The purpose of this paper is to review natural gas market developments in Western Europe by briefly examining the history of the region's natural gas market, prospects for indigenous future natural gas production, access to internal and external sources of natural gas, and demand and pricing policies for natural gas.

Europe's outlook for using natural gas to meet its energy needs changed markedly with the 1972-1973 oil crisis. Before the crisis, natural gas use in Europe had been increasing with the discovery of the Groningen reserves in the Netherlands and those in the North Sea. The relatively low cost and the security of the supply provided sufficient incentives to market the gas for use in the region and to make it available for export within the region. Natural gas was an ideal fuel to replace manufactured gas. After the crisis, Europe recognized the danger of depending on imported oil and looked to other sources of energy to reduce its dependence. In light of the delays and difficulties associated with the development of nuclear energy and the use of coal, natural gas was considered to be a reasonable alternative.

European gas consumption increased rapidly in the 1970s. Although this growth has stabilized in recent years because of the region's ailing economy and the Increased price of gas relative to oil, Europe is expected to continue to rely on natural gas for the foreseeable future. Gas use at this level carries same risks since dependence on imports from outside the region is expected to grow as production from older indigenous fields declines. In the early stages of International gas trade, such trade was considered more secure than oil imports because of the high-capital cost exposure of both importers and exporters and the long-term contractual commitments to secure gas supplies. This assumption is questionable, however, because supply flows have been interrupted, as in the case of Algeria, Libya, and the Soviet Union. Diversifying energy sources is a commendable objective, but security of supply is a matter that cannot be ignored and one that continues to receive the attention of governments. Trading of reliance on insecure oil sources for reliance on insecure gas sources makes little sense.

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