https://cpes.org.uk/om/files/original/00f50b29d98682bae4b5934488997b64.pdf c36508ef63043a8b046da51785f59464 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Prospects for Economic Management 1973 - 77 Text A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text. Text Any textual data included in the document Chapter 2 Energy Supply by Francis Cripps and Christopher Taylor 1. Arab restrictions on petroleum productioti and shipment, and the industrial dispute in the coal mines, have led to Government restrictions on industrial and commercial activity (the 'three-day week') .. There are also fears that national output, or G.D.P., could be constrained by physical shortages of energy over a longer period. In this chapter we first examine the medium term prospect and conclude that the risk of a shortfall in energy supply after 1975 is remote. We then turn to the immediate prospect for the next year or two. It appears that energy shortages may persist over this period; but that restriction of direct consumer uses of energy could probably eliminate the need for cut-backs in industrial and commercial activity. Finally we examine the likely costs of oil imports to the balance of payments; we find that the import bill is likely to rise from £1,700 million in 1973 to about £3,600 million in 1974, falling gradually thereafter to around £2,600 million in 1977 as the volume of imports declines. Energy requirements in the medium term 2. The average annual growth of total energy consumption (expressed in coal equivalents) over the period 1951 to 1973 was only 1.75%. This growth is the net outcome of two processes - rising demand for energy-intensive products and services, partly offset by increasing efficiency in the use of energy inputs. 3. A regression equation for the period 1960-73 shows the trend growth of energy consumption (temperature adjusted) as 2.15% per year, with an elasti-city of variation in respense to deviations of national output from trend of about 0.4. The equation is sufficiently well-determined to provide reasonably firm projections of the future requirement in the medium term. To assess the risks of shortfall in supply, we.assume a fast growth of national output (3!% per year); ~ this basis total inland energy consumption would be expected to rise just under 2!% per year between 1973 and 1977. 4. The energy supply system as a whole contains considerable technical flexibility. The main sources of this are the possibilities for substitution between alternative fuel inputs in electricity generation (especially in off-peak periods), and considerable variation in the pattern of output of petroleum products made possible by modern refining techiques. The technical flexibility of the system can only be fully exploited through effective management and price-fixing on the part of the Government. Provided this is forthcoming, it seems legitimate to project the likely supply of coal, natural gas and lesser fuel sources and then derive petroleum requirements as a residual. 2-2 5. Table 1 shows past and projected inland energy consumption and supply, treating future petroleum input as a res~dual and mak~ng no allowance for the :'-resent restr1ctions on energy use and shortfall ~n coal production. The rise iu cool input projected for 1974 as compared with i973 reflects the fact that last year coal stocks were building up as production exceeded ~nput. The assumption that coal ~nput could in future be held at J..ts present normal level J.S perhaps optimistic, given the past trend decline, and ~mplies a successful outcome of last year's dec~sion to invest heavily in the coal ~ndustry. Projections for natural gas and nuclear electric1ty are based on various official statements. Table }, Inland ener·gy consumption Coal Natural g~s (million tons of coal equivalents) Nuclear and hydro electricity Petroleum Total 1965 1966 196 7 1968 1969 1970 1971 1972 19 73 184.6 174.7 163., 8 164.5 l6L 1 154.4 138.7 120.9 130.5 L2 1.1 1.9 '4. 3 8.4 16.0 25 8 36.7 38.6 8.3 10.2 il.6 12.3 12.5 l2o0 1l.5 12.5 12.4 102.8 lll. 7 119.3 125.9 135 c7 145.6 147<3 157.8 160.8 296.9 297.7 296.6 307.0 317,7 328.0 323.3 327.7 342.3 Projected 1974 138.0 197 5 138.0 1976 138.0 1977 138.0 44.4 50.2 56,7 64.2 13.5 15.0 17.0 19.5 155.6 156.2 155.9 154.1 351.5 359.4 367.6 375.6 Sources: - - - -1965-72 Monthly Dige_st of Statistics 19 73 Es tunated from first three quarters, ignoring effects of end-year emergency, etc. 1974-77 Projected as described in text, with petroleum treated as a residual. 2-3 6. The table implies that the past trend increase 1n petroleum input can henceforth be halted, and that the new level may possibly b~ slightly lower than that obtaining in 1973. 7. To project other inland requtrements for petroleum, (mainly as an input to the chemical industry) 'lve use a regression equation for the period 1965-72; the trend growth rate is estimated at 7.7% per year and the elasticity of variation in response to fluctuattons 1n nattonal output 1s 1.5. Table 2 shows total requirements for inland deliver1es of petroleum products both for energy and for other uses, expressed 1n million tons of petroleum (rather than coal equivalents)~!) With additional allowances for exports, bunker facilities and stock-building, the table also shows total projected d1sposals of petroleum. Table 2 Petroleum dtsposals Inland delivertes Energy Other (l) uses · 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 60.5 65.7 70.2 74.0 79.8 85.7 86.7 92.7 94.6 Projected 91.5 91.9 91.7 90.6 6.4 6.8 7.9 8.8 9.5 9.6 9.5 9.8 10.0 13.1 ·14.2 15.4 16.7 Bunkers 5.2 4.9 5.0 5.3 5.5 5.4 5.6 5.1 5.5 5.6 5.7 5.8 5.9 (mtllion tons of petroleum) St~ck~ bu1ld1ng (·2) (3) Exports Total (l) disposals 0.8 L.4 0.2 1.3 2.0 0.5 4.3 -Ll 4.8 0.9 0.6 0.2 0.1 10.8 12.5 12 .l 14.3 14.4 18.3 18.2 19.0 19.5 18.0 19.6 21.9 24.3 83.7 91.4 95.7 103.7 111.2 119.5 124.3 125.5 134.4 129.1 132.0 135.0 137.6 (l) Including refinery fuel but exclud1ng refinery losses. ( 2) Estimated as residual, 1965-73. (3) Shipments basis; includes crude as well as products. Sources: 1965-73 see table 1 1974-77 inland energy input from table l, other 1tems projected as described 1n text. {l) It is assumed that l ton of petroleum is equivalent to 1.7 tons of coal for energy purposes. · 8. Export projections, 1n particular, are hazardous. Table 3 therefore sho1vs import requirements both on a gross and on a net basis. Either way, the required volume of imports starts to fall rapidly after 1975 even under our rather conservative (but inevitably highly uncertain) projections of North Sea oil arrivals. By 1977 imports should be little more than half their 1973 level. Tab le 3 Petroleum supply 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 North Sea oil Imports Crude Products 64.4 19.8 70.4 21.3 72.5 23.5 81.9 22.3 91.7 20.2 100.5 19.8 106.0 18.8 106.0 20.1 ~ 135.0 Projected 1.2 128.6 15.0 117.7 37.5 98.2 60.0 78.3 (million tons of petroleum) Total (1) Exports supply Crude Products Net imports Crude Products 84.2 91.7 96.0 104.2 111.9 120.3 124.8 126.1 135.0 0.1 10.7 0.1 12.4 o. 7 11.7 0.1 14.2 0.3 14.1 1.2 17.1 1.5 16.7 3.5 15.5 ~ 19.5 64.3 9.1 70.3 8.9 71.8 11.8 81.8 8.1 91.4 6.1 99.3 2.7 104.5 2.1 102.5 4.6 ~ 115.5 129.8 132.7 135.7 138.3 18.0 19.6 21.9 24.3 110.6 98.1 76.3 54.0 (1) Differs from total disposals in .tab le 2 on account of refinery losses. Sources: 1965-73 see table 1 1974-77 projected as described in text. 9. The projections suggest that the U.K. need not suffer from energy shortages in the medium term even if, despite North Sea oil arrivals, total petroleum consumption has to be held down to the 1973 level. By 1977 arrivals of North Sea oil should be well on the way to eliminating dependence on imports altogether. 2-5 Energy supply in the short term 10. The projections described above imply, in the absence of restrictions on energy use and limitations on coal production, an average monthly net import requirement for petroleum of 9.2 million tons in 1974 falling to 8.0 million tons in 1975. The present shortfall in coal production due to industrial action is about 35%, or 4 million tons of coal per month, equivalent to 2.4 million tons of petroleum. Thus if the coal shortfall were to be made good by petroleum imports, the 1974 average net import requirement would rise to about 11.6 million tons per month. 11. In winter months inland energy consumption 1s normally about 15% higher than the annual average. Additional consumption 1n the first quarter of 1974 m1.ght therefore be expected, in the absence of restrictions, to be about 4.4 million tons of coal equivalent, or 2.6 million tons of oil equivalent, per month. Run-down of present coal :md oil stocks to 'minimum' levels could cover about 3 months of this additional tvinter consumption. 12. Although imports of crude oil reached the level of nearly 12 million tons per month last October, average net petroleum imports for the year would probabl1 have been little more than 10 million tons per month even 1n the absence of the crisis provoked by Arab restrictions on production. For the moment trade in refined products between the U. K. and uther industrial countries is probably negligible because of the ban on U.K. exports imposed in December. We are therefore dependent almost entirely on imports of crude. These fell to 9.7 million tons in November and may have fallen further since then. There is thus a real danger that petroleum supply will be inadequate to meet demand even if full coal production is resumed. 13. In these circumstances continued restriction of industrial and commercial activity could only be avoided if other energy uses are cut back. A 10% cut in electricity use through domestic restrictions and general economy measures would save the equivalent of over half a million tons of petroleum per month. Another 0.3 million tons per month could be saved by a 15% reduction in the use of gasoline and kerosene, mainly falling on motorists, aviation and domestic and office heating. Thus a stringent programme of reallocation might yield savings of nearly one million tons of petroleum per month without any significant cuts in industrial production. 2-6 14. The prospects for petroleum imp6rts are still rather obscure. The above analysis suggests that net imports of less than 8! million tons per month would make cdntinued restriction of industrial activity inevitable; at 9.2 million tons per month, restrictions of any kind might just be avoided provided that full coal production is resumed. With a continued shortfall in coal, petroleum imports of over 10! million tons per month would be needed to avoid restrictions on industrial production, or 11! million tons to make restrictions of any kind unnecessary. 15. It must be remembered that these calculations about energy demand and supply as a whole conceal any problems caused by rigid requirements for fuels in particular forms. The most serious difficulty of this kind is perhaps the dependence of steel production on scarce supplies of coal suitable for coking. The cost of oil imports 16. Since October 1973 the Arab Gulf producers have increased the posted price of their crude oil nearly iourfold. It is calculated (see Table 4) that this will have the effect of rather more than doubling the landed cost of Gulf light crude in the U.K. Other O.P.E.C. members have followed suit to a greater or lesser extent. Tab le 4 Price of Arabian Light Crude ($ per barrel) Posted price Government take ( l) Production cost Cost f.o.b. to oil companies Freight, insurance and oil company margin Price, c. i. f. U.K. 1 October 1973 3.01 1. 79 0.13 1.92 16 October 1973 5.11 3.04 0.13 3.17 1 Januar~ 1974 11.65 6.93 0.14 7.07 2.68 4.60 2.43 5.60 2.50 9.57 (l) Tax at 55 per cent of posted price plus royalty of 10 per cent. 17. While the future course of prices l,S uncertain, members of O.P.E.C. are known to believe that these increases have raised the cost of oil to a par with other forms of energy, so that unless t.he major producers decide to pursue a highly restri~tive supply policy it can be expected that future increases will approximate to the general rate of inflation in industrial countries. '2-7 18. The implicatcon of these ~ncreas~s for the average price of U.K. imports of crude oil and products is shown in the first column of Table 5. It is assumed that there is a time lag of about six weeks between a change in posted prices and its impact on the fuel import pr~ce ~ndex Tab le 5 Cost of Oil Imports, 1973-77 1973 1974 1975 1976 1977 Price index (1970=1.00) 1. 56 (l) 3.35 3.60 3.86 4.15 Imports of crude oil and products (mn. tons) 135.0 135.0 117.7 98.2 7 8.3 Imports at 1970 pnces (f.mn.) 1089 1089 949 792 632 Imports at current pr~ces (£nm.) 1698 3646 3412 3058 2623 (1) Based on the implicit pr~ce deflator for fuel imports derived from the trade stat~stics, with an adjustment to allow for the October increase ~n c.i.f. pr~ces shown ~n Table 4. 19. In view of the uncertainties about petroleum supply and requirements in 1974, imports for this year have been put at 135 million tons - unchanged from 1973. This of course represents an appreciable reduction from the scale of imports last October. It exceeds the projection of requirements for 1974 in Table 3 because, unlike the latter, it allows for abnormal demands brought about by the shortfall in coal production and its aftermath. Imports after 1975, when it is hoped that coal consumption can return to the level projected in Table 1, are in accordance with the projections in Table 3. 20. It can be seen that the oil import bill will start to decline quit~ steadily after 1974; by 1977 it will still be a little higher (even allowing for inflation) than in 1973.  Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Chapter 2 Energy Supply Creator An entity primarily responsible for making the resource Francis Cripps Christopher Taylor Source A related resource from which the described resource is derived Prospects for Economic Management 1973 - 77, pages 2-1 to 2-7 Date A point or period of time associated with an event in the lifecycle of the resource 1974