International Energy Agency (Hansard, 16 December 1980)

§ Mr. David Howell

The governing board of the International Energy Agency met at ministerial level on 9 December under the chairmanship of the Secretary of Energy of the United States, Mr. Charles W. Duncan. I represented the United Kingdom.

Ministers considered both the short-term oil market situation and the structural changes required in the medium-term to enable IEA countries to move away from dependence on imported oil.

Ministers noted with concern that events in the Middle East had cast new uncertainties over future oil supplies and that the risk of a new spiral in oil prices threatened the world economy with further loss of growth, increased inflation and unemployment. Ministers were determined that the industrialised countries should do all in their power to prevent a repetition of the events of 1979. In their view the overall oil market situation, given the combination of high stock levels, declining consumption and the helpful action of several OPEC countries by way of increased production, should remain manageable. They reaffirmed the measures agreed on 1 October 1980 and extended them for the first quarter of 1981. Ministers agreed that, in the fourth quarter of 1980 and the first quarter of 1981, the balance between oil supply and demand should be maintained by continuing to draw on stocks. They also emphasised the need to discourage undesirable purchases, which brought undue pressure to 92W bear on the market, and to keep oil consumption under control. They decided on a system to manage any serious country and company imbalances which might arise. The collective result of these actions, as estimated by the IEA secretariat, would be to reduce demand by IEA countries for oil by 10 per cent.—from 264 million tonnes in the first quarter of 1981 to 238 million tonnes. Their effectiveness will be the subject of rigorous monitoring.

Ministers also reviewed progress made in achieving the structural change necessary to ensure that energy shortages do not act as a constraint to growth in the medium term. They noted that stronger measures to manage energy demand and reduce oil requirements would be needed if further slippage in the prospects of economic recovery in the middle 1980s was to be avoided. They had in mind in particular measures to increase coal production trade and use, on which they had received valuable presentation by the Coal Industry Advisory Board, an expansion in the development of nuclear power, an increase in the production, trade and use of natural gas, the development of alternative sources of energy and the vigorous promotion of energy demand management through energy conservation and the substitution of other energy forms for oil.

The importance of the price mechanism and the view that domestic oil prices should reflect world prices was reaffirmed. Officials were asked to examine the pricing of energy in general and to institute more effective monitoring systems on energy pricing. Ministers will return to this question at their next meeting.

Her Majesty's Government believe that effective implementation of the conclusions of the IEA meeting is essential if the short-term difficulties now being experienced in the oil market are not to lead to a further damaging price explosion. In the medium term sound pricing policy is fundamental to ensure the adaption of our economies to new patterns of energy use. Implementation of both the short-term measures and of those necessary in the medium term will require politic al commitment on the part of all member Governments. Her Majesty's Government will approach the IEA conclusions in this spirit.

I am placing a copy of the governing board's communiqué in the Library of the House.