IEEJ：December 2020

©IEEJ 2020

Special Bulletin
A Japanese Perspective on the International Energy Landscape (513)

December 28, 2020

Reviewing Japanese and Global Energy Situations in 2020
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanSix days are left before the end of 2020. The year saw many important events and greatchanges in the Japanese and global energy situations and the overall international situation.
Regarding them, I would like to summarize impressive points for me.
First, I have no choice but to point out the COVID-19 pandemic’s unprecedentedly greatimpacts on global political, economic, and energy situations. First novel coronavirus infections wereconfirmed in Wuhan, Hebei Province, China in December 2019 before infections rapidly spread inthe city in January 2020. Then, COVID-19 infections fast spread throughout China and the world. InMarch, the World Health Organization declared the outbreak as a pandemic. The global COVID-19
spread has remained unlimited. So far, COVID-19 has infected about 80 million people and killed
more than 1.7 million in the world. In Europe, the United States, and Japan where new COVID-19infections declined from May, second or third outbreaks have come, forcing lockdowns and othertravel restrictions to be implemented to help prevent infections from spreading further.
As the pandemic has grown serious, U.S.-China relations, which had become tense due toa trade war in 2019, have deteriorated further. Washington and Beijing have harshly criticized eachother over China’s initial response to the outbreak, coronavirus sources, and other matters, as well as
Hong Kong, Taiwan, and other human rights and democratic movement issues, and China’s maritimeexpansion, escalating the bilateral confrontation into what is being called “the new Cold War.” Given
that the United States has recorded the world’s largest numbers of COVID-19 infections and deaths(more than 300,000 deaths, some six times as many as American soldiers killed in the Vietnam War),Washington has grown critical of Beijing.
The global economy rapidly contracted due to the pandemic. The International Monetary
Fund has forecast that the global economy would contract 4.4% in 2020, indicating the worst
economic crisis since the Great Depression, outdoing the 2008-09 global financial crisis. Economic
reopening from May allowed many countries to post positive economic growth in the second half of2020. Since November, pharmaceutical companies have filed for COVID-19 vaccine approval.
Vaccination has started in Russia, the United Kingdom, the United States, and other countries,
raising hopes on vaccination effects. As noted above, however, there is no sign of an end to thepandemic, which has become even more serious through second or third outbreaks in manycountries.
Under such circumstances, 2020 became a year of turbulence for global energy markets.
Global energy demand declined sharply due to the economic contraction and lockdowns forpreventing the spread of COVID-19. Particularly, oil demand posted a steep fall of some 30% fromnormal levels temporarily, affected by lockdowns and a plunge in international air travel demand. As
demand for all energy sources including oil, natural gas and LNG, and electricity decreased
substantially, oversupply hit energy markets, triggering price crashes. Symbolizing rapid energy
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price falls, the key futures contract on the West Texas Intermediate crude oil fell into negative
territory for the first time in history. On April 20, the front-month WTI futures contract dropped tominus $37 per barrel on special conditions just before its expiration. The fundamental factor behindthe fall was substantial oversupply under the pandemic. To cope with the oil price crash, theOPEC-plus group, comprising the Organization of the Petroleum Exporting Countries and some
non-OPEC oil-producing countries such as Russia, launched their largest ever production cuts inMay. High-cost U.S. shale oil producers lost profitability due to the price crash and reduced
production, adding fuel to a supply decline. The supply fall and demand recovery supported oil
prices from May, allowing the key Brent futures contract to rise back above $50/bbl in December for
the first time in nine months.
Oversupply and low prices were common to oil, natural gas and LNG, and electricity
markets. Energy price and demand declines seriously affected the international energy industry,leading to a considerable decrease in energy investment. They also hit oil-producing countries that
depend heavily on energy export income, casting a gloom over their economies and societies.
Investment shortages and the destabilization of oil-producing countries could destabilize the oilmarket over the medium term. Over the long term, the COVID-19 pandemic could bring about an oil
demand peak and progress in electrification through social and economic transformations. Its
impacts on energy transitions are attracting attention.
The second important event in 2020 was November’s U.S. presidential election in which
Democrat Joe Biden won back the presidency from incumbent Republican President Donald Trump.
Given that the United States exerts the world’s greatest influence on international politics, the global
economy, and the international energy situation, who leads the influential country is a matter ofgrave interest to the world. As the incoming Biden administration’s energy and environment policies
are likely to greatly differ far from those of the Trump administration, global attention is focusing on
the new administration’s policies on climate change, the Middle East including Iran, and shale
resources development. U.S. policies on China and Russia are also important issues exerting great
influence on the overall international situation. A serious division in the United States indicated in
the presidential election and policy differences within Biden’s Democratic Party demonstrate an
unstable political environment for the Biden administration. As top priorities for the newadministration include COVID-19 countermeasures and economic recovery, it is difficult to predict
how its energy and environment policies would be and how strongly they would be implemented.
The large change in the United States in 2020 will shake the world in the future.
As the third important point in 2020, I would like to cite major countries’ announcementsof carbon neutral targets in the second half of the year. The European Union took the initiative inoffering a target of achieving carbon neutral status by 2050, coming up with its Green Deal policy
including the development of renewable energy, hydrogen, and other clean energy sources. TheGreen Deal initiative is positioned as the key to accomplishing recovery from the COVID-19
disaster, long-term economic growth, and climate change countermeasures. Following the EuropeanUnion, China in September offered to seek carbon neutral status by 2060. In October, Japanannounced its target of achieving carbon neutral status by 2050. The incoming Biden administration
also plans to pursue carbon neutral status by 2050. As Japan, the United States, the European Union,
China, and other major greenhouse gas emitters are seeking carbon neutral status, momentum could
rapidly grow for enhancing climate change countermeasures in the world.
Under these carbon neutral status targets, hopes have grown on clean energy sources
contributing to such status. The significance of renewable energy, nuclear, and other non-fossil2

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energies has been recognized anew along with the needs to promote and enhance energy efficiency
improvement. At the same time, the decarbonization of fossil fuels accounting for most of global
energy supply now has been highlighted. Regarding the decarbonization, hydrogen’s roles haveattracted interest. The production of clean hydrogen including “green” and “blue” hydrogen, as wellas the development of hydrogen supply chains, has become a matter of global interest. As cost cuts
and infrastructure investment are required to introduce and diffuse such innovative energy,
stakeholders have grown conscious of utilizing existing technologies, infrastructure, and facilities toreduce costs. In this regard, a Japan-Saudi Arabia “blue ammonia” project, the first of its kind in theworld, has attracted attention from energy stakeholders.
Under such global situation, Japan’s Suga administration, inaugurated in September,offered the 2050 carbon neutral status target in October. Based on the target, the government isstepping up discussions on revising the strategic energy plan to simultaneously achieve the 3E’s –energy security, economic efficiency, and environmental protection – while responding to
COVID-19 countermeasures and policies of the new U.S. administration.

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