IEEJ：December 2016○ｃ IEEJ 2016

Special Bulletin
A Japanese Perspective on the International Energy Landscape (304)

December 27, 2016

Reviewing Japanese and International Energy Situations in 2016
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Five days are left before the end of 2016. The year saw more important events ordevelopments than usual in the Japanese and world energy situation and the overall internationalsituation. Regarding them, I would like to summarize the impressive points for me.
First, 2016 was the year of surprises. The biggest among various surprises this year wasDonald Trump’s victory in the November U.S. presidential election. Trump, treated as a minor
candidate in the initial phase of presidential election campaigns, became the Republican Party’s
presidential candidate despite criticisms against his radical remarks. In the final stage of thecampaigns, Trump was persistently behind Democratic presidential candidate Hillary Clinton inpolls and ratings by major media organizations and experts. After all, however, he achieved acome-from-behind win. The surprise came as a great shock shaking not only the United States butthe whole world.
It is significant that the result was a surprise. It is also significant that Trump, elected as aresult of the surprise, is destined to steer the United States, which is the world’s only superpower. In
international politics, security, the world economy and all other fields, every action by the incoming
Trump administration will attract global attention. In the energy and environment field, global
attention focuses on how the new administration would address the Paris Agreement, the Irannuclear agreement, the Clean Power Plan, and energy industry deregulation and infrastructuredevelopment, including shale oil and gas development. The world is also paying attention to policy
directions, including how “America First” and other key policy words would influence the energy
and environment field and how the United States’ inward-looking attitude and isolationism would
influence its external energy policy. When specific developments are analyzed, the new president’s
process for making and implementing actual policy plans, the appointment of major cabinet
members and policy staff, and their actual actions would be great matters of interest to the world.
Ultimately, the U.S. presidential election result leading to the Trump administration may be theworld’s most important news in 2016.
The second surprise this year was the United Kingdom’s decision through a nationalreferendum in June to secede from the European Union, known as Brexit. The referendum resultcame as a great shock because British voters had widely been expected to finally make aneconomically reasonable decision to avoid the exit from the EU. The unexpected referendum result
generated great fear and uncertainty about the U.K. economy, the whole of the EU economy and theEU itself. We must pay attention to some common factors behind the abovementioned Trump
1IEEJ：December 2016○ｃ IEEJ 2016

whirlwind and the Brexit decision, including opposition to the establishment, the growing
inward-looking attitude, fear and concern about immigrants, widening economic and social divides,
and increasingly emotional opinions.
The fate or specific results of Brexit after U.K.-EU negotiations are still uncertain. At atime when Brexit is expected by some people to have a hard landing and deal a severe blow to theU.K. and the EU, the surprise referendum decision is undoubtedly viewed as one of the very
important developments. Key national elections are scheduled for 2017 in major European countries
such as the Netherlands, France and Germany. Depending on election results, the stability of Europe
could be seriously affected, with the stage for surprise coming back from the United States to Europe.
It will be important how the social, political and economic factors behind the Brexit decision would
influence these elections, indicating the graveness of the referendum decision.
The third major surprise concerning the energy field in 2016 was a decision by theOrganization of the Petroleum Exporting Countries to reduce oil production. Behind the crude oil
price plunge since the second half of 2014 was a loose supply-demand balance resulting from asubstantial increase in U.S. shale oil production. Another major factor behind the oil price weakness
was Saudi Arabia’s policy choice to avoid playing as a supply-demand coordinator and adopt amarket share strategy, leaving the market to determine oil prices even if they fall further. Saudi
Arabia maintained the policy before reversing it clearly in 2016. The reversal came as OPEC
announced a production cut plan at its extraordinary meeting in September in Algeria and reached aproduction cut agreement including country-by-country production quotas at a regular ministerial
conference in November. Until the September announcement of the production cut plan, most of theoil market players in the world believed that a wide difference between Saudi Arabia and Iran overproduction adjustment would make it very difficult for OPEC to strike any production cut agreement.
The September and November decisions came as a surprise to move the market, with OPECattracting global attention again.
Behind the surprise OPEC decisions was the prolonged oil price weakness that
deteriorated oil producing economies and paved the way for OPEC countries to reach compromise toavoid any more decline in oil prices beyond their differences in stances or opinions. Although somedoubts are left about the effectiveness of coordinated oil production cuts by OPEC and Russia, theOPEC decisions have brought about an important change for us in analyzing crude oil prices and theinternational oil market expected to go in the direction of rebalancing. In this sense, the OPEC
surprise was one of the surprises representing 2016.
The year 2016 also saw various other important developments. International developments
included important events for predicting the future Middle Eastern situation, such as Iraq’s operation
to take back Mosul from Islamic State insurgents, Syria’s recapture of Aleppo from rebels and Iran’s
fast comeback to the international oil market after the Iran nuclear agreement. In Northeast Asia,
there were key developments that exerted direct impacts on Japan. China enhanced its maritime
expansion, while North Korea repeated nuclear and ballistic missile launching tests. In South Korea,
political turmoil deepened with the assembly passing a resolution to impeach President Park GeunHye. Highlighted energy-related developments in 2016 included the accelerated loosening of the2

IEEJ：December 2016○ｃ IEEJ 2016supply-demand balance in the international liquefied natural gas market, the start of new Australianand U.S. LNG production projects behind the acceleration, renewable energy’s growing presence inthe energy market under policy support and falling power generation costs, and energy policy debate
focusing on coal, which is a competitive electricity source while having an environmental loadproblem. In regard to climate change, it may be needless to point out that the Paris Agreement tookeffect in November to enhance global carbon reduction efforts.
In Japan, various challenges for the achievement of a target energy mix emerged in 2016,
including the restart of nuclear power plants, the issues related to economically reasonablepromotion of renewable energy and numerous coal power plant projects. April’s electricity retailderegulation symbolized the full-fledged start of energy market deregulation in Japan and became an
important milestone for considering the deregulation’s influences on the energy mix achievement,
the Japanese energy market and the industry sector. With the key developments in 2016 in mind, I
would like to closely watch how 2017 will be.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3