IEEJ：November © IEEJ 2022

Special Bulletin
A Japanese Perspective on the International Energy Landscape (610)

November 11, 2022

The Discussion at OPEC Secretariat
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn November 10, the 8th Technical Meeting on Asian Energy and Oil Outlook was held ina face-to-face and online hybrid format at the Secretariat of the Organization of the Petroleum
Exporting Countries in Vienna. As explained in “A Japanese Perspective on the International Energy
Landscape (455),” the annual Technical Meeting was launched in 2015, originating from regularmeetings between the OPEC Secretariat and the Institute of Energy Economics, Japan, including thefirst one in 1987. At the latest meeting, OPEC Secretariat officials, representatives from OPEC
members and experts from countries such as Japan, China, South Korea and India discussed the Asianenergy and oil market outlook under the Chatham House rule. In the following, I would like tosummarize my comments on the discussion.
First, the meeting gave me an opportunity to strongly feel the difficulty and significance ofprojecting energy supply and demand at a time when great uncertainties exist in the extremely chaoticinternational energy situation. While energy prices have spiked in a manner to destabilize the market
remarkably, the world is required to accelerate decarbonization as a long-term challenge. Furthermore,
geopolitical tensions and the divides of the world have become key challenges. In such situation,
predicting even the near future is very difficult. Predicting the next 20, 30 or more years is even moredifficult.
There are two mainstream approaches for predicting the future. One is the backcasting
approach that fixes a future target or goal and depicts how the world would have to change to achieve
the target or goal. The other is the forecasting approach that analyzes changes from the present trends
under various assumptions. The IEEJ Outlook 2023 that I reported at the meeting adopts theforecasting approach. So does the OPEC Secretariat's World Oil Outlook 2022. The two outlooks have
similarities regarding scenario names and basic concepts. The basic scenario is named “ReferenceScenario” in the IEEJ Outlook and “Reference Case” in the OPEC Outlook. A scenario in which thepromotion of technological development will change the world is named “Advanced TechnologyScenario” in both outlooks. In some sense, these outlooks contrast with the backcasting approach
represented by the International Energy Agency’s World Energy Outlook that provides a scenario in
which the world would reach net-zero emissions in 2050.
The two contrasting approaches have their respective significance and weaknesses. Thebackcasting approach indicates how the world would have to change from the present to reach a goal,
providing specific milestones toward the goal. Decision-makers can build on the milestones toconsider and implement specific measures. As the approach sets a goal first, however, the path to thegoal may become excessively ambitious or deviate far from realities. If the deviation is extremely far,the path may no longer serve as a milestone. In contrast, the forecasting approach predicts the future
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IEEJ：November © IEEJ 2022

based on realities rather than any ideal goal. It can also predict different future pictures by changing
assumptions. However, the forecasting approach tends to depict changes based on past trends and has
difficulties in projecting structural, dramatic or revolutionary changes. At a time when the world isfilled with unprecedented uncertainties, predicting the future is extremely difficult but valuable. I feelthat it is very important to fully understand the strengths and weaknesses of the two approaches anduse them appropriately and thoughtfully.
Second, the meeting led me to feel that energy price spikes and market destabilization since
the second half of last year are exerting great impacts on the Asian energy market. I understood anew
that while the European energy market has been affected most seriously because of its heavy
dependence on Russia, developing countries and the Asian energy market have been hard hit by theinternational energy market destabilization and price hikes. Participants at the meeting cited pricehikes’ impacts on natural gas and LNG demand, and the comeback of interest in the use of coal andnuclear promotion initiatives, indicating that Asian countries are strongly conscious of the significanceof securing stable energy supply and providing energy at affordable prices while the promotion ofdecarbonization initiatives remains important.
Various energy outlooks commonly predict that economic growth in Asian emerging anddeveloping countries will drive global growth in a manner to boost energy demand. It is also
commonly recognized that although the economic trend and relevant energy demand changes in China
would have decisive impacts on the international energy situation in the immediate future, energy
demand expansion in India, which would replace China as the driver of global economic growth, andin the Association of Southeast Asian Nations would become important over a medium to long term.
The common recognition was reaffirmed at the meeting. While having set long-term carbon neutrality
goals and promoting relevant initiatives, Asian emerging and developing countries may maintain theircurrent energy market trends until 2030 or later. To realize global decarbonization, steady emission
cuts should be promoted, based on the realities in Asian emerging and developing countries poised to
become major greenhouse gas emitters. Steady emission cuts should contribute to securing stableenergy supply. To this end, some inclusive approach covering all potential options may be required.
Third, participants in the meeting vigorously discussed key factors to ensure stable energy
supply and energy security. Particularly emphasized in this respect was the significance of securing
energy investment covering fossil fuels as well as other energy sources. After learning that investment
shortages have become a key background factor behind the current energy price spikes, the world will
have to secure investment to stabilize the market. Participants in the meeting also discussed thesignificance of long-term LNG contracts and governments’ roles in promoting LNG investment. It isalso important to secure investment in the electricity and nuclear fields. Relevant markets should bedesigned to promote investment.
As indicated by an analysis on critical mineral supply and demand in the IEEJ Outlook, theconcept of energy security has the potential to cover total cost hikes and destabilization that may
accompany energy transition. Just as the case that a renewable energy analysis requires to cover not
only power generation costs but also costs for the integration of intermittent renewable energy sources
into the grid system, it is important to note that a critical mineral analysis needs to cover overallmaterial supply and demand and total costs related to critical mineral utilization. This kind ofcomprehensive analysis may provide new viewpoints for talks on energy choices in the world, making
some contributions to energy policies.
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