IEEJ：October 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (398)

October 16, 2018

Key Points of “IEEJ Outlook 2019”
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn October 15, the Institute of Energy Economics, Japan, released the “IEEJ Outlook
2019,” its latest long-term global energy outlook. The IEEJ annually publishes the long-term global
energy outlook. The latest one projects global energy supply and demand, and markets through 2050.
As indicated by its subtitle, “Energy transition and a thorny path for 3E challenges,” the outlook
explains that it would not be easy to achieve the so-called 3E’s – energy security, environmental
protection and economic/market efficiency – in a balanced manner amid the long-term energy
transition. It develops and analyzes the following two basic scenarios under major assumptions
including annual global economic growth averaging 2.7% through 2050, population projected at 9.7
billion for 2050 and energy prices including the oil price of $125 per barrel in the Reference
Scenario.
The first is the Reference Scenario where the current trends of energy supply and demand,fundamentals, policies and technologies are assumed to continue. This scenario projects the presenttrends into the future, representing a business-as-usual future. The second is the Advanced
Technologies Scenario where advanced energy and environmental technologies are assumed to beintroduced to the maximum and work well under the fundamental enhancement of energy security
and environmental policies. The IEEJ conducted its own assessment of the maximum introduction ofvarious technologies based on discussions with and information collection from experts and industry
people to analyze global energy supply and demand changes through the introduction of advanced
technologies under the so-called bottom-up approach. Based on the two scenarios, the latest outlook
overviews the global energy situation over the long term and provides special analyses on oil andelectricity supply disruptions and the impact of banning new coal power plant construction. The
following summarizes the key points of the outlook.
In the Reference Scenario, global energy demand will increase at an average annual rate of
1.0% from 13.8 gigatons of oil equivalent in 2016 to 19.3 Gtoe in 2050. Driving the increase will be
non-OECD Asian countries including China, India and ASEAN members, which will account for
63% of the increase. However, China’s energy demand will peak out in the 2040s, while Indian andASEAN demand will keep on increasing robustly over the long term. While the gravity center ofglobal energy demand will shift to Asia, that of Asian demand will shift to South and Southeast Asia
over the long term. Electricity demand will grow remarkably, representing the electrification ofenergy demand. Electricity’s share of global final energy demand (the electrification rate) willexpand, with the share in Asia is projected to rise from 10% in 1990 and 21% in 2016 to 30% in
2050. Therefore, a key challenge will be how to provide stable electricity supply to meet growing
demand while limiting the environmental load in the world and in Asia.
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In the Advanced Technologies Scenario, global energy demand in 2050 will be 17 Gtoe,
falling 12% from the Reference Scenario due to stronger energy conservation. Fossil fuel demandwill decrease substantially from the Reference Scenario. In its place, non-fossil energy demand
including renewables and nuclear will expand substantially. Particularly, coal demand will decline
remarkably. Oil demand will also peak around 2030 in the Advanced Technologies Scenario. Whileenergy supply and demand will dramatically change through technological advancement, fossil
fuels’ share of global energy demand in 2050 will still be as high as 69%, leaving fossil fuels toremain important. Energy investment through 2050 will total $82 trillion in the Reference Scenario
and $90 trillion in the Advanced Technologies Scenario. Electricity-related investment will accountfor half the energy investment.
Energy-related CO2 emissions will continue increasing in the Reference Scenario, while
the CO2 emissions will peak in the 2020s and fall moderately in the Advanced Technologies Scenario.
But the emission level in the Advanced Technology Scenario in 2050 will fall short of achieving theambitious target of reducing emissions by half. Given that climate change initiatives will have to be
implemented over an ultra-long term with hopes placed on the development and penetration of
innovative technologies, it will be important to consider initiatives to minimize the total costcovering greenhouse gas emission reduction (mitigation), adaptation and damages.
An analysis on energy supply disruptions indicates that if 10 million barrels per day in oil
supply from the Middle East are lost with no substitute made available, real global GDP will shrink
by 9%. Given the present and future geopolitical risks in the Middle East and the potential
destabilization of the regional situation, potential oil supply disruptions and their impact are a riskthat cannot be ignored. While electricity is expected to grow more important amid the electrificationof energy demand, structural risks such as growing dependence on some specific single electricity
source, the impact of intermittent renewable energy power generation expansion, power plant
shutdowns in a competitive electricity market, as well as unexpected or emergency risks including
cyberattacks, have emerged as new threats to electricity supply security. Abnormal weather andlarge-scale natural disasters are also seen as threats. Given the recent case where a large-scale
earthquake caused a blackout in Japan’s Hokkaido, appropriate measures to enhance stableelectricity supply are very important.
An analysis on the impact of banning new coal plant construction deals with how the 3E’s
would be affected if the construction of new coal power plant capacity assumed at 1.6 terawatts
through 2050 in the Reference Scenario is banned with renewable energy or natural gas power plants
made available as a substitution. In both the renewable energy and natural gas substitution cases,
global CO2 emission reduction will make progress. Particularly, the progress will be greater in the
renewable energy substitution case. However, challenges to energy security and economic efficiency
will arise. If all the banned coal power plants are replaced with natural gas plants, a massive natural
gas supply expansion will be required to meet demand growing particularly in Asia. Specifically,
LNG supply capacity will have to be expanded to 750 million tons by 2030. Even if such supply
expansion is realized, Asia will face a sharp decline in its natural gas self-sufficiency rate and asubstantial increase in gas import payment through price hikes triggered by a tighter supply-demandbalance for gas and LNG as well as volumetric increase in imports.
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If the banned new coal plants are replaced with renewable energy plants, renewable energy
power generation capacity will have to expand to as much as 10 TW against the present global
capacity of about 6 TW covering all electricity sources. Such sharp growth in renewable energy
power generation capacity will require an unprecedentedly large capacity for electricity storage andpower supply/demand adjustments including massive output restrictions. Furthermore, grid
adjustment costs will increase substantially, leading electricity supply costs to increase particularly
in Asia. This will cause serious challenges for the affordability of electricity prices.
As the world is in the midst of energy transition in general and going in the direction of a
new future picture, the 3E’s – energy security, environmental protection and economic/market
efficiency – are required to be achieved in a balanced manner. The path for 3E challenges is not flat.
Policies, advanced technologies and human wisdom will have to be totally mobilized to tackle
energy transition.
Contact: report@tky.ieej.or.jp
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