing countries, their production capacity will increase during the projection period. Several developing countries notably China, India, South Africa, and Colombia are projected to substan- tially increase production. Globally, coal production is expected to rise by 39% during the projection period, growing from 1,921 mtoe in 1982 to 2,669 mtoe in 1995. All major economic regions will share in the additional supplies: 44.5% in developing countries, 40.6% in industrial countries and 14.9% in centrally planned economies. Consequently, the share of industrial countries in the total supply of coal is expected to remain substantially unchanged while that of centrally planned economies will drop from 30.7% in 1982 to 26.1% in 1995. In contrast, the share of developing countries will increase from 28.4% in 1982 to 33% in 1995 (Table 8). 44. Prospects for Natural Gas Supplies. The enormous discoveries of the last two decades and the magnitude of proven gas reserves--estimated at 3,200 trillion cubic feet, equivalent to 73 billion tons of oil--have greatly enhanced the supply outlook for natural gas. However, the rapid development TABLE 8: ENERGY PRODUCTION BY ECONOMIC REGION AND MAJOR FUELS, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) ------------------------------------------------------------------------------------------------------------------ 1961 1970 1982 1990 1995 COUNTRIES/ ---------------- --------------- --------------- -------------- ---------------- ECONOMIES/FUELS MTOE % MTOE % MTOE % MTOE % MTOE % ------------------------------------------------------------------------------------------------------------------ ..... .;STRIAL 1,539.4 100.0 2,143.0 100.0 2,597.5 100.0 2,980.3 100.0 3,243.3 100.0 LIQUID FUELS 439.1 28.5 630.2 29.4 718.5 27.7 757.0 25.4 707.2 21.8 NATURAL GAS 325.3 21.1 610.9 28.5 625.4 24.0 650.3 21.8 654.5 20.2 SOLID FUELS 629.8 40.9 674.1 31.5 786.4 30.3 936.5 31.4 1,090.6 33.6 PRIMARY ELECTRICITY 145.2 9.5 227.8 10.6 467.3 18.0 636.4 21.4 791.1 24.4 ..... CENTRALLY PLANNED 696.7 100.0 1,121.5 100.0 1,762.0 100.0 2,082.4 100.0 2,279.5 100.0 \0 LIQUID FUELS 184.5 26.4 377 .9 33.7 633.0 35.9 631.4 30.3 621.3 27.3 NATURAL GAS 67.8 9.8 188.4 16.8 460.8 26.2 648.4 31.2 773.5 33.9 SOLID FUELS 427.7 61.4 519.5 46.3 589.7 33.5 667.0 32.0 696.9 30.6 PRIMARY ELECTRICITY 16.6 2.4 35.7 3.2 78.5 4.4 135.6 6.5 187.8 8.2 DEVELOPING 792.6 100.0 1,767.9 100.0 2,313.5 100.0 3,040.6 100.0 3,752.0 '100.0 LIQUID FUELS 543.0 68.5 1,352.1 76.5 1,452.1 62.7 1,724.7 56.7 2,029.4 54.1 NATURAL GAS 19.6 2.5 58.0 3.3 172.0 7.4 327.2 10.8 466.2 12.4 SOLID FUELS 206.8 26.1 302.8 17.1 544.6 23.6 737.7 24.3 881.1 23.5 PRIMARY ELECTRICITY 23.3 2.9 55.0 3.1 144.8 6.3 251.1 8.2 375.3 10.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED) · - 20 - of natural gas faces two important challenges: first, the geographical occur- rence of the existing reserves are not proportionate to the. regional market needs; and second, not only does the expansion of its domestic use call for large investment in production, transmission and distribution facilities, but its international movements are also constrained by the cost of its transport- ation. 45. Among the industrial countries, the situation in the United States is perhaps the least encouraging, as it is believed that production at around the present level can only be maintained for a few more years, and that beyond 1990 indigenous supplies are likely to gradually decline. The discovery of large new reserves in the North Sea has considerably improved supply prospects in Western Europe. The existence of large sedimentary offshore basins in Australia and New Zealand will probably ensure that not only will increasing supplies become available for domestic consumption, but the reserves will be capable of supporting important export projects. 46. In recent years, supported by the gigantic proven reserves of gas, production has been growing at a rate in excess of 7% p.a. in the USSR. Facing, on the one hand, increasingly difficult problems in the development and transportation of coal deposits which are, for a large part, located in Siberia and, on the other, the upper limits of sustainable oil production, the USSR has been following a very aggressive policy in the development of its gas reserves. 47. In addition to the extensive supply prospects in the oil-exporting developing countries, natural gas supplies are increasing considerably in the oil-importing developing countries where large investments are afoot for its further development. In most instances, the availability of supplies in oil- importing developing countries is determined by the pace at which individual countries can allocate financial resources to the evaluation of reserves, and the development and distribution of natural gas. Despite the rapid pene- tration of gas in the domestic energy markets of oil-exporting developing countries and its reinjection in certain reservoirs, substantial quantities of gas are still being flared, due either to the underdevelopment of the local market or to its inadequate size. In most countries which have not, as yet, joined the rank of gas exporters, national policies call for extensive use of gas in many sectors including the energy-intensive industries that are being developed. The economics of long-haul LNG or piped gas exports indicate that the landed cost of gas in major gas importing regions is such as to result in very modest financial netbacks to the producing countries. Consequently, the emergence of new exporters from among the developing countries appears to be doubtful, except for short-haul trade or under special circumstances. 48. During the projection period, the share of the industrial countries in total natural gas production is projected to decline from 49.7% in 1982 to 34.6% in 1995. Substantial gains are projected in the other economic regions: the share of centrally planned economies will grow from 36.6% in 1982 to 40.8% in 1995; that of the developing countries will rise from 13.7% in 1982 to 24.6% in 1995. "\ - 21 - 49. Prospects for Petroleum Supplies. Despite the steep oil price increases in the last decade, petroleum resource discoveries during the 1970's were considerably smaller than during the 1960's when additions to proven recoverable reserves for the decade amounted to nearly 420 billion barrels. Although the intensified drilling that has taken place in recent years has resulted in an annual discovery-to-production ratio above unity, the apparent rise in the global reserves-to-production ratio is not so much the result of increased reserves as the decline in production. Since little exploration is taking place in the Middle East and many exploration prospects are in remote locations or in harsh operating environments, finding and developing yet undiscovered petroleum reserves is bound to prove more difficult and costly in the future. 50. Notwithstanding the exploration costs and difficulties, the current level of reserves can technically support a considerably larger production level than at present. However, the bulk of this excess capacity exists in OPEC countries whose pricing and production policies are the major deter- minants for future petroleum supplies. Indeed, despite projections of increasing supplies from non-OPEC producers, world dependence on OPEC output is anticipated to increase, once again, during the projection period. 51. Due to the size of petroleum reserves, industrial countries' petro- leum supplies are anticipated to peak around the end of 1980' s and early 1990' s, and thereafter decline. In the USSR, petroleum exploration and development faces various technical, logistic and locational problems and is, therefore, likely to lead to stagnation in the level of production. It is in developing countries, and, more importantly, in oil-exporting developing countries that favorable prospects for increases in supplies exist. While supplies are projected to increase by 75 mtoe in the oil-importing developing countries, the bulk of increase (502 mtoe) will come from oil-exporting developing countries between 1982 and 1995. Consequently, the share of each region in total petroleum supplies will change drastically: from 25.6% in 1982 to 21.1% in 1995 for industrial countries; from 22.6% in 1982 to 18.5% in 1995 in centrally planned economies; from 6.6% in 1982 to 7.8% in 1995 in oil- importing developing countries; and from 45.2% in 1982 to 52.6% in 1995 1n oil-exporting developing countries. OPEC's share of total supplies is anticipated to grow from 35% in 1982 to around 42% in 1995. 52. Although petroleum's dominant position among the fuels will gradually decline, it will remain the single largest source of energy, accounting for 36.2% of total energy supplies in 1995--down from 42% in 1982. Yet in absolute terms, supplies of petroleum are projected to increase from 2,804 mtoe in 1982 to 3,358 mtoe in 1995. 53. Among the non-conventional liquid fuels, heavy oil and tar sands (especially 1n Venezuela and Canada) are likely to receive increasing attention through the projection period as new and improved production techniques are becoming available. Events of the recent past have proven the non-viability of shale-oil and coal liquification projects at prevailing market prices. Production of liquid fuels from biomass, particularly ethanol, is expected to increase in several countries, and thus, make an increasing - 22 - contribution to global liquid fuel supply. Taken altogether, the production of non-conventional liquid fuels is anticipted to approach 60-70 mtoe by the mid 1990's. While enhanced oil recovery techniques offer significant potential for increased production, recent experience, particularly in the United States, has somewhat moderated earlier optimism. Trade Outlook 54. Among the industrial countries, Western Europe and Japan will depend heavily on imports of energy, although intra-regional trade will account for the bulk of these imports. While these countries will increasingly depend on imports of solid fuels from the United States and Australia, some coal will be imported from other sources, particularly South Africa and Poland. The bulk of net oil imports will be sourced in OPEC countries; gas imports will come from OPEC countries and the USSR; Australia, Canada, Norway and the United Kingdom will remain the few net energy exporters of this region, with the position of the Netherlands depending on the evolution of its natural gas export policies. The United States will continue to import the least quantity of fuels as a percentage of its energy needs. For the region as a whole, net energy imports are projected to remain at around one-quarter of total energy consumption throughout the projection period. 55. After an initial period during which exports of energy from the centrally planned economies are expected to rise, a declining trend is anticipated to set in toward the end of the 1980's and early 1990's. Given supply availabilities or constraints for certain fuels, the net energy export composition from the centrally planned economies is projected to change from a heavy bias in favor of oil in 1982 to natural gas in 1995. Large quantities of petroleum and natural gas will continue to be exported from the USSR to other centrally planned economies. 56. As supplies of various forms of energy increase in the oil-importing developing countries, their dependence on imported fuels will diminish from 23% in 1982 to around 19% in 1995. Oil-exporting developing countries are projected to supply the bulk of the expected increase in internationally traded petroleum and natural gas. Exports of energy commodities from developing countries as a share of their energy supplies is anticipated to decline from 33% in 1982 to around 27.6% in 1995. Among this group, energy exports from OPEC as a share of total energy production is projected also to drop from 80% in 1982 to around 74% in 1995. 57. The ratio of energy traded to world energy supply is not expected to change significantly in the years ahead, declining from 30.8% in 1982 to around 30% in 1995. The share of petroleum in total international energy trade is instead anticipated to decline considerably from 80.4% in 1982 to nearly 71% in 1995, while those of solid fuels and natural gas are projected to increase from 9.4% and 7.9% in 1982 to about 14% and 13% in 1995, respect- ively. Trade in electricity is likely to remain substantially at its present level of around 2%. Despite these changes, petroleum will remain the pre- dominant traded fuel on the international market. - 23 - Energy Price Outlook 58. Although the share of petroleum in international energy trade is projected to decline from 80% in 1983 to around 71% in 1995, because of its still dominant position in international energy markets, the evolution of the petroleum market is bound to influence in a decisive way all other energy prices. 59. In the short and near-medium term, given the magnitude of the surplus producing capacity in OPEC countries and the capacity for greater production from non-OPEC producers, it is expected that petroleum prices will initially stabilize, in nominal terms, at around $29 per barrel (at least through 1985), thereafter increasing to $31.6 per barrel in 1986. In terms of 1983 dollars, oil prices will decline from $29 per barrel in 1983 to around $25.9 per barrel in 1986. Coal prices have risen sharply in recent months as a result of the uncertainties surrounding contract negotiations by the United Mine Workers Union in the United States (since settled) and the strike by the coal miners in the United Kingdom. The indicator coal price should average $49 per ton for 1984. As the international steam coal market is anticipated to strengthen throughout 1985 and 1986, coal prices are projected to average $49 per ton in 1985 and $52 per ton in 1986. 60. In the longer term, petroleum prices will be determined not only by the production policies of OPEC but also by a mix of other factors, such as the exhaustable nature of oil resources, the enormous cost of proving reserves of oil throughout the world, the price which consuming countries are willing to pay to enhance their security of supply and the cost of back-stop technologies. However, given the projected evolution of demand and the avail- ability of sizeable supplies from non-OPEC exporters, revival of OPEC's pro- duction will be moderate through the end of this decade (OPEC's share in total net global exports of petroleum is expected to increase only gradually from 75% in 1985 to 78% in 1990). As a result, in 1983 constant dollars, petroleum prices are projected to recover slowly in the second half of the 1980's, to reach $29.5 per barrel in 1990 (marginally above the 1983 level). Because the market balance is expected to be more favorable to producers and demands on OPEC production are likely to be much stronger in the period 1990-95 (the share of OPEC in worldwide net exports of petroleum is anticipated to grow more rapidly from 78% in 1990 to 85% in 1995), prices in constant dollar terms are anticipated to increase more steeply and to reach $36 per barrel by the mid-1990's. Long-term international export prices of thermal coal are projected at the level of long-run supply and demand equilibrium. The pro- jected prices for the period 1990-95 have been set equal to the marginal cost of supplying the equilibrium level of demand in those years. The price of steam coal is projected to remain almost unchanged between 1986 and 1990, thereafter rising to $45.3 per ton in 1995. Thus, steam coal will continue to enjoy a substantial competitive edge over petroleum during the projection period ensuring that it will increase its penetration of the power generation sector and, to a lesser extent, the industrial sector. - 24 - ANNEX Energy Projection Methodology 61. The projections of energy balances are based on a combination of "top-down" and "bottom-up" approaches. The main advantage of combining the two approaches is the capability to absorb more information. The bottom-up approach can easily incorporate the wealth of individual country-specific data and analysis obtainable from various sources both inside and outside the Bank, including technical and engineering data as well as the result of economic analysis that accounts for country-specific policy environments and priorities. The top-down approach, on the other hand, can incorporate the results of empirical analysis of cross-country data, as they become available from ongoing research on energy. Top-Down Approach: World Energy Model 62. A World Energy and Petroleum Model 1/ recently developed by the Commodity Studies Division constituted a principle tool for looking at the future of the world energy economy. The model grew out of the need to incorporate the progress shown by several analytical studies as well as the evidence of actual market adjustments in the ongoing assessments of market prospects for energy and petroleum. The model is a state-of-the-art econometric simulation model, formulated along fairly traditional lines of modeling the petroleum and energy markets, but incorporating more details than previous models on various fuel markets and interactions between them. The model includes three industrial country regions (North America, Western Europe, and Japan/Australia/New Zealand) and four developing country groups (capital-surplus oil exporters, capital-deficit members of the Organization of Petroleum Exporting Countries, non-OPEC oil exporters, and oil-importing developing countries). The centrally planned economies enter the model exogenously, as net exporters of energy. 63. The world petroleum market is viewed as consisting of a dominant oligopolistic cartel, OPEC, and a competitive fringe sector, the non-OPEC producers. The model assumes that OPEC sets the international market price of crude oil (mainly on the basis of its revenue implications) and supplies the resulting demand for OPEC petroleum--world demand net of competitive fringe supplies. The structure of the international natural gas market is assumed to be essentially the same as that of the petroleum market. The coal market is assumed to be basically competitive, while electricity is treated in the model as a nontradable good. 64. Demand for energy consists of three end-use sectors (transportation, industrial, and residential/commercial) and one energy transformation sector 11 The model is described in detail in A Model of Energy Markets & OPEC Pricing, World Bank Staff Working Paper No. 633, March 1984. I ' - 25 - ANNEX (thermal power generation). Final energy demand by the industrial and residential/commercial sectors is determined by aggregate output (or income) and energy prices. 1/ Fuel shares in all sectors except for transportation are determined by a- cost-share model of interfue1 substitution that assumes competitive cost minimization. The demand specification explicitly recognizes capital stock is modified or replaced. Another feature is that the long-term price elasticity of energy demand is assumed to be almost as large as shown by typical estimates based on the pooling of international cross-sections and time-series; these higher elasticities are more closely in line with the demand adjustments of the past decade than estimates obtained from time series alone. 65. At present, the model has an endogenous supply specification only for coal. Supplies of hydro/geothermal and nuclear electricity, synthetic fuels, and competitive fringe supplies of petroleum and natural gas are determined exogenously on the basis of projections available in the Bank and elsewhere. The long-run coal supply model is based on estimates of long-run marginal costs of production. Bottom Up Approach: Projecting Country Energy Balances 66. Energy balances for more than 200 countries have been constructed based on energy data contained in the United Nations Energy Statistics. As a first step in arriving at global energy projections, energy demand for each country is projected using a static demand model that relates the projected change in international oil prices and the country's expected economic growth to changes in energy demand. Price elasticities (the rate at which energy consumption decreases as energy becomes more costly) and income elasticities (the rate at which energy consumption increases relative to GNP growth) were taken from available econometric estimates. Estimated long-term price elasticities for energy demand in industrial countries range from -0.4 to -0.6 and from -0.2 to -0.4 in developing countries. The estimates for income elasticities show that they are smaller in countries with higher per capita energy consumption (industrial countries and centrally planned economies). In developing countries, income elasticities range between 1.0 and 1.2 with oil exporters placed generally at the top of the scale (Table 1A). The demands for the individual primary fuels are projected on the basis of the past trends of their shares in total energy demand as well as country-specific data regarding possible areas for interfuel substitution. The projected supplies for each fuel (on a country-by-country basis) are determined outside the model. The difference between the projected supplies for each fuel and its 1/ For the sake of simplicity, the model assumes that the price of petroleum products will maintain a certain fixed relationship to the price of crude petroleum in both the international and domestic markets of petroleum products. - 26 - ANNEX demand is the projected net trade for each country. Electricity is generally treated as a nontradab1e good, except in regions where electricity has traditionally been traded through an interconnected network. TABLE lA: AVERAGE ENERGY DEMAND PRICE AND INCOME ELASTICITIES FOR MAJOR ECONOMIC REGIONS COUNTRIES/ECONOMIES PRICE ELASTICITIES INCOME ELASTICITIES INDUSTRIAL -0.4 TO -0.6 0.7 CENTRALLY PLANNED -0.1 TO -0.3 0.75 - 0.8 DEVELOPING OIL-IMPORTERS -0.2 TO -0.4 1.0 - 1.2 OIL-EXPORTERS -0.1 TO -0.3 1.05 - 1.2 MAJOR EXPORTERS OF MANUFACTURES -0.2 TO -0.4 1.0 - 1.05 SOURCE: UNITED NATIONS ENERGY STATISTICS; WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT. 67. As a next step, gross exports and gross imports for each fuel are computed. For this step a simple procedure is used. This rests on the assumption that the gross imports of a net exporting country {as well as the gross exports of a net importing country} will consist largely of deficits/surpluses, transhipments or imports {exports} of a fuel for further processing. These lire-exports" are projected on the basis of past trends, since it can be assumed that they are linked to transport and processing facilities. The projected net trade for each fuel is added to the projected "re-exports" to yield gross exports or gross imports, depending on whether a country is a net importer or a net exporter of this particular fuel. The individual fuel projections are then added up to arrive at global totals. Since the net trade for each fuel has to balance globally, any rem81n1ng imbalances are removed by adjusting the prOduction projections in the large, traditionally established producing countries. Combining the Two Approaches 68. Reconciling the top-down and bottom-up results is not an easy task. Reconciliation is necessary not only between the two approaches, but also between individual country projections from the bottom-up approach that often reflect widely divergent views of each country and analyst. Top-down results - 27 - ANNEX can provide a guideline for reconciliation of individual country project- ions. Some of the weaknesses of the top-down approach can be strengthened by bottom-up results. Reconciliation, therefore, amounts to identifying the areas In which the two approaches can complement each other. 69. Generally speaking, supply projections rely primarily on the results of the bottom-up approach, while demand projections from the top-down approach are preferred to those of the bottom-up approach. Experience has shown, how- ever, that the two approaches yield results that are not widely different. It is important in this regard to limit the complexity built into both approaches to a reasonable degree so that the reasons for disagreements can be more easily identified. When the reasons are analyzed and become known, the choice between the results of the two approaches is a matter of judgement. Once global consistency is achieved, the top-down model is used to investigate the sensitivity of results to different assumptions and to decide on the most likely price trajectory for OPEC oil. ANNEX TABLE 1: ENERGY - SUMMARY OF WORLD PRODUCTION. APPARENT CONSUMPTION (NDT INCL. BUNKERS) AND TRADE BY ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO"ECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-a2 10-85 15-95 PRODUCTION -------------------(MILLIDN TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 1.776.1 2.116.3 2.243.6 2.560.0 2,597.5 2.709.0 2.980.3 3.243.4 2.5 1.7 1.1 1.8 CENTRALLY PLANNED 904.6 1.128.3 1.405.6 1,681.6 1,762.0 1,890.9 2.082.4 2,279.5 4.5 4.0 2.4 1.. DEVELOPING 1,140.0 1.755.3 2.321.4 2,551.5 2.313.5 2.534.1 3.040.6 3.752.0 fLO 2.15 -0.1 4.0 WORLD 3.820.7 4.999.9 5.970.6 6,793.1 6.673.1 7.134.0 8,103.2 9.274.9 4.1 2.5 1.0 2.7 MEMO ITEM: INDUSTRIAL /I. DEVELOPING 2.916.1 3.871.6 4.565.0 5.111.5 4.911.5 5.243.6 6.021.5 6,996.3 4.0 2.1 0.5 2 .· APPARENT CONSUMPTION (NOT INCL. BUNKERS) INDUSTRIAL 2.378.0 3.110.7 3.491.0 3.722.9 3.479.8 3.641.5 3,977.9 4.359.8 3.2 1.1 -0.4 1.8 CENTRALLY PLANNED 842.8 1.058.7 1.324.1 1,572.1 1.630.7 1.750.3 1,967.4 2.200.6 4.5 3.8 2.2 2.3 DEVELOPING 570.2 789.7 1.098.2 1,455.6 1.550.3 1.742.3 2.157.9 2.714.6 6.6 5.1 3.7 4.5 WORLD 3,791.0 4.959.1 5.913.3 6.750.6 6.660.9 7.134.0 8,103.2 9,274.9 4.1 2.6 1.1 2.7 N CIO MEMO ITEM: INDUSTRIAL I /I. DEVELOPING 2.948.2 3,900.4 4.589.2 5.178.5 5.030.2 5,383.7 6,135.8 7.074.3 4.0 2.2 0.8 2.1 GROSS EXPORTS INDUSTRIAL 167.0 288.1 370.0 488.3 532.6 561.7 633.8 701.6 7.1 4.5 2.a 2.2 CENTRALLY PLANNED 111.6 151.2 210.4 278.9 288.2 321.6 340.0 351.6 6.6 6.2 2.9 0 .· DEVELOPING 766.5 1,256.1 1,591.3 1,543.2 1.233.6 1,262.0 1.439.3 1.736.2 5.3 0.1 -3.9 3.2 WORLD 1,045.2 1,695.4 2,171.7 2,310.4 2.054.4 2.145.2 2,413.2 2,789.4 5.8 1.6 -1.5 2.7 MEMO ITEM: INDUSTRIAL /I. DEVELOPING 933.6 1,544.21,961.42.031.5 1.766.7 1,824.2 2.073.8 2,438.7 5.7 1.1 -2.1 2.9 GROSS IMPORTS INDUSTRIAL 778.2 1,295.0 1.639.2 1.689.7 1.426.9 1,494.2 1,631.4 1,818.0 5.9 1.0 -2.4 2.0 CENTRALLY PLANNED 50.4 83.3 132.4 165.8 159.0 180.9 225.1 272.7 8.7 5.15 1.8 4.2 DEVELOPING 200.4 295.1 383.9 462.0 468.5 470.1 556.6 698.7 5.8 3.6 0.3 4.0 WORLD 1.029.0 1,673.4 2.155.6 2,317.5 2.054.4 2,145.2 2,413.2 2."789.4 6.0 1.8 -1.5 2.7 MEMO ITEM: INDUSTRIAL /I. DEVELOPING 978.7 1,590.22,023.12,151.7 1,895.5 1,964.3 2,188.1 2.516.7 5.8 1.5 -1.8 2.5 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO"ECTED PERIODS (1985-95): 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS /I. PRO"ECTIONS OEPARTMENT (PRO"ECTED). ANNEX TABLE 2: ENERGY - PRODUCTION BY MAIN COUNTRIES AND ECONOMIC REGIONS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ___________________ w ________________________ · ______________________________________________ ACTUAL ( 1964-1982 ) PROJECTED GROWTH RATES/A -------------------------------------------- -------------------------- ----------------------------------- AVERAGES COUNTRIES/ ECONOMIES --------------------.-------------- 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------------------------------------------------------------------------------------------------------------------- -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(~ PER ANNUM)----------- INDUSTRIAL 1,776 2.116 2,244 2,560 2.598 2.709 2,980 3.243 2.5 1.7 1.1 1.. N. AMERICA 1,287 1,598 1,833 1,755 1,741 1,786 1,934 2.100 2.2 0.6 0.3 1.. UNITED STATES 1.175 1.433 1,414 1,510 1.499 1.532 1.649 1,794 1.8 0.3 0.3 1.1 CANADA 112 185 219 244 242 253 284 308 5.8 2.6 0.7 1.1 EEC-9 352 356 397 494 519 547 582 597 2.0 3.5 2.0 0.9 UNITED KINGDOM 117 108 117 200 221 248 264 250 2.8 7.3 4.4 0.1 GERMANY. F.R. 129 123 122 127 131 124 129 137 -0.1 0.3 -0.4 1.0 OTHER III. EUROPE 57 63 88 150 163 178 206 224 6.2 9.2 3.5 2.3 .JAPAN 54 50 44 59 63 70 94 120 0.2 2.8 3.2 5.1 OCEANIA 27 49 81 101 112 129 165 202 9.4 5.9 4.8 4.1 AUSTRALIA 23 45 75 94 103 119 154 190 10.0 6.0 4.9 4 ·· CENTRALLY PLANNED 905 1.128 1.406 1,682 1,762 1.891 2.082 2,279 4.5 4.0 2.4 1.9 USSR 678 866 1.112 1.363 1,431 1.542 1.710 1.880 5.1 4.5 2.5 2.0 N E. EUROPE 227 262 294 318 331 349 372 399 2.5 1.9 1.8 1.4 1.0 POLAND 73 90 110 118 118 132 150 166 3.5 2.3 2.3 2.3 DEVELOPING 1.140 1.755 2.321 2.552 2.314 2.534 3.041 3.752 6.0 2.5 -0.1 4.0 ASIA 691 1.079 1.632 1.691 1.444 1.547 1.829 2.284 6.7 2.6 -1.8 4.0 CHINA 168 211 324 434 450 497 574 618 7.0 6.7 2.7 3.0 SAUDI ARABIA 112 198 406 504 347 264 304 406 10.5 5.9 -12.1 4.4 IRAN 96 206 310 112 130 144 160 221 4.2 -8.1 5.2 4.4 INDIA 40 51 65 83 101 125 1158 191 5.1 15.8 8.1 4.4 AFRICA 146 319 332 399 345 403 495 593 8.7 1.4 0.2 3.9 NIGERIA 14 53 102 99 66 77 101 127 18.9 1.0 -4.9 5.2 SOUTH AFRICA 29 34 40 65 70 78 93 117 5.1 7.1 3.6 4.1 AMERICA 280 323 319 417 474 528 646 782 2.5 3.0 4.8 4.0 VENEZUELA 187 201 149 137 121 127 149 172 -1.9 -4.2 -1.4 3.0 MEXICO 30 39 58 132 190 202 240 294 9.5 14.8 8.8 3.8 S. EUROPE 23 34 39 44 50 55 71 92 4.8 2.3 4.5 1.2 IIIORLD 3.821 5.000 5.971 6.793 6.673 7.134 8.103 9.275 4.1 2.15 1.0 2.7 MEND ITEM: INDUSTRIAL · DEVELOPING 2.916 3.872 4.565 5.112 4.912 5.244 6.022 6.996 4.0 2.1 0.5 2.1 -------------------------------------------------------------------------------------------------------------------------------- A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PROJECTED PERIODS (1985-95); 80-85 GROIIITH RATE IS ACTUAllY 79/81( AVG. )-85 END-POINT GROIIITH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); 1II0RLD BANK. ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). ANNEX TABLE 3: ENERGY - APPARENT CONSUMPTION (NOT INCL. BUNKERS) BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO,JECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 84-68 69-71 74-78 79-81 82 85 90 95 81-82 70-82 8O-81S 81S-" -------------------(MILLIDN TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 2.378 3.111 3.491 3.723 3,480 3.641 3,978 4.360 3.2 1.1 -0.4 1.8 N. AMERICA 1.398 1.745 1.920 2.028 1.887 1,983 2,141 2,324 2.7 0.9 -0.4 1.8 UNITED STATES 1.278 1.574 1.706 1.788 1,658 1.747 1,881 2.041 2.4 0.7 -0.5 l.e CANADA 118 157 196 224 215 221 243 265 4.6 2.8 -0.2 1.8 o.e EEC-9 GERMANY. F.R. UNITED KINGDOM 669 187 187 868 234 212 950 259 212 1.001 281 208 927 260 197 948 268 205 1.045 298 223 1.142 323 241 2.9· 2.9 0.9 1.1 -0.1 -1. 1 -1.0 -0.2 1., 1., 1.e FRANCE 119 159 183 203 189 190 214 235 3.7 1.5 -1.3 2.2 OTHER W. EUROPE 120 166 206 237 234 238 263 293 4.9 2.' 0.0 2.1 ,JAPAN 148 274 341 372 347 379 424 484 6.1 1.8 0.4 2.5 OCEANIA 43 57 74 85 85 93 105 117 5.0 3.3 1., 2.3 AUSTRALIA 36 49 64 73 73 81 92 102 5.1 3.4 2.0 2.3 w CENTRALLY PLANNED 843 1.059 1.324 1.572 1.631 1,750 1.967 2.201 4.5 3.8 2.2 2.3 o USSR 603 762 967 1,148 1.203 1.291 1,448 1.618 4.7 4.0 2.4 2.3 E. EUROPE 240 296 357 424 428 459 519 583 4.0 3.4 1.e 2.4 POLAND 64 81 100 121 116 127 143 161 4.3 3.1 1.0 2.4 DEVELOPING 570 790 1.098 1.456 1,550 1.742 2, Hi8 2.715 6.6 5.8 3;7 4.5 ASIA 321 449 840 851 903 1.030 1.271 1.584 6.9 6.0 3.9 4.4 CHINA 167 211 317 416 430 478 552 642 6.1 6.2 2.8 3.0 INDIA 48 62 79 103 116 135 167 210 5.3 5.3 5.5 4.5 AFRICA 66 86 111 158 171 200 241 306 6.2 6.2 4.8 4.4 SOUTH AFRICA 34 44 53 61 69 17 93 ," 4.6 4.0 2.8 3.1 AMERICA 143 196 265 343 366 391 491 637 5.9 5.3 2.1 5.0 MEXICO 27 40 55 87 102 109 135 181 1.6 8.3 4.7 5.2 BRAZIL 25 40 69 93 93 98 126 167 8.8 7.6 1. 1 5.5 S. EUROPE 40 58 81 103 109 120 141 185 1.0 5.3 3.1 4.5 WORLD 3.791 4,959 5.913 8.751 6,661 7.134 8.103 9.275 4.1 2.6 1.1 2.7 MEMO ITEM: INDUSTRIAL a DEVELOPING 2.948 3.900 4,589 5.178 5,030 5.384 6,136 7.014 4.0 2.2 0.8 2 .· A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82): END-POINT FOR PRO,JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS a PRO,JECTIONS DEPARTMENT (PRO,JECTED). ANNEX TABLE 4: ENERGY - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROtJECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-12 eo-Ill Ill-" -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INOUSTRIAL 167 288 370 488 533 562 634 702 7.1 4.1 2.1 2.2 ,... AMERICA 67 121 150 162 182 176 215 282 6.2 1.4 1.7 4 .· UNITED STATES 36 49 .49 80 103 102 132 196 4.5 5.4 5.0 I .· EEC-9 87 138 171 229 236 247 237 210 6.3 4.6 1.5 -1.1 NETHERLANOS 16 43 78 82 77 75 71 71 10.4 4.7 -1.8 -0.1 UNITED KINGDOM 13 19 19 61 80 94 87 57 8.6 13.6 8.' -4.8 OTHER W. EUROPE 7 15 23 62 71 85 103 107 14.0 16.6 6.6 2.2 NORWAY 2 3 12 44 45 55 70 71 22.6 31.5 4.4 2.1 tJAPAN 2 3 4 6 8 9 8.7 6.3 13.7 1.5 OCEANIA 5 13 23 32 41 48 70 93 13.1 8.1 8.4 I.' CENTRALLY PLANNED 112 151 210 279 288 322 340 352 6.6 6.2 2.' 0.' w USSR E. EUROPE 81 31 116 35 164 46 235 44 240 48 267 54 280 60 28. 63 7.7 2.9 7.3 1.6 2.7 4.1 0.8 1.4 .... DEVELOPING 767 1,256 1.591 1,543 1.234 1,262 1.439 1,736 5.3 0.1 -3.' 3.2 ASIA 427 734 1.122 1.034 768 741 831 1.052 6.7 0.7 -6.4 3.1 SAUDI ARABIA 103 180 386 476 317 224 251 336 10.6 6.1 -14.0 4.2 IRAN 83 181 270 74 92 101 106 151 3.0 -11. 1 6.6 4.1 IRAQ 61 75 102 109 40 72 .4 130 2.8 -1.4 -7.' ·. 0 UNITED ARAB EMIR 13 40 86 83 65 64 73 .8 19.3 4.3 -5.2 4.4 AFRICA 107' 268 263 288 223 257 307 356 ',6 -0.6 -2.3 3.3 LIBYA 57 147 82 80 53 51 62 83 '.8 -6.2 -1.1 5. 1 NIGERIA 13 50 98 90 52 58 76 95 11.8 0.0 -8 ·· 1.1 ALGERIA 28 42 48 57 49 60 64 61 5.2 2.0 1.1 1.3 AMERICA MEXICO VENEZUELA S. EUROPE 230 4 166 2 252 4 178 2 199 4 120 7 207 45 99 13 231 88 79 12 250 96 82 13 ., 281 109 13 314 118 ·· 14 -0.5 13.6 -3.2 12.6 -1.8 3'.2 -6.5 17.1 3 ·· 16.4 -3.' 0.1 2.3 2.2 1 ·· 0.3 WORLD 1.045 1.695 2.172 2.310 2,054 2.145 2.413 2.78' 5.8 1.6 -1.5 2.7 MEMO ITEM: INDUSTRIAL · DEVELOPING 934 1.544 1.961 2.031 1,767 1.824 2.074 2.439 5.7 1.1 -2.1 2.' A/ LEAST SQUARES TREND FOR HISTORICAL PERIOOS (1961-82); END-POINT FOR PROtJECTED PERIODS (1.85-.1); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS. PROtJECTIONS DEPARTMENT (PROtJECTED). ANNEX TABLE 5: ENERGY - GROSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS --------------------------------*-----------------------.. --------.------------------------------------------------------------- ACTUAL ( 1964-1982 ) PRO"ECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONDMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-815 15-" -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(~ PER ANNUM)----------- INDUSTRIAL 778 1.295 1.639 1.690 1.427 1.494 1,631 1.81. 5.9 1.0 -2.4 2.0 N. AMERICA 178 276 447 468 344 374 422 506 6.9 2.8 -4.4 3.1 UNITED STATES 132 196 350 387 286 317 364 444 7.6 4.3 -3.9 3.4 EEC-9 411 650 730 739 639 648 700 756 4.6 -0.2 -2.6 1.5 GERMANY. F.R. 85 137 165 182 157 168 192 209 6.1 1.5 -1.7 2.2 FRANCE 74 120 154 165 135 131 142 144 6.0 1.3 -4.5 1.0 ITALY 77 123 132 140 124 135 146 164 5.0 0.2 -0.7 2.0 UNITED KINGDOM 84 122 115 70 58 51 45 48 0.0 -7.3 -6.2 -0.8 NETHERLANDS 44 69 75 .85 81 82 85 89 4.6 0.9 -0.7 0 .· OTHER W. EUROPE 72 119 144 154 142 145 160 175 5.7 1.5 -1.3 1.9 \JAPAN 97 229 302 311 287 315 338 373 9.2 1.3 0.2 1.7 OCEANIA 21 22 16 18 15 12 11 8 -1. 1 -0.8 -7.1 -4.1 ~ N CENTRALLY PLANNED 50 83 132 166 159 181 225 273 8.7 5.5 1.8 4.2 USSR E. EUROPE 6 45 13 70 23 110 15 151 15 144 16 165 19 206 27 246 7.3 8.9 -2.4 6.8 1.. 1.5 5.3 4.1 DEVELOPING 200 295 384 462 469 470 557 699 5.8 3.6 0.3 4.0 ASIA 58 107 138 202 222 225 272 352 8.0 6.0 2.2 4.6 KOREA. REP. 2 9 18 32 35 43 57 78 20.5 11.8 6.2 6.2 SINGAPORE 9 20 29 36 48 46 52 59 9.4 5.5 4.9 2.7 AFRICA 28 37 46 50 48 53 ~9 69 4.7 2.1 1.3 2.7 SOUTH AFRICA 7 12 16 18 18 21 26 31 7.9 2.9 3.6 3.7 AMERICA 96 124 149 136 124 113 134 169 2.8 -0.6 -3.6 4.1 BRAZIL 13 21 41 50 46 29 37 51 9.3 6.7 -10.3 5.7 S. EUROPE 19 26 50 73 72 78 89 107 10.0 9.4 1.2 3.3 WORLD 1.029 1,673 2.156 2,317 2.054 2.145 2,413 2.789 6.0 1.8 -1.5 2.7 MEMO ITEM: INDUSTRIAL a DEVELOPING 979 1.590 2.023 2.152 1.895 1,964 2.188 2,517 5.8 1·5 -1.8 2.5 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO"ECTEO PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONDMIC ANALYSIS a PRO"ECTIONS DEPARTMENT (PRO"ECTED). ANNEX TABLE 6: PRIMARY ELECTRICITY - SUMMARY OF WORLD PRODUCTION, APPARENT CONSUMPTION AND TRADE BY ECONOMIC REGIONS ACTUAL ( 196"-1982 ) PRO\JECTED GROWTH RATESIA AVERAGES COUNTRIESI ECONOMIES 6"-66 69-71 7"-76 79-81 82 85 90 95 61-82 70-82 80-85 81-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(~ PER ANNUM)----------- PROOUCTION INDUSTRIAL 178.7 230.2 326.0 "27.2 467.3 509.1 636." 791.1 6.0 6.2 3.8 4.5 CENTRALLY PLANNED 23.5 35.1 "5.5 73.4 78.5 97.7 135.6 187.8 7.6 7.9 5.9 6 .· DEVelOPING 36.0 5".6 85.1 128.2 1"4.8 171.3 251.1 375.3 9.2 8.7 6.0 8.2 WORLD 238.2 319.8 "56.5 628.8 690.6 778.1 1,023.1 1,354.2 6.7 6.9 4.4 5.7 MEMO ITEM: INDUSTRIAL '" DEVelOPING 214.7 284.7 .. 11.0 555.4 612.1 680." 887.5 1.166.4 6.6 6.7 4.1 5.5 APPARENT CONSUMPTION INDUSTRIAL 178.5 230.1 325.7 "27.5 "67.1 508.6 635.6 789.8 6.0 6.2 3.5 4.15 CENTRALLY PLANNED 23.6 3".9 45.1 72.3 76.7 95.9 133.9 186.1 7.4 7.7 5.8 6.9 DEVElOPING 36.2 54.6 85." 129.0 146.8 173.6 253.6 378.3 9.2 8.8 6.1 8.1 w WORLD 238." 319.6 456.2 628.7 690.6 778.1 1.023.1 1.354.2 6.7 6.9 4.4 5.7 w MEMO ITEM: INDUSTRIAL '" DEVELOPING 214.7 28".7 "11.1 556.5 613.9 682.2 889.2 1.168.1 6.6 6.8 4.2 15.15 GROSS EXPORTS INDUSTRIAL 8." 12.7 19." 29.3 31.9 33.2 37." 41.6 9.0 7.7 2.6 2.3 CENTRALLY PLANNED 1.3 3.2 5.8 9.0 10.0 10.0 10.9 11.7 13.7 9.5 2.0 1.6 DEVELOPING 0.7 0.5 0.8 3.8 2." 2.6 2.7 2.8 12.0 26.7 -7.4 0.' WORLD 10." 16.5 26.0 "2.1 "4.3 "5.8 51.0 56.0 10.0 8.8 1.7 2.1 MEMO ITEM: INDUSTRIAL '" DEVelOPING 9.1 13.3 20.3 33.1 3".3 35.8 "0.1 44.3 9.3 8.7 1.6 2.2 GROSS IMPORTS INDUSTRIAL 8.3 12.6 19.1 29.6 31.8 32.7 36.6 40.3 9.3 7.7 2.1 2.1 CENTRALLY PLANNED DEVELOPING WORLD 1.4 0.8 10.6 3.1 0.6 16.3 5.3 1.2 25.6 7.9. ".6 "2.0 ..... 8.1 44.3 8.1 ".9 "5.8 9.1 5.3 51.0 10.0 5.7 56.0 12.7 13.8 10.1 8.1 29.4 8.8 0.6 1.4 1.7 2.1 1.6 2.1 MEMO ITEM: INDUSTRIAL '" DEVElOPING 9.1 13.2 20.3 34.1 36.1 37.6 41.9 46.0 9.7 9.0 2.0 2.0 AI LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO\JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS'" PRO\JECTIONS DEPARTMENT (PRO\JECTED). ANNEX TABLE 7: PRIMARY ELECTRICITY - PRODUCTION BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO.JECTED GROWTH RATES/A AVERAGES COUNTRIESI ECONOMIES 64-66 69-71 74-76 79-81 82 815 90 915 61-82 70-12 10-815 BI5-'15 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(~ PER ANNUM)----------- INDUSTRIAL 178.7 230.2 326.0 427.2 467.3 509.1 636.4 791.1 8.0 1.2 3.8 4.15 N. AMERICA 80.3 111.8 173.3 211.0 227.0 244.7 303.9 373.6 6.7 8.1 3.0 4.3 UNITEO STATES 49.8 71.8 116.7 138.2 153.5 164.4 212.5 271.1 7.2 6.15 3.15 15. 1 CANAOA 30.5 40.0 56.5 72.7 73.5 80.3 91.3 102.15 15.8 15.4 2.0 2.15 EEC-9 33.2 41.1 52.0 10.7 95.9 109.0 142.0 114.8 6.1 7.8 8.2 15.4 FRANCE 11.5 15.1 18.3 35.0 44.4 51.9 68.7 89.0 7.0 9.7 8.2 15.5 GERMANY, F.R. 3.8 5.3 9.0 16.7 20.5 22.1 29.9 42.1 9.9 12.8 15.7 6.8 OTHER W. EUROPE 41.8 49.7 64.0 81.4 85.7 89.1 99.1 113. 1 4.7 4.7 1.1 2.4 NORWAY 11.9 15.0 20.0 22.9 24.3 24.6 26.5 21.6 4.8 3.8 1.4 1.15 SWEDEN 11.4 11.5 16.9 22.3 23.1 23.9 24.5 27.1 4.7 6.3 1.4 1.2 .JAPAN 19.0 21.8 28.7 45.1 50.5 56.1 80.4 106.9 15.4 7.8 4.7 8.15 OCEANIA 4.4 5.7 8.0 9.0 8.3 9.5 11. t 12.9 5.4 3.3 1.1 3.2 ~ ~ CENTRALLY PLANNED 23.5 35.1 45.5 73.4 78.5 97.7 135.6 187.8 7.6 7.9 5.9 1.8 USSR 21.3 32.0 38.8 60.9 64.9 80.2 111.3 153.0 6.9 6.9 15.7 1.7 DEVELOPING 36.0 54.6 85.1 128.2 144.8 171.3 251.1 375.3 9.2 8.7 1.0 8.2 ASIA 15.6 21.4 32.0 46.0 54.2 67.5 100.0 1152.4 8.1 8.0 8.0 8.15 CHINA 6.3 7.0 11.8 14.7 18.9 22.5 30.0 37.15 7.9 7.15 8.9 5.2 INDIA 4.0 6.9 8.8 12.7 14.2 16.3 18.9 21.1 8.3 6.7 15.2 5.6 AFRICA 3.4 6.2 9.8 14.2 13.5 15.3 19.2 28.8 11.0 7.6 1.4 8.5 AMERICA 12.9 20.2 34.5 55.4 63.8 73.2 itt.6 161.3 10.2 10.2 5.7 8.15 BRAZIL 6.4 9.8 1B.7 31.7 35.8 40.1 815.6 101.1 11.0 11.1 15.0 9.6 S. EUROPE 4.2 6.1 I.B 12.5 13.2 15.3 20.1 27.15 7.7 1.5 4.0 6.1 WORLD 238.2 319.8 456.5 628.8 690.6 778.1 1,023.1 1,3154.2 6.7 6.9 4.4 5.7 MEMO ITEM: INDUSTRIAL a DEVELOPING 214.7 284.7 411.0 555.4 612.1 680.4 887.15 1,166.4 6.6 6.7 4.1 15.5 AI LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO.JECTED PERIODS (19815-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTiCS (ACTUAL): WORLD BANK. ECONOMIC ANALYSIS a PRO.JECTIONS OEPARTMENT (PRO.JECTEO). ANNEX TABLE 8: PRIMARY ELECTRICITY - APPARENT CONSUMPTION BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO!.lECTED ~ RATESIA --------------------------------------_._--- -----_._------------------ ----------------------------------- AVERAGES COUNTRIESI ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-91 -------------------(MILLIDN TONS OF OIL EQUIVALENT)--------·_·--------- -----------(~ PER ANNUM)----------- INDUSTRIAL 178.5 230.1 325.7 421.5 467.1 508.6 635.6 189.8 6.0 6.2 3.5 4.1 N. AMERICA 80.3 111. 8 112.9 210.9 221.0 244.7 303.9 313.6 6.7 6.1 3.0 4.3 UNITED STATES 49.9 72.4 118.9 145.8 162.6 173.6 222.6 282.1 7.5 ·. 9 3.1 5.0 CANADA 30.3 39.3 54.0 65.0 64.4 71.1 81.2 91.5 5.2 4.15 1.8 2.5' EEC-9 35.4 42.8 54.3 85.3 101.8 115.6 148.4 190.4 6.1 8.0 ·. 2 5.1 FRANCE 12.0 14.9 18 ·. 1 35.3 43.6 51.4 67.9 81.9 1.0 10.2 1.8 5.5 GERMANY, F.R. 4.9 7: 1 10.3 18.0 22.5 24.3 31.4 43.1 8.8 9.9 6.2 5.9 OTHER W. EUROPE 39.4 47.9 61.7 77.1 . 79.6 82.0 91.8 106.0 4.7 4.3 1.2 2.6 NORWAY 11.6 14.6 18.5 22.1 22.7 22.9 24.7 26.1 4.6 3.9 0.7 1.6 SWEDEN 11.3 12.3 11.4 22.3 22.5 22.9 23.4 25.9 4.7 5.5 0.6 1.2 !.IAPAN 19.0 21.8 28.1 45.1 50.5 56.8 80.4 106.9 5.4 1.8 4.7 6.5 OCEANIA 4.4 5.7 8.0 9.0 8.3 9.5 11.1 12.9 5.4 3.3 1.1 3.2 w CENTRALLY PLANNED 23.6 34.9 45.1 72.3 76.7 95.9 133.9 186.1 7.4 7.1 5.8 6.9 "'"' USSR 21.0 30.6 36.0 56.2 60.1 15.5 106.4 141.9 6.5 6.6 ·· 1 7.0 DEVELOPING 36.2 54.6 85.4 129.0 146.8 173.6 253.6 378.3 9.2 8.8 6.1 8.1 ASIA 15.6 21.4 32.0 46.0 54.3 67.6 100.2 152.7 8.1 B.O 8:0 8.5 CHINA 6.3 7.0 11.8 14.7 18.9 22.5 30.0 37.5 1.9 7.5 8.8 5.2 INDIA 4.0 6.9 8.8 12.7 14.2 16.3 18.9 28.0 8.3 6.1 5.1 5.6 AFRICA 3.4 6.2 9.8 14.2 13.5 15.3 19.2 28.8 11.2 7.6 1.4 6.5 AMERICA 12.9 20.2 34.6 55.5 63.8 13.2 111.6 166.3 10.1 10.2 5.7 8.5 BRAZIL 6.4 9.8 18.1 31.1 35.7 40.6 65.6 101.1 11.0 11.6 5.0 9.8 S. EUROPE 4.3 6.8 9.0 13.2 15.1 11.4 22.5 30.2 8.1 7.3 5.8 5.7 WORLD 238.4 319.6 456.2 628.7 690.6 778.1 1,023.1 1.354.2 ·. 1 6.9 4.4 5.1 MEMO ITEM: INDUSTRIAL a DEVELOPING 214.7 284.1 411. 1 556.5 613.9 682.2 889.2 1.168.1 6.6 6.8 4.2 5.5 AI LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PROI.IECTEO PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS '(ACTUAL); WORLD BANK. ECONOMIC ANALYSIS a PROI.IECTIONS DEPARTMENT (PROI.IECTED). ANNEX TABLE 9: PRIMARY ELECTRICITY - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964 -1982 ) PRO"ECTED GROWTH RA TEsl A AVERAGES COUNTRIESI ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-H -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(~ PER ANNUM)----------- INDUSTRIAL 8.4 12.7 19.4 29.3 31.9 33.2 37.4 41.6 9.0 7.7 2.6 2.3 N. AMERICA 1.9 2.3 4.4 8.8 10.4 10.8 11.9 13.0 9.8 12 .· 4.1 1.9 CANADA 1.0 1.5 3.4 8.2 9.8 10.0 11.0 12.0 13.4 15.9 4.0 1.8 EEC-9 2.5 5.0 7.4 10.4 9.5 9.7 11.8 14.0 10.6 6.2 -1.3 3.7 GERMANY, F.R. 1.2 1.7 2.7 3.6 3.5 3.3 4.5 5.8 9.1 7.3 -1.8 5.7 FRANCE 0.5 1.3 1.7 3.2 3.4 3.5 4.0 4.5 11. 1 8.4 1.5 2.15 w OTHER W. EUROPE 4.1 5.4 7.7 10.1 12.0 12.7 13.7 14.6 7.3 15.9 4.7 1.4 CI\ CENTRALLY PLANNED 1.3 3.2 5.8 9.0 10.0 10.0 10.. 9 11.7 13.7 9.5 2.0 1.. USSR 0.4 1.4 3.1 4.7 4.9 4.8 5.0 5.2 23.9 10.6 0.4 0.8 DEVELOPING 0.7 0.5 0.8 3.8 2.4 2.6 2.7 2.8 12.0 26.7 -7.4 0.8 ASIA 0.0 0.0 0.2 0.2 0.2 0.2 0.2 39.3 25.8 -2.7 0.' AFRICA 0.7 0.4 0.4 2.8 1.7 1.9 1.8 1.8 10.7 32.0 -7.8 -0.5 AMERICA 0.0 0.0 0.1 0.1 0.0 0.1 0.1 0.1 16.7 2.8 -10.3 5.4 S. EUROPE 0.0 0.1 0.3 0.7 0.4 0.4 0.6 0.7 16.6 21.1 -7.3 4.7 WORLD 10.4 16.5 26.0 42.1 44.3 45.8 51.0 56.0 10.0 8.8 1.7 2.1 MEMO ITEM: INDUSTRIAL & DEVELOPING 9.1 13.3 20.3 33.1 34.3 35.8 40.1 44.3 9.3 8.7 1.6 2.2 AI LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO"ECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS & PRO"ECTIONS DEPARTMENT (PRO"ECTED). ANNEX TABLE 10: PRIMARY ELECTRICITY - GRDSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO.JECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-12 10-.5 88-. -------------------(MILLION TONS OF OIL EOUIVALENT)-------------------- -----------(~ PER A~)----------- INDUSTRIAL 8.3 12.6 19.1 29.6 31.8 32.7 36.6 40.3 9.3 7.7 2.1 2.1 N. AMERICA 1.8 2.3 4.0 8.8 10.4 10.8 11.9 13.0 10.0 12 ·· 4.3 1.. UNITED STATES 1.0 1.5 3.2 8.2 9.7 10.0 11.0 12.0 13.2 18.0 4.0 1.. EEC-9 4.7 6.7. 9.7 15.0 16.5 16.3 18.3 19.8 8.9 7.1 1.1 t.. GERMANY. F. R · 2.3 3.5 3.9 4.9 5.5 5.5 6.0 6.0 6.0 2.4 2.1 0 ·· ITALY 0.4 0.9 1.1 2.4 2.9 3.0 3.5 4.0 11.9 11.0 4.1 2 .· FRANCE 1.1 1.1 2.1 3.5 2.6 3.0 3.2 3.4 9.5 12 .· -3.2 1.3 BELGIUM-LUXEM. 0.5 0.9 1.7 2.4 2.2 2.5 2.7 2.9 14.1 9.0 0.8 1.8 \.Ill OTHER W. EUROPE 1.7 3.6 5.4 5.8 5.9 5.6 6.4 7.5 9.7 2.5 -0.8 8.0 ...... CENTRALLY PLANNED 1.4 3.1 5.3 7.9 8.1 8.1 9.1 10.0 12.7 8.1 0.8 2.1 E. EUROPE 1.4 3.1 5.0 7.8 8.1 8.0 9.0 9.9 12.5 8.8 0.5 2.1 DEVELOPING 0.8 0.6 1.2 4.6 4.4 4.9 5.3 5.7 13.8 29.4 1.4 1.6 ASIA 0.0 0.1 0.3 0.3 0.4 0.4 0.5 42.7 28.2 1.9 2.7 AFRICA 0.7 0.4 0.4 2.8 1.7 1.9 1.8 1.8 14.9 34.0 -7.8 -0.8 AMERICA 0.0 0.1 0.2 0.1 0.0 0.1 0.1 0.1 2.0 -2.6 -18.7 5.4 S. EUROPE 0.1 0.1 0.5 1.3 2.3 2.6 2.9 3.4 20.9 31.. . 11.3 2.7 WORLD 10.6 16.3 25.6 42.0 44.3 45.8 51.0 156.0 10.1 1.1 1.7 2.1 MEMO ITEM: INDUSTRIAL · DEVELOPING 9.1 13.2 20.3 34.1 36.1 37.6 41.9 41.0 9.7 ·. 0 2.0 2.0 A/ LEAST SOUARES TRENO FOR HISTORICAL PERIODS (1961-82); ENO-POINT FOR PRO.JECTEO PERIODS (1.85-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 ENO-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS. PRO.JECTIONS DEPARTMENT (PRO.JECTEO). - 38 - PETROLEUM Summary 1. Following the petroleum price increases of 1979/80 and the recent worldwide economic recession, the share of petroleum in total energy consumption, which had stabil ized around 47-48% in the latter part of the 1970' s, dropped steeply to around 41. 7% in 1983. Globally, consumption of petroleum declined from a peak of 3,222 mtoe in 1979 to around 2,812 mtoe in 1983. Toward the end of 1983, however, the decline in world oil consumption bottomed-out. Since then, together with the recovery in economic activity, there has been a recovery in oil consumption. 2. Although petroleum will continue to account for the largest share of total energy consumption during the projection period, the trend toward energy conservation and efficiency, combined with significant substitution, will result in a reduction of the growth in the demand for petroleum. Worldwide, the share of petroleum in total energy consumption is projected to decline further--to 36.2% by 1995. This dramatic decline will be shared by all three major economic regions; the steepest drop will, however, take place in the oil-exporting developing countries (from 69% in 1982 to 58% in 1995) due to a rapid increase in natural gas consumption. Nevertheless, consumption of petroleum is anticipated to grow at an average rate of 1.3% p.a. reaching 3,358 mtoe in 1995, up from 2,840 mtoe in 1982. This growth in demand for petroleum will come mainly from worldwide expansion of the transport sector and industrial growth in the developing countries. 3. While the current level of reserves can technically support a con- siderably larger production level than at present, the bulk of this excess capacity exists in OPEC countries and it is likely that there will be constraints on the rate at which oil will be produced by these countries. Despite the intensified drilling activities that have taken place in recent years, additions to reserves have only been sufficient to replace production; with the result that the level of proven recoverable reserves has stagnated at around 670 billion barrels. Since little exploration is taking place in the Persian Gulf region (except the UAE) and other exploration prospects are usually in remote locations or in harsh operating enviornments, dependence on OPEC output is anticipated to increase, once again, during the projection period. Indeed, not only is the share of OPEC production in the global supplies of petroleum projected to increase from 35.4% in 1982 to 42% in 1995, but also its share of world net petroleum exports is expected to increase to 85% in 1995, up from 77% in 1982. 4. In the short and medium term, given the anticipated slow growth in demand, the surplus producing capacity in OPEC countries and the capability of non-OPEC producers to increase production, it is expected that petroleum prices will initially decline in real terms through 1985, and stabilize at around $26 per barrel in 1986. With increasing demand (under the assumed economic growth conditions) reducing the size of OPEC's surplus capacity, - 39 - petroleum prices, in terms of constant 1983 dollars, are projected to increase to $29.5 per barrel in 1990 (marginally above the 1983 price). From 1990 onwards, when supplies from non-OPEC sources are anticipated to stagnate (and perhaps decline) and demand for OPEC production is likely to be much stronger, petroleum prices, in constant dollar terms, are expected to rise even more rapidly and to reach $36 per barrel in 1995. Recent Development in World Petroleum Markets 5. A new phase in the evolution of petroleum markets started with the establishment, in 1982, of a production programming scheme by OPEC. This was the culmination of three years of turbulence which started with the Iranian revolution of 1978/79 and the subsequent outbreak of war between Iran and Iraq in September of 1980. These events have had far-reaching consequences for OPEC in that not only was the internal balance of forces within OPEC greatly disturbed, but also the resulting petroleum price increases relegated OPEC to the role of a residual producer in a fast-shrinking oil market. 6. It will be recalled that as Saudi Arabia continued to produce at 10 mbd (in the face of declining demand) and as inventories built up through the first three quarters of 1981, the spot price of 34 0 API Arabian Light Marker Crude which had reached $41-42 per barrel by mid-November 1980, plummeted by August, 1981, to around the official selling price of $32 per barrel. Upon the achievement of price reunification in October 1981, around a Marker Crude price of $34 per barrel, Saudi Arabia decided to lower its production ceiling to 8.5 mbd at a time when primary stocks stood at a high level of around 115 days consumption (Table 1). Following a short period of stability immediately after the reunification efforts, petroleum markets were plunged into turmoil toward the end of 1981. Petroleum prices on the spot market declined through the first two months of 1982. During February 1982, for example, spot prices for the then North Sea Marker Crude--Forties--and the Arabian Light Marker Crude declined by $2-3 per barrel; at the end of the month, spot prices for both crudes stood at around $29.25 per barrel. Meanwhile, as the industry began a heavy drawdown of the stocks, OPEC production during the first quarter of 1982 nose-dived to around 19.5 mbd. At this juncture, there was growing concern among OPEC members about the economic viability of its prlclng structure. To avoid a further unraveling of the price agreement, which was achieved only after lengthy negotiations in the fall of 1981, OPEC, at the emergency meeting held in March 1982, decided to establish a production ceiling at a combined level of 17.5 mbd. 7. However, the burden of the overall reduction in OPEC production to 17.5 mbd was not distributed equally among OPEC members. The larger and financially stronger producers accepted deeper cuts in their output, while some members--Iran, Iraq and Libya--were spared any production cutbacks. Saudi Arabia, which had already announced a reduction in its output of 1 mbd before the meeting, agreed to cut back an additional 0.5 mbd, thus bringing - 40 - TABLE 1: PRIMARY STOCK LEVELS 1918-1982 AUGUST 1918 1919 1980 1981 1981 1982 OPEC PRODUCTION 29.8 30.9 26.9 20.5 22.6 19.0 MILLION BARRELS PER DAY SAUDI ARABIAN PRODUCTION 8.3 9.5 9.9 10.0 9.8 6.5 MILLION BARRELS PER DAY SPOT PRICE OF MARKER CRUDE 14.10 38.00 39.50 32.25 34.15 30.25 $ PER BARREL (END YEAR) STOCK LEVEL (END YEAR) 5,100 5,400 5,600 5,600 5,350 4,900 MILLION BARRELS CONSUMPTION (NEXT PERIOD) 56.5 53.2 51.0 48.0 48.5 46.0 MILLION BARRELS PER DAY DAYS SUPPLY 90 101 110 111 109 106 ------------------------------------------~----------- ------------------------ SOURCE: INTERNATIONAL PETROLEUM PUBLICATIONS; WORLD BANK ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT. its production ceiling to 1 mbd. 1/ In addition, Venezuela and the UAE agreed to lower their production ceilings to around 1.5 and 1.0 mbd, respectively. 8. Despite the seemingly salutary effect of these decisions for the producers (a complete reversal of price trends took place in the spot market) dissident voices were immediately raised about the equity of the production program. The situation was exacerbated by the continuing war in the Persian Gulf, the political alignment within OPEC and the financial problems exper- ienced by some member countries. The market started to weaken from the middle of the second quarter of 1982, primarily as a result of continuing drawdown on stocks, the above-quota production and exports of several OPEC countries and the increased supplies from other producing regions, especially the North Sea and Mexico. 1/ In line with its longstanding policy, Saudi Arabia formally disassociated itself from these decisions, maintaining that these production levels were only indicative. - 41 - 9. At the mid-year conference held in July, 1982, OPEC realized that, with continuing economic recession in the world and a generally weak demand for petroleum, production programming may have to remain, for some time, a feature of its agenda. Consequently, several OPEC members, notably Iran, questioned the equity of the production ceilings, advancing arguments relating to the existing differences in size of reserves, population, development programs and investment needs of various members. The underlying fear was that the instituted production ceilings might constitute a precedence for future levels. 10. Throughout the second half of 1982, the continuing non-compliance of several OPEC members with the production quotas, as well as price discounting and disagreements over price differentials, created both disharmony among the members of OPEC and confusion in the petroleum market. Consequently, crude petroleum prices which, in anticipation of the winter months had firmed up in October 1982, took a sharp downward turn in November at a time when the impact of economic recovery was just beginning to be felt in North America. During this period, some Persian Gulf producers, notably Saudi Arabia, allowed their production to decline while others were exporting at levels in excess of their then defunct quotas. 11. At the December 1982 OPEC Conference, the basic disagreement between Iran and other Persian Gulf producers on quotas, and between African and Persian Gulf producers on price differentials again surfaced. The Conference was unable to resolve these differences, but tried to give an impression of agreement by announcing a new total production ceiling of 18.5 mbd without allocating any specific quotas. This increase of 1 mbd was, in essence, meant to clear the way for an upward revision in the Iranian quota. 12. At the beginning of 1983, with the announcement of dismal OECD growth projections for 1983 and the continuing lackluster performance of the developing countries, it became clear that a quick turn-around for petroleum demand was not in sight. This perception, combined with the high level of centrally planned economies' (CPE's) exports, increased production in non-OPEC oil-exporting countries, the non-compliance of OPEC countries with their production quotas, open and hidden discounting and heavy stock drawdowns in anticipation of an eventual price drop sent the market into a tailspin. In January 1983, OPEC's production plunged to 16.9 mbd from 19.3 mbd during previous December, dropping further to 14.5 mbd in February 1983. The decision of the British National Oil Corporation towards the end of February to lower the price of the North Sea Brent Marker Crude by $3 per barrel, triggered a chain reaction. Nigeria responded immediately by slashing the price of its export crudes by $5.50 per barrel--undercutting North Sea oil prices by $0.50 per barrel. This was the first time that an OPEC member had taken a unilateral downward pricing action of such magnitude. 13. By the first week of March 1983, the price of 34 0 API Arabian Light Marker crude had fallen to below $28 per barrel. At this time, OPEC members realized that, in view of the heavy drawdown on inventories and the seasonal - 42 - reduction in demand aggravated by the underlying economic factors, the pricing structure could no longer be defended. There was also agreement (with a few dissenting members) that: a. continued disagreement on the production and pricing strategy would be ruinous to all members; b. a lower price of oil, through its probable beneficial effect on world economic act1v1ty, would be in the long-run interest of OPEC members by encouraging petroleum consumption, thus, protecting OPEC's share of the energy market, and; c. a compromise between the financially strong and the other members of OPEC was a condition "sine qua non" of any lasting pricing and production quota structure. Consequently, at its March 1983 meeting in London OPEC agreed to lower the price of the Marker Crude to $29 per barrel and to limit the combined output to 17.5 mbd with new production allocations for members. 14. During the second quarter of 1983 the international petroleum market continued to firm up as the demand for OPEC oil began to approach the agreed production ceiling of 17.5 mbd. Despite the precarious financial situation of a number of OPEC countries, several factors namely: the "political will" of OPEC members to avoid a collapse of the March 1983 agreement, the faster-than- anticipated recovery in the United States, the virtual disappearance of further stock drawdowns and the basically "supportive" attitude of non-OPEC oil-exporting countries towards the OPEC agreement, contributed to the strengthening of the market. Prices in the spot market approached (at times moving above) the official selling prices and the market enjoyed a short-lived stability for nearly six months. 15. Market sentiments had once again turned around by September 1983 because production quotas were being exceeded by an increasing number of OPEC members (combined output was running around 18.8 mbd) and a large stock buildup was reportedly in progress indicating continuing soft demand. OPEC's policy, at this juncture, was basically defensive in that it maintained the production ceiling while issuing strong remainders to its members about their individual and collective responsibilities. However, the slide in crude oil spot market prices that had started in September of 1983 continued unabated through the early part of December 1983. The strength of the US economic recovery notwithstanding, the perception was growing that the soft market would eventually exert sufficient pressure on the OPEC pricing structure to lead to a reduction in oil prices. However, market sentiments changed toward the end of December, as demand for heating oil began to rise because of severe weather conditions in the United States. - 43 - 16. A recent feature of the world oil market has been its apparent indifference towards the political events in the Middle East. Even with the uncertainties surrounding the intensification of the Iran/Iraq conflict, the market has been more responsive to the underlying economic forces than to political events which have created only marginal disturbances. At the core of this insouciance is the fact that not only is there excess producing capacity in regions outside the Middle East, but also the existence of large inventories (including the strategic petroleum reserves in certain countries) coupled with the anticipated low growth in future demand for petroleum would cushion, in the short term, the effects of any disruption in the oil flow. The Turn-Around in Demand for Petroleum 17. In the wake of the first oil price increase of 1973/74, the share of petroleum in worldwide energy consumption remained stable at around 48-49% until 1978, with total energy consumption still on the increase at an average rate of 2.6% (1973 to 1978). Following the price increases of 1979/80, not only did global energy consumption begin to decline, but also the share of petroleum dropped steeply from 47.3% in 1979 to 42.6% in 1982. In a period of only three years, therefore, petroleum consumption declined by nearly 382 mtoe--from 3,222 mtoe in 1979 to 2,840 mtoe in 1982 (Table 2). Although the share of petroleum in total energy consumption of all three major economic regions fell, there were, in fact, increases of 33 mtoe and 3 mtoe, respect- ively, in the petroleum consumption levels of the developing countries and the centrally planned economies. Consequently, the decline in petroleum consumption by industrial countries amounted to 418 mtoe--a fall of 21%-- between 1979 and 1982. TABLE 2: SHARE OF PETROLEUM IN GLOBAL ENERGY CONSUMPTION 1973 1979 1982 PETROLEUM CONSUMPTION (MTOE) 2,847 3,222 2,840 ENERGY CONSUMPTION (MTOE) 5,792 6,816 6,661 SHARE: WORLD 49.1% 47.3% 42.6% INDUSTRIAL COUNTRIES 54.0% 51.8% 45.3% CENTRALLY PLANNED ECONOMIES 33.9% 35.0% 33.3% DEVELOPING COUNTRIES 50.2% 48.2% 46.4% SOURCE: UNITED NATIONS ENERGY STATISTICS; WORLD BANK ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT. 18. The weakening demand for petroleum in the industrial countries was due to two major factors: first, the long duration of economic recession; - 44 - and, second and more importantly, the steep rise 1n the price of petroleum products to the end-users which greatly enhanced competition from other fuels. In addition, a set of policy measures, adopted in 1977 by the lEA member countries, materially contributed to this trend by favoring, inter alia, progressive replacement of oil in electricity generation, industries and other sectors by alternative fuels such as coal and nuclear power. The decline in oil consumption was further accelerated by the redundancy of many oil-fired installations, e.g., power stations, during a period of decreasing total energy demand. 19. Despite the gradual increase in the petroleum consumption of developing countries since 1979, the share of petroleum in total energy consumption declined in these countries from 48.2% in 1979 to 46.4% in 1982. These aggregate figures conceal the fact that consumption of liquid fuels in the oil-importing developing countries has stagnated at around 450 mtoe in the last several years. As a resu1 t, the share of oil in the total energy consumption of the oil-importing developing countries has dropped from 41.9% in 1979 to 38.7% in 1982. These countries have been reasonably successful in supplying their domestic energy needs, mainly with coal and primary electri- city. In addition, they have followed domestic energy price policies that are much more in line with international levels than the majority of the oil- exporting developing countries. 20. The stagnating demand for petroleum in the centrally planned econo- mies has primarily been a reflection of the supply situation--with production rising very slowly in recent years--though prices of USSR crude oil exports to the rest of the European centrally planned economies have also escalated in line with the 5-year moving average price setting formula utilized by the USSR. The rapidly increasing supplies of natural gas from the USSR have not only supplied the growing needs of the region for primary energy, but also have made possible an exportable surplus of petroleum to the rest of the world to generate foreign exchange. 21. In recent years, OPEC as the de facto residual producer, has had to shoulder the impact of the weakening demand for petroleum. Thus, while total oil consumption dropped by nearly 382 mtoe between 1979 and 1982--from 3,222 mtoe to 2,840 mtoe--OPEC's production 1/ during the same period declined by around 580 mtoe, or 37%. Hence, the share of OPEC in total world production dropped steeply from nearly 48% in 1979 to around 35% in 1982. Est imates indicate that there was a further decline in OPEC's share to 33% in 1983, when total OPEC production plunged to a little over 900 mtoe. Toward the end of 1983, however, the decline in oil consumption around the world appeared to have bottomed-out. Earlier in the year, spurred by strong economic recovery, the declining trend in United States' consumption was reversed; by the end of the year a similar trend was noticeable in all other regions except for 1/ Production of liquid fuels includes: crude oil, natural gas liquids and condensate, as well as marginal quantities from other sources such as tar- sands and oil shales. - 45 - Western Europe. During the first few months of 1984, there were indications that the recovery in petroleum demand was well on its way, albeit at a rate well below that of total energy. Demand Outlook 22. Globally, the share of petroleum in the total consumption of commercial energy is projected to decline from 42.6% in 1982 to around 36.2% in 1995. However, the overall demand for petroleum will continue to increase- -from a level of 2,840 mtoe in 1982 to around 3,358 mtoe by 1995 (Table 3). The share of liquid fuels in total energy consumption of the major economic regions is also anticipated to decline: from 45.3% to 38.5% in industrial countries; from 33.3% to 27.7% in centrally planned economies; and from 46.4% to 39.3% in developing countries. 23. Although the rapid increase of petroleum prices during the last decade provided strong incentives for fuel substitution around the world, the momentum can only be maintained as long as the expectations of rising petroleum prices continue. The recent decline in crude oil prices and the likelihood of their remaining fairly soft, at least in the short and near- medium term, has already somewhat blunted the stimulus for the use of alternative fuels. However, many investments which were initiated at the time of the oil price increases in the 1970's have resulted in a permanent shift to an alternative, with little chance of reversal. 24. Since the transportation sector is likely to remain, in the foreseeable future, tied to liquid fuels, the power generation, the industrial and the residential/commercial sectors will provide the main areas of interfuel substitution, particularly for oil. In the transportation sector, too, continuing introduction of more energy-efficient transport equipment-- including increased use of diesel engines--will considerably reduce the rate of growth of petroleum products demand. 25. In the industrial countries, competition among fuels in both the industrial and residential/commercial sectors has always been considerable. But, given consumer preferences in the residential sector and the state of technology in industry, interfuel substitution faces limitations. Ease of handling and clean-burning qualities are often those most highly valued by residential consumers. This explains the increasing share of both gas and electricity in energy consumption of the residential/commercial sector of industrial countries; however, the recent decline in the price of crude oil combined with the increases in the price of natural gas in the United States will mean that replacement for oil in this sector of the US energy market may prove to be somewhat slower than hitherto anticipated. Within the industrial sector, the substitution of coal for oil (in effect a switching back) in the iron and steel and cement industries has already been achieved to a large extent. But substitution in other energy-intensive industries, though potentially high, remains comparatively slow because of the uncertainty surrounding industrial growth prospects, the age of the existing boiler stocks, inadequate infrastructure, and environmental and regulatory concerns. Given the anticipated decline of real oil prices until 1986, the substitution to coal in the industrial sector will, at best, be moderate. TABLE 3: PETROLEUM CONSUMPTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 . 1982 1990 1995 COUNTRIES/ECONOMIES MTOE % HTOE % HTOE % HTOE % MTOE % INDUSTRIAL 817 .3 70.4 1,622.8 69.8 1,577.6 55.6 1,627.0 52.3 1,680.4 50.0 -Il" 0\ CENTRALLY PLANNED 150.5 13.0 325.1 14.0 543.2 19.1 582.6 18.7 609.5 18.2 I DEVELOPING 189.1 16.6 376.5 16.2 719.1 25.3 903.5 29.0 1,068.0 31.8 WORLD 1,156.9 100.0 2,324.5 100.0 2,839.9 100.0 3,113.1 100.0 3,357.9 100.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). - 47 - Beyond 1986, the projected increases in oil prices will, once again, create the necessary environment for an increased level of substitution. In the power generation sector, substitution is expected to be vigorous as non- petroleum fuels, particularly coal and nuclear energy, will increasingly provide for the "base load" needs. As a result of the anticipated conser- vation and substitution, demand for liquid fuels in industrial countries is projected to grow by 0.5% p.a. between 1982 and 1995, while the share of industrial countries in the global liquid fuel consumption is expected to decline to 50% in 1995--down from 55.6% in 1982. 26. In centrally planned economies, interfue1 substitution is more a matter of public policy and supply availability. While other fuels, notably natural gas, will replace oil in many end-uses, particularly the power generation and industrial sectors, consumption of liquid fuels is projected to increase by nearly 12% between 1982 and 1995. Their consumption as a share of total world liquid fuels consumption is, however, anticipated to drop marginally from 19.1% in 1982 to 18.2% in 1995. 27. While all the major economic regions are projected to share in the increased demand for petroleum, the sharpest increase is anticipated to occur in the developing countries where consumption of petroleum, under the assumed economic growth scenario, is projected to increase from 719 mtoe in 1982 to around 1,068 mote in 1995. Nearly 45% of this increase in petroleum consump- tion is expected to take place in the oil-exporting developing countries, with the oil-importing developing countries accounting for the remaining 55% of the increase. Although the share of petroleum in the total energy consumption of oil-importing developing countries will decline substantially from 38.7% in 1982 to 32.3% in 1995, many countries in this group will have little capa- bility to shift their dependence from oil to other fuels. Switching from petroleum to other fuels is almost always concomitant with capital investment needs and access to the necessary capital is difficult under the current strained financial situation. In 1982 the developing countries consumed 25.3% of the world's total petroleum supply. By 1995, their share is projected to rise to about 31.8%. Supply Outlook 28. Despite two steep oil price increases since the beginning of the last decade and the discovery of two giant oil provinces namely, Raforma-Compeche in Mexico and North Sea (UK, Norway), world proven reserves of conventional oil increased by only 10% between 1970 and 1983. 1/ Indeed, for the period 1981-83 the level of proven reserves has stagnated at around 670 billion barrels. The intensified drilling activity which has taken place in recent 1/ World proven reserves stood at 611 billion barrels in 1970. They rose to 659 billion barrels by 1975; declined to 648 billion barrels by 1980 and grew again to 669 billion barrels by 1983. Source: Oil and Gas Journal, various issues. - 48 - years has resulted in an annual discovery-to-production ratio near or above unity. Moreover, with global production declining since 1979, the reserves- to-production ratio, which stood at 29 years in 1979, bounced back to around 43 years by the beginning of 1984. Nevertheless, the sharply increased price incentives of recent years have not resulted in a repetition of what happened during the 1960's when additions to world proven recoverable reserves for the decade amounted to nearly 420 billion barrels--at a time when petroleum prices declined in real terms. 29. A part of the reason may well be the fact that exploration has only taken place at a slow pace in the Middle East (particularly in the Persian Gulf region), which currently contains some 55% of the world's proven recoverable reserves. Yet, it is basically in this region, as well as in Mexico and Venezuela, where the bulk of the recent increase in recoverable reserves has been proven. Significantly, in both the industrial countries and the centrally planned economies the level of proven reserves has hardly changed from that reached in 1979/80. 30. Estimates about the future ultimate potential recovery (resource base) vary significantly. Uncertainty arises from the fact that many areas of the world have not yet been thoroughly explored and also because evaluation of the ultimate potential recovery depends on such factors as the likely future oil recovery rate or the future state of petroleum exploration and development technology, especially in the offshore regions. While the industry is encour- aged by the pace of technological development, its previous optimism about the effectiveness of some enhanced recovery techniques has recently been somewhat modified. A "delphi" poll carried out by the Conservation Commission of the World Energy Conference in 1977 resulted in a mean estimate of around 1,900 billion barrels for the future potential recovery of conventional oil--of which some 150 billion barrels have already been produced from 1977 to 1983 (Table 4). This was based on an improvement in the recovery factor from about 25% to 40% by the year 2000. These estimates, naturally involve a substantial degree of uncertainty. 31. There is little doubt that finding and developing yet undiscovered petroleum reserves will prove more difficult and costly in the future. Many exploration prospects are in remote locations or in harsh operating environ- ments. Even discoveries in areas where production is already taking place, notably the United States, are expected to be on the average smaller than those in the past. Industry analysts assess the technical development costs 1/ of the world's future potential recoverable reserves as follows: 650 billion barrels up to $10 per barrel; 500 billion barrels up to $20 per barrel; 200 billion barrels up to $30 per barrel; 150 billion barrels up to $40 per barrel; 100 billion barrels up to $50 per barrel and the remaining at costs in excess of $50 per barrel (all prices expressed in 1983 dollars). Included in 1/ Physical operating outlays plus capital charges valued at a simple cost of money--excluding the value which might be placed on the depletion of non- renewable assets. - 49 - TABLE 4: RESOURCE BASE OF CONVENTIONAL CRUDE OIL (BILLION BARRELS) FUTURE POTENTIAL /B ULTIMATE POTENTIAL CUMULATIVE /A RECOVERY (DELPHI RECOVERY OR RESOURCE PRODUCTION POLL) BASE NORTH AMERICA 126 208 324 SOUTH AMERICA 42 167 209 WESTERN EUROPE 3 82 85 USSR/EASTERN EUROPE 55 385 440 AFRICA 23 150 173 MIDDEL EAST 93 648 741 ASIA/OCEANIA 14 160 174 TOTAL 356 1,900 2,256 /A END OF 1976, FIGURES ROUNDED. /B SOURCE, REPORT BY THE CONSERVATION COMMISSION OF THE WORLD ENERGY CONFERENCE, 1978, FIGURES ROUNDED. these figures are the existing proven recoverable reserves, the majority of which fall in the first category, with increasing volumes moving to the second and third categories as exploration takes place around the world. This is not meant to imply that there are no more relatively low-cost oil fields to be discovered, especially in some of the more prolific oil-provinces. But it is an indication that as the existing pool of low-cost oils deplete in time, the replacement cost is expected to be higher. 32. While enhanced oil recovery techniques offer significant potential for increased production, recent experiences (particularly in the United States) have somewhat moderated earlier optimism. Among the non-conventional liquid fuels, heavy oils and tar sands (especially in Venezuela and Canada) are likely to receive increasing attention through the projection period as new and improved production techniques are becoming available. Events of the recent past have proven the non-viability of shale-oil and coal liquifaction projects at prevailing market prices. Production of liquid fuels from biomass, particularly ethanol, is expected to increase in several countries, and thus to make an increasing contribution to the global liquid fuel supply. Taken altogether, the production of non-conventional liquid fuels is anticipated to approach 60-70 mtoe by the mid-1990's. 33. Despite its diminishing role, petroleum is expected to remain the single largest source of energy between 1982 and 1995. During the projection period, production of liquid fuels is anticipated to rise gradually from 2,804 - 50 - mtoe in 1982 to around 3,358 mtoe by 1995. However, its share in global energy supplies will drop sharply to 36.2% in 1995--down from 42% in 1982. While production in both industrial countries and centrally planned economies is anticipated to decline marginally by 1995, production in developing coun- tries is expected to be around 40% above the level reached in 1982 (Table 5). 34. Although production of crude oil and natural gas liquids in the United States is projected to decline from 480 mtoe in 1982 to 425 mtoe in 1995, the United States will continue to remain not only the largest producer among the industrial countries, but also a major world producer. In view of recent discoveries and the reevaluation of reserves, North Sea production is now projected to reach a peak of around 180 mtoe in the late 1980's and then to decline gradually, reaching around 150 mtoe by 1995. The Canadian petroleum supply picture is more tentative because production from reserves of conventional oil is expected to decline. The maintenance of liquid fuels production at around the current level of 75-80 mtoe will, therefore, depend on the pace of development of tar sands and heavy oil deposits. Recent intensified activities in these areas indicate both a modification in the Canadian energy policy posture and a likelihood that production from these deposits can be expected to compensate for any drop in conventional oil supplies. In addition to some small discoveries offshore from Denmark and the Netherlands, many new fields have been proven in Australia where se1f- sufficiency in petroleum production may, once again, materialize. 35. The recent petroleum production trend in the USSR--growth rates well below those contemplated in the 1980-85 Plan--clearly indicates that the industry is increasingly facing challenges in the maintenance of production at the current level. The main reason reportedly appears to be the scarcity of the indigenous reserves. Published figures, though highly speculative, place the USSR's proven reserves-to-production ratio at around 15 years. This would hardly be sufficient to support an increasing production profile, especially when viewed against the USSR exploration technology. The drop in exports from the USSR during the first quarter of 1984, and the appearance of critical articles in the domestic press is considered to be a sign that not much improvement may be expected in petroleum production capacity in the USSR and that production is likely to decline through the projection period. 36. While the bulk of additional oil supplies will come from oil- exporting developing countries (around 500 mtoe) the oil-importing developing countries are projected to contribute a much smaller, but still important, quantity (85 mtoe) to world petroleum supplies between 1982 and 1995. Thus, while the share of industrial countries and the centrally planned economies is anticipated to decline from 25.6% to 21.0% and 22.6% to 18.5%, respectively, during the period from 1982 to 1995, the developing countries' share is expected to increase from 51.8% in 1982 to 60.5% in 1995. 37. Production in the oil-importing developing countries is projected to increase by nearly 41% between 1982 and 1995. Thanks to the intensive past exploration actlvltles in many of these countries and their likely continuation, production increases are projected for many countries notably India, Colombia, Ghana, Sudan, Thailand and, in the earlier years, Brazil. In TABLE 5: PETROLEUM PRODUCTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 1982 1990 1995 COUNTRIES/ECONOMIES MTOE % MTOE % MTOE % MTOE % MTOE % INDUSTRIAL 439.1 37.7 630.2 26.7 718.6 25.6 757.0 24.3 707.2 21.0 CENTRALLY PLANNED 184.5 15.8 377.9 16.0 633.0 22.6 631.4 20.3 621.3 18.5 VI ..... DEVELOPING 543.0 46.5 1,352.1 57.3 1,452.1 51.8 1,724.7 55.4 2,029.4 60.5 I WORLD 1,166.6 100.0 2,360.2 100.0 2,803.6 100.0 3,113.1 100.0 3,357.9 100.0 MEMO ITEM --------- OPEC 472.0 40.5 1,172.8 49.7 992.2 35.4 1,133.7 36.4 1,415.5 42.2 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED) - 52 - addition, production is expected to start in many countries where oil has recently been discovered, thereby reducing their dependence on imported oil. 38. Despite their increasing presence in the petroleum markets, the non- OPEC oil-exporting developing countries are not expected to produce more than 15% (about 75 mtoe) of the additional supplies from the oil-exporting developing countries between 1982 and 1995. This is largely a reflection of Mexico's announced policies about their preferred export levels. The slowdown in petroleum exploration and production investments notwithstanding, it is anticipated that the growth of Mexican exports will closely follow that of OPEC, resulting in a production of around 200 mtoe by 1995. The remaining additions to supplies are projected to come from Egypt, Malaysia and the West African region. OPEC Oil Production 39. The declining demand for petroleum in recent years and the pnclng policies of the non-OPEC oil exporters (taking full advantage of OPEC's role in the market without sharing in its costs) have pushed OPEC to the position of the residual producer. While crude oil production in the OPEC member countries fell from 1,570 mtoe in 1979 to around 990 mtoe in 1982, non-OPEC oil production rose from 1,680 mtoe to 1,810 mtoe. Consequently OPEC's share in global production of petroleum steeply declined from 48.3% in 1979 to 35.4% in 1982. 40. In the short and medium term, as demand for petroleum revives, a large part of the additional production is likely to be supplied from non-OPEC sources, particularly in the industrial and developing countries. It is projected that nearly 55% of the additional petroleum supplies required between 1982 and 1990 will come from non-OPEC sources. Beyond 1990, however, the world will depend increasingly on OPEC to supply the additional quantities as many producing areas around the world will reach maturity and will begin to deplete. It is anticipated, therefore, that by 1995 production in OPEC countries will rise to 1,416 mtoe, with OPEC's share in the total petroleum output climbing again to around 42%. The Evolving Structure of Petroleum Market 41. Until the second oil price increase, a major part of the oil marketed in the world was handled by the integrated system of the major oil companies. Since the oil companies could adjust production to demand through careful planning, shortages and surpluses did not often show up in the open market. While producing countries, at times, bitterly complained about the fluctuations in off takes , they were generally acquiescent, especially because demand for their oil was gradually increasing. The matching of output to demand and the administration of prices was exercised through planning and control by the oil industry. During this period, direct export sales by producing countries did not disturb the market because not only were the quantities small, but they were also sold at or near official selling prices. - 53 - 42. With the gradual disintegration of this system, the spot market for petroleum became more active. In the post-1919 period, as an increasing number of exporters chose to market crude oil themselves, they used both the term market as well as the spot market. Moreover, a special feature of the UK petroleum taxation regime--assessment of taxes on realized prices for arms- length sales--helped direct large quantities of North Sea Crude to the spot market. While both markets are used by producers and consumers, the spot market, with a multitude of agents on both sides, now plays a critical role in the process of price formation. Recent estimates indicate that the spot market now accounts for around 20% of the total trade in crude oil, a large part of which is represented by North Sea Crudes. This is basically a reflection of the current supply situation which induces buyers (mainly refiners) to abandon the term market so long as the spot market confirms a surplus. 43. Since 1919 the spot market has been the leader in the genesis of two far reaching events: first, the massive price increase of 1919/80; and, second, the price decline of 1983. In the summer of 1918 (long before the cut-back of exports from Iran), spot prices for some products moved up sharply on the Rotterdam spot market. Then in October 1919, spot prices for crude oil began to rise, followed by high sulphur fuel oil prices in November. As strikes spread in Iran and exports of oil diminished, most oil companies withheld all or a large part of the supplies to the spot market. By the time OPEC met at Abu Dhabi in December 1918, spot prices for the Saudi Arabia 34 0 API Marker Crude had increased by nearly 20%. Though OPEC did not follow the lead of the spot market at this conference--on1y nominal price increases were agreed upon--and despi te increased production from other countries in the Persian gulf, the market took off in the first two months of 1919. It was only at this time that, led by two non-OPEC producers, namely the United Kingdom and Norway (prices of North Sea Crudes were raised by an average 11% in mid-January), some OPEC members began raising prices. 44. At the following OPEC Conference in March 1919, despite a decision to increase the marker crude price to only $14.456 per barrel, members received tacit agreement to add appropriate surcharges and premia to their bench mark prices so as to reflect the conditions in the market. Thus, OPEC members abandoned all semblance of price unity, rather they chose to follow the movements of the spot market without any coordination. 45. After taking a defensive posture in 1982 by agreeing to a production programming formula, in March 1983 OPEC eventually succumbed to the pressure of the market which resulted from declining global petroleum demand, sharply falling OPEC production, large stock drawdowns and the lack of cohesion among members. The drop in official selling prices that followed was in fact a reflection of the level to which prices had fallen on the spot market. In short, not only is there now a widely based market in which a mismatch between supply and demand comes into the open, but OPEC can no longer ignore the movements of this market. It is this reality that has driven OPEC to supply management in its quest for price stabilization. - 54 - OPEC's Production and Pricing Strategies 46. The behavior of OPEC during the 1979/80 price explosion may be characterized as follows: fi rst, there was no dominant price setter or a "barometric leader" in the market; second, each producer 1exporter increased contract prices almost independently of the other; and, third, the spectrum of reactions to the spot market varied enormously across the group: Ecuador followed the spot market very closely while Saudi Arabia adhered to official selling prices far below the spot prices. Despite Saudi Arabia's increased production and pricing posture, its ostensible attempts at stabilization of the market and reunification of the OPEC pricing structure bore little success. The implication drawn from these events is that, under the pre- vailing tight supply situation, neither did OPEC, as a body, act as a cartel during this period, nor was Saudi Arabia a price leader. In fact, practically all price decisions were made outside the accepted framework of OPEC i.e., the Conference, without any prior agreement. A corollary to this was that non- OPEC exporters did not behave as a price-taking fringe in the oil markets. 47. It will be recalled that as market sentiments changed and spot prices began to fall in 1981, Saudi Arabia continued to produce at 10 mbd in the face of a sharply declining demand. By mid-198l spot prices had declined by nearly $10 per barrel compared with those of November 1980 (when the price was $41 per barrel for Arabian Light Marker Crude). As a result, the de facto two- tiered pricing system came under increasing pressure. While many OPEC pro- ducers resisted this trend, non-OPEC exporters continued cutting their prices in line with the spot market signals, increasingly placing the burden of output adjustment onto high-priced producers. Finally, as the market weakened and spot prices tumbled, price reunification was achieved towards the end of 1981; at which time not only had Saudi Arabia reasserted its position in the market, but it had emerged as the obvious leader (dominant producer) in an as yet confused setting. What emerged from the reunification exercise was a pricing structure that reflected, to a large extent, the value differentials among various crudes (with some exceptions, notably the price of Nigerian crudes). 48. As events unravelled in the post-price-reunification period, espec- ially after the first establishment of the production quotas in March 1982, a totally new picture emerged in the petroleum market. While most OPEC (and non-OPEC) exporters chose to undercut prices in order to win a larger share of the steeply declining demand, Saudi Arabia opted for the defense of the newly agreed price structure. By allowing its own production to fluctuate, Saudi Arabia in effect accepted the responsibilities of leadership. Speculation about the Saudi's motives during this period range from: enlightened self interest in maintaining moderate oil prices (given Saudi Arabia I s enormous recoverable reserves), the economic and political well-being of the rest of the world (particularly the industrial countries where the lion I s share of Saudi foreign assets reside), to the payment of a debt owed to the other OPEC members for having "engineered" the glut of 1981. 49. It is against this backdrop that OPEC's future strategies must be studied. While OPEC has never lost sight of its original objective as set out - 55 - in the resolutions of the first Conference, 1/ the difficulties encountered in recent years have engendered a more pragmatic attitude by the group in the attainment of their aims. In administering prices, OPEC not only faces serious challenges from other producers, it also has to reconcile widely varying and, at times, diametrically opposite views inside the group. At the core of the problem lies the fact that, in the recent years, OPEC has rapidly lost its market share and with that its strength in influencing events. OPEC's share of the international petroleum trade has dropped from 68% in 1979 to 51% in 1982 (estimated at 47% in 1983), and its production has been overtaken by that of non-OPEC producers--even when excluding the production in the centrally planned economies. The other challenges may be summarized as follows: a. lack of cooperation by members in making timely production and other data available, thereby rendering the monitoring function a highly difficult judgemental exercise; b. divergent revenue needs of the members, especially in the present circumstances where most members are facing financial difficulties; c. each members' perception of the optimal price path varies with its resource endowments and likely depletion horizon; d. the perceived need for an orderly global economic growth leading to increased demand for OPEC oil, and the need to be mindful of the precarious situation of developing countries; e. the need to reach an understanding with the large non-OPEC exporters, notably the USSR and the UK (Mexico's voluntary ceiling on exports, is a sign of its willingness to help stabilization and to cooperate with OPEC); 1/ That members can no longer remain indifferent to the attitude heretofore adopted by the oil companies in effecting price modifications; that members shall demand that oil companies maintain their prices steady and free from all unnecessary fluctuations; that member shall endeavor, by all means available to them, to restore present prices to levels prevailing before the reduction; that they shall ensure that if any new circumstances arise that in the estimation of the oil companies necessitate price modifications, the said companies shall enter into consultation with the member or members affected in order to fully explain the circumstances. - 56 - f. a spot market which, like all other commodity markets, is apt to fluctuate violently in the face of quickly changing supply/demand conditions; g. a refining/marketing industry that is no longer very interested in term contracts and is liable to depend more heavily on the spot market (not to mention the new trend in running refineries on increasing volumes of feedstock instead of crude oil, especially in Western Europe); h. the existence of large strategic and floating stocks and a reasonally comfortable stock level that can be drawdown under a tight supply situation; and, i. The emergence of large export refining capacities in the Persian Gulf region and its potential disruptive effects on crude oil prices. j. last but not least, the increasing and highly charged political tensions among the Persian Gulf members of the organization. 50. To be sure, these divergent and often conflicting forces will tax the ingenuity of the members of the group in their efforts for price stabili- zation. The recent escalation of hostilities that have momentarily spilled over to the other parts of the Persian Gulf could result in more confla- gration, threatening the very existence of OPEC. Past events, however, have shown that, given the self-preservation instincts of the group, OPEC has managed to weather many similar predicaments. It is argued here that there are other forces that would tend to support OPEC I S role in petroleum price stabilization and that, on balance, the likelihood of OPEC remaining intact is fair. Assuming that OPEC continues to function, it will no doubt have to deal with reoccuring crises until demand for OPEC oil reaches a level at which most members, notably the financially vulnerable, would begin to see an easing of thei r budgetary and financial problems. In this context, OPEC may have to address the special case of its low per capita income members either by the institution of a collective support formula (an arrangement that might require a supranational authority, something very difficult to implement) or the preferential allocation of the additional demand for OPEC oil. This could prove feasible as OPEC supplies are projected to grow from 992 mtoe in 1982 to 1,134 mtoe in 1990 and to 1,416 mtoe by 1995 (Table 6). Trade Outlook 51. Though OPEC and the industrial countries will remain the major trading partners in international oil markets, increasing quantities of petro- leum will be traded between the oil-exporting and the oil-importing developing countries. The net import requirements of industrial countries are projected to be supplied almost totally by the oil-exporting developing countries as - 57 - TABLE 6: PETROLEUM PRODUCTION IN OPEC COUNTRIES 1970-1982 (ACTUAL) AND 1990-1995 (PROJECTED) (MILLION TONS OF OIL EQUIVALENT) /A /B COUNTRY 1970 1982 1990 1995 ALGERIA 48.3 47.2 50.0 50.0 ECUADOR 0.2 10.8 13.0 12.0 GABON 5.4 7.7 6.5 5.0 INDONESIA 42.6 65.9 84.0 84.0 IRAN 191.9 120.4 144.0 195.0 IRAQ 76.5 50.6 108.0 148.0 KUWAIT 152.3 43.2 63.0 74.0 LIBYA 159.8 56.8 68.0 92.0 NIGERIA 54.2 63.8 85.0 105.0 QATAR l7 .4 16.4 18.0 20.0 SAUDI ARABIA 190.5 342.8 296.0 390.0 UAE 37.7 64.6 76.0 100.0 VENEZUELA 196.0 101.9 121.5 141.0 TOTAL 1,172.8 992.1 1,134.0 1,416.0 ------------------------------------------------------------------------------ /A MILLION TONS OF OIL EQUIVALENT/YEAR IS EQUIVALENT TO 20,000 BARRELS OF OIL EQUIVALENT/DAY. /B FIGURES ROUNDED. SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). imports into this region from the centrally planned economies diminish to around 12 mtoe by 1995. By the end of the projection period the share of OPEC in the global net exports will have grown to nearly 85%, from around 77% in 1982. The share of other non-OPEC oil-exporting developing countries is expected to grow from its present level of approximately 15% to nearly 17.5% by 1990 and then drop to around 14% as net exports from the centrally planned economies claim a declining share (Table 7). 52. Intra-regional trade in the developing countries is projected to increase to nearly 28% in 1995, up from 22% in 1982. Again, OPEC is expected to supply the largest part of the oil-importing developing countries' needs for petroleum. The total volume of net trade is anticipated to grow from around 1,093 mtoe in 1982 to approximately 1,350 mtoe by 1995. A growing share of the trade in petroleum will be in the form of products, as more export-oriented refineries come onstream in of OPEC countries. - 58 - TABLE 7: NET EXPORTS/(IMPORTS) OF PETROLEUM BY ECONOMIC REGIONS 1970-82 (ACTUAL) AND 1990-1995 (PROJECTED) (MILLION TONS OF OIL EQUIVALENT) /A ------------------------------------------------------------------------------ ECONOMIC REGIONS 1970 1982 1985 1990 1995 ------------------------------------------------------------------------------ INDUSTRIAL COUNTRIES (1003) (828) (834) (870) (973) CPE'S 53 90 86 49 12 OIL-IMPORTING DEVELOPING (168) (266) (256) (302) (378) COUNTRIES NON-OPEC OIL-EXPORTING 45 160 189 205 187 DEVELOPING COUNTRIES OPEC 1093 844 816 918 1152 TOTAL NET 1191 1093 1090 1172 1350 EXPORTS/IMPORTS SHARE OF OPEC PERCENT 92 77 75 78 85 /A FIGURES ROUNDED. SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED) Price Outlook 53. In the previous paragraphs, a discussion of OPEC's behavior and strategy attempted to show the very essence of OPEC's difficulties in attempting to administer prices. At the individual country level, production policies are often determined by a mix of physical, economic and political factors. Given the existing proven recoverable reserves, most OPEC members will be entering the depletion phase towards the end of this century, the notable exceptions being Saudi Arabia, Kuwait, Iran, Iraq and possibly the UAE and Venezuela. For many, therefore, an upper limit of capacity will have been reached by the beginning of the 1990's. The economic factors relate more to the long-term developmental objectives and the country's absorptive capa- city. OPEC countries invariably view their petroleum resources as "national - 59 - capital" to be used over time for their economic development. 11 Political factors are more changeable and, hence, unpredictable in nature as they tend to vary with the ideological back-drop. In general, members which are endowed with a lower reserves-to-production ratio (a shorter depletion horizon) tend to opt for limited production and higher prices. A few of the others wi th large proven reserves have also announced a "preferred" level of production. 54. The revenue needs and the depletion policies of OPEC members, there- fore, define the lower and upper limits within which these countries can be expected to produce. Though both limi ts are difficul t to define in exact terms, it is the lower that is fraught with the greatest uncertainty. However, as oil revenues have fallen in recent years, an increasing number of OPEC countries have had to reallocate expenditure in ways that can only improve the prospects of development. This process of adjustment is likely to lead to a more efficient development path requiring lower levels of oil revenue. This scenario becomes more plausible because members have realized that demand for their oil is only likely to grow at a slow pace. 21 Estimates of the preferred level or the upper limits to production, as- compiled from policy announcements and estimates of the maximum sustainable production capacity is shown in Table 8. Although many countries, in particular Persian Gulf producers, have been willing in the past to raise production beyond the "preferred" level, they did so reluctantly and often only at higher prices. 55. The petroleum price forecast is based not only on the assumed economic growth scenario, but also on several other important assumptions: a. that OPEC will remain intact (a proposition whose subjective probabilistic acceptability has been argued in the previous pages); b. that OPEC will manage supply in the face of a surplus in capacity at least until feasible allocations reach the producing capacity of the more heavily populated and financially vulnerable countries such as Nigeria, Indonesia and Venezuela or the self imposed production ceilings of countries such as Kuwait and the UAE (this situation should be reached around the end of the 1980's); 1/ A preamble to the Resolutions of the first OPEC Conference which purports to explain the members' motives, underlines the importance of the development projects that the member countries have to put into execution, principally with the help of their oil revenues. 21 The lower limit is estimated at around 1,050-1,100 mtoe per year. - 60 - TABLE 8: MAXIMUM OUTPUT CAPACITIES, SUSTAINABLE PRODUCTION CAPACITIES, PREFERRED PRODUCTION LEVELS AND RESERVES IN OPEC COUNTRIES ----------------------------------------------------------------------------- MAXIMUM OUTPUT SUSTAINABLE PREFERRED RESERVES CAPACITY FOR PRODUCTION PRODUCTION 1983 SHORT DURATION CAPACITY LEVEL ----------------------------------------------------------------------------- -------MILLION BARRELS PER DAY------- (BILLION BARRELS) ALGERIA 1.00 0.80 0.80 9.2 ECUADOR 0.25 0.20 0.20 1.7 GABON 0.20 0.15 0.15 0.5 INDONESIA 1.80 1. 70 1.70 9.1 IRAN IA 5.00 4.00 3.00 Ic 51.0 IRAQ IA 4.00 3.50 3.00 Ic 43.0 KUWAIT/a 2.80 2.50 1.50 IC 63.9 LIBYA 2.10 1.90 1.50 Ic 21.3 NIGERIA 2.40 2.20 2.20 16.5 QATAR 0.65 0.55 0.35 Ic 3.3 SAUDI ARABIA IB 11.30 10.80 8.50 Ic 166.0 UAE 2.50 2.00 1.50 Ic 32.2 VENEZUELA 2.50 2.20 2.20 24.8 TOTAL 36.50 32.50 26.60 442.6 IA BASED ON PRE-WAR ESTIMATES. IB NEUTRAL ZONE PRODUCTION INCLUDED HALF IN KUWAIT AND HALF IN SAUDI ARABIA. Ic COUNTRIES WITH SUSTAINABLE PRODUCTION CAPACITY ABOVE THEIR PREFERRED LEVEL. c. that no appreciable increase in the pre-1980 production capacities will take place during the projection period (as there would be little need for it); d. that OPEC members would generally opt for a resource conservation policy (a proposition on which many members have made pronouncements in the past); and, e. that Saudi Arabia, as the residual national producer, will play a moderating role in the price negotiations (assuming that it has a more - 61 - moderate notional "optimum" price path), but, nonetheless, will make suitable compromises with other members once demand for OPEC oil is on a sustained increasing trend. 56. Technically, the price projections are based on an assessment of the global demand for petroleum derived from country-by-country energy balances. The estimation of demand for petroleum took into account the potential for substitution of petroleum with other fuels at different relative price levels. The evaluation of this potential was based on available data and a comparison of trends in the sectoral demand for the various fuels as well as information on the investment plans and energy policies in individual countries. The demand for OPEC crude was then derived as the residual demand that was not met by either domestic production or supplies from non-OPEC countries. The price trajectory that yielded a profile of import demand from OPEC which fell between those corresponding to the revenue needs and the sustainable production capacity of this group of countries was then selected as the most likely trajectory of petroleum prices in the years ahead. The trajectory is presented in Annex Table 6. 57. In the short term, given the magnitude of the surplus producing capacity in the OPEC countries and the capability of non-OPEC exporters to increase production and exports, it is expected that, despite an increase in demand for OPEC oil, the share of OPEC in the net global exports will initially decline from 77% in 1982 to 75% in 1985 (Table 7). Thus, petroleum prices are projected to remain unchanged, in current dollars, around $ 29 per barrel until 1985, thereafter rising moderately to $31.6 per barrel in 1986 (in terms of 1983 dollars prices are expected to decline from $29 per barel in 1983 to around $26 per barrel in 1986). 58. In the longer term, petroleum prices will be determined not only by the production policies of OPEC, but also by a mix of other factors, namely: first, the exhaustible nature of this resource; second, the enormous cost of proving reserves of oil throughout the world (except, perhaps, the Middle East); third, the price which consuming countries are willing to pay to enhance their security of supply, given the political volatility of the Persian Gulf region; and fourth, the cost of back-stop technologies which is estimated at around $60 per barrel for oil shale and somewhat higher for coal liquifaction. Towards the end of the 1980's, as some non-OPEC producing provinces approach maturity, OPEC is expected to supply an increasing share of the additional demand. By 1990, OPEC's net exports of petroleum are anticipated to reach around 78% of the global net exports--918 mtoe or 18.4 mbdoe--thus, exerting pressure on prices which are projected to increase gradually, in real terms to $29.5 per barrel in 1990 (a level marginally above 1983 prices). The period 1990-95 is likely to be characterized by a decline in the production of petroleum in industrial countries, particularly the United States, while net exportable quantities from the non-OPEC exporting regions will also be on the decline. As a result, the demand for OPEC exports is anticipated to grow steeply, reaching around 1,150 mtoe (23 mbdoe) by 1995 (OPEC's share in the global net exports is anticipated to grow steeply from 78% in 1990 to 85% in 1995). To achieve these levels of exports OPEC - 62 - production must grow from 1,134 mtoe in 1990 to 1,416 mtoe in 1995. I t is, therefore, anticipated that prices will also rise more sharply as demand for OPEC oil begins to approach and then exceed the "preferred" level of production (Table 8). In 1983 dollars, petroleum prices are projected to reach $36.1 per barrel in 1995. ANNEX TABLE 1: LIQUID FUELS - SUMMARY OF WORLD PRODUCTION. APPARENT CONSUMPTION (NOT INCL. BUNKERS) AND TRADE BY ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO.JECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONDMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95' -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- PRODUCTION INDUSTRIAL 500.4 619.6 604.3 700.8 718.5 760.6 757.0 707.2 2.2 1.1 1.7 -0.7 CENTRALLY PLANNED 265.6 377.6 518.2 618.8 633.0 639.7 631.4 621.3 6.2 4.6 0.7 -0.3 DEVELOPING 814.7 1.339.7 1.746.7 1.760.8 1.452.1 1.531.1 1.724.7 2.029.4 5.8 1.0 -2.8 2.9 WORLD 1.580.6 2.336.9 2.869.2 3.080.5 2.803.6 2.931.4 3.113.1 3.357.9 4.9 1.7 -1.0 1.4 MEMO ITEM: INDUSTRIAL · DEVELOPING 1.315.0 1.959.3 2.351.0 2.461.6 2.171.1 2.292.2 2.482.4 2.737.5 4.6 1.0 -1.4 1.8 APPARENT CONSUMPTION (NOT INCL. BUNKERS) INDUSTRIAL 1.100.5 1.598.9 1.834.0 1 .824.6 1 .577.6 1.595.1 1.626.9 1.680.3 3.9 0.0 -2.7 o.e CENTRALLY PLANNED 216.8 323.3 459.8 546.4 543.3 553.5 582.6 609.5 6.7 4.6 0.3 1.0 DEVELOPING 242.6 375.9 541.0 695.9 719.1 782.8 903.5 1.068.0 7.3 5.5 2.4 3.2 0\ WORLD 1.559.9 2.298.2 2.834.8 3.066.9 2.839.9 2.931.4 3.113.1 3.357.9 5.0 1.9 -0.9 1.4 W MEMO ITEM: INDUSTRIAL · DEVELOPING 1.343.11.974.9 2.375.0 2.520.5 2.296.7 2.377.8 2.530.5 2.748.4 4.6 1.3 -1.2 1.5 GROSS EXf)ORTS INDUSTRIAL 86.6 166.4 198.8 258.7 296.6 313.9 327.6 298.8 7.6 3.4 3.9 -0.5 CENTRALLY PLANNED 74.0 104.6 140.6 181.7 185.1 189.9 162.5 136.2 6.7 5.5 0.9 -3.3 DEVELOPING 760.8 1.246.4 1.564.0 1.483.9 1.170.8 1.173.3 1.305.0 1.538.7 5.1 -0.2 -4.6 2.7 WORLD 921.3 1.517.4 1.903.4 1,924.3 1.652.5 1.677.0 1.795.0 1.973.7 5.6 0.7 -2.7 1.6 MEMO ITEM: INDUSTRIAL · DEVELOPING 847.4 1.412.8 1.762.8 1.742.6 1.467.9 1,487.7 1,633.2 1.838.4 5.5 0.3 -3.1 2.1 GROSS IMPORTS INDUSTRIAL 681.6 1.152.0 1.426.7 1,388.7 1.124.4 1.148.3 1.197.4 1.271.9 5.6 0.0 -3.7 1.0 CENTRALLY PLANNED 25.4 50.5 82.5 106.8 95.3 103.8 113.8 124.5 10.6 5.8 -0.6 1.8 DEVELOPING 192.3 286.7 371.8 433.4 432.7 424.9 483.8 577.3 5.6 3. 1 -0.4 3.1 WORLD 899.2 1.489.2 1.881.0 1.928.9 1.652.5 1.677.0 1.795.0 1,973.7 5.8 0.9 -2.8 1.6 MEMO ITEM: INDUSTRIAL · DEVELOPING 873.9 1.438.7 1.798.S 1.822.1 1.557.2 1,573.3 1.681.3 1,849.3 5.6 0.7 -2.9 1.6 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO.JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PRO.JECTIONS DEPARTMENT (PRO.JECTED). ANNEX TABLE 2: LIQUID FUELS - PRODUCTION BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO~ECTED GROWTH RATES!A AVERAGES COUNTRIES! ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 500.4 619.6 604.3 700.8 718.5 760.6 757.0 707.2 2.2 1.1 1.7 -0.7 N. AMERICA 480.1 592.9 556.3 558.2 553.0 554.5 529.5 504.5 1.1 -0.9 -0.1 -0.9 UNITEO STATES 435.6 524.7 472.9 478.4 480.3 478.0 450.0 425.0 0.7 -1.0 0.0 -1.2 CANADA 44.5 68.2 83.4 79.8 72.7 76.5 79.5 79.5 4.5 -0.6 -0.8 0.4 EEC-9 16.4 14.1 15.3 95.5 116.7 142.4 148.9 126.8 10.1 25.9 8.3 -1.2 GERMANY. F.R. 7.8 7.6 5.8 5.0 4.9 4.7 4.4 4.0 -2.3 -3.9 -1.2 -1.6 UNITED KINGDOM 0.1 0.2 4.6 83.1 104.0 125.0 130.0 110.0 48.4 92.9 8.5 -1.3 OTHER W. EUROPE 2.9 2.9 12.3 24.9 27.1 38.8 50.1 43.8 14.5 23.7 9.3 1.2 ~APAN 0.7 0.8 0.6 0.5 0.5 0.5 1.4 2.0 -2.0 -4.0 -0.7 14.8 OCEANIA 0.3 8.9 19.8 21.7 21.2 24.4 27.1 30.2 29.3 4.8 2.3 2.1 0\ CENTRALLY PLANNED 265.6 377.6 518.2 618.8 633.0 639.7 631.4 621.3 6.2 4.6 0.7 -0.3 """ I USSR 249.0 359.1 498.1 600.7 613.7 620.0 610.0 600.0 6.5 4.8 0.6 -0.3 DEVELOPING 814.7 1.339.7 1. 746. 7 1.760.8 1.452.1 1.531. 1 1.724.7 2.029.4 5.8 1.0 -2.8 2.9 ASIA 461.3 787.7 1.229.2 1.167.0 879.2 896.1 1.008.7 1.236.2 7.0 1.3 -5.1 3.3 SAUDI ARABIA 111. 5 197.1 405.7 501.4 342.8 259.5 295.9 389.6 10.5 5.9 -12.3 4.1 IRAN 94.7 196.1 289.3 100.8 120.4 132.0 144.0 195.0 3.8 -8.3 5.5 4.0 IRAQ 64.7 78.1 109.3 118.4 50.6 83.6 108.3 148.3 3.2 -0.2 -6.7 5.9 UNITED ARAB EMIR 13.3 39.7 86.3 82.9 64.6 65.0 76.0 100.0 19.1 4.2 -4.7 4.4 AFRICA 108.8 271.9 267.6 293.2 232.9 264.1 308.1 349.6 9.6 -0.5 -2.1 2.8 LIBYA 57.5 147.6 81.2 83.0 56.8 56.0 68.0 92.0 9.7 -5.6 -7.6 S.1 NIGERIA 13.5 52.5 101.2 96.6 63.8 71.8 85.6 105.6 19.5 0.7 -5.8 3.9 AMERICA 240.9 269.0 239.9 293.8 332.2 364.2 400.2 434.5 1.2 1.4 4.4 1.8 MEXICO 18.1 23.5 39.0 98.4 149.7 158.4 177.7 201.6 10.6 17.7 10.0 2.4 VENEZUELA 180.4 191. 1 135.7 119.0 101.9 105.1 121.6 140.6 -2.6 -S.2 -2.S 3.0 S. EUROPE 3.7 11. 1 10.0 6.8 7.7 6.8 7.7 8.6 5.6 -6.1 -0.1 2.3 WORLD 1.580.6 2.336.9 2.869.2 3.080.5 2.803.6 2.931.4 3.113.1 3.357.9 4.9 1.7 -1.0 1.4 MEMO ITEM: INDUSTRIAL a DEVELOPING 1.315.0 1.959.3 2.351.0 2.461.6 2.171.1 2.292.2 2.482.4 2.737.S 4.6 1.0 -1.4 1.8 A! LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO~ECTED PERIODS (1985-9S); 80-85 GROWTH RATE IS ACTUALLY 79!81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL): WORLD BANK. ECONOMIC ANALYSIS 6 PRO~ECTIONS DEPARTMENT (PRO~ECTED). ANNEX TABLE 3: LIQUID FUELS - APPARENT CONSUMPTION (NDT INCL. BUNKERS) BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROoJECTED GROWTH RATES/A AVERAGES COUNTRIES! ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 1,100.5 1.598.9 1,834.0 1,824.6 1.577.6 1.595.1 1.626.9 1.680.3 3.9 0.0 -2.7 0.5 N. AMERICA 617.4 781.1 897.4 902.5 785.7 813.3 832.8 885.9 2.7 0.4 -2.1 0.9 UNITED STATES 559.2 695.7 794.5 799.3 697.3 726.1 741.2 790.7 2.6 0.4 -1.9 0.9 CANADA 54.1 71.4 85.0 87.0 74.6 72.6 75.4 77.3 3.4 0.7 -3.6 0 .· EEC-9 319.3 499.7 534.3 517.6 439.4 427.4 439.9 442.0 4.2 -1. 1 -3.8 0.3 GERMANY. F.R. 77.4 122.3 130.0 133.0 111. 9 109.7 116.0 114.9 4.8 -0.4 -3.8 0.5 FRANCE 55.8 97~0 117.3 111. 6 91.9 86.9 86.4 84.0 5.6 -0.6 -4.9 -0.3 UNITED KINGDOM 73.3 100.8 98.0 84.6 78.1 75.8 79.3 80.7 1.8 -2.9 -2.2 0 .· ITALY 55.1 92.1 101.3 100.7 86.1 86.9 89.2 93.2 5.0 -0.5 -2.9 0.7 OTHER W. EUROPE 59.1 96.4 117.8 121.1 107.5 106.5 109.7 112.4 5.6 1.0 -2.5 0.5 oJAPAN 84.7 193.4 252.0 248.1 211. 7 214.4 210.4 206.0 8.6 0.5 -2.9 -0.4 OCEANIA 20.0 28.3 32.5 35.3 33.3 33.5 34.1 34.1 4.5 1.5 -1.1 0.2 0'1 4.6 0.3 I.n CENTRALLY PLANNED 216.8 323.3 459.8 546.4 543.3 553.5 582.6 609.5 6.7 1.0 USSR 186.3 268.6 377.5 444.9 450.1 459.1 477.4 494.3 6.3 4.4 0 .· 0.7 DEVELOPING 242.6 375.9 541.0 695.9 719.1 782.8 903.5 1.068.0 7.3 5.5 2.4 3.2 ASIA 91.5 162.5 253.5 341.6 349.9 397.0 462.2 549.9 9.2 6.5 3.0 3.3 CHINA 10.9 25.2 68.1 88.2 83.6 93.2 96.7 105.4 15.4 10.0 1.1 1.2 INDIA 11.8 19.3 24.1 33.1 36.3 44.2 49.7 61.8 7.3 5.2 6.0 3.4 KOREA. REP. 1.6 9.5 16.1 26.3 26.9 33.1 40.9 54.7 20.1 9.4 4.7 5.1 AFRICA 30.1 40.9 54.7 77.0 85.1 99.6 114.1 134.0 6.9 6.4 5.3 3.0 AMERICA 102.8 139.6 182.1 215.7 223.4 224.1 252.8 298.6 5.0 4.0 0.8 2.9 MEXICO 16.5 24.8 35.3 53.9 64.2 65.6 73.4 ·90.2 7.7 8.4 4.0 3.2 BRAZIL 16.4 26.9 45.8 54.1 49.8 46.5 47.1 49.2 7.9 5.4 -3.0 0 .· S. EUROPE 17.9 32.2 49.7 60.4 59.3 60.7 72.6 83.9 9.1 5.1 0.1 3.3 WORLD 1.559.9 2.298.2 2.834.8 3.066.9 2.839.9 2.931.4 3.113.1 3.357.9 5.0 1.9 -0.9 1.4 MEMO ITEM: IMlUSTRIAL .. DEVELOPING 1.343.1 1.974.9 2.375.0 2.520.5 2,296.7 2.377.8 2.530.5 2.748.4 4.6 1.3 -1.2 1.5 A! LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PROoJECTED PERIODS (1985-95): 80-85 GROWTH RATE IS ACTUALLY 79!81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS .. PROoJECTIDNS DEPARTMENT (PROoJECTED). ANNEX TABLE 4: LIQUID FUELS - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROuECTED GROWTH RATES!A AVERAGES COUNTRIES! ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 ---------- --------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 86.6 166.4 198.8 258.7 296.6 313.9 327.6 298.8 7.6 3.4 3.9 -0.5 N. AMERICA 23.4 57.4 77.5 71.0 80.5 68.4 68.0 65.1 8.0 -0.4 -0.8 -0.5 EEC-9 58.2 97.7 101.5 152.5 173.7 186.6 186.2 163.5 6.6 4.1 4.1 -1.3 UNITED KINGDOM 10.0 16.9 17.3 57.5 74.7 88.2 83.7 56.3 10.5 14.1 8.9 -4.4 OTHER W. EUROPE 3.0 8.8 15.2 30.2 37.0 51.4 62.8 57.7 14.8 14.6 11.2 1.2 uAPAN 0.7 1.0 1.6 1.6 2.6 4.5 7.0 8.5 5.1 0.9 23.0 6.6 OCEANIA 1.3 1.5 2.9 3.4 2.8 3.0 3.5 4.0 4.8 4.8 -2.5 2.9 CENTRALLY PLANNED 74.0 104.6 140.6 181.7 185.1 189.9 162.5 136.2 6.7 5.5 0.9 -3.3 USSR 64.3 94.8 127. 1 166.4 169.3 172.9 146.6 121.7 7.1 5.7 0.8 -3.4 0'\ 0'\ DEVELOPING 760.8 1.246.4 1.564.0 1.483.9 1.170.8 1.173.3 1.305.0 1.538.7 5.1 -0.2 -4.6 2.7 ASIA 425.7 729.3 1.105.5 1.008.6 740.9 702.3 776.6 964.7 6.5 0.5 -7.0 3.2 SAUDI ARABIA 103.5 180.4 385.8 476.5 317.3 224.0 250.8 336.3 10.6 6.1 -14.0 4.2 IRAN 83.2 179.1 262.1 71.8 91.8 101.3 106.0 147.4 2.9 -11.0 7.1 3.8 KUWAIT 112.8 144.8 110.4 86.5 36.5 48.8 53.5 60.7 -1.9 -9.0 -10.8 2.2 IRAQ 61.3 74.7 102.0 109.0 40.5 72.3 94.3 130.1 2.8 -1.4 -7.9 6.0 UNITED ARAB EMIR 13.3 39.6 86.1 80.9 62.6 61.5 70.4 92.7 19.1 4.0 -5.3 4.2 AFRICA 104.1 264.1 254.1 259.7 192.6 213.0 247.6 277.1 9.1 -1.7 -3.9 2.7 LIBYA 57.4 146.8 78.7 78.3 52.6 49.9 60.1 81.4 9.6 -6.2 -8.6 5.0 NIGERIA 12.9 50.3 98.4 90.2 52.1 57.5 70.1 88.7 18.9 0.0 -8.6 4.4 AMERICA 229.0 251.1 197.9 203.7 225.7 245.5 268.2 283.7 -0.6 -2.0 3.8 1.5 MEXICO 2.4 2.8 4.0 42.9 84.8 93.3 105.1 112.5 16.7 41.3 16.8 1.9 VENEZUelA 166.3 177.7 120.5 99.4 79.2 81.5 90.0 91.8 -3.2 -6.5 -3.9 1.8 S. EUROPE 1.9 1.8 6.4 11.8 11.6 12.4 12.5 12.7 12.7 18.0 1.0 0.2 WORLD 921.3 1,517.4 1.903.4 1,924.3 1.652.5 1.677 .0 1.795.0 1.973.7 5.6 0.7 -2.7 1.6 MEMO ITEM: INDUSTRIAL a DEVelOPING 847.4 1,412.8 1.762.8 1.742.6 1.467.9 1,487.7 1.633.2 1.838.4 5.5 0.3 -3.1 2.1 A! LEAST SOUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PROuECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/a1( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROuECTED). ANNEX TABLE 5: LIQUID FUELS - GROSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROJECTED GROIiiTH RATES/A AVERAGES COUNTRIESI ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 681.6 1.152.0 1.426.7 1,388.7 1.124.4 1,148.3 1.197.4 1.271.9 5.6 0.0 -3.7 1.0 N. AMERICA 153.2 239.9 406.6 421.1 300.8 327.2 371.3 446.5 7.1 2.9 -4.9 3.2 UNITED STATES 119.2 172.9 320.8 351.5 252.8 282.1 323.2 395.7 7.7 4.5 -4.3 3.4 EEC-9 362.5 590.1 625.2 572.9 480.4 471.6 477.2 478.7 4.0 -1.9 -3.8 0.1 GERMANY, F.R. 74.6 123.2 133.3 134.5 110.7 113.0 120.1 119.9 5.2 -0.6 -3.4 0.6 FRANCE 61.3 105.1 127.1 124.3 99.1 92.7 91.4 88.2 5.6 -0.5 -5.7 -0.5 ITALY 69.3 114.3 115.2 113.2 95.4 100.9 103.7 110.2 4.5 -1.4 -2.3 0.9 NETHERLANOS 38.6 64.9 71.3 77.0 72.6 73.3 74.8 77.3 5.1 0.2 -1.0 0.5 OTHER W. EUROPE 60.0 104.6 123.3 128.3 115.3 119.1 122.4 126.3 5.8 0.9 -1.5 0.6 .JAPAN 85.2 196.0 256.1 248.8 213.0 218.4 216.0 212.5 8.6 0.2 -2.6 -0.3 OCEANIA 20.7 21.5 15.6 17.5 15.0 12. 1 10.5 7.9 -1. 1 -0.8 -7.1 -4.1 0- ...... CENTRALLY PLANNED 25.4 SO.5 82.5 106.8 95.3 103.8 113.8 124.5 10.6 5.8 -0.6 1.8 E. EUROPE 23.7 46.2 76.0 99.2 89.5 91.8 99.8 108.5 10.9 6.4 -1.6 1.7 GERMAN D.R. 5.6 10.4 17.2 21.4 21.1 21.2 22.6 23.7 10.7 5.7 -0.2 1.1 CZECHOSLOVAKIA 6.5 10.9 16.5 19.7 17.5 17.6 20.1 22.4 8.6 4.7 -2.2 2.4 DEVelOPING 192.3 286.7 371.8 433.4 432.7 424.9 483.8 577.3 5.6 3.1 -0.4 3.1 ASIA 56.3 105.5 135.9 190.4 205.2 203.2 230.2 278.4 7.9 5.4 1.3 3.2 KOREA, REP. 1.7 9.4 16.9 27.1 27.8 34.3 42.4 56.7 20.1 9.8 4.8 5.1 SINGAPORE 9.2 20.3 29.1 35.9 47.6 45.1 50.6 56.3 9.4 5.5 4.7 2.2 AFRICA 25.6 35.5 44.0 45.5 44.3 48.6 53.6 61.5 4.7 1.5 1.3 2.4 AMERICA 93.6 121. 3 143.6 128.9 118.0 105.3 120.8 147.8 2.6 -0.9 -4.0 3.4 BRAZIL 11.6 19.4 39.3 46.9 43.0 26.7 33.2 45.0 9.4 6.5 -10.7 5.4 S. EUROPE 16.5 23.7 47.2 67.3 63.8 66.3 77.4 88.0 10.3 9.1 -0.3 2.9 WORLD 899.2 1.489.2 1.881.0 1.928.9 1.652.5 1,677.0 1,795.0 1.973.7 5.8 0.9 -2.8 1.6 MEMO ITEM: INOUSTRIAL & DEVelOPING 873.9 1,438.7 1,798.5 1.822.1 1.557.2 1.573.3 1,681.3 1.849.3 5.6 0.7 -2.9 1.6 AI LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82): ENO-POINT FOR PROJECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 ENO-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PRO.JECTED). - 68 - ANNEX TABLE 6: OPEC PETROLEUM--AVERAGE PRICES, IA 1960-83 (ACTUAL) AND 1984-95 (PROJECTED) ($/BBL) 1983 CONSTANT $ CURRENT $ MUV IB US GDP Ic ACTUAL 1960 1.5 5.0 4.7 1961 1.5 4.9 4.7 1962 1.4 4.7 4.3 1963 1.4 4.7 4.2 1964 1.3 4.2 3.9 1965 1.3 4.2 3.8 1966 1.3 4.0 3.7 1967 1.3 3.9 3.6 1968 1.3 4.2 3.4 1969 1.3 4.1 3.2 1970 1.3 3.7 3.1 1971 1.7 4.5 3.8 1972 1.9 4.6 4.1 1973 2.7 5.5 5.5 1974 11.2 18.1 21.0 1975 10.9 15.5 18.7 1976 11.7 16.4 19.0 1977 12.8 16.6 19.6 1978 12.9 14.2 18.4 1979 18.6 18.4 24.5 1980 30.5 27.9 36.9 1981 34.3 32.7 37.9 1982 33.2 32.2 34.6 1983 29.1 29.1 29.1 PRQ:!~£!E:Q 1984 28.5 27.5 27.5 1985 29.0 25.9 26.0 1986 31.5 25.9 26.1 1990 48.7 29.5 30.1 1995 79.7 36.1 36.8 ---------------------------------------------------------------------------- IA FOR THE PERIOD 1960-73, THIS PRICE REFERS TO SAUDI ARABIAN LIGHT, 34° - 34.9° API, FOB RAS TANURA; FOR THE YEARS FOLLOWING THIS PERIOD, IT REFERS TO THE WEIGHTED AVERAGE FOB PRICE OF PETROLEUM EXPORTS FROM OPEC COUNTRIES. IB DEFLATED BY MANUFACTURING UNIT VALUE (MUV) INDEX. Ic DEFLATED BY US GDP DEFLATOR. SOURCE: INTERNATIONAL CRUDE OIL AND PRODUCT PRICES, ENERGY ECONOMIC RESEARCH, LTD., LEBANON; OIL INDUSTRY DEVELOPMENTS; PETROLEUM ECONOMICS, LTD., (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). - 69 - PETROLEUM (1983 CONSTANT $ PRICES) 1948-83 ACTUAL; 1984-95 PROJECTED .... ill 0 .... / / / ~ / ~ \ f \ / I \ / III I \ / t"I I \ / / 1 \ / 1 , I , / ,, / 1 \ ... ... 1 , 0 t"I I I , I I , -' I I ..JlQ ,, I m m , I " ERo N I 1\ 1 \ I ' ... _ ....... " · I I I I I ... III I ... 0 III ... _- ..... --- ........ _-- ....... 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 YEARS ____ DEFLATED BY MANUFACTURING UNIT VALUE IMUVI INDEX ____ . DEFLATED BY US GDP DEFLATOR - 70 - NATURAL GAS Summary 1. Throughout the 1960 t s, up until 1973, the share of natural gas in global energy consumption increased rapidly--from 13.5% in 1961 to 17.7% in 1973. All major economic regions shared in this growth. For the period 1973- 82, however, growth of natural gas consumption was concentrated mainly in centrally planned economies and developing countries. In contrast, consumption of natural gas declined marginally in industrial countries, due mainly to supply constraints and, in particular, recent sharp price increases in the United States. 2. The gigantic discoveries of the last two decades, leading to very large reserves--estimated at around 530 billion barrels of oil equivalent-- have greatly enhanced the supply outlook for natural gas. However, the rapid development of natural gas resources is faced by two major drawbacks: first, the geographical occurrence of existing reserves is not proportionate to regional market needs; and, second, the development of a gas network usually requires large investments in production, transmission and distribution facilities. Moveover, the international movement of natural gas is also constrained by the high cost of transportation. Despite these impediments, the rapid expansion of gas networks in the centrally planned economies and several developing countries (as well as in Western Europe and the Pacific industrialized countries) will ensure that natural gas will deepen its penetration of the global energy markets. Its share is projected to grow from 18.7% in 1982 to 20.4% in 1995. 3. Although interregional trade of natural gas is projected to grow during the projection period, the bulk (57% in 1995) of international trade will continue to remain intraregional. The direction of interregional trade is anticipated to remain unchanged: with both centrally planned economies and developing countries exporting natural gas to industrial countries. Total trade in natural gas is projected to increase from 163 mtoe in 1982 to 360 mtoe in 1995; net imports into industrial countries are expected to grow at even a higher rate, rising from 57 mtoe in 1982 to 156 mtoe in 1995. Given the enormous costs of long-haul LNG or piped gas exports and anticipated competition from other fuels in the end-use markets, the intercontinental movement of natural gas is expected to become limited to short and medium-haul trade. As a result, the major movements will take place as follows: between Canada/Mexico and the United States; between North Africa/the USSR and Western Europe; and, between the Pacific basin exporters and Japan. 4. Natural gas prices are likely to decline in the short-term (until 1985-86) in the face of the current gas glut, particularly in the United States and Western Europe, and as exporters attempt to penetrate the highly competitive industrial markets. Thereafter, as increasing quantities of gas are consumed in the premium residential and commercial markets, and as the marginal cost of new gas rises, internationally traded prices (on a heat - 71 - content basis) are anticipated to move gradually towards a price level determined by a mix of heating and low-sulphur fuel oil prices. Recent Developments 5. Despite the sharp decline in global energy consumption since 1979/80, consumption of natural gas has maintained its upward trend and increased its share in total energy consumption--from 17.8% in 1979 to 18.8% in 1982. The major economic regions have, however, not fared uniformly. While the share of natural gas has not changed materially in the industrial countries and developing countries in this period, it has risen substantially in the centrally planned economies (Table 1). TABLE 1: SHARE OF NATURAL GAS IN TOTAL ENERGY CONSUMPTION BY ECONOMIC REGIONS (PERCENT) COUNTRIES/ECONOMIES 1973 1979 1982 INDUSTRIAL 20.0 19.1 19.3 CENTRALLY PLANNED 19.6 23.5 26.8 DEVELOPING 7.1 8.2 9.0 WORLD 17.7 17 .8 18.8 SOURCE: UNITED NATIONS ENERGY STATISTICS; WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT 6. In the United States, which is by far the largest consumer of natural gas among the industrial countries, the consumption of natural gas has declined dramatically--by 11.1% between 1979 and 1982--and its share in total energy consumption has also dropped. While all segments of the natural gas market have shared in the decline in demand, the industrial sector has regis- tered the largest loss (around 15.5%) during the period. The reasons for this situation may be traced back to the enactment of the Natural Gas Policy Act (NGPA) of 1978, which provided for a partial decontrol of gas prices. Under the Act, the Federal Energy Regulatory Commission (FERC) was granted juris- dictional authority over virtually all natural gas production, both interstate and intrastate; prices of high-cost gas--produced from wells more than 15,000 feet deep, geopressurized brine, coal seams and Devonian shale--were freed; maximum prices were established for all other categories of gas; and, a timetable (extending from 1979 to the 1990's) was foreseen for price escalation and eventual decontrol of many tiers of gas through the 1980's. 7. The NGPA also provided for major changes in the establishment of natural gas prices in the interstate market to industrial and residential - 72 - consumers. The incremental pricing mechanism permitted the partial pass- through of costs associated with the high priced natural gas directly to industrial consumers (limited only by a ceiling price that would be based on the cost of alternative fuels) while allowing residential and other gas consumers to pay less than the average price. As a result, average wellhead prices rose from $0.91 per thousand cubic feet in 1978 to $2.60 per thousand cubic feet in 1983 1/ with corresponding steep increases in the natural gas prices to final consumers. The highest percentage price increase occurred in sales to the industrial sector, supplied by the interstate network, with power generation and residential sectors trailing closely behind (Table 2). TABLE 2: AVERAGE PRICE OF NATURAL GAS TO CONSUMERS IN US MARKET - DOLLARS PER THOUSAND CUBIC FEET INCREASE MARKET/YEAR 1978 1979 1980 1981 1982 1983 83/78 % INDUSTRIAL 1.54 2.01 2.54 3.13 3.72 4.20 173 POWER GENERATION 1.48 1.80 2.28 2.91 3.49 3.58 142 RESIDENTIAL 2.56 2.98 3.68 4.29 5.17 5.99 134 SOURCE: MONTHLY ENERGY REVIEW, US DEPARTMENT OF ENERGY, ENERGY INFORMATION ADMINISTRATION. During the first half of 1983 when gas prices to the industrial consumers approached $4.30 per million BTU--marginally below fuel oil on a heat content basis--natural gas began to be seriously challenged. It was not until the second half of 1983 that, following the emergence of some innovative pr~c1ng mechani sms, particularly spot sales prices, natural gas consumption in the industrial sector stabilized. 8. Natural gas consumption also fell in Western Europe by 10% between 1979 and 1982, although its share of the total energy market did not change materially. This was in complete contrast with the earlier period when natural gas was increasingly penetrating the energy markets in Western Europe. 2/ The main reasons underlying these trends were, once more, recession coupled with rising long-term gas contract prices which had pushed the average price of 1/ Source: Monthly Energy Review, US DOE/lEA. 2/ The share of natural gas in total Western European energy consumption rose from 6.5% 1n 1970 to 14.4% in 1979. - 73 - European gas close to the price of low sulphur fuel oil; thus prlclng gas out of the European electricity generation market. Between 1979 and 1982, gas sales to power stations fell by 38% compared with a 15% drop in sales to industry and 8% growth in sales of gas to the residential and commercial sector. 9. Developments in the industrial Pacific countries have been somewhat different. Spurred by the increasing indigenous availability of gas, consump- tion in both Australia and New Zealand has been on the rise. In Japan, too, in line with their energy diversification policy and environmental concerns, consumption of natural gas, notably in the power generation sector, has been increasing. In this region the share of natural gas in total energy consumption reached 6.6% in 1982, up from 5.2% in 1979. 10. The situation in the centrally planned economies has been totally different. While petroleum and solid fuel supplies have either stagnated or not grown substantially in recent years, the rapid expansion of natural gas production in the USSR has materially changed the structure of energy consumption. The share of natural gas in total energy consumption rose from 23.5% in 1979 to 26.8% in 1982. The change from 1973 is even more dramatic in that the penetration by natural gas in the energy markets has increased by nearly 7%--from 19.6% in 1973 to 26.8% in 1982. Though the growth of natural gas consumption in the USSR is the largest factor, consumption of natural gas in all other European centrally planned economies has also grown in the face of diminishing supplies of petroleum from the USSR. In addition, increasing quantities of gas have been exported from the USSR to Western Europe; the share of imports from the USSR in total Western European gas consumption approached 13% in 1982. 11. Among the developing countries, the major increase in the consumption of natural gas has taken place primarily in the oil-exporting countries. While by 1982 the share of natural gas in total energy consumption had amounted to nearly 24% in the oil-exporting countries, it was only about 4% in the oil-importing developing countries. In OPEC countries, this share has remained at around 25% indicating that end-use markets and physical distri- bution facilities have expanded at about the same rate as total energy consumption. In line with the increasing availability of gas in several oil- importing developing countries, notably Pakistan, Bangladesh, India, Thailand, and Brazil, natural gas has been supplying a rising share of total energy markets between 1979 and 1982. Evolution of International Natural Gas Trade and Prices 12. The economics of international trade, both through pipelines and in the form of LNG (liquified natural gas) was radically transformed following the first oil price increase in 1973/74. In Western Europe, export prices from Holland, which stood at around e33-44 per million BTU in 1971, were renegotiated and raised regularly to reach e75-l00 per million BTU by 1975 and later to around H20-140 per million BTU by 1977. The price of gas from Norway Ekofisk Field rose from i52 per million BTU in 1972 to around el80 per million BTU in 1975 (elF Northern Europe). The base price for contracts - 74 - signed between European gas marketers and the USSR from 1968 to 1973 ranged from t30 to t45 per million BTU. By 1976 the average price of the USSR gas to Western Europe had reached t92 per million BTU, with a ratio of about 1:3.3 between the prices charged to Italy and Finland. 1/ Prices for LNG imports to Western Europe, especially the French-Algerian -trade did not change much, remaining at around t60 per million BTU until mid 1976. In the case of Libyan exports to Italy and Spain, the elF price rose to around t145 per million BTU in 1977 from t58 per million BTU in 1974. During 1976-77, negotiations between North African and European countries revolved around a notional FOB base price of t130-l45 per million BTU, all indexed to petroleum prices and, in some instances, to construction material prices and wages. In short, many projects and export outlets, for which investments had been made prior to the first oil price increase, experienced increasing profitability as the intra- regional and inter-regional export markets expanded. By 1975, international trade in natural gas accounted for just over 10% of global natural gas consumption. 13. By the mid 1970's, as the world became gradually aware of a possible energy supply crunch, particularly in respect of oil, natural gas was viewed by the industrial countries as an increasingly convenient and attractive method of energy resource diversification. Meanwhile, economic analysis indicated that the hitherto flared gas in many oil-exporting developing coun- tries could be exported with economic gains both for the importing as well as the exporting countries. In the US gas market, where supplies were contrac- ting and there was large excess capacity in the transportation and distri- bution systems, the averaging price mechanism meant that gas utilities could buy and import small quantities of high priced LNG and "roll it in" with the low priced (regulated) domestic gas, resulting in a still competitive natural gas price. As a result, not only did natural gas trade increase between the industrial countries, but important contracts were signed with both the USSR and a number of oil-exporting developing countries (Table 3). Given the high cost of natural gas trade infrastructure, all the contracts had durations of 20 years and over, wi th agreed FOB or elF prices indexed to the price of a basket of either crude oils or petroleum products or a combination of crude oils and petroleum products at specified locations (Table 4). 14. In the midst of the second oil price increase in 1979/80 and at a time when oil prices had reached as high as $41 per barrel on the spot market, OPEC at last pronounced its views at the Algerian Conference, in June 1980, proposing oil/gas price parity as a necessary incentive for economic development of gas resources. Although the resolution did not spell out the stage at which oil/gas price parity should occur (wellhead, FOB, elF or 1/ According to Technip, prices to Italy and Finland were t53 and t177 per million BTU respectively. - 75 - TABLE 3: NATURAL GAS CONTRACTS (VOLUMES AND STATUS) IMPORTERS EXPORTERS VOLUME STATUS 10 6 CU FTIDAY ------------------------------------------------------------------------------ UNITED STATES CANADA 2,740 OPERATIONAL UNITED STATES MEXICO 300 OPERATIONAL US (DISTRIGAS) ALGERIA 135 OPERATIONAL US (EL PASO) ALGERIA 950 SUSPENDED US (TRUNKLINE) ALGERIA 435 SUSPENDED JAPAN US (ALASKA) 145 OPERATIONAL JAPAN INDONESIA 1,925 OPERATIONAL JAPAN BRUNEI 725 OPERATIONAL JAPAN ABU DHABI 290 OPERATIONAL GERMANY USSR 1,060 OPERATIONAL GERMANY USSR (YAMAL) 1,015 1985 DELIVERY GERMANY NETHERLANDS 2,310 OPERATIONAL GERMANY NORWAY 940 OPERATIONAL GERMANY et al NORWAY (STATFJORD) 650 1986 DELIVERY BELGIUM NETHERLANDS 950 OPERATIONAL BELGIUM NORWAY 200 OPERATIONAL BELGIUM ALGERIA 240 UNDER DISCUSSION FRANCE USSR 390 OPERATIONAL FRANCE USSR (YAMAL) 770 1984 DELIVERY FRANCE NETHERLANDS 1,120 OPERATIONAL FRANCE NORWAY 210 OPERATIONAL FRANCE ALGERIA 880 OPERATIONAL ITALY USSR 675 OPERATIONAL ITALY USSR (YAMAL) 600 RECENTLY CONCLUDED ITALY NETHERLANDS 650 OPERATIONAL ITALY ALGERIA 1,200 OPERATIONAL ITALY LIBYA 75 OPERATIONAL SPAIN LIBYA 110 OPERATIONAL REDUCED VOLUMES SPAIN ALGERIA 435 OPERATIONAL REDUCED VOLUMES UNITED KINGDOM NORWAY 900 OPERATIONAL UNITED KINGDOM NORWAY (SLEIPNER) 1,000 1988 DELIVERY NOT YET RATIFIED SWITZERLAND NETHERLANDS 46 OPERATIONAL SWITZERLAND GERMANY 57 OPERATIONAL AUSTRIA USSR 290-400 OPERATIONAL FINLAND USSR OPERATIONAL NETHERLANDS NORWAY 250 OPERATIONAL USSR AFGHANISTAN 240 OPERATIONAL USSR IRAN 1,000 SUSPENDED ARGENTINA BOLIVIA 200 OPERATIONAL ------------------------------------------------------------------------------ SOURCE: INTERNATIONAL ENERGY AGENCY, INTERNATIONAL ENERGY PUBLICATIONS. - 76 - TABLE 4: NATURAL GAS CONTRACTS: SAMPLE PRICING BASE AND INDEXATION IMPORTERS EXPORTERS PRICING BASE INDEXATION TERMS UNITED STATES CANADA CIF CRUDE IMPORTS TO TORONTO UNITED STATES MEXICO CIF ARITHMETIC AVERAGE OF FIVE CRUDES: SAHARAN, ARAB LIGHT, TIA JUANA MEDIUM, FORTIES, ISTHMUS US (TRUNKLINE) ALGERIA FOB/CIF PRICES OF NO. 2 & NO. 6 FUEL OILS IN NEW YORK HARBOR JAPAN INDONESIA FOB/CIF OIL IMPORTED BY JAPAN JAPAN ABU DHABI CIF MURBAN CRUDE GERMANY NETHERLANDS CIF LOW-SULFUR FUEL OIL WITH 5 MONTHS LAG GERMANY USSR CIF LOW-SULFUR FUEL OIL, HEATING OIL AND WAGE INDEX GERMANY USSR (YAMAL) CIF CRUDE OIL, GAS OIL AND LOW-SULFUR FUEL OIL FRANCE ALGERIA FOB 8 CRUDE OILS SOURCE: INTERNATIONAL ENERGY AGENCY, INTERNATIONAL PUBLICATIONS. - 77 - burnertip), it was construed to mean CIF parity by LNG exporters to Japan. 11 Algeria, the largest exporter of LNG to the United States and Western Europe, chose to base its renegotiations with gas importers on an FOB oil/gas thermal equivalence. However, negotiations between El Paso (US) and Sonatrach (Algeria) reached a deadlock, resulting in the suspension of deliveries (the contract called for exports of one trillion BTU per day, the equivalent of 9 million tons of oil per year). Subsequently, deliveries to Gaz de France were temporarily suspended by Sonatrach. Also, price talks between Iran and the Soviet Union broke down in 1980, resulting in the discontinuation of Iranian gas exports. 15. Following these events and the suspension of all activities on the second Iranian Gas Trunkline (IGAT II), 21 Western European gas companies-- initially German and French--entered into agreements with the USSR for the delivery (to begin in 1985) of considerably larger quantities than those con- templated in the Iranian deal. Thus, not only did the USSR compensate for the loss of Iranian contracts, but it sold the gas, reportedly, at $4.65 per million BTU, CIF to both Germany and France, 31 a price considerably below the then prevailing FOB oil/gas parity. 41 In- the new environment, with gas consumption declining in Western Europe, Algeria concluded contract renegotia- tions with Distrigaz of Belgium in April 1981 and with Gaz de France in February 1982. According to the press reports, the Belgian contract called for a base FOB price, indexed to a basket of crudes, which stood at around $5.10 per million BTU in mid 1981. The Algeria-France contract also sets a base FOB price of around $5.10 per million BTU, again indexed to a basket of crudes to be selected equally by both parties. Reportedly, in both instances understandings were reached that the conclusion of these gas contracts would result in Algeria purchasing significant quantities of Belgian and French goods. By the end of 1982, following the resolution of many disputed contracts, a clearer picture was emerging around the world. At this time 11 This was in line with the provisions of contracts already concluded between several LNG exporters and Japan. 21 This line was designed to carry, in addition to substantial quantities of gas for domestic consumption, 1. 7 billion cubic feet of gas per day for delivery to the USSR by 1981. In a triangular arrangement, the USSR would in turn deliver 1.4 billion cubic feet per day at the German-Czechoslo- vakian border to a consortium of Western European Gas Companies. Though in reality the Iranian Gas was utilized in the Southern Soviet Republic and the gas delivered to Western Europe came from the Siberian sources, the arrangement included a take-or-pay contract at stipulated prices (indexed) between Iran and the Western European Gas Con.sortium as well as a contract with the USSR for transit charges. 31 Source: International Energy Agency. 41 Approximate oil price parity based on Saudi Arabian Marker Crude was $5.5 per million BTU. - 78 - Canadian and Mexican gas entered the United States at $4.94 per million BTU, while Dutch gas prices stood at $4.45 per million BTU (CIF importing European countries) and indexed to the price of low-sulphur fuel oil. Further, the Western European gas companies had concluded a contract for the import of Norwegian Statfjord Gas at around $5.50 per million BTU. 16. Toward the end of 1982, after lengthy negotiations, agreement was reached between Algeria and Italy on the price of gas transported to Italy through the Trans Mediterranean Pipeline. According to the provisions of this agreement, the FOB price of Algerian gas was set at $4.41 per million BTU. The agreement was made with an understanding for the counter purchase of Italian goods. Later, during 1983, the first shipments of Algerian LNG, contracted by Trunkline LNG Company and Panhandle Eastern Pipeline Company, reached the East Coast of the United States. At that time there was concern within the US gas industry over rising prices and sagging demand. Given the high landed cost of the imported gas--nearly $7 per million BTU--and the provisions of the incremental pricing mechanism, many consumers, particularly in the industrial sector, balked at taking deli very when other gas from indigenous US resources could be purchased at an average of $4.20 per million BTU. As a result, pending the outcome of discussions with the Federal Energy Regulatory Commission, the US companies suspended deliveries in December of 1983. Ironically, when El Paso was prepared to move Algerian LNG into the US market during 1980-81 in line with an arrangement which would have resulted in an FOB price of around $3.90 per million BTU, Algeria was asking for oil/gas heat-content parity. But when Algeria was ostensibly prepared to allow deliveries to Panhandle at FOB prices even lower than $3.94 per million BTU (resulting from the indexing formula), the market was no longer available. 17. Following the decline in oil prices during the first quarter of 1983, all natural gas prices in international trade have declined almost proportion- ately. Owing to a much slower anticipated growth of energy and particularly natural gas demand, some importing countries such as Belgium and Spain have reopened negotiations with Algeria on lowering the contracted quantities. Reports indicate that other European countries receiving gas from the USSR also wish to revise the contractual provisions, especially in respect of the new supplies slated to start later in 1984 and 1985. Recently, Italy reviewed its suspended contract with Libya at a reported price of around $3.40 per million BTU, FOB Brega. Demand Outlook 18. Among the industrial countries the United States remains, by far, the largest consumer of natural gas. As discussed previously, events of the last few years, combined with the built-in rigidity in the pricing and marketing of natural gas, have created enormous uncertainty about the future of this industry. At the core of the problem lies the fact that natural gas trans- mission, like electric utilities, has traditionally been regarded as a natural monopoly; which implies that economies of scale and the cost of duplicating distribution networks preclude the establishment of more than one (or a very few) suppliers in each service area. This concept, combined with the control of wellhead prices, the incremental pricing mechanism (discussed earlier), the - 79 - provisions of the Power Plant and Industrial Fuel Use Act (also enacted in 1978) and the provisions of the take-or-pay contracts have resulted in a highly turbulent market. While it may be argued that under the conditions prevailing in 1978 the mix of new legislation was intended to promote energy conservation and increase energy supplies without unduly burdening the consumers (especially residential consumers), it is now generally believed that after three years of declining demand and the emergence of a "gas glut", a new and critical look at the legislation is in order. 19. Although attempts to partially deregulate the gas industry have so far proved abortive (especially because of the complexities in the contractual relationships among producers, pipeline companies and end users) the market appears to be gradually deregulating itself. The emergence of spot markets for natural gas, the development of contract carriage systems and the possible introduction of a posted price regime are likely to have far-reaching effects in the gas market. When viewed against a partial and gradual wellhead price decontrol, starting in 1985, and the existence of considerable surplus supply, these new pricing and carriage mechanisms are bound to increase competition not only within the natural gas industry, but also between natural gas and other fuels. 20. Since the oil price decline of 1983, the competitive position of natural gas in the US market has changed significantly. While the ratio of heating oil to natural gas prices in the residential market stood at 2.1 in 1981, it has been eroded to 1.4 in 1983 (Table 5). The situation is similar in the electricity generation market with the ratio falling to 1.35 in 1983 from 1.9 in 1980 and 1981. Natural gas has also been facing increasingly stiffer competition from other fuels in the industrial market where incre- mental pricing rules have resulted in considerable price increases for gas. TABLE 5: PRICES OF NATURAL GAS AND HEATING OIL IN THE US RESIDENTIAL MARKET 1976-1983 (tiMILLION BTU) RATIO OF HEATING OIL NATURAL GAS HEATING OIL TO NATURAL GAS 1976 193 292 1.5 1977 229 331 1.4 1978 250 356 1.4 1979 290 472 1.6 1980 349 704 2.0 1981 418 868 2.1 1982 504 855 1.7 1983 584 800 1.4 SOURCE: MONTHLY ENERGY REVIEW, US DEPARTMENT OF ENERGY, ENERGY INFORMATION ADMINISTRATION - 1983 ESTIMATED. o I. - 80 - 21. Irrespective of the outcome of the present controversy and the content of the new legislation, and despite the fact that natural gas is still considered a premium fuel in many end uses, it now has to face stiff chal- lenges. The pressure on natural gas demand will come not only from conser- vation and structural change wi thin the US economy, but also from rapidly improving end-use technologies for other types of energy, e.g., electricity. Over the longer term, direct use of coal by means of new technologies such as fluidized bed furnaces and oil or water slurries is likely to provide increasing competition for gas as boiler fuel. Depletion of cheaper "old gas" and the rIsIng marginal cost of new gas supplies will also erode the competitive edge of natural gas. 22. Yet there are many end-uses where improved, high efficiency gas technologies can enhance the position of natural gas vis-a-vis other fuels. Cogenet:'ation, combined cycle power generation, commercial cooking systems, combination gas/electric heating and smelting technologies are but a few examples where the demand for gas can develop. In many applications, the fundamentals of energy service economies favor gas over electricity and liquid fuels. However, to offset the recent erosion of the cost advantage of gas will require intensive development and commercialization of advanced end-use tech- nologies. Following the recent crisis, the natural gas industry in the United States is hoping to regain some of the lost ground by offering efficient end- use technologies which would reduce the user I s fuel bill while allowing a higher break-even burnertip price. This strategy would conserve the relatively cheaper gas and realize a higher net added value. 23. The foregoing analysis indicates that natural gas is unlikely to retain its share of the US energy market. Residential and commercial sectors will continue to remain the primary market for natural gas. In this market, coal faces serious environmental problems, while gas may continue to enjoy a price advantage as compared with both oil and electricity. The position of natural gas in the industrial and power generation markets will depend, to a large extent, on the success with which new technologies can be introduced. Despite the opportunities, natural gas suffers from two basic disabilities: first, the resource base appears to be shrinking while the costs of proving new reserves--in deep horizons, frontier areas or even coal gasification--is on the rise; and second, gas imports will in all probability be priced at US replacement costs in the future. 24. In Western Europe, the demand for natural gas has grown in a market environment with fewer price distortions. With the Dutch and later, North Sea gas becoming available in increasing quantities, the share of natural gas in the energy markets in e.g., the EEC, rose from 1.8% in 1960 to 7.4% in 1970. As more gas from the USSR, Algeria and Libya entered the market, the share of natural gas in total energy consumption increased to 17.3% by 1982. During 1982, residential and commercial use af natural gas accounted for nearly 51% of the'tota1, industrial use for 36% and electric power generation for 13%. 25. Although gas has achieved a substantial penetration in the residen- tial and commercial energy markets of many Western European Countries (notably in the Netherland and the UK, see Table 6) it is likely to further enhance its - 81 - TABLE 6: SHARE OF NATURAL GAS IN RESIDENTIAL AND COMMERCIAL SECTOR ENERGY CONSUMPTION - SELECTED EUROPEAN COUNTRIES (PERCENT OF FINAL CONSUMPTION) 1975 1979 1982 UK 38 46 52 GERMANY 16 19 27 FRANCE 15 20 26 ITALY 21 27 36 NETHERLANDS 78 83 79 SOURCE: OECD, lEA ENERGY BALANCES. position, in this so-called premium market, at the expense of oil. The situa- tion in the power generation sector is totally different; nuclear energy and coal will provide stiff competition for natural gas, further reducing its share just to levels which would be necessary for operational reasons in the large interconnected power transmission networks. It is mainly in the Western European industrial sector where further opportunities for increased gas utilization exist, but in this sector natural gas has to compete basically with fuel oil at the burnertip. Recent trends indicate that natural gas has gradually been losing its competitive edge in the Western European industrial sector. (Share of natural gas in total industrial consumption has declined from 40% in 1975 to around 36% in 1982.) Recent price negotiations indicate that both indigenous producers as well as exporters to the region recognize the necessity of aligning their prices with alternative fuels, thereby ensuring that the substantial available supplies can enter new and expanding markets. 11 26. The demand for natural gas in Japan reflects not only its concerns with environmental issues, but also its policy to diversify sources of energy supplies and thereby reduce its reliance on petroleum. Energy plans for Japan indicate that in the power generation sector, dependence on LNG will grow from 13.5% in 1982 to around 25% in 1995. This can be realized despite the higher LNG prices (CIF gasloi1 parity) because gas burning power stations are located on the coast. Since the gas transmission and distribution network is rela- tively underdeveloped in Japan, any sizeable penetration in the residential and industrial energy markets would require large infrastructure investments which is bound to affect the competitive position of natural gas. As a 11 This is already happening as evidenced by the Libyan-Italian and UK-Norway contracts agreed at reportedly $3.45 and $4.20 per million BTU, respect- ively. - 82 - result, the growth of natural gas consumption in the residential/commercial and the industrial sectors is anticipated to be only modest. While natural gas supplied only about 6.5% of total Japanese primary energy consumption in 1982, its share is projected to increase to around 12% by 1995. Given the small magnitude of domestic production, demand will be met increasingly by imports of LNG which should exceed 90% of supplies throughout the period. 27. Natural gas does not have to overcome psychological and environmental barriers, as is the case for coal and nuclear power. The issues affecting its future development in the industrial countries remain availability, cost and security of supply. Despite the existence of extensive resources in the region and the potential for imports of large volumes from both the centrally planned economies and the developing countries, natural gas is likely to lose ground to nuclear power and coal in the power generation sector (except for Japan) wherein these alternative fuels have a substantial cost advantage. For the foregoing reasons, and because of the relatively tight future supply situation in the United States 1/ as well as the fact that natural gas prices are expected to remain linked to crude and petroleum product prices, the share of natural gas in the total primary energy consumption of industrial countries is projected to decline from 19.3% in 1982 to around 18.6% in 1995. As a result, the share of industrial countries in global natural gas consumption will diminish to 42.8% in 1995, down from 53.9% in 1982. 28. The outlook for natural gas demand in the centrally planned economies is considerably more positive. The natural gas resource endowment in the USSR--around 44% of the global proven reserves--will ensure that natural gas will increase its share of energy markets not only in the Soviet Union itself, but also in those of the Eastern European centrally planned economies. This movement will be further prompted by the need to conserve oil in order to maintain an exportable surplus for foreign exchange earning purposes. The share of natural gas in total primary energy consumption of the centrally planned economies is anticipated to grow from 26.8% in 1982 to 32.7% in 1995. Their share in global consumption of natural gas is also expected to rise from 35% in 1982 to 38% in 1995. 29. Since the first oil price increase of 1973/74, a growing number of developing countries have been looking to gas discoveries to supply their increasing energy requirements. More recently, sharply escalating oil prices have enhanced the economics of gas utilization, despite the considerable front end investments in production, transmission and distribution facilities. Recent Bank studies indicate that natural gas reserves (many of which have not been fully evaluated) exist in about 30 oil-importing developing countries. However, due to financial and investment constraints, production of gas in 1/ Office of Technology Assessment predicts annual natural gas deliverability from the existing proved reserves in the lower 48 states to decline sharply to around 8 trillion cubic feet by 1990 with a further drop to about 4 trillion cubic feet in 1995. US Natural Gas Availability, OTA, September 1983. - 83 - many countries runs well below the level that could be technically feasible. In a few countries where discoveries have been made in recent times (e.g. Thailand) or new reserves have been added to the existing reserves (e.g. Pakistan, Egypt and Bangladesh), new and enlarged gas development projects have already made sizeable quantities of gas available for domestic consump- tion. Natural gas is expected to make a small but important contribution in meeting the energy needs of the oil-importing developing countries. The share of natural gas in the total primary energy consumption of these countries is projected to increase from 3.9% in 1982 to 6.6% in 1995. 30. Historically, a part of the associated gas (produced with oil) has been used in the oil production, refining and pipeline activities of the oil- exporting developing countries. The development of gas ut ilization networks for the transport of gas to the power generation, industrial and '~es identiall commercial sectors started, in earnest, during the 1960 I S in many oil-exporting countries. During the 1970's, the oil price increase accele- rated this process. As a result the share of natural gas in total energy consumption of the oil-exporting developing countries rose from 21.7% in 1970 to 24.1% in 1982 and is projected to rise to around 31.5% by 1995. In recent years, due to the declining crude oil and, hence, associated gas production in the OPEC countries, much smaller quantities of gas have been flared. Estimates indicate that the amount of gas flared had been reduced from around 100 mtoe in 1980 to less than the equivalent of 50 mtoe by 1983. It is projected that the developing countries will continue to consume a growing part of their natural gas production, and their share in total world consumption will rise from 11.1% in 1982 to 19.2% in 1995. 31. Globally, the demand for natural gas is projected to grow at an average annual rate of 3.2% between 1982 and 1995, reaching around 1.9 billion tons of oil equivalent by that time (Table 7). The share of natural gas in total world energy consumption will rise from 18.7% in 1982 to 20.4% in 1995, reflecting the very rapid growth in the centrally planned economies and the developing countries. Supply Outlook 32. The enormous discoveries of the last two decades and the magnitude of proven gas reserves--estimated at 3,200 trillion cubic feet, equivalent to 530 billion barrels or around 73 billion tons of oil--have greatly enhanced the supply outlook for natural gas. Once considered as the fuel of the future because of its relatively underutilized reserves (with the reserves to pro- duction ratio standing at around 58 years at the beginning of 1983), its clean burning quality, the breadth of its end-use applications (except, perhaps, in some forms of transportation which might be overcome by either liquifaction or conversion to methanol) and the possibility of its manufacture from the abundant supplies of coal, natural gas will be called upon to supply a growing share of the global requirements for energy products. 33. However, the rapid development of natural gas supplies faces two important challenges: first, the geographical occurrence of the existing ~ ! TABLE 7: NATURAL GAS CONSUMPTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 1982 1990 1995 COUNTRIES/ECONOMIES MTOE % MTOE % MTOE % MTOE % MTOE % INDUSTRIAL 322.0 78.9 605.8 71.5 673.5 53.9 767.3 47.2 810.7 42.8 (Xl .I>- CENTRALLY PLANNED 68.2 16.7 188.9 22.3 436.6 35.0 601.6 37.0 719.2 38.0 DEVELOPING 18.4 4.4 52.9 6.2 139.0 11.1 256.9 15.8 364.3 19.2 WORLD 408.6 100.0 847.6 100.0 1,249.1 100.0 1,625.8 100.0 1,894.2 100.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED) - 85 - reserves are not proportionate to the regional markets; II and second, not only does the expansion of its domestic use call for large investments in production transmission and distribution facilities (in most cases an economic proposition) but its international movements are also constrained by the high cost of its transportation. Although national policies can promote or impede the development of natural gas, it is in the international arena where policies of gas producers may be at variance with the expectation of consumers, thus leading to under-development of resources. As discussed previously it appears that after a period of instability the production and pricing policies of many exporting countries are now perceptibly shifting in the direction of accommodating the demands of consumer. In fact, the relative softness of natural gas demand in the industrial countries in the recent years has not only affected the attitude of the national producers, it has also resulted in the conclusion of arrangements between exporters and consumers that can better respond to the realities of an evolving market. 34. Among the industrial countries, the situation in the United States is, perhaps, the least encouraging. The reserves to production ratio pre- sently stands at just under 11 years. As a result of intensified exploration activities promoted by the increases in gas prices in recent years, the addition to reserves has been substantial (a reversal of the previous trend). However, despite agreement among industry specialists that a large resource base still exists to be discovered and exploited, 21 there is a general belief that production of natural gas in the United States at around the present rate can only be maintained for a few more years, and that beyond 1990 indigenous supplies are likely to gradually decline. This appraisal is supported by the fact that production from existing proven reserves will drop to around 4 trillion cubic feet by 1995 (Para 27), indicating the enormous magnitude of the task facing the industry. Against this background, it is certain that supplies to the US market will have to continue to depend on imported gas, primarily from Canada and Mexico where reserves to production ratios are considerably higher. ~I Given the availability of large exportable II Reserves to production ratios stood at 18, 66, and 120 years in the industrial countries, the centrally planned economies and the developing countries, respectively (end of 1983) - Source: Oil and Gas Journal, Dec. 26, 1983. 21 In a recent OTA pUblication estimates range from 244-916 trillion cubic feet. Source: US Natural Gas Availability, Office of Technology Assess- ment, September 1983. 31 34 years in Canada and 60 years in Mexico - Source: Oil and Gas Journal, December 26, 1983. - 86 - quantities of gas from Canada to the United States, the overland movement of Alaskan North Slope gas to the lower 48 states with its attendant costs 1/ appears unlikely, though an LNG export project may still prove economic. 35. The discovery of large new reserves in the North Sea, albeit in considerably deeper waters, has improved supply prospects in Western Europe. Additions to reserves from both new discoveries and the reevaluation of the existing reserves have resulted in a moderate increase in the reserves to production ratios. As a consequence of these trends, in the latter part of 1983 the Netherlands government revised its previous policy of restricting natural gas sales in order to conserve resources. It granted permission to the operating company to enter into new internal and export sales contracts extending beyond the pres~nt term. In a related development, a high degree of offtake flexibility (practically all international gas contracts are of the take-or-pay kind) may be introduced in the exports from the Netherlands. Additional supplies of Norwegian gas will also be made available to Western Europe by the projected development of Heimdal and Sleipner gas fields starting in the late 1980's. This will happen as production from other North Sea structures such as Frigg enter a rapid depletion phase. The development of the largest Norwegian gas fields (Trall) will, however, depend on considerations other than pure economics. It is doubtful that the landed cost of gas from Trall into Western Europe can compete against gas available from other non-regional sources. In all probability, European perceptions of supply security will determine the fate of this and similar regional sources of natural gas. 36. Although Western Europe now possesses natural gas reserves that can last for 25 years at the present rate of production (a reserves to consumption ratio of 20 years), due to the long lead times between discovery and the delivery of gas to the distribution network, actual supplies are not antici- pated to exceed the current level of around 150 mtoe during the projection period. Consequently, Western Europe's dependence on indigenous supplies is projected to decline from 82% in 1982 to 62% in 1995. Recent discoveries in Australia have improved the prospects of natural gas production in the Pacific region. The existence of large sedimentary basins offshore from Australia and New Zealand will probably ensure that not only will increasing supplies become available for domestic consumption, but the resources will be capable of supporting important export projects, notably from Australia, for intra- regional trade. 37. The USSR has become the main producer of natural gas in the world, surpassing the United States by a wide margin. In recent years, supported by the gigantic proven reserves of gas, production has been growing at a rate in excess of 7% annually. The USSR's proven gas reserves have climbed to around 44% of total global reserves. The Western Siberian region presently contains around three-quarters of the USSR reserves. Among the mammoth fields of this 1/ Estimated at $28 billion for the transmission of 2 billion cubic feet/day (1981/82). - 87 - region, the Urengoi alone accounts for some 8% of the world total reserves i.e., approximately 6 billion tons of oil equivalent. Yamburg, with reserves half as large as those of Urengoi, is a second super giant. Together, the proven reserves of these two fields are just under twice the total proven natural gas reserves of the United States and considerably more than twice those of Western Europe. Facing, on the one hand, increasingly difficult problems in the development and transportation of coal deposits which are, for a large part, located in Siberia and the Asian Republics (far from the industrial and population centers of western regions) and , on the other, the upper limits of sustainable oil production, the USSR has been following a very aggressive policy in the development of its gas reserves in recent years. Many large-inch (48-56 inch diameter) pipelines are simultaneously under construction for completion during the 1980's and early 1990's; one of which is the much talked about 'Yamal' pipeline, intended to transport gas to Western Europe, with a capacity of around 1.4 trillion cubic feet per year. 38. During the present economic plan period (198l-85), gas production in the USSR has consistently exceeded the planned figures. In fact, natural gas has mostly met the increased energy demands of an economy which remains much more energy-intensive than those of the industrialized market economies. In addition, increasing quantities of natural gas have been exported to Eastern European centrally planned economies in order to compensate for the recent reductions in USSR oil exports. Romania remains the second ranking natural gas producer among the centrally planned economies. Its production appears to have reached a plateau with the possibility of a gradual decline towards the beginning of the 1990's. For the region as a whole, the share of natural gas in total primary energy production is projected to increase from 26% in 1982 to around 34% in 1995. At the same time, the share of this region in total global natural gas production is anticipated to rise from 36.6% in 1982 to 40.8% in 1995. 39. As mentioned earlier, the existence of natural gas has been estab- lished in some 30 oil-importing developing countries. In a number of these countries natural gas has been commercialized and extensive investments are afoot for its further development. In most instances, the availability of supplies is determined by the pace at which individual countries can allocate financial resources to the evaluation of reserves, development and distri- bution of natural gas. Studies carried out by the Bank indicate that, in all cases where sufficient reserves have been proven, the cost of gas at the distribution gate is below the cost of imported petroleum products. 1/ A few countries that were initially inclined to think in terms of exporting their newly-discovered gas are becoming increasingly convinced about its priority use 1n the domestic market. 40. The supply prospects in the oil-exporting developing countries are, as always, very impressive. Not only does 37% of the global proven reserves 1/ Source: The Energy Transition in Developing Countries, The World Bank, August 1983. - 88 - lie in these countries, but also a considerable volume of natural gas is involuntarily produced in association with oil. Despite the rapid penetration of gas in the domestic energy markets of the oil-exporting developing coun- tries and its reinjection in certain reservoirs, substantial quantities of gas are still being flared, due to either underdevelopment of the gas market or its size. In most countries which have, as yet, not joined the rank of gas exporters, for example Saudi Arabia, Egypt, Iraq, Venezuela and Kuwait, national policies call for extensive use of gas by, among other measures, the creation of energy intensive industries. Among the oil-exporting developing countries, Kuwait is the first country where declining gas supplies (due to the sharp drop in oil production) may necessitate imports of natural gas in order to feed gas-dependent industries and other installations. However, gi ven the magni tude of the proven reserves in a number of gas-export ing countries and their own domestic needs, continuation of exports beyond the turn of the century appears to be highly improbable unless large new reserves are discovered. A few countries, notably Algeria, Qatar and Iran have sufficiently large reserves to fill the gap which may develop as exi st ing exporters gradually leave the scene. 41. During the projection period, only a few countries may be added to the list of existing gas exporters. Qatar, with its enormous gas reserves is obviously the prime candidate, and its exports can initially be aimed at the regional markets. The timing of an LNG project in Qatar will depend very much on the development of gas exports from other sources to Western European and Japanese markets. Nigeria, Cameroon and Thailand are the other candidates, though the evolution of pricing formula and the economics and availability of shorter-haul LNG or piped gas from existing exporters might preclude the realization of these plans. Many recent studies addressing the economics of long-haul LNG or piped gas exports indicate that the landed cost of gas in the major gas importing regions is such as to result in very modest financial netbacks to the producing countries. Unless energy prices increase at a rate well in excess of what is projected, or special circumstances arise, the emergence of new exporters of long-haul gas from among the developing coun- tries appears to be doubtful. In this context, the expansion of regional trade among a few Latin American countries is a distinct possibility (e.g. Argentina-Chile). In view of these considerations the share of developing countries in the total supply of gas is projected to rise from 13.7% in 1982 to 24.6% in 1995 (Table 8). In turn, the share of oil-exporting developing countries in the total supply of gas is expected to rise to 18.2% in 1995, up from 10.1% in 1982. 42. Large scale prOduction of gas from coal or through other processes is facing intractable problems. Despite US government support (in the form of loan guarantees), the single most important project at Beulah, North Dakota in the United States is reportedly unable to reach viability unless the gas is sold at nearly twice the prevailing market price--a price that would be higher than that of landed LNG. It is now becoming increasingly clear that the large scale production of synthetic gas will recede into the more distant future with only marginal quantities being produced by 1995. TABLE 8: NATURAL GAS PRODUCTION BY ECONOMIC REGION, 1961-1982 (ACTUAL) AND 1990-1995 (PROJECTED) 1961 1970 1982 1990 1995 COUNTRIES/ECONOMIES MTOE % MTOE % MTOE % MTOE % MTOE % INDUSTRIAL 325.3 78.9 610.9 71.3 625.4 49.7 650.3 40.0 654.5 34.6 00 \0 CENTRALLY PLANNED 67.8 16.5 188.4 21.9 460.8 36.6 648.4 39.9 773.5 40.8 DEVELOPING 19.6 4.6 58.0 6.8 172.0 13.7 327.2 20.1 466.2 24.6 WORLD 412.7 100.0 857.4 100.0 1,258.2 100.0 1,625.8 100.0 1,894.2 100.0 ------------------------------------------------------------------------------------------------------------------ SOURCE: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED) - 90 - International Trade Outlook for Natural Gas 43. Since 1979, the international trade in natural gas has stagnated around 160-170 mtoe, mainly due to the declining demand in the industrial countries and the pricing disagreement that suspended exports from some deve- loping countries. Intra-regional trade, however, still accounts for the bulk of this trade. By 1982, trade among industrial countries amounted to 74 mtoe, while centrally planned economies traded nearly 26 mtoe among themselves. Thus, inter-regional trade accounted for only 36% of total international gas trade. 44. The USSR will emerge as the largest single exporter of gas both to the other European centrally planned economies and Western Europe. Exports from the Soviet Union are projected to grow from around 52 mtoe in 1982 to 145 mtoe in 1995. Although the greater part of these exports will be directed to other European centrally planned economies, it is anticipated that exports to Western Europe will also increase rapidly to reach 64 mtoe by 1995, a level some 250% higher than that achieved in 1982. The share of the European centrally planned economies in the total exports from the USSR will increase from 50% in 1982 to 55% in 1995. 45. In the industrial countries, the three large exporters, namely the Netherlands, Norway and Canada will be joined by Australia as exports of LNG to Japan begin by the late 1980's. Since regional demand exceeds supplies, practically all exports from industrial countries will flow into intra- regional trade, which is projected to remain fairly stable around 70-80 mtoe throughout the period to 1995. 46. While some quantities of gas will continue to flow between the developing countries and the centrally planned economies--e.g., Afghanistan to the USSR--and between developing countries themselves--e.g., Bolivia to Argentina, Indonesia to South Korea--the bulk of exports from developing countries will enter the industrial countries. In addition to the export of increasing quantities of natural gas from the established exporters, a growing share of LNG exports may come from Qatar, Nigeria and possibly Cameroon. Malaysia began exports of LNG in 1983. The share of developing countries in the inter-regional net trade should grow from 56% in 1982 to 65% in 1995. 47. Despite the relatively abundant resources of natural gas, the physical characteristics of this fuel and its highly capital-intensive, costly and inflexible modes of transportation to the consumers have not permitted a rapid development of international trade in natural gas. Due to the enormous investments involved in natural gas import/export projects, the trading agreements normally cover three basic issues: first, a long duration for the contract; second, a take-or-pay arrangement with a nominal tolerance (say 10% on the lifted quantities, normally at the option of the buyer); and third, a pricing formula which is usually indexed to a basket of crude oil and/or petroleum products. Once implemented, these projects have a throughput capacity that cannot be easily altered. The above contractual provisions are usually meant to insure the seller against risks because it is usually the seller that shoulders the largest part of the investment. The buyer, too, - 91 - normally incurs substantial capital costs in providing the onshore facilities and the expansion of the domestic transmission and distribution systems. In many cases the capital costs involved in the procurement of cryogenic tankers may be shared between the sellers and the buyers. 48. Although the buyer's primary consideration is the price of natural gas, he is also interested in the security of supply and if practicable a delivery schedule that would match his load profile--larger winter offtake because of the residential and commercial load. Once a decision to export is made, the seller too is interested not only in the security of demand, but also in regularity of offtake, both of which affect his netback price. The fact that both sellers and the buyers have, in recent years, suspended delivery and offtake of gas, has cast a shadow over the reliability of the international gas trade. Price Outlook 49. Pending legislation in the United States, once enacted, will deter- mine to what extent the US natural gas industry will be deregulated. Although it is unlikely that any decontrol will encompass the activities of the pipe- line companies, the system will most probably be freed of much of the existing distortions. Prices in the market and at the wellhead will, therefore, have to become increasingly responsive to interfuel competition. Since the price of imported gas from both Canada and Mexico--currently standing at $4.40 per million BTU--is higher than average US domestic prices, it may have to be lowered, in the short term, especially if the exporters desire to sell increasing quantities of gas to this already glutted market. With the avail- ability of imported gas at around $4-4.50 per million BTU, a revival of the LNG trade from Algeria appears very remote. The probable modification of the "roll-in" pricing regulation is likely to preempt, for a long time, the reentry of imported LNG in the US gas market. SO. Since natural gas is primarily used in the coastal power stations in Japan, and its clean-burning qualities are highly valued, it commands a elF price based on crude oil heat content parity (Japan also burns some 13 million tons of crude oil directly in its power stations). Higher prices to the Japanese market are a reflection of the higher LNG infrastructure costs. While imports of piped gas are available in the North American and Western European markets, all imports into Japan have to be transported in the form of LNG. The large margin between the elF price of gas and the price charged to residential/commercial and industrial sectors 1/ is likely to discourage further penetration of natural gas in these markets, keeping natural gas prIces close to crude oil or low-sulphur fuel oil on a elF heat content parity basis. 1/ The average 1980 elF price was around $5 per million BTU, while prices to the residential and industrial sectors were $11 and $10 per million BTU, respectively. Source: Petroleum Economics Limited. - 92 - 51. In Western Europe, where initially the market expanded through the availability of large volumes of Dutch and later North Sea gas, the regional trade is at prices reflecting those of heating and fuels oils (around 80% of crude oil parity). This market appears, also, to recognize the higher infra- structural costs of LNG trade and, therefore, accepts a higher price as exemplified by the agreements reached between Gaz de France and Snam with Sonatrach. In the short and medium run (probably through this decade) Western Europe will enjoy large regional supplies enabling it to enter import agreements at advantageous prices. The reopening of negotiations between Belgium and Algeria, the long-drawn discussions between Spain and Algeria and the possible renegotiations between Germany and France with the USSR are but a few examples indicating the new trend. Since currently the export capacity to Western Europe is much in excess of the quantity demanded, the appearance of spot prices is a distinct possibility. Such a mechanism would make it possible for natural gas to aggressively enter the industrial market where the competition comes from low-sulphur fuel oil. But as Netherland I s reserves decline and Norway's gas becomes more expensive to extract, and as increasing quantities of gas flow into the residential and commercial end-uses, exporters will attempt to bring the spot price closer to longer term base prices. 52. Thus, while internationally traded natural gas will remain indepen- dently priced in these major markets, prices will stay somewhat depressed until the current gas glut, particularly in the United States and Western Europe, is worked off (probably by 1986). Thereafter, as increasing quantities are consumed in the premium residential and commercial markets, and as the marginal cost of new gas rises, internationally traded prices, on a heat content basis, will gradually move in the direction of a price based on an average of heating and low-sulphur fuel oil prices. By the end of the projection period landed prices of natural gas into the United States and Western European markets could approach the Japanese elF crude oil heat value parity. 53. The prices of intra-regional trade in developing countries will not only reflect the traditional agreements, but also follow the other trends as they unfold around the world. For instance, the contract between South Korea and Indonesia is based on the prevailing arrangements in the Pacific region between Japan and its many suppliers. ANNEX TABLE 1: NATURAL GAS - SUMMARY OF WORl.D PRODUCTION. APPARENT CONSUMPTION AND TRADE BY ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROtJECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONDMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- --------T--(% PER ANNUM)----------- PROQUCTION INDUSTRIAL 411.8 611.9 672.0 682.7 625.4 622.4 650.3 654.5 3.6 0.1 -1.8 0.5 CENTRALLY PLANNED 137.3 198.2 279.8 403.9 460.8 528.4 648.4 773.5 8.4 7.9 5.5 3.9 DEVELOPING 32.7 57.5 102.2 155.1 172.0 223.8 327.2 466.2 11.2 9.5 7.6 7.6 WORLD 581.8 867.7 1,054.0 1.241.7 1.258.2 1,374.5 1,625.8 1.894.2 5.5 3.1 2.1 3.3 MEMO ITEM: INDUSTRIAL & DEVELOPING 444.5 669.5 774.2 837.8 797.4 846.1 977.4 1.120.7 4.5 1.3 0.2 2.8 APPARENT CONSUMPTION INDUSTRIAL 407.4 607.6 684.1 721.2 673.5 705.5 767.3 810.7 4.0 0.7 -0.4 1.4 CENTRALLY PLANNED 137.3 199.9 278.5 384.1 436.6 498.3 601.6 719.2 8.1 7.1 5.3 3.7 DEVELOPING 31.0 51.5 81.6 124.1 139.0 170.8 256.9 364.3 9.9 8.7 e.6 7.9 WORLD 575.7 859.0 1.044.2 1.229.3 1.249.1 1,374.5 1.625.8 1.894.2 5.5 3.1 2.3 3.3 \.0 MEMO ITEM: W INDUSTRIAL & DEVELOPING 438.4 659.1 765.7 845.3 812.5 876.2 1,024.2 1.175.0 4.6 1.6 0.7 3.0 GROSS EXPORTS INDUSTRIAL 10.9 32.3 66.6 86.2 74.5 72.3 75.6 83.5 14.7 8.8 -3.4 1.4 CENTRALLY PLANNED 0.6 3.3 16.5 43.9 52.3 69.8 110.1 145.6 30.4 29.7 9.7 7.6 DEVELOPING 1.9 6.4 22.6 34.2 36.6 56.1 85.2 130.9 21.4 14.4 10.4 8.8 WORLD 13.4 42.0 105.6 164.3 163.3 198.2 271.0 360.0 17.8 13.1 3.8 6.1 MEMO ITEM: INDUSTRIAL & DEVELOPING 12.8 38.7 89.1 120.4 111. 1 128.4 160.9 214.4 16.1 10.0 1.3 5.3 GROSS IMPORTS INDUSTRIAL 13.0 35.1 85.4 135.1 131.5 155.5 192.7 239.7 16.8 12.1 2.8 4.4 CENTRALLY PLANNED 0.6 6.0 18.9 25.7 28.2 39.7 63.4 91.2 27.8 12.5 9.1 8.7 DEVELOPING 0.2 0.3 1.9 3.2 3.6 3.1 14.9 29.1 18.9 18.7 -1.0 25.2 WORLD 13.8 41.4 106.2 164.1 163.3 198.2 271.0 360.0 17 .9 12.3 3.9 6.1 MEMO ITEM: INDUSTRIAL & DEVELOPING 13.2 35.4 87.3 138.4 135.1 158.5 207.6 268.7 16.9 12.2 2.8 5.4 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PROtJECTEO PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PROtJECTIONS DEPARTMENT (PROtJECTED). ANNEX TABLE 2: NATURAL GAS - PRODUCTION BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO.JECTED GROWTH RATES/A AVERAGES CoUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 411.8 611. 9 672.0 682.7 625.4 622.4 650.3 654.5 3.6 0.1 -1.8 0.5 N. AMERICA 391. 7 533.4 517.9 513.6 471.0 465.0 484.0 472.0 2.1 -1. 1 -2.0 0.1 UNITED STATES 360.3 484.2 452.6 446.3 405.5 401.0 410.0 390.0 1.6 -1.5 -2.1 -0.3 CANADA 31.4 49.2 65.3 67.2 65.5 64.0 74.0 82.0 6.5 1.8 -1.0 2.5 EEC-9 16.4 73.2 144.7 134.5 117.6 118.8 115.1 115.5 15.4 3.3 -2.4 -0.3 NETHERLANDS 1.7 34.3 74.8 68.6 54.5 52.6 48.8 49.8 31.1 3.9 -5.2 -0.5 UNITED KINGDOM 0.2 10.6 33.4 32.4 31.3 35.5 37.0 38.0 40.9 6.7 1.9 0.7 OTHER W. EUROPE 1.7 1.7 2.3 23.9 23.5 23.7 29.7 38.5 15.0 32.0 -0.1 5.0 NDRWAY 0.2 22.3 22.4 22.1 27.7 36.5 149.1 149.1 -0.1 5.1 .JAPAN 1.9 2.4 2.6 2.1 1.8 2.0 3.0 4.0 2.3 -2.3 -1.2 7.2 OCEANIA 0.0 1.2 4.5 8.6 11.4 12.8 18.5 24.5 71.5 17.0 8.2 6.7 CENTRALLY PLANNED 137.3 198.2 279.8 403.9 460.8 528.4 648.4 773.5 8.4 7.9 5.5 3.9 1.0 .po USSR 118.1 166.3 237.1 355.7 408.7 476.8 601.5 726.5 8.7 8.5 6.0 4.3 E. EUROPE 19.2 31.9 42.7 48.2 52.1 51.5 46.9 47.0 7.0 4.1 1.4 -0.9 ROMANIA 16.0 23.2 29.9 34.4 38.5 37.4 33.5 33.5 5.9 4.2 1.7 -1.1 DEVELOPING 32.7 57.5 102.2 155.1 172.0 223.8 327.2 466.2 11.2 9.5 7.6 7.6 ASIA 10.1 25.2 53.2 73.6 79.3 101.9 148.7 223.1 14.4 9.8 6.7 8.2 IRAN 1.2 9.4 18.7 9.5 8.5 10.1 13.3 21.8 16.1 -5.1 1.3 8.0 INDONESIA 2.8 1.6 2.2 13.1 15.2 24.0 31.6 45.1 8.0 30.4 12.8 6.5 AFRICA 1.5 3.3 10.5 22.4 25.4 41.8 69.9 95.1 24.3 18.6 13.3 8.6 ALGERIA 1.4 2.9 6.2 16.5 20.1 31.2 40.1 50.1 21.9 19.1 13.6 4.9 NIGERIA 0.1 0.1 0.4 1.0 1.4 3:6 13.5 18.6 22.5 24.7 28.2 17.8 AMERICA 20.7 28.0 36.8 57.2 65.6 76.2 102.9 140.3 7.1 7.2 5.9 6.3 MEXICO 8.4 10.2 12.2 25.0 29.8 32.1 45.9 69.0 7.0 9.9 5.1 8.0 ARGENTINA 3.4 4.8 6.1 7.6 9.2 10.7 16.2 22.6 6.2 4.7 7.2 7.7 VENEZUELA 6.4 8.7 11.5 14.1 15.3 17.1 19.6 21.8 5.5 4.3 4.0 2.5 S. EUROPE 0.4 1.0 1.7 1.9 1.7 3.9 5.7 7.2 13.4 4.5 15.2 6.5 WORLD 581.8 867.7 1.054.0 1.241. 7 1.258.2 1.374.5 1.625.8 1.894.2 5.5 3.1 2.1 3.3 MEMO ITEM: INDUSTRIAL a DEVELOPING 444.5 669.5 774.2 837.8 797.4 846.1 977.4 1.120.7 4.5 1.3 0.2 2.8 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO.JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS a PRD.JECTIONS DEPARTMENT (PRO.JECTEO). ANNEX TABLE 3: NATURAL GAS - APPARENT CONSUMPTION BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRD.JECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 - -----------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 407.4 607.6 684.1 721.2 673.5 705.5 767.3 810.7 4.0 0.7 -0.4 1.4 N. AMERICA 387.0 527.3 511. 7 509.3 468.2 471.4 492.1 487.1 2.1 -1.0 -1.5 0.3 UNITED STATES 368.8 497.3 470.7 462.4 421.4 423.5 437.4 425.3 1.7 -1.4 -1.7 0.0 CANADA 18.2 30.0 41.0 46.9 46.8 47.8 54.7 61.9 7.6 3.6 0.4 2.6 EEC-9 16.8 73.0 153.0 174.0 162.9 179.7 204.7 226.5 17.0 5.9 0.6 2.3 GERMANY. F.R. 2.5 13.8 37.5 47.1 41.6 45.0 53.8 58.5 24.1 9.2 -0.9 2.7 UNITED KINGDOM 0.6 11.5 34.2 41.3 40.7 45.4 47.1 50.3 38.1 9.0 1.9 1.0 ITALY 7.1 11.3 20.4 22.9 23.0 26.9 31.6 35.7 8.1 6.5 3.2 2.9 OTHER W. EUROPE 1.7 2.9 6.7 8.1 8.2 9.6 14.7 11. 1 8.9 3.4 8.0 .JAPAN 1.9 3.2 8.3 21.1 22.8 . 32.0 40.3 20.8 57.8 16.9 20.2 8.7 6.1 OCEANIA 0.0 1.2 4.5 8.6 11.4 12.8 15.5 18.5 71.5 17.0 8.2 3.8 1.0 CENTRALLY PLANNED 137.3 199.9 278.5 384.1 436.6 498.3 601.6 719.2 8.1 7.1 5.3 3.7 \J1 USSR 117.8 166.1 227.2 314.3 359.3 410.1 495.9 591.4 8.0 7.0 5.5 3.7 E. EUROPE 19.6 33.9 51.3 69.7 77.3 88.1 105.7 127.7 9.1 7.5 4.8 3.8 ROMANIA 15.8 23.0 29.7 35.5 39.9 41.6 42.9 43.4 6.2 4.7 3.2 0.4 DEVELOPING 31.0 51.5 81.6 124.1 139.0 170.8 256.9 364.3 9.9 8.7 6.6 7.9 ASIA 10.1 21.4 3.8.9 52.4 57.2 69.6 111. 9 163.6 12.0 8.5 5.8 8.9 SAUDI ARABIA 0.9 0.5 0.5 2.6 4.2 4.9 10.3 19.6 23.6 79.0 14.1 14.8 IRAN 1.2 7.6 11. 1 7.8 8.5 10.1 13.3 17.8 14.0 -2.2 5.4 5.8 AFRICA 0.9 1.7 4.0 13.0 15.6 22.3 38.1 54.2 21.3 22.4 11.4 9.3 ALGERIA 0.8 1.4 2.7 9.1 10.9 12.5 15.7 19.8 19.1 20.8 6.5 4.7 AMERICA 19.7 27.4 37.0 55.5 62.8 74.0 98.9 .134.3 7.4 6.9 5.9 6.1 MEXICO 7.4 9.6 12.4 23.3 27.1 29.9 41.9 63.0 7.8 9.3 5.1 7.7 ARGENTINA 3.4 4.8 7.5 9.4 11. 1 12.8 18.1 24.5 7.8 6.2 6.4 6.7 S. EUROPE 0.4 1.0 1.7 3.1 3.5 4.9 7.9 11.8 16.1 10.7 9.3 9.3 WORLD 575.7 859.0 1.044.2 1.229.3 1.249.1 1.374.5 1.625.8 1.894.2 5.5 3.1 2.3 3.3 MEMO ITEM: INOUSTRIAL 80 DEVELOPING 438.4 659.1 765.7 845.3 812.5 876.2 1.024.2 1.175.0 4.6 1.6 0.7 3.0 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); ENO-POINT FOR PRO.JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANI<. ECONOMIC ANALYSIS 80 PRO.JECTIONS DEPARTMENT (PRO.JECTED). ANNEX TABLE 4: NATURAL GAS - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROJECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INDUSTRIAL 10.9 32.3 66.6 86.2 74.5 72.3 75.6 83.5 14.7 8.8 -3.4 1.4 N. AMERICA 10.8 21.3 25.4 21.3 18.9 17.4 20.5 20.1 5.7 -2.0 -4.0 1.5 CANADA 10.2 19.6 23.6 20.1 17.8 16.2 19.3 20.1 5.8 -1.8 -4.2 2.2 EEC-9 0.1 11.0 41.2 43.4 34.0 33.9 26.1 23.3 56.0 14.3 -4.8 -3.7 NETHERLANDS 0.1 11.0 40.5 40.1 29.6 27.8 22.0 20.0 55.1 13.4 -7.0 -3.2 OTHER W. EUROPE 0.0 0.0 21.5 21.6 21.0 26.1 34.1 190.4 190.4 -0.4 4.9 NORWAY 21.5 21.6 21.0 26.0 34.0 40.8 40.8 -0.4 4.9 CENTRALLY PLANNED 0.6 3.3 16.5 43.9 52.3 69.8 110. 1 145.6 30.4 29.7 9.7 7.6 \0 USSR 0.5 3.1 16.2 43.5 51.6 69.1 109.3 144.7 33.9 30.3 9.7 7.7 '" DEVELOPING 1.9 6.4 22.6 34.2 36.6 56.1 85.2 130.9 21.4 14.4 10.4 8.8 ASIA 0.1 3.8 14.7 21.3 22.1 32.3 43.9 73.2 42.1 14.3 8.7 8.5 INDONESIA 9.3 11.3 19.0 23.8 34.0 62.8 62.8 15.3 6.0 AFRICA 0.6 1.6 6.5 9.4 9.9 19.5 31.8 40.9 21.9 14.4 15.8 7.7 ALGERIA 0.6 1.5 3.5 7.4 9.2 18.7 24.4 30.3 19.2 16.9 20.4 4.9 AMERICA 1.2 0.9 1.4 3.5 4.6 4.3 9.6 16.8 5.4 15.8 4.2 14.6 WORLD 13.4 42.0 105.6 164.3 163.3 198.2 271.0 360.0 17.8 13. 1 3.8 6.1 MEMO ITEM: INDUSTRIAL & DEVELOPING 12.8 38.7 89.1 120.4 111. 1 128.4 160.9 2.14.4 16.1 10.0 1.3 5.3 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PROJECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). ANNEX TABLE 5: NATURAL GAS - GROSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC REGIDNS ACTUAL ( 1964-1982 ) PRO,JECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- I NOUSTRIAL 13.0 35.1 85.4 135.1 131.5 155.5 192.7 239.7 16.8 12.1 2.8 4.4 N. AMERICA 12.3 21.6 24.4 25.1 22.5 23.7 28.6 35.3 5.4 -0.2 -1.1 4.0 UNITED STATES 11.7 21.1 24.1 25.1 22.5 23.7 28.6 35.3 5.7 0.0 -1.1 4.0 EEC-9 0.7 11.4 50.9 84.9 81.8 94.8 115.7 134.3 48.3 17.9 2.2 3.5 GERMANY. F.R. 0.0 3.6 21.6 34.9 32.9 36.5 43.8 48.0 59.9 19.9 0.9 2.8 FRANCE 0.2 3.2 11. 1 16.7 16.8 19.2 24.0 26.4 27.5 14.2 2.8 3.3 BELGIUM-LUXEM. 0.0 3.7 10.0 9.9 7.9 8.6 10.3 12.3 23.8 5.5 -2.9 3.7 ITALY 0.0 7.4 12.1 12.2 17.9 24.1 29.7 41.0 41.0 8.0 5.2 UNITED KINGDOM 0.5 0.9 0.8 8.9 9.4 9.9 10.1 12.3 20.5 30.8 2.2 2.2 OTHER W. EUROPE 1.2 4.4 6.2 6.2 6.9 11. 1 16.4 20.7 14.4 2.4 9.0 \.0 ..... ,JAPAN 0.8 5.7 18.9 21.0 30.0 37.3 53.8 42.3 33.0 9.6 6.0 CENTRALLY PLANNED 0.6 6.0 18.9 25.7 28.2 39.7 63.4 91.2 27.8 12.5 9.1 8.7 USSR 3.9 9.9 3.3 2.3 2.4 3.7 9.6 6.2 -8.9 -6.1 14.9 E. EUROPE 0.6 2.1 9.1 22.4 25.9 37.3 59.7 81.6 25.9 25.6 10.7 8.2 DEVELOPING 0.2 0.3 1.9 3.2 3.6 3.1 14.9 29.1 18.9 18.7 -1.0 25.2 ASIA 0.0 0.3 0.2 7.1 13.7 33.6 33.6 AMERICA 0.2 0.3 1.6 1.8 1.9 2.1 5.6 10.8 15.4 13.0 2.6 17.9 S. EUROPE 1.2 1.8 1.0 2.2 4.6 74.4 74.4 -3.9 16.5 WORLD 13.8 41.4 106.2 164.1 163.3 198.2 271.0 360.0 17.9 12.3 3.9 6.1 MEMO ITEM: INOUSTRIAL & DEVELOPING 13.2 35.4 87.3 138.4 135.1 158.5 207.6 268.7 16.9 12.2 2.8 5.4 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82): END-POINT FOR PRo,JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PRo,JECTIONS DEPARTMENT (PRO,JECTED). - 98 - COAL Summary 1. Uncertainties surrounding the US United Mine Workers' contract renewal led to a sharp rise in June in the international export price of thermal coal (FOB Hampton Roads/Norfolk), which is expected to average about US$49 per ton for 1984 in current terms. The price is projected to remain at this level in 1985, on the expectation that the price will fall below the current level in the absence of a prolonged strike but rise above that of the first half of 1984 because of substantially improved demand prospects for next year. The price in real terms (deflated by the US GDP deflator) is projected to increase at 1.3% p.a. between 1985 and 1995 under the assumption of 2.0% p.a. increases in the cost of mining and constant cost of transportation from mines to export terminals. 2. World demand for coal is projected to increase at 2.7% p.a. between 1982 and 1995, a rate slightly faster than that between 1970 and 1982. The continuation of substitution of coal for petroleum and natural gas in base- load thermal power generation and certain industrial sectors will provide the main source of growth for the demand for thermal coal in the 1980s and the first half of the 1990s. The prospects for coal demand depend critically on petroleum prices; future petroleum prices higher than those projected in this report would significantly accelerate the substitution process and expand the coal market even in coal-importing countries and in industrial sectors. 3. World coal resources are more than adequate to meet the increasing demand for thermal coal to 1995 and beyond. Currently, reserves and produc- tion are heavily concentrated in the major coal-producing countries (United States, Canada, Australia, South Africa, India, Poland, USSR, and China), but the potential exists for several developing countries to become important producers and exporters. It is also these major producing countries that will provide the bulk of future increases in coal production. The long-run supply curve of coal in the major producing countries is estimated to be sloping upward only at the rate of 0.5-1.0% p.a. at the current rate of production and the current level of factor prices. 4. The international coal market has been basically competitive and is likely to maintain this structure in the foreseeable future. World exports of coal are projected to increase at 5.7% p.a. between 1982 and 1995, a rate much faster than that of world consumption growth. The main reason for this is the projected rapid increases in international thermal coal trade, which had been virtually nonexistent until the second half of the 1970s. The international coal trade is likely to benefit from the competitive pressure of the ocean shipping industry, through gradual proliferation of large-scale bulk coal carriers. - 99 - Salient Features of the World Coal Market 5. There are three broad categories of coal--anthracite, bituminous and sub-bituminous coal, and lignite--but the bituminous and sub-bituminous coals are the most common type, accounting for approximately 70% of world production of all coals by weight. Within each of these types, however, one can find wide variations in quality in terms of heat value, sulfur and ash content, and other impurities. 6. Some bituminous coals have "caking" properties when heated in the absence of air. These are known as coking or metallurgical coals. About 19% of world coal consumption consists of metallurgical coal (see Table 2). The noncoking coal is also known as steam or thermal coal. Technological advances have made it possible to blend, to some extent, coking and noncoking coals in production of cokes. Only a small number of countries have data on proven reserves of metallurgical coal. The total of these reserves (75 billion tons) amounts to 18% of the world's proven recoverable reserves of anthracite and bituminous coals. 11 7. The two basic methods of coal m1n1ng are underground mining ;md open- cast or surface mining. The degree of mechanization in underground mining varies from primitive manual methods in some developing countries to highly mechanized continuous mining in North America and longwall mining in Europe. Surface mining usually involves heavy excavation machines and transport equip- ment. The choice of mining technology and capital-labor mix depends on relative factor prices as well as geological conditions. Production costs of surface mines are usually substantially lower than those of underground mines, because of higher labor productivity, greater economies of scale, and faster development. This substantial difference in production costs has led to steady increases in the share of surface-mine production. 8. The iron and steel industry accounts for the bulk of metallurgical coal consumption. A close technical relationship between coking coal input and steel output governs the demand for coking coal. The largest market for thermal coal is the electric power industry. It currently accounts for about 70% of all thermal coal consumption outside the centrally planned economies. The industrial sector, excluding the iron and steel industry, uses another 20% and the residential/commercial sector accounts for the rest. The use of steam locomotives in some developing countries accounts for a small amount of thermal coal use in transportation. 11 About 20% of the US proven recoverable reserves of coal is metallurgical. In Australia and West Germany, metallurgical coal reserves are close to 60% of their total bituminous coal reserves, while South African coal is mostly nonmetallurgical. See US Energy Information Administration, Historical Overview of US Coal Exports, 1973-1982, November 1983, and Coal Data--A Reference, October 1982. - 100 - 9. The coal m~n~ng industry has been basically competitive in the main coal producing industrial countries; the industry consists of a large number of mining companies in the United States, Australia, and South Africa. In other coal-producing countries, the industry either is part of the public sector (the United Kingdom, India, and the centrally planned economies) or is subject to government participation and control (Federal Republic of Germany, Republic of Korea, and many Western European and developing countries). Price competition also has been a characteristic of the international coal market. 1/ International ocean-borne trade in thermal coal became important only afte; the quadrupling of petroleum prices in 1973-74. 10. Costs of coal transportation constitute a major component of the CIF price of coal to the coal-importing countries. Table 1 shows the transporta- tion cost components as of mid-1983 for the main international flows of coal. Coal is carried from mines to export terminals (ports) primarily by unit trains and then to import terminals by ocean bulk carriers. The rail and ocean transportation industries operate under widely different market and industry structures. The rail transportation industry, whether private or nationalized, serves captive markets and enjoys near monopoly power. Alternatives to rail transportation (for example, coal slurry pipelines) have not yet offered serious compet~t~ve pressure to the rail transportation industry and are not likely to do so in the near future. As a result, the rail freight rate in most of the coal-exporting countries (particularly, the United States and Australia) has been maintained at high levels, considerably above the cost. The ocean shipping industry, on the other hand, can be characterized as being essentially a competitive industry. Ocean freight rates for coal have declined considerably in recent years not only because of global recession and reduced international trade but also because of increasing proliferation of large coal vessels of 100,000-150,000 DWT class. For example, it now costs less than $5 per ton to ship a large (100,000 tons and above) cargo of coal from the US east coast to the major Western European ports, compared with the lowest available freight rate of $15 per ton in early 1981 for the same route. 11. An array of environmental problems are associated with the coal fuel cycle, significantly distracting from its cost advantage. Combustion of coal produces such pollutants as sulfur oxides, carbon monoxide and dioxide, particulates, and organic compounds and trace metal s. Among these, sulfur oxides pose the most serious and costly pollution problem. Methods of coping with sulfur oxide emissions have been primarily twofold: one is to burn low- sulfur coal and the other is to use one of the available flue gas desulfuriza- tion (FGD) technologies, or "scrubbers." FGD systems have overcome many of the efficiency and reliability problems encountered initially, and now are widely accepted. Typical systems can eliminate 95% of sulfur oxides from flue gas. With ever-stringent sulfur emission standards being imposed in industrial countries, application of FGD technologies is expected to expand 1/ For a dissenting view, see David S. Abbey and Charles D. Kolstad, "The Structure of International Steam Coal Markets," Los Alamos National Laboratory, LA-UR-82-l869, 1982. - 101 - TABLE 1: TRANSPORTATION COST STRUCTURE, 1983 (US$/TON) INLAND IA PORT IA OCEAN IB RAIL TRANSPORT CHARGES FREIGHT TOTAL TO WESTERN EUROPE EASTERN UNITED STATES 16.5 ~ 17 .6 0.6 ~ 1.0 4.5 ~ 6.0 21.6 ~ 24.6 WESTERN UNITED STATES 23.0 - 26.0 5.0 8.0 - 9.0 36.0 - 40.0 AUSTRALIA 1.5 - 11.0 3.5 ~ 4.5 10.0 - 11.0 21.0 - 26.5 SOUTH AFRICA 5.8 ~ 6.9 2.8 6.0 ~ 1.0 14.6 ~ 16.1 TO JAPAN EASTERN UNITED STATES 16.5 ~ 17 .6 0.6 ~ 1.0 10.5 ~ 12.0 21.6 - 30.6 WESTERN UNITED STATES 23.0 ~ 26.0 5.0 6.0 - 1.0 34.0 ~ 38.0 WESTERN CANADA 22.0 ~ 24.0 3.0 ~ 4.0 5.5 ~ 6.5 30.5 - 34.5 AUSTRALIA 1.5 - 11.0 3.5 - 4.5 5.0 - 5.5 16.0 - 21.0 SOUTH AFRICA 5.8 - 6.9 2.8 1.5 - 8.5 16.1 - 18.2 IA THE FOLLOWING REPORTS TO THE WORLD BANK: LONGWORTH AND McKENZIE, AUSTRALIAN COAL PRODUCTION AND TRANSPORT COST ~, AUGUST 1983. TEMPLE, BARKER AND SLOANE, EXPORT COAL PRODUCTION IN THE REPUBLIC OF SOUTH AFRICA, FEB. 1983. DAMES AND MOORE, COAL PRODUCTION AND TRANSPORT COST: U.S. AND CANADA EXPORT MINES, MARCH 1983. IB COAL WEEK INTERNATIONAL, VARIOUS ISSUES. REPRESENTATIVE FREIGHT RATES OF RELATIVELY LARGE CARGOS, FlO (FREE IN AND OUT). rapidly, even to some of the facilities initially designed to use low-sulfur coal. One important drawback of FGD is its high costs; the capital cost of an FGD system is typically $10-180 (1982 US dollars) per KW of capacity depending on the sulfur content of coal it is designed to eliminate. This cost represents 11-20% of non-environmental capital costs of a large-scale, coal-fired power plant, or 8-18% of the total cost of electricity generation. - 102 - Demand Outlook 12. Table 2 sets out the recent trends in thermal and metallurgical coal consumption. 11 In the industrial countries, thermal coal consumption started to reverse its long-term declining trend (an exception is North America) a few years after the first oil price increases; significant increases took place during the 1976-80 economic expansion, but the rate of increase slowed down in 1981 as recession in the industrial countries began to take its toll. Consumption of metallurgical coal in the industrial countries has shown a long-term declining trend, affected by that of the iron and steel industry (except for temporary increases at times of economic recovery). Consumption of both thermal and metallurgical coals increased steadily in the developing countries and the centrally planned economies of Europe throughout the period, except for slight setbacks in the centrally planned economies later in the period. 13. The share of coal in thermal electric power generation, the largest market for thermal coal, has achieved spectacular gains throughout the most recent period, at the expense of petroleum and natural gas (Table 3). Thermal coal consumption by the US electric utilities has increased rapidly since 1973; the consumption level did not decline even in 1982, despite economic recession. More importantly, the share of coal in thermal power generation in the United States increased steadily throughout the period. When OECD coun- tries are taken as a whole, the picture up to 1981 is not much different from that of the United States. Substitution took place largely from petroleum to thermal coal; the share of thermal coal increased by 14 percentage points in the 1973-81 period. 14. Preliminary data indicate that coal consumption in the industrial countries declined by 2-3% below its 1981 level in both 1982 and 1983. It is clear that these declines can be attributed for the most part to economic recession rather than to a deterioration in economic competitiveness of coal vis-a-vis other fuels, as manifested by the steady increases in the share of thermar-coal in thermal electricity generation. }/ Published data rarely show a clear breakdown of coal consumption into thermal and metallurgical components. Two different definitions of thermal coal consumption are used in this report. The first one used for Table 2 defines thermal coal consumption as total solid fuels consumption minus coal used by coke plants. This definition could produce under- estimation of thermal coal consumption because coke plants use a certain blend of metallurgical and thermal coals. The second defini tion used subsequently for analytical and projection purposes measures thermal coal consumption by subtracting from total solid fuels consumption the portion used by the iron and steel industry. This definition will result in over- estimation of thermal coal consumption because some metallurgical coal is consumed by other sectors. - 103 - TABLE 2: WORLD COAL CONSUMPTION, 1970-81 IA (MTCE) ------------------------------------------------------------------------------------------ 1970 1973 1975 1978 1979 1980 1981 ------------------------------------------------------------------------------------------ INDUSTRIAL COUNTRIES 997 955 914 949 1,036 1,104 1,131 THERMAL COAL 700 664 636 708 782 857 894 METALLURGICAL COAL 297 291 278 241 254 247 237 DEVELOPING COUNTRIES IB 445 519 572 693 727 730 752 THERMAL COAL 389 454 501 604 633 635 654 METALLURGICAL COAL 56 65 71 90 94 96 98 CENTRALLY PLANNED EUROPE 732 761 788 831 835 833 816 THER."tAL COAL 588 605 627 662 669 667 653 METALLURGICAL COAL 144 157 161 168 166 166 163 WORLD TOTAL 2,173 2,235 2,274 2,473 2,594 2,668 2,699 THER..."tAL COAL 1 ,677 1,723 1,764 1,974 2,080 2,160 2,201 METALLURGICAL COAL 496 512 511 499 514 509 498 NOTE: FIGURES MAY NOT ADD DUE TO ROUNDING. IA THERMAL COAL CONSUMPTION IS ESTIMATED BY SUBTRACTING 1.35 TIMES COKE-OVEN COKE PRODUCTION FROM TOTAL SOLID FUELS CONSUMPTION. COKE YIELD OF METALLURGICAL COAL VARIES DEPENDING ON ITS VOLATILITY AND OTHER QUALITIES. THE FACTOR OF 1.35 IS THE AVERAGE OF THE OECD COUNTRIES IN 1979-81. IB INCLUDES CENTRALLY PLANNED ASIA AND CUBA. SOURCE: COMPILED FROM THE UNITED NATIONS, YEARBOOK OF WORLD ENERGY STATISTICS 1981. 15. In this report, the demand for thermal coal 1/ is projected on the basis of economic competitiveness of coal burning in -relation to the use of other fuels, while the projection of the demand for metallurgical coal is 11 It should be recalled that thermal coal 1S defined here as the coal consumed by sectors other than the iron and steel industry. There'=ore, thermal coal consumption here couLd represent an overestimation of actual consumption for the reasons cited in paragraph 12. - 104 - TABLE 3: ELECTRIC UTILITY CONSUMPTION OF THERMAL COAL: UNITED STATES AND OECD 1973 1975 1980 1981 1982 1983 UNITED STATES CONSUMPTION (MTCE) 323.8 335.8 462.5 484.4 484.4 509.5 FUEL SHARES (%) THERMAL COAL 56.4 59.2 66.2 68.5 71.9 74.4 PETROLEUM 20.9 20.1 14.0 11.8 9.0 8.7 NATURAL GAS 22.7 20.8 19.7 19.7 19.1 16.9 OECD TOTAL CONSUMPTION (MTCE) 546.8 557.1 764.5 793.4 FUEL SHARES (%) THERMAL 51.2 53.2 62.0 64.9 PETROLEUM 33.2 31.0 22.7 20.1 NATURAL GAS 15.6 15.9 15.3 15.0 SOURCE: THE US DEPARTMENT OF ENERGY, MONTHLY ENERGY REVIEW, APRIL 1984; OECDIIEA, ENERGY BALANCES OF OECD COUNTRIES, 1970/81. closely linked to that of iron and steel production. 11 Under the given assumptions about economic growth and interfuel substitution as embodied in energy balance projections in this report, the world demand for coal is projected to increase at 2.7% p.a. between 1982 and 1995, a rate slightly higher than that during 1970-82. Although the world demand for metallurgical coal is seen to increase at a slightly faster rate than that for thermal coal, it is the latter that accounts for the bulk (83%) of the incremental demand between 1982 and 1995. 16. For the period up to 1995, the main source of the projected increases in the demand for thermal coal is substitution of coal for petroleum and natural gas in industry and thermal power generation. Table 4 shows that the share of coal is projected to increase steadily throughout the projection period. Recall that in the OECD the share of coal in thermal power generation had already reached 65% in 1981, and it reached 74% in the United States in 11 For details of the methodology, see B.J. Choe, "A Model of World Energy Markets and OPEC Pricing," World Bank Staff Working Paper, No. 633, March 1984. Results of this model are combined with those of country-by-country analyses of energy balances to project regional and country energy balances for all fuels simultaneously. - 105 - TABLE 4: SHARE OF THERMAL COAL IN INDUSTRY AND THERMAL POWER SECTORS (PERCENT) 1978 1981 1985 1990 1995 INDUSTRIAL SECTOR fA INDUSTRIAL COUNTRIES 7.7 9.5 10.6 11.3 12.5 OIL-IMPORTING DEVELOPING COUNTRIES 14.5 19.5 20.1 21.6 THERMAL POWER SECTOR INDUSTRIAL COUNTRIES 56.5 65.2 75.3 77 .1 81.5 OIL-IMPORTING DEVELOPING COUNTRIES 44.9 70.2 77 .9 80.7 fA EXCLUDING METALLURGICAL COAL CONSUMPTION BY THE IRON AND STEEL INDUSTRY. SOURCE: ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT, THE WORLD BANK. 1983; the rate of increase in this share is projected to decelerate during 1985-90 because of the weakness of petroleum prices projected for this period. The 19908 present a somewhat different picture. The impact on energy demand of the dramatic petroleum price increases in the past should by and large have dissipated by 1990 and the demands for primary energy and electricity are expected to increase at faster rates in the 1990s than in the 1980s, which will contribute to growth in thermal coal demand at a time when substitution of coal for petroleum will become increasingly more difficult as substitution possibilities are exhausted. 17. The industrial sector demand for thermal coal in the market-economy countries is expected to increase at a rate more than twice as fast as that of the industrial sector final energy demand, but its share by 1995 is projected only at 12.5% for the industrial countries and 21.6% for the oil-importing developing countries. Substitutability between coal and other fuels varies widely between industries; however, for most industries, the degree of substitutabil ity is far less than that of thermal power generation. The cement and brick-making industries have been recognized as ones wherein there is a high degree of substitutability. However, the total potential demand for thermal coal by these industries is relatively small and a substantial part of the potential has already been realized. In OECD countries in 1977, about 80% of industrial consumption of thermal coal was for boiler fuel use by a variety of industries and the remaining 20% was used as a non-boiler fuel by the - 106 - cement and other industries. 11 Since the bulk of industrial boilers still rely on hydrocarbon fuels, it- would seem that this sector presents a great potential market for thermal coal. The economic advantages of thermal coal as an industrial boiler fuel are not as great, however, as in the case of coal- fired thermal power generation because of: (a) relatively small size of industrial boilers; (b) low capacity utilization rate or load factor (20-35%); (c) industrial location, which is mostly dictated by factors other than the availability of fuels, requiring large infrastructure investments to bring coal. 18. Future changes in the relationship between petroleum product prices, particularly the price of heavy fuel oil and the price of crude oil, are important for interfuel substitution between petroleum and coal. It is assumed here that the ex-refinery price differentials between petroleum products will remain constant at their 1976-78 average levels. This assumption may result in an overestimation of the demand for thermal coal if the price of heavy fuel oil fails to increase as fast as those of other petroleum products. This is a possibility because of the direct competition between heavy fuel oil and low-cost thermal coal. The assumption of fixed petroleum product price differentials may not be an unrealistic one, however, in view of what has happened in the past. Figure 1 plots the ratios of prices of regular motor gasoline, jet kerosine and light fuel oil to the price of low-sulfur heavy fuel oil at the Rotterdam international product market. No clear long-term trend can be detected in any of these ratios over the 1970-82 period. It was the flexibility of petroleum refinery technology that prevented a slide in the relative price of heavy fuel oil in relation to other petroleum products. 19. It can be shown that variations in some of the assumptions underlying the projections make substantial differences in the coal demand projections. Particularly important are the assumptions about economic growth, OPEC crude oil prices, price elasticities of demand, and supplies of nuclear power and synthetic fuels from coal. The income elasticity of the demand for coal is greater than one because: (a) the income elasticity of the demand for electri- city is higher than that for final energy, which is close to one for industrial countries and greater than one for developing countries; (b) the demand for thermal electricity is treated as a residual demand, after subtracting from total electricity demand the supplies of primary electricity which are assumed to be invariant to income changes. The impact on fuel substitution of higher oil prices is asymmetrical to that of lower oil prices. The process of substitution of coal for petroleum can be substantially accelerated or decelerated in the short to medium term by the level of oil prices. In the long term, however, moderate variations in oil prices do not make much difference in the projected share of thermal coal because of gradual exhaustion of the potential for substitution. A shortfall in nuclear power supplies implies a corresponding increase in the demand for thermal coal. Conversely, any reduction 1n the projected supplies of 11 OEco/IEA, The Use of Coal in Industry, May 1982, Paris, p. 59. - 107 - Figure 1 Trends of Relative Petroleum Product Prices at Rotterdam Market RATIO 30 r-------------------------------------------------------------------~·3.0 2.5 2.5 2.0 I I ,........... .. 2.0 I I I I,' I " ...... 1.5 , I, 1.5 1.0 1.0 0.5 '--_--L_ _--'-_ _-'-_ _ ..L..-_~ _ _........_ __'__ __'___ _I _ __ __L _ _ _ ___...I 0.5 70 '71 72 73 '74 75 '76 77 '78 '79 'SO 'S1 '82 YEAR Legend' Gasoline Price/Heavy fuel Oil Price Ratio ------ Jet Kerosine Price/Heavy Fuel Oil Price Ratio Light Fuel Oil Price/Heavy Fuel Oil Price Ratio Source: Energy Economies Research Ltd. International Crude Oil and PrOduct Prices. Various Issues World Bank-26394 - 108 - synthetic fuels from coal will directly translate into corresponding decreases in the demand for thermal coal and increases in the demand for petroleum and natural gas. 20. It is estimated that the capital costs of pollution control in coal- fired power plants can amount to $100-300/KW (1982 US dollars), depending on the specification of the anti-pollution requirements. 1/ Would this be too much to assure the choice of coal over oil? To -answer this question, Table 5 shows estimates of the costs of electricity generation for hypothe- tical new power plants. The calculations show that coal-fired power genera- tion will cost substantially less than oil-fired electricity at tOday's fuel prices even under high capital costs for environmental control. It is only under the highest capital expenditures for pollution control and a high rate of capital charge (15%) that the cost of electricity generated from imported coal in Western Europe and Japan comes close to that of oil-fired electricity generation. The cost of nuclear electricity can vary from the least expensive to the most expensive among the alternatives considered, because of the uncertainty of investment requirements for enhancing reactor safety. Supply Outlook 21. World production of solid fuels (including metallurgical coal) increased steadily from 2.19 billion tce in 1973 to 2.64 billion tce in 1981. Of the world incremental production between 1973 and 1981, about 39% was accounted for by the Peoples' Rep. of China, U.S.S.R. and Poland, and another 48% by United States, Canada, South Africa and Australia. Solid fuels production in OECD Europe and Japan experienced a 12.3% decline between 1973 and 1978 but a 7.7% increase between 1978 and 1981. Solid fuels production continued to increase in 1982 in the key producing countries; United States and Australia increased production over 1981 by 1.7% and 8.7%, respectively, while South African production increased by 8.6% in the first half of 1982 over the same period of 1981. U.S.S.R. and Eastern Europe also recorded slight increases. US production declined by 6.4% in 1983 from its 1982 level, largely as a result of a 27% decline in exports. On the other hand, production in Australia in the first half of 1983 was virtually the same as that of the same period in 1982, but exports gained 29% in the first eight months of 1983 over the same period of 1982. Production and exports of South Africa are reported to have increased in 1983. 22. Coal supplies for the market-economy regions are projected along the regional short- or long-run coal supply curves at the levels that clear the world market. 2/ The way in which world production is divided between the market economies depends on the costs of production; the countries with higher 1/ For details, see Costs of Coal Pollution Abatement, and Coal: Environmental Issues and Remedies, OECD, Paris, 1983. 2/ For more details of the regional coal supply model, see S.J. Choe, op. cit., pp. 66-82. - 109 - costs and faster cost increases will gradually give way to the countries with lower costs and slower cost increases. The results show that the main source of additional coal supplies to meet future needs will be the current low-cost coal producers--North America, Australia and South Africa. Production in excess of domestic demand in these countries will be determined mainly by the cost competitiveness of each country relative to the others in the expanding international market for thermal coal. Because of the close cost compet- itiveness, the forecast market shares of these countries are highly sensitive to changes in the relative cost configuration that can be introduced not only by changes in factor costs but also by exchange rate changes and transport costs. An example is the sharp decline in US production and exports in 1982-83 which resulted, among other things, from the appreciation of the US dollar. 23. Coal production in North America is projected to increase at 3.3% p.a. between 1982 and 1995, while production in the developing countries as a whole (including China) is projected to grow at 3.8% p.a. The share of the developing countries in world coal production is projected to increase from 28% in 1982 to 33% in 1995, but that of the industrial countries is expected to remain approximately constant at 41%, because increases in North America and Australia are offset by declines in Western Europe and Japan. Production in the centrally planned countries of Europe is projected to increase only at 1.3% p.a. between 1982 and 1995. 24. United States and Canada. From the known characteristics of the proven reserves and using historical and engineering data, Zimmerman estimated the long-run supply function for the United States for different regions and sulfur categories of US coal. 1/ His main finding was that, assuming constant factor prices and no technical progress in mining, the costs of mining will increase at about 1.4% p.a. for the eastern low-sulfur coal over the next 20 years at the current rate of production, at 0.5% p.a. for the eastern high sulfur coal, and at 0.25% p.a. for the western surface-mined low-sulfur coal at five times the current rate of production. He also found that even under strict environmental controls 2/ and some increases in the rail transportation costs for western coal, interregional competition will strongly favor the low- sulfur western coal to take the place of the high-cost eastern low sulfur coal. From Zimmerman's coal supply functions, the average annual rate of cost increases for US underground mining as a whole is estimated at about 0.7% p.a. over the next 20 years at the current rates of production, and for surface mining at about 0.45-0.50% p.a. Large coal reserves are found in the pro- vinces of British Columbia and Alberta in Canada, which are not significantly different from the US western coal in terms of cost characteristics. 1/ Martin B. Zimmerman, The U.S. Coal Industry: The Economics of Policy Choice (Cambridge, Mass-.-:~T=h-e~M~I~T~P~r-e-s-s~)·,~1~9~8~1~.--------------------------~ 2/ The Best Available Control Technology (BACT) provision of the Clean Air Act favors the eastern high-sulfur coal. - 110 - 25. Australia. Australia's large coal resources are located mostly in . the New South Wales and Queensland states, which together accounted for more than 95% of its production in 1982. Surface mining provided about 54% of the total production. As in the US Appalachia, most of underground production comes from seams more than 3 meters thick and less than 500 meters deep. The overburden/seam thickness ratios of the Australian surface mines are comparable with those of the Power River Basin in Montana/Wyoming, but are at a disadvantage in terms of scale economies. A recent study 1/ shows that the real cost of coal production in Australia increased by a1most-20% between 1977 and 1982, mostly because of increases in the unit costs of inputs, particularly mining wages, and increases in royalty. A survey of existing mines in the above study shows that the costs of thermal coal, FOB export terminals, currently range between A$35-55 per ton. It is also suggested that within this cost range substantial new capacities (almost as large as the existing capacities) are likely to be available. In the absence of a direct estimate of the supply curve, it is assumed that Australia's long-term coal supply curve should closely resemble that of the United States. 26. South Africa. South Africa is probably the lowest-cost producer and exporter of thermal coal. Coal deposits in South Africa are found in isolated basins, in several flat layers of seams with an average depth of less than 200 meters and seam thickness of more than two meters. These deposits permit highly mechanized mining under generally good mining conditions. Depletion of coal resources in South Africa asserts itself primarily in the form of deter- iorating quality of raw coal. It is estimated that for the planned phase IV expansion of exports by 30-40 mtce for the period after 1987 the average washery yield of raw coal could be as much as 5% below the current level, 2/ which is equivalent to a 7% increase in the cost per ton of export quality coal. Under a set of assumptions about future factor costs, OUiver 3/ estimated that the cost per ton of new capacities to come on stream by 1995 will be on the average 15% higher than the current level, and more than half of this increase will result from coal quality deterioration. 27. Western Europe and Japan, despite efforts to maximize domestic coal supplies, will face increasing difficulties in maintaining their current level of production. Capital expenditures by the coal mining industry of Western Europe increased from less than 0.4 billion ECUs (European Currency Units) in 1974 to 1.65 billion ECUs in 1980. The bulk of the increase was recorded in the United Kingdom in new mines in Yorkshire and the Midlands. Increases in 1/ Longworth and McKenzie, Ltd., "Australian Coal Production and Transport Cost Study," a report prepared for the World Bank, August 1983. 2/ Temple, Barker and Sloane, Inc. and R.B. OUiver, "Export Coal Production in-the Republic of South Africa," a report prepared for the World Bank, February 1983. 3/ R.B. Olliver, "Steam Coal in South Africa," IUU Special Report No. 122, London, April 1982. - 111 - new coal production capacities, however, have not been commensurate with the increases in capital expenditure because of rapid escalation in capital costs per ton of new capacities. Furthermore, new capacities to come on stream in the United Kingdom are not likely to be sufficient to make up for the closure of inefficient old mines elsewhere in Europe. The lack of coal resources in Japan is also likely to limit production in that country to less than its current level. 28. The above considerations and estimates are reflected in the regional long-run coal supply curves used for the supply projections (Table 5). The cost is on a FOB mine basis under the assumption of constant factor prices-- except that the cost of US western coal has some allowance for increases in transportation cost from western mines to eastern markets. The shares of open-cast production by the year 2000 are determined on the basis of historical trends, estimates of surface-minable coal reserves, and the results of interregional competition model in the case of the United States. The oil-exporting developing countries are assumed to follow the same pattern of long-run cost increases as the oil-importing developing countries. 29. In addition to the cost increases due to the depletion effect as assumed in Table 6, the supply projections here also assume that the real mining wage rates wi 11 increase at the rate of per capi ta income growth in each region. In the United States during the 1968-78 period, coal mining wages increased faster than the manufacturing wages by about 2% p.a., despite an average annual decline of 6% in labor productivity in underground mines. Coal mlnlng wage rates increased faster than the overall wage rates in virtually all major coal-producing countries in the 1970s. Much of the increase over this period was stimulated by the economic rents generated by petroleum price increases. Although the circumstances that led to the mining wage rate increases are not likely to recur, the wage rate remains the single most important source of uncertainty surrounding the long-run coal supply curve. 30. The coal supply/demand outlook presented here assumes no significant changes in the real costs of coal transportation. One can speculate, however, that the ocean freight rate can benefit from introduction of even larger vessels, in the 200,000-300,000 DWT range. In such a case, a major upgrading of existing port facilities will be required, which will involve substantially higher port charges. This will make economic sense only when international coal trade volume increases far beyond its current level, perhaps in the 1990s. There is obviously some room for rail freight rates to come down. but such an eventuality is unlikely under the present industry structure. Trade Outlook 31. World coal trade increased rapidly in the last 10 years, primarily by virtue of sharp increases in thermal coal trade. It is projected that this trend will continue; world exports of coal are projected to increase at 5.7% p.a. between 1982 and 1995, consisting mostly of increases in thermal coal trade. The future volume of world coal trade will be determined largely by the extent of increases in the demand for thermal coal in Western Europe, - 112 - TABLE 5: LONG-RUN COAL COST FUNCTION AND PRODUCTION SHARES LONG-RUN PRODUCTION COST SHARES FUNCTION fA IN 2000 (%) NORTH AMERICA UNDERGROUND 0.68 30 OPEN-CAST 0.47 70 WESTERN EUROPE UNDERGROUND 1.00 90 OPEN-CAST 0.80 10 AUSTRALIA UNDERGROUND 0.68 35 OPEN-CAST 0.50 65 OIL-IMPORTING DEVELOPING COUNTRIES UNDERGROUND 0.75 60 OPEN-CAST 0.60 40 fA EXPRESSED AS PERCENT COST INCREASES PER YEAR AT 1978 RATES OF PRODUCTION. SOURCE: WORLD BANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT. Japan, and several newly industrializing developing countries. It is Western Europe and Japan that will provide the main source of expansion for inter- national coal trade, accounting for 62% of the projected incremental coal imports between 1982 and 1995. More than 90% of the projected increases in imports in Western Europe and Japan will consist of imports of thermal coal. The developing countries also account for a sizable part (29%) of the projected incremental coal imports. The countri es important in thi s regard are the newly industrializing developing countries (for example, Rep. of Korea, Turkey, Yugoslavia, Brazil and Mexico), which will have greater needs for both thermal and metallurgical coals. 32. In the short term through 1985, the anticipated increases in coal demand in Western Europe and Japan along with the progression of economic recovery imply sizable increases in net import demands in these regions. Actual net imports, however, are likely to be somewhat smaller than antici- pated because of the large existing stocks in Western Europe. Prospects for developing country markets up to 1985 are not promising, with several key developing countries struggling with the external debt problem. - 113 - Price Outlook 33. After a period of expectations for high thermal coal prices in the wake of the second oil price increases, the international thermal coal market has been beset by a progressively worsening supply/demand balance and lower prices. After increasing from $39.6 per ton in 1978 to $56.5 per ton in 1981 (in current US dollars), the international export price of thermal coal 11 declined to $44.5 in 1983. The severity of the market downturn is better revealed by the fact that US thermal coal exports suffered a 27% decline in 1983 below their 1982 level. In addition to the general market weakness, US exports suffered because of their higher export prices during this period; South African thermal coal of comparable quality was available in 1983 for $37.3 per ton and Australian thermal coal for $39.1 per ton while US coal was priced at $44.5. 34. The behavior of imports and stocks in the wake of the 1979-80 oil price shock explains a good part of the fluctuation of thermal coal export prices during the last few years. The second round of petroleum price increases provided a strong incentive to substitute coal for petroleum in power generation and industrial sector consumption. This led to a rush on the part of the importers to secure supplies for sharply-increased short-term needs, and to line up long-term sources of supplies for substantially expanded future thermal power programs. This rush is understandable because the cost of failing to obtain sufficient and secure sources of coal supply is high. The result was a large increase in imports and stocks. The subsequent economic recession, which dragged on longer than anticipated, worsened the situation. These events probably resulted in increases in thermal coal export prices during 1979-81 beyond normal supply/demand equilibrium, and sustained prices at a high level until the latter part of 1982. Conversely, the 1983 crash in thermal coal prices would have been less severe had the stock levels not been so high. 35. During the second and third quarters of 1984, uncertainty surrounding the upcoming contract renewal (due by end of September) of the United Mine Workers' Union in the United States, magnified in part by the prolonged and bitter strike by the UK coal miners, led to a highly unsettled situation in the international coal market. Precautionary stockpiling by the US electric utilities in fear of a prolonged strike at a time of strong domestic demand resulted in substantial increases in US domestic coal prices and a sudden jump in June in the US export price of thermal coal by $lO/ton (to $53.5/ton)' Even at these higher prices, which have been sustained since June, US exporters are having difficulty in finding sellers because of the lack of uncommitted supplied. 36. The major importers of thermal coal in Western Europe and Japan, apparently unwilling to pay the high US export prices, have been attempting to 11 Spot export price of thermal coal (12,000 BTU/lb, <1.0% sulfur, 12% ash), FOB, Hampton Roads/Norfo1k, United States. - 114 - tide over this period by turning to other exporters (mainly South Africa and Australia) and by drawing down on stocks. This has resulted in moderate increases in export prices of South African thermal coal by $6-7/ton between May and August, and for Australian thermal coal by $2-3/ton. It is reported, however, that export availabilities from South Africa and Australia are also tight through the end of this year, and finding large export quantities from these countries is becoming more difficult. Adjustments in the importing countries primarily took the form of reductions in stocks, at a time when demand is starting to pick up. In West Germany, for example, total coal demand increased by 12% in the first half of 1984 over the same period of 1983, while the level of coal stocks declined by 25% during the first half of 1984. 37. In the event of a negotiated settlement before the current contract expires, or shortly thereafter, the thermal coal export price is likely to decline below its current level as the US electric utilities work off their stocks. When nominal declines in the export price are assumed for the fourth quarter, the average price for 1984 comes to about $49/ton, which is the price projected for this year. Of course, a prolonged strike by the United Mine Workers' Union will significantly change the price level. 38. Demand prospects for 1985 look substantially better than those for 1984. Steady recovery of demand coupled with substantial reduction of excessive stocks in the previous year point to the likelihood of a sizable increase in import demand in the major markets. The combined net imports of Western Europe, Japan and several industrializing developing countries, are projected to increase by about 50 mtce in 1985 over their 1983 level. The US export price, therefore, is not expected to fall back to its level during the first half of 1984 even if a strike by US coal miners does not materialize. However, the recent 20% increase is not likely to be sustained through 1985 except in the event of a long strike. The price for 1985 is projected at $49/ton, the same level as the average for 1984. 39. The international export price of thermal coal for the long term is projected at the level of long-run supply and demand equilibrium. The projected prices for 1990 and 1995 are equal to the marginal cost of supplying the equilibrium level of demand in those years. The marginal cost of US coal exports is estimated to increase at 1.3% p.a. in real terms between 1985 and 1995, to meet US domestic demand and exports. This is equivalent to a 2.0% p.a. increase in the cost of mining, including mining wage rate increases at the rate of per capita income growth. The cost of transportation from mines to export terminals is assumed to remain constant at its present level. 40. In current dollar terms, the costs of coal production in the United States are expected to be pushed up by US domestic inflation. It is assumed that the effect of inflation on coal production costs will be neutral, i.e., a one percent inflation will result in a one percent increase in coal production costs. US domestic inflation is measured by the US GDP deflator; the long- term coal price projections in 1983 constant dollars are converted into those in current dollars by using the Bank's projected US GDP deflator. - 115 - 41. Because of relatively small weight of international trade in the US economy, exchange rate adjustments usually have little impact on US domestic prices and hence on a measure of inflation such as GDP deflator. The MUV index, however, is significantly affected by exchange rate adjustments and the Bank's projection of the index assumes steady depreciation of the US dollar against major industrial country currencies, pushing up the MUV inflation by a cumulative 13 percentage points between 1984 and 1989. Under the basically competitive environment assumed for the international coal market in the long term, the impact of US dollar depreciation is likely to be mostly in the form of an improvement in the competitive position of US coal exports instead of an increase in US export prices. This is a reverse of the process that resulted from US dollar appreciation in recent years. As soon as exchange rate adjustments are completed, the US export prices~of thermal coal are expected to rise in real terms when the MUV index is used as the deflator, to register a net gain of 0.3% p.a. between 1985 and 1995. This much of a net gain for thermal coal prices would be warranted when the OPEC crude oil prices are projected to increase in real MUV terms at 3.4% p.a. between 1985 and 1995. 42. A couple of reasons explain the downward revision in this report by about 10% in the long-term price projections for thermal coal compared with those of the Report 814/82. First, the growth rate of world coal consumption is now projected at 2.7% p.a. between 1985 and 1995, down from 4.1% p.a. in the previous report. This is largely predicated by the expectation of lower petroleum prices than previously anticipated (down by 16% for 1990 and by 8% for 1995 in terms of constant 1983 dollars). Secondly, the US coal mines have achieved significant improvements in labor productivity during the last several years. The US Department of Energy data show that coal output per miner-day in underground mines increased by 13% between 1980 and 1982. Preliminary data for 1983 show an increase by 30% over 1980 level in under- ground mines in West Virginia and Kentucky. The improvements came mostly from better management, enhanced labor skills and discipline, and accumulated experience on the part of both management and labor with the provisions of the Mine Health and Safety Act of 1969. Although the industry was forced to improve productivity in order to survive, the progress made so far is likely to be irreversible. Further improvements in productivity, however, are likely to be increasingly more difficult. ANNEX TABLE 1: SOLIO FUELS - SUMMARY OF WORLD PRODUCTION. APPARENT CONSUMPTION (NOT INCL. BUNKERS) AND TRADE BY ECONOMIC REGIONS ACTUAL 1964- 1982 ) PROuECTEO GROWTH RATES!A AVERAGES COUNTRIES! ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- PRODUCTION INDUSTRIAL 685.3 654.6 641.3 749.3 786.4 816.9 936.5 1.090.6 0.5 1.7 1.7 2.9 CENTRALLY PLANNED 478.2 517.4 562.2 585.5 589.7 625.2 667.0 696.9 1.6 1.1 1.3 1. 1 DEVElOPING 256.6 303.4 387.4 507.3 544.6 607.9 737.7 881.1 4.9 5.2 3.7 3.8 WORLD 1.420.1 1.475.5 1.590.9 1,842.2 1.920.7 2,050.0 2,341.2 2,668.6 1.8 2.4 2.2 2.7 MEMO ITEM: INDUSTRIAL & DEVELOPING 941.9 958.1 1,028.7 1.256.7 1.331.0 1,424.8 1,674.2 1.971.7 1.9 3.0 2.5 3.3 APPARENT CONSUMPTION (NOT INCL. BUNKERS) INDUSTRIAL 691.7 674.1 647.2 749.7 761.6 832.4 948.1 1.079.0 0.4 1.5 2.1 2.6 i-' CENTRALLY PLANNED 465.0 500.6 540.6 569.4 574.2 602.6 649.2 685.7 1.6 1.2 1.1 1.3 i-' DEVELOPING 260.3 307.7 390.2 506.5 545.4 615.1 743.9 903.9 4.8 5.0 4.0 3.9 0\ WORLD 1,417 .0 1.482.3 1,578. 1 1.825.6 1,881.2 2.050.0 2,341.2 2.668.6 1.7 2.3 2.3 2.7 MEMO ITEM: INDUSTRIAL & DEVELOPING 952.0 981.7 1,037.4 1.256.2 1.307.0 1.447.4 1.692.0 1.982.9 1.8 2.8 2.9 3.2 GROSS EXPORTS INDUSTRIAL 61.1 76.7 85.3 114. 1 129.6 142.3 193.2 277.8 3.5 4.2 4.5 6.9 CENTRALLY PLANNED 35.7 40.0 47.5 44.3 40.8 52.0 56.5 58.1 1.9 0.0 3.3 1.1 DEVELOPING 3.2 2.7 3.9 21.4 23.9 30.0 46.5 63.8 12. 1 26.4 7.0 7.8 WORLD 100.0 119.5 136.7 179.7 194.4 224.2 296.2 399.6 3.6 4.2 4.5 5.9 MEMO ITEM: INDUSTRIAL & DEVElOPING 64.3 79.4 89.2 135.4 153.5 172.3 239.6 341.5 4.2 5.8 4.9 7.1 GROSS IMPORTS INDUSTRIAL 75.3 95.3 108.0 136.3 139.2 157.7 204.8 266.1 3.5 3.5 3.0 5.4 CENTRALLY PLANNED 23.0 23.7 25.6 25.4 27.3 29.3 38.8 46.9 1.5 0.2 2.9 4.8 DEVElOPING 7.1 7.5 9.0 20.8 27.9 37.2 52.7 86.6 6.8 13.2 12.3 8.8 WORLD 105.5 126.5 142.7 182.5 194.3 224.2 296.2 399.6 3.4 3.7 4.2 5.9 MEMO ITEM: INDUSTRIAL & DEVELOPING 82.4 102.9 117.0 157.1 167.0 194.9 257.4 352.7 3.8 4.4 4.4 6.1 A! LEAST SQUARES TREND FOR HISTORICAL PERIOOS (1961-82); END-POINT FOR PROvECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79!81( AVG. )-85 GROWTH RATE. SOURCES; UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PROvECTIONS DEPARTMENT (PROvECTED). ANNEX TABLE 2: SOLIO FUELS - PRODUCTION BY MAIN COUNTRIES ANO ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PRO .... ECTEO GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 -------------------{MILLION TONS OF OIL EQUIVAlENT)-------------------- -----------{% PER ANNUM)----------- INDUSTRIAL 685.3 654.6 641.3 749.3 786.4 816.9 936.5 1.090.6 0.5 1.7 1.7 2.9 N. AMERICA 335.0 359.7 385.7 472.0 490.0 521.4 616.2 749.9 2.3 2.8 2.0 3.7 UNITED STATES 328.9 352.0 371.7 447.4 460.0 488.9 576.8 707.6 2.1 2.5 1.8 3.8 EEC-9 285.7 227.9 184.9 183.2 188.4 176.5 175.9 170.0 -2.9 -1.5 -0.7 -0.4 GERMANY. F.R. 114.4 99.3 91.1 89.6 92.7 84.0 81.3 77.4 -1.6 -0.8 -1.3 -0.8 UNITED KINGDOM 111. 3 88.5 69.5 72.9 73.9 73.5 78.7 78.7 -2.9 -1.0 0.2 0.7 OTHER W. EUROPE 10.2 8.8 9.2 20.3 26.3 26.9 27.4 28.7 3.0 10.1 5.8 0.6 dAPAN 31.9 24.7 12.6 11.7 10.4 10.3 9.1 7.6 -6.6 -5.9 -2.5 -3.1 OCEANIA 22.5 33.5 49.0 62.2 71.3 81.8 107.9 134.5 7.2 5.8 5.7 5.1 AUSTRALIA 21.0 32.3 47.6 60.6 69.5 80.0 106.0 132.3 7.6 5.9 5.7 5.2 I-' CENTRALLY PLANNED 478.2 517.4 562.2 585.5 589.7 625.2 667.0 696.9 1.6 1.1 1.3 1.1 I-' ...... USSR 289.6 309.0 337.7 345.9 343.9 365.4 387.2 400.8 1.5 0.9 1.1 0.9 E. EUROPE 188.6 208.4 224.4 239.6 245.8 259.9 279.9 296.1 1.8 1.4 1.6 1.3 POLAND 71.1 84.9 103.4 111. 7 113.2 125.8 142.0 154.7 3.3 2.4 2.4 2.1 DEVELOPING 256.6 303.4 387.4 507.3 544.6 607.9 737.7 881.1 4.9 5.2 3.7 3.8 ASIA 204.1 244.4 317. 1 404.7 431.3 481.5 571.5 672.0 5.0 5.0 3.5 3.4 CHINA 150.0 176.0 229.3 302.3 318.6 355.4 415.7 486.3 5.2 5.3 3.3 3.2 INDIA 32.8 36.3 46.7 56.0 64.6 71.8 90.3 108.4 3.7 4.9 5.1 4.2 AFRICA 32.1 37.3 43.7 68.8 73.6 82.2 97.3 119.8 5.0 6.5 3.6 3.8 SOUTH AFRICA 28.6 33.7 39.6 65.0 69.9 77.8 91.2 112.6 5.0 7.0 3.7 3.8 AMERICA 5.5 6.2 8.2 10.8 12. 1 14.8 31.1 41.1 4.3 6.4 6.5 10.8 S. EUROPE 15.0 15.5 18.4 23.0 27.6 29.3 37.7 48.2 3.2 4.3 5.0 5.1 WORLD 1.420.1 1.475.5 1.590.9 1.842.2 1.920.7 2.050.0 2.341.2 2.668.6 1.8 2.4 2.2 2.7 MEMO ITEM: INDUSTRIAL · DEVELOPING 941.9 958.11.028.71.256.71.331.01.424.81.674.21,971.7 1.9 3.0 2.5 3.3 A/ LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO .... ECTEO PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUAllY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS' PRO .... ECTIONS DEPARTMENT (PRO .... ECTED). ANNEX TABLE 3: SOLID FUELS - APPARENT CONSUMPTION (NOT INCL. BUNKERS) BY MAIN COUNTRIES AND ECONDMIC REGIONS ACTUAL ( 1964-1982 ) PRO.JECTEO GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 &2 85 90 95 61-82 70-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)-------------------- -----------(% PER ANNUM)----------- INOUSTRIAL 691.7 674.1 647.2 749.7 761.6 832.4 94&.1 1.079.0 0.4 1.5 2.1 2.6 N. AMERICA 313.6 324.9 337.9 404.9 405.8 453.7 511.8 577.6 1.8 2.4 2.3 2.4 UNITED STATES 298.5 30&.8 322.0 380.1 377.0 424.1 480.0 543.3 1.7 2.2 2.2 2.5 EEC-9 297.4 252.9 208.2 224.6 222.9 225.8 251.9 283.3 -2.2 -0.5 0.1 2.3 UNITED KINGDOM 108.2 90.9 70.4 71.0 66.1 70.2 77.4 86.5 -2.9 -1.8 -0.2 2.1 GERMANY. F.R. 101.7 91.2 81.6 83.4 84.5 88.6 96.7 106.6 -1.6 -0.5 1.2 1.9 OTHER W. EUROPE 19.7 18.5 19.7 30.9 38.3 39.7 47.2 53.4 2.1 6.3 5.2 3.0 .JAPAN 42.4 56.1 52.3 57.7 62.5 76.2 93.0 113.6 1.7 0.7 5.7 4.1 OCEANIA 18.7 21.6 29.0 31.6 32.1 37.0 44.2 51.0 3.7 3.3 3.2 3.3 CENTRALLY PLANNED 465.0 500.6 540.6 569.4 574.2 602.6 649.2 685.7 1.6 1.2 1.1 1.3 I-' I-' USSR 278.2 297.2 326.0 332.6 333.4 346.3 368.7 384.3 1.5 0.9 0.8 1.0 00 E. EUROPE 186.9 203.4 214.6 236.8 240.8 256.3 280.6 301.4 1.7 1.5 1.6 1.6 I POLANO 57.5 67.3 79.7 94.0 92.4 99.2 109.8 119.0 3.3 3.2 1.1 1.& DEVELOPING 260.3 307.7 390.2 506.5 545.4 615.1 743.9 903.9 4.8 5.0 4.0 3.9 ASIA 204.1 244.1 315.7 410.8 441.3 496.0 596.4 718.1 5.1 5.2 3.8 3.& CHINA 149.4 175.7 228.8 300.1 316.7 353.2 411.8 481.4 5.2 5.2 3.3 3.1 INOlA 32.3 35.6 45.4 56.3 63.7 70.6 88.9 106.0 3.8 5.0 4.6 4.2 AFRICA 31.8 37.2 42.4 53.7 57.0 62.6 75.5 89.3 3.7 3.7 3.1 3.6 SOUTH AFRICA 27.9 32.7 37.7 48.9 51.4 55.9 65.7 76.6 3.7 4.0 2.7 3.2 AMERICA 7.3 8.9 11.4 15.8 15.9 19.9 27.8 37.4 4.7 6.3 4.6 6.5 S. EUROPE 17.0 17.5 20.7 26.1 31.2 36.6 44.3 59.0 3.3 4.5 7.0 4.9 WORLD 1.417.0 1,482.3 1.578.1 1,825.6 1,881.2 2.050.0 2.341. 2 2.668.6 1.7 2.3 2.3 2.7 MEMO ITEM: INOUSTRIAL 110 DEVELOPING 952.0 981.7 1.037.4 1.256.2 1,307.0 1.447.4 1.692.0 1.982.9 1.8 2.& 2.9 3.2 A/ LEAST SQUARES TRENO FOR HISTORICAL PERIODS (1961-82); END-POINT FOR PRO.JECTEO PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS 110 PRO.JECTIONS DEPARTMENT (PRO.JECTED). ANNEX TABLE 4: SOLID FUELS - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964-1982 ) PROJECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-11 14-16 19-81 82 85 90 95 61-82 10-82 80-85 85-95 -------------------(MILLION TONS OF OIL EQUIVALENT)----------- -- ----- --------- -(% PER ANNUM)----------- INDUSTRIAL 61.1 16.1 85.3 114.1 129.6 142.3 193.2 211.8 3.5 4.2 4.5 6.9 N. AMERICA 31.3 40.0 43.0 61.3 11.8 19.8 114.9 183.3 4.1 4.4 5.4 8.1 UNITED STATES 30.5 31.0 35.0 51.2 60.8 65.8 91.8 165.4 2.8 3.1 5.1 9.1 CANADA 0.8 3.0 8.0 10.1 11.0 13.9 11. 1 11.9 18.3 8.8 6.1 2.5 EEC-9 25.8 24.3 21.2 22.6 18.6 16.3 13.2 9.1 -2.0 -0.9 -6.4 -5.1 OTHER W. EUROPE 0.2 0.5 0.2 0.2 0.3 0.4 0.4 0.4 1.1 -2.4 11.5 -0.3 JAPAN 0.1 0.1 0.4 1.3 1.1 1.1 1.0 1.0 20.3 22.8 -4.5 -1.0 OCEANIA 3.8 11.8 20.5 28.6 31.8 44.8 63.1 83.5 16.3 8.5 9.4 6.4 AUSTRALIA 3.8 11.8 20.5 28.5 31.6 44.1 63.1 83.4 16.3 8.5 9.4 6.5 I-' I-' \,C) CENTRALLY PLANNED 35.1 40.0 41.5 44.3 40.8 52.0 56.5 58.1 1.9 0.0 3.3 1.1 USSR 15.4 16.5 11.6 19.9 14.0 20.6 19.5 11.5 1.1 0.6 0.1 -1.6 E. EUROPE 20.2 23.5 29.9 24.4 26.8 31.4 31.1 40.6 2.0 -0.6 5.2 2.6 POLAND 14.2 18.1 24.4 19.4 21.1 21.1 32.1 36.2 2.9 -0.1 6.9 2.9 DEVELOPING 3.2 2.1 3.9 21.4 23.9 30.0 46.5 63.8 12. 1 26.4 1.0 1.8 ASIA 1.1 0.9 1.3 4.3 4.4 6.6 9.9 13.1 1.8 18.0 8.9 1.5 AFRICA 2.0 1.6 2.4 16.6 18.8 22.3 25.8 36.3 14.3 31.1 6.1 5.0 SOUTH AFRICA 0.8 1.1 2.1 16. 1 18.5 21.9 25.4 36.0 18.0 34.5 6.4 5.1 AMERICA 0.0 0.0 0.0 0.2 0.2 0.6 10.4 13.5 23.8 24.8 32.3 35.9 COLOMBIA 0.0 0.0 0.0 0.1 0.2 0.4 9.2 12.4 31.9 30.9 31.8 39.4 S. EUROPE 0.1 0.2 0.2 0.3 0.4 0.4 0.3 0.2 1.9 10.1 9.2 -6.1 WORLD 100.0 119.5 136.1 119.1 194.4 224.2 296.2 399.6 3.6 4.2 4.5 5.9 MEMO ITEM: INOUSTRIAL " DEVELOPING 64.3 19.4 89.2 135.4 153.5 112.3 239.6 341.5 4.2 5.8 4.9 1.1 A/ LEAST SQUARES TREND FOR HISTORICAL PERIOD.S (1961-82); END-POINT FOR PROJECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 19/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS" PROJECTIONS DEPARTMENT (PROJECTED). ANNEX TABLE 5: SOLID FUELS - GROSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ACTUAL ( 1964- 1982 ) PRO.JECTED GROWTH RATES/A AVERAGES COUNTRIES/ ECONOMIES 64-66 69-71 74-76 79-81 82 85 90 95 61-82 70-82 80-85 85-95 ---------- --------(MILLION TONS OF OIL EQUIVALENT)-------------------- -- --------(% PER ANNUM)----------- INDUSTRIAL 75.3 95.3 108.0 136.3 139.2 157.7 204.8 266.1 3.5 3.5 3.0 5.4 N. AMERICA 10.7 12.0 12.3 12.8 10.7 12.0 10.5 11.0 1.7 -0.2 -1.4 -0.9 CANADA 10.5 11.8 10.2 11. 1 to. 1 11.0 9.5 10.0 0.7 -1.2 -0.1 -0.9 EEC-9 43.2 41.6 44.7 65.8 61.6 65.6 89.2 123.0 1.8 4.6 -0.1 6.5 FRANCE 11.2 10.7 13.6 20.8 17.0 16. 1 23.3 26.3 3.0 6.5 -4.9 5.0 ITALY 7.3 8.1 8.3 12.0 13.1 13.1 14.5 20.5 2.3 4.4 1.7 4.6 GERMANY. F.R. 7.9 7.1 6.1 8.1 8.3 12.6 22.4 35.3 -0.3 1.6 9.3 10.8 BELGIUM-LUXEM. 7.5 7.7 7.7 9.3 8.0 8.2 10.9 14.2 0.9 1.2 -2.5 5.6 OTHER W. EUROPE 9.9 to.O 11. 1 13.9 14.3 13.2 20.1 25.1 1.6 3.4 -1.1 6.7 .JAPAN 11.4 31.8 39.9 43.7 52.7 66.9 85.0 107.0 9.7 3.0 8.9 4.8 1-' N OCEANIA 0.0 0.0 0.0 0.0 -0.2 3.6 o CENTRALLY PLANNED 23.0 23.7 25.6 25.4 27.3 29.3 38.8 46.9 1.5 0.2 2.9 4.8 USSR 4.0 4.7 5.9 3.9 6.6 1.5 1.0 1.0 2.0 -2.1 -17 .6 -4.0 E. EUROPE 19.0 19.0 19.7 21.5 20.8 27.8 37.8 45.9 1.3 0.6 5.3 5.1 DEVELOPING 7.1 7.5 9.0 20.8 27.9 37.2 52.7 86.6 6.8 13.2 12.3 8.8 ASIA 1.3 1.2 1.6 10.6 16.7 21.1 34.8 59.8 11. 1 30.3 14.6 11.0 AFRICA 1.7 1.5 1.4 1.4 2.0 2.7 4.0 5.9 1.2 2.4 13.7 8.1 AMERICA 1.9 2.8 3.4 5.3 4.6 5.7 7.1 9.9 6.1 6.8 1.5 5.6 S. EUROPE 2.2 1.9 2.6 3.4 4.6 7.7 6.8 11.0 4.2 6.4 17.7 3.7 WORLD 105.5 126.5 142.7 182.5 194.3 224.2 296.2 399.6 3.4 3.7 4.2 5.9 MEMO ITEM: INDUSTRIAL & DEVELOPING 82.4 102.9 117.0 157.1 167.0 194.9 257.4 352.7 3.8 4.4 4.4 6.1 A/ LEAST SQUARES TREND FOR HISTORICAL PERIOOS (1961-82); END-POINT FOR PRO.JECTED PERIODS (1985-95); 80-85 GROWTH RATE IS ACTUALLY 79/81( AVG. )-85 END-POINT GROWTH RATE. SOURCES: UNITED NATIONS ENERGY STATISTICS (ACTUAL); WORLD BANK. ECONOMIC ANALYSIS & PRO.JECTIONS DEPARTMENT (PRO.JECTED). - 121 - ANNEX TABLE 6: COAL - PRICES, /A 1911-83 (ACTUAL) AND 1984-95 (PROJECTED) _________________ iL~! __________________ _ CURRENT $ ___ !2~~_~Q~§!a!!_i ___ _ MUV /B US GDP /C ACTUAL 1911 /D 33.4 43.2 51.2 1918 39.6 43.6 56.6 1919 35.4 35.0 46.6 1980 43.1 39.4 52.1 1981 56.5 53.9 62.5 1982 52.2 50.6 54.4 1983 44.5 44.5 44.5 1984 49.0 41.3 46.1 1985 49.0 43.8 44.1 1986 52.0 42.1 44.1 1990 10.0 42.4 41.0 1995 100.0 45.3 50.2 / A SPOT PRICE OF THERMAL COAL (12,000 BTU/LB, < 1.0% SULFUR, 12% ASH), FOB PIERS, HAMPTON ROADS/NORFOLK, UNITED STATES. /B DEFLATED BY MANUFACTURING UNIT VALUE (MUV) INDEX. /C DEFLATED BY US GDP DEFLATOR. /D MAY-DECEMBER, 1911. SOURCES: COAL WEEK AND COAL WEEK INTERNATIONAL (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS AND PROJECTIONS DEPARTMENT (PROJECTED). COM~1ODITY DESCRIPTION ENERGY Petroleum, average OPEC price (OPEC government sales weighted by OPEC output) Thermal Coal, (12,000 BTU/lb, < 1.0% sulfur, 12% ash), FOB Piers, Hampton Roads, Norfolk