IEEJ：November 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (401)

November 8, 2018

Long-term Energy Outlook and Discontinuity
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
From November 2 through 6, I had an opportunity to discuss the international energy
situation with energy industry officials and experts in London. On November 6, I attended a seminarat the London office of the Japan External Trade Organization, where I made a presentation based onthe IEEJ Outlook 2019, the latest long-term energy outlook by the Institute of Energy Economics,
Japan, took comments from experts and held a question-and-answer session. In the following, I
would like to summarize some points that impressed me through the London discussions.
The IEEJ annually publishes the IEEJ Outlook. Representative long-term energy outlooksin the world include the World Energy Outlook by the International Energy Agency, the World Oil
Outlook by the Organization of the Petroleum Exporting Countries and the International Energy
Outlook by the U.S. Energy Information Administration. In addition, long-term outlooks publishedby such international oil majors as ExxonMobil and BP and Shell’s global energy scenario are also
known for depicting future energy pictures.
These outlooks use artifice to select viewpoints for analyzing future conditions, develop
scenarios and provide unique, interesting and significant analyses. Discussions on the IEEJ Outlook
indicated that any quantitative analysis using models, while being significant for and excellent inproviding specific numbers or data to depict the future direction of the international energy market,
has difficulties in overcoming the following constraint.
This kind of model-based future projection is influenced easily by past tendencies ortrends and tends to depict smooth, stable and continuous changes in the future. This is the same casewith not only the IEEJ outlook but also any other long-term outlook.
However, the abovementioned constraint represents the problem of how to treat
discontinuities that have emerged in the actual market. The actual international energy market
history demonstrates that discontinuities or discontinuous changes occasionally moved the energy
world while continuous, stable changes reformed energy market supply and demand fundamentals
and structure moderately. Given the definition of discontinuity, it is difficult to incorporate
discontinuities into any long-term outlook. On the other hand, a discontinuity that can dramaticallychange the energy market direction has potential to emerge, forcing forecasters to face a kind ofdilemma.
The word “discontinuity” may be replaced with the frequently used words “disruptive1

IEEJ：November 2018○
ｃIEEJ 2018change” or “game changer.” The latest game changer is the U.S. shale revolution. U.S. shale
resources, which had traditionally been known as abundant, have been suddenly made available for
economically feasible development and production thanks to advanced technologies such as
horizontal drilling and hydraulic fracturing, well-developed pipeline networks and the presence ofmany entrepreneurship-supported ventures, leading to the shale revolution in which shale gas and oil
production have expanded rapidly and substantially. Although the United States had been expectedin the beginning of the 2000s to become one of the world’s largest liquefied natural gas importers,
the shale revolution has led the United States to be expected to become one of the world’s leading
LNG exporters, symbolizing a discontinuous change.
Once such a discontinuity emerges, it can be reflected in any long-term outlook withefforts to analyze relevant current conditions and measure the speed of such change. As a matter ofcourse, some participants in the London discussions remarkably pointed out that any long-term
outlook tends to initially underestimate even a huge discontinuity beginning to alter the energy world.
Even if such discontinuity is underestimated, adjustments may be made with the passage of time.
The problem is that any potential discontinuity or game changer cannot be reflected initially in any
long-term outlook.
Any long-term outlook through 2040, 2050 or beyond entails high uncertainties about all
fields including international politics, geopolitics, global economic conditions, environmentalproblems, energy technologies and lifestyles. No one can deny that discontinuities that could
dramatically change the future picture of energy in the world could emerge within such long term.
Anyone developing a long-term outlook must acknowledge this point.
Even so, it is still worthwhile to analyze long-term global energy outlooks. Even if how
the world is filled with uncertainties and how difficult it is to anticipate a distant future picture ofenergy are understood, long-term energy outlooks will continue to be developed and published. Thisis because energy-related investment and infrastructure development basically cover long terms,
forcing business decision makers to consider conditions over the next 10, 20 or more years. Given
that the best available analyses about the future are indispensable for making decisions, decision
makers have no choice but to use long-term energy outlooks while understanding their limitations.
It is difficult to anticipate when the next huge discontinuity would emerge in the market. If
the energy market direction is dramatically changed, the existing long-term energy outlooks may
lose their relevancy, requiring new outlooks to reflect such dramatic change. This kind of response to
any discontinuity may be fatal for long-term outlooks. Even if it is difficult to anticipate any
discontinuity accurately, long-term outlook developers must think “unthinkable thoughts” while
paying attention to any potential discontinuity. Then, they must become more sensitive to signs or
precursors of changes, respond appropriately and timely to them and reflect them in long-term
outlooks flexibly.
Contact: report@tky.ieej.or.jp
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