A SURFEIT OF ENERGY
By NICHOLAS DAVENPORT One of the last major efforts of the OEEC was to publish the report of an advisory commission it had set up under the chairmanship of Pro- fessor Austin Robinson on the future of energy supplies. It was an excellent report; it laid down the principle of a plentiful supply of low-cost energy with freedom of choice to the consumer; and it recommended that any taxation of energy supplies should be so designed that the tax did not lead to the preference of the least economi- cal form of energy. The then member govern- ments approved it and proceeded quietly to shelve it. Some tightened up their restrictions on the i riport of cheap energy. Some—Western Germany and Belgium—actually increased their taxes on fuel oil and applied part of the pro- ceeds to the subsidisation of their domestic coal production. This was the last insult to the dying OEEC.
If the Six were intended to work as a cartel, as I have always argued, we must not be sur- prised if they make a cartel-like approach to the problem of energy. For a long time a com- mittee representing the European Coal and Steel Community, Euratom and the Common Market has been working out plans for co-ordinating their policies for coal, oil, gas and nuclear energy. It has had a difficult task because some countries have wanted to protect their domestic coal, while France has tried to secure privileges for the import of its Saharan oil. The committee has, however, been bold enough to put forward a proposal for a prix d'orientation (a guidance price) for energy in Western Europe in the mid- Sixties. The idea is to estimate the likely price of imported energy in five years' time and then work out a price which will serve as a guide to suppliers as to whether to invest in or close down facilities for producing coal or natural gas. No one could object to that if the laws of supply and demand were allowed to fix the price, but, as the Robinson committee observed, there is no European country which 'cannot pro- vide examples of pricing policies and taxation policies which inhibit the most efficient use of energy.'
At the moment American coal can be landed in Western Europe at under $14 a ton c.i.f., which would put the high-cost Belgian coal mines out of business. This is equivalent to about $20 a ton for fuel oil. Most foreign oil com- panies would be pleased to land oil in Western Europe at two-thirds of that price—if they were allowed. They are therefore justified in regard- ing the prix d'orientution for European energy with the utmost suspicion.
One 'cannot but feel sympathy for the inter- national oil combines who have never had it so bad. As the president of the Standard Oil of New Jersey said recently: 'I've been in the oil business for thirty-eight years and I've never seen anything like this. We have had over-supply before; we've had mean political situations; but never such a combination.' While the European consuming governments have been restricting the free market, the oil-producing governments have been pressing the companies to produce more oil to offset lower revenues or hand over more of their profits. In the Middle East capacity now exceeds production of crude oil by nearly 1,000,000 barrels a day and in Venezuela by more than 500,000 barrels a day. On top of this excess capacity the new pipelines in the Sahara will carry about 170,000 barrels a day this year, rising to 500,000 barrels by 1965. Libya is also becoming an important producer—with over 500,000 barrels a day scheduled for its pipe- lines in 1962. Nigeria will be the next : an im- portant oilfield has been discovered. And to make matters worse Russian oil exports have been rising steadily—to over 320,000 barrels a day in 1959—and will perhaps double in a few Years; already they accounted for 6 per cent. of Western European imports in 1959. With this increasing surfeit of oil it is not surprising that the 'independents' have been undercutting the Major oil companies by offering refined oils at substantial discounts. But what forced the East to reduce the posted prices of Middle cast crude oil was the Soviet offer to supply India with crude oil at cut prices. As the oil companies refused to refine the Russian oil they had to reduce India's import prices by 121 per tent. Similar cuts are spreading to every market —except. of course, the American domestic market, which has always maintained the tightest control over oil imports. You might imagine, if you were naïve enough. that European governments would be overjoyed for the sake of their investment boom at the Prospect of increasing supplies of imported energy at extremely low prices. But that is not how they look at it. With the exception of Holland, which has the Royal Dutch-Shell Oil, they have all vested interests in high-cost energy Production and France is further committed to Saharan oil. So there is little doubt that the result of their energy committee's work will be a new oil quota system allowing oil imports to ex- pand only at a predetermined rate, with a special quota for Saharan oil. When the quotas are established, the zones with a prix d'oriemation W, ill probably be arranged, making sure that domestic energy supplies will be adequately pro- 1e!,ted- But why be surprised? The Six, as I said. ,,, 111 always dispose of their affairs as a cartel. 1", Conservative is not for us to be indignant. The present ,-onservative Government is no more virtuous, 10!' it does not allow American coal or Russian oil to be imported without a licence—which it S�(.1.t Prepared to give. Surely the moral of this y is that when you are confronted with a cartel You cannot break, it is best to come to terms and join?
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