Department of Energy
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CC:UM. D. Stanton Coronal
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Mr. A. Smith
Senior Economic Adviser,
Foreign and Commonwealth Office London, SW1 A 2AH
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RECEIVED IN
REGISTRY No. 51Date
10th January 1977
17 JAN 1977
Dear Adrian,
AKK 16x/1 O PRE
FILE
Thank you for your letter of 20th Dcember enclosing a request for information from the Economic Adviser in the Hong Kong Government.
I am sorry to say that I do not think we can help very much. As far as the price of generating equipment is concerned, I think the people most likely to be of help to Mr. Stanton will be the Electrical Engineering and Process Plant Industries Branchat
at the Department of Industry, and I am sending a copy of your letter and Mr. Stanton's over to Mr. Havelock in that office to see what they can do,
The issue of coal and oil price relativities is very difficult. My own expectation, in line with the Berrill group's conclusions for the longer term, is of oil prices continuing at least at today's levels in real terms through the '80's, and rising thereafter to a level perhaps 50%, perhaps 100% higher by the end of the century. I would not want to dismiss completely the possibility of a crack in prices in 2 or 3 years' time, but in view of the developing demand/supply position I would be surprised if prices then remained at a lower level for many years. those grounds I do not think that such a reduction in prices would be a very relevant consideration in the power generation sector, with the long lead time on the construction of power stations, and their long operating lives.
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With this sort of scenario for oil- i.e. with prices being sustained towards the end of the century by a developing scarcity of oil it would seem strange to me if the price of coal in international trade lagged far behind; there would of course have to be some differential to reflect the user disadvantates of coal, and extra freight and handling costs. But this implies a view about the market
If structure which I suppose might not be valid for given local circumstances. for example there were large quantities of Australian open-oast coal available at very low production cost, I suppose that in their eagerness to sell to Hong Kong, the producers might compete away the rent which they could otherwise obtain by pricing at oil parity. Mr. Stanton is probably in a better position to make judgements of this sort than we are here. Without an effective world energy model, it is difficult to see how we can be more helpful.
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Yours sincerely,
F. Broughton Trower
p.p. (B. D. Cullen)
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