IEEJ: February 2005
390th Regular Research Session
Summary of theDecember 16, 2004

Short-Term Energy Demand/Supply Outlook- Forecast through FY 2005 and Analysis of the Impact of Oil Prices, Economic
Growth and Temperatures The Institute of Energy Economics, Japan
Shigeru Suehiro, Researcher
Econometric Analysis / Demand Forecast Research Group[Objective of Research]
The Japanese economy has seen production and capital investment firming on robust
exports. As a recent export slowdown has affected part of production, however, the future courseof the economy has grown more uncertain. On the other hand, a sharp oil price hike, since lastyear, is expected to affect the economy, and energy demand and supply in Japan. Based on suchcircumstances, this report attempts to forecast Japan’s energy demand and supply in Fiscal
Year 2004 and Fiscal Year 2005. As for FY 2005, this report gives a standard case for energy
demand and supply and analyzes the impact of changes in oil prices, economic growth andtemperatures on energy demand and supply.
[Key Conclusions]
1. Key Economic Indicators Forecast for FY 2004-2005
Japan’s real economic growth in FY 2004 is projected at 2.2% over the previous year,
as production and capital investment have been vigorous, mainly in export-oriented industries
due to robust exports, including those to China.
Growth in FY 2005 is forecast at 1.3% as production and capital investment are likely
to peak out on slower export growth amid a worldwide economic slowdown. Consumer prices
are predicted to fall for the seventh consecutive year, indicating the continuation of deflation.
The crude oil import price on a C.I.F. basis*, as a precondition for the forecast, is assumed tofall from an average $39 per barrel for FY 2004 to $34 per barrel for FY 2005.
*Source: Ken Koyama, International Oil Situation and Oil Price Outlook for 2005, December16, 2004

2. Energy Demand/Supply Outlook for FY 2004-2005<Primary Energy Supply and Final Consumption>
Japan’s final energy consumption in FY 2004 is expected to increase by 1.2% from theprevious year on smooth economic expansion. Consumption is likely to rise by 1.0% in the industrial
sector on robust production, by 1.7% in the household sector on firm services and higher
temperatures and by 0.9% in the transportation sector. Japan’s primary energy supply, including‑ 1 ‑IEEJ: February 2005
consumption in the conversion sector, is projected to increase by 1.4%.
Final energy consumption in FY 2005 is projected to post a slower year-on-year increaseof 0.4% on a production slowdown. The industrial sector is expected to increase consumption by0.3%. But the transportation sector is projected to see consumption turn down, with a 0.9% drop on adecline in cargo traffic. The household sector is likely to score an increase of 1.7% in consumption
in reaction to the impact of temperatures in the previous year. Domestic primary energy supply isexpected to rise by 0.7%.
Carbon dioxide emissions in Japan are predicted to decline slightly in FY 2004 and 2005,
due to a rise in the capacity utilization rate for nuclear power plants and the introduction of new ones,
even as energy demand increases moderately.
<Energy Demand on a Sales Basis>
Electricity: Electricity sales in volume in FY 2004 are projected to increase by 3.6% overthe previous year due to robust production and higher temperatures. This would be the first increasein two years.
In FY 2005, electricity sales are expected to post a slower rise of 0.9%, because of areaction to higher temperatures in the previous year and a production slowdown.
Town gas: Town gas sales in volume in FY 2004 are estimated to increase by 4.2% fromthe previous year due to sharp growth in industrial consumption. The impact of summer heat waves
might have been offset among demand factors in the household sector.
In FY 2005, town gas sales are projected to increase by 3.7%. Household demand isexpected to increase in reaction to higher temperatures in the previous year, while business(commercial and other) demand for cooling is projected to post a reactionary drop.
Fuel oils: Fuel oil sales in volume in FY 2004 are likely to fall by 0.5% from the previousyear. While demand for some fuels is increasing on higher temperatures and robust economic
activities, demand for fuel oil C for power generation is plunging.
In FY 2005, fuel oil sales are likely to decline by 1.1% on a continued drop in demand forfuel oil C for power generation, as well as a slowdown in production and other economic activities.

3. Analysis of Factors Affecting Energy Demand/Supply – FY 2005
If the C.I.F. crude oil price is at $43 per barrel, $9 higher than in the standard case,real economic growth may be 0.4 percentage point lower and final energy consumption
growth 0.8 percentage point lower. If the C.I.F. crude price is at $28 per barrel, $6 lower thanin the standard case, real economic growth may be 0.3 percentage point higher and final
energy consumption growth 0.6 percentage point higher. By energy source, crude oil pricefluctuations may have a larger impact on oil consumption than on electricity or town gas‑ 2 ‑IEEJ: February 2005
consumption.
If real economic growth is at 0.3%, 1.0 percentage point lower than in the standard
case, final energy consumption growth may be 0.6 percentage point lower. If real economic
growth is at 2.3%, 1.0 percentage point higher than in the standard case, final energy
consumption growth may be 0.6 percentage point higher. Energy demand growth changes
more slowly than economic growth. Economic growth changes may affect oil, town gas andelectricity consumption in that order.

[Summary Table]

FY 2002
Real GDP growth (%)
C.I.F. crude price $/bbl
Domestic primary energy
growth (%)
Final energy consumption
growth (%)
Electricity sales growth (%)
Town gas sales growth (%)
Fuel oil sales growth (%)(actual)0.8
27Sensitivity Analysis(Gap with Standard Case)
Standard Case
for FY 2005
Crude oil price*
Economic growthHigherLower
FY 2003
FY 2004
FY 2005
Higher price Lower pricegrowthgrowth(actual)(Estimated) (Estimated)$43/bbl$28/bbl
0.30%
2.30%
1.9
2.2
1.3
-0.4
0.3
-1
130
39
9-6
*34

0.5

-0.1

1.4

0.7

-0.7

0.5

-0.5

0.6

1.7

-0.7

1.2

0.4

-0.8

0.6

-0.6

0.6

2.2
8.0
2.7

-0.5
4.3
-0.8

3.6
4.2
-0.5

0.9
3.7
-1.1

-0.2
-0.3
-1.1

0.1
0.2
0.9

-0.3
-0.5
-0.8

0.3
0.5
0.8

*Source: Ken Koyama, International Oil Situation and Oil Price Outlook for 2005, December 16, 2004, IEEJ

Contact: report@tky.ieej.or.jp‑ 3 ‑