IEEJ：October ©IEEJ 2023
Special Bulletin
A Japanese Perspective on the International Energy Landscape (656)September 27, 2023

Oil-producing Countries Growing Confident in Oil/Gas and Their Importance
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
Oil-producing countries’ restoration or enhancement of their self-confidence is one of theinternational energy situation changes that impressed me and attracted my attention at my talks withenergy experts and industry stakeholders during my visit to the United Kingdom earlier this monthand my later talks in Japan. While restoring confidence in the future and importance of oil and gas onwhich their economies depend, they may be growing confident in their own importance for theinternational energy market. I feel that this point is particularly evident in major OPEC oil-producing
countries such as Saudi Arabia and other Persian Gulf oil producers. Not only when hearing remarksby people from oil-producing countries but also when talking with energy experts and industry
stakeholders including oil-producing country watchers, I feel oil-producing countries’ growing selfconfidence.
Their enhancement or restoration of their self-confidence suggests that their self-confidence
had been shaken or destabilized temporarily. I believe such temporary change is indicated by theinternational energy situation over the past few years, especially since 2020.
The first important point in the international energy situation in the past few years may be
the acceleration of the trend towards decarbonization. Efforts to control and reduce CO2 and othergreenhouse gas emissions as much as possible as an initial step can be called low-carbonizationinitiatives. In the 2010s, initiatives such as those to cut GHG emissions by 10% in 10 years or by 20%
in 20 years were launched remarkably. Amid this trend, future demand for coal, which features a highemission intensity attracted attention, followed by that for oil and gas. A shadow began to be cast overthe future of fossil fuels as the current mainstream energy source.
However, a series of carbon neutrality pledges in 2020 dramatically accelerated thedecarbonization trend, turning the situation around. In addition to the European Union, which hadannounced its carbon neutrality goal for 2050, China, Japan, South Korea, the United States and othermajor countries successively announced their respective carbon neutrality goals for 2050 or 2060.
Against this backdrop, the International Energy Agency released the famed "Net Zero by 2050" reportin March 2021, providing the NZE scenario in which the entire world would achieve “net zeroemissions” in 2050. While the report represented a normative back-cast analysis of how the future
should be for the NZE goal and differed from a forecast in a strict sense, this scenario depicted global
oil and natural gas demand that would peak quickly and fall sharply in a manner to make new oil andgas investment unnecessary. The “shocking analysis” made headlines in major media throughout theworld.
For oil-producing countries, whose national economies depend heavily on oil and gas export
revenue, the impact of the IEA analysis was enormous. Some oil-producing countries questioned thereality of the analysis, pointed out relevant problems, and refuted them. As the global trend toward
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decarbonization accelerated, however, a sense of uncertainty about the future of oil and gas increased
significantly. In fact, this was why oil-producing countries enhanced their efforts to diversify theireconomies, which rely solely on oil and gas, seriously pursued the possibility of exporting CO2-freehydrogen and ammonia, and launched efforts to advocate to the world that it is important to manage
CO2 as part of their decarbonization efforts because CO2 emissions from fossil fuels, rather than fossil
fuels themselves, are problematic.
In the midst of the decarbonization trend, oil-producing countries apparently experienced aperiod in which the future of oil and gas was greatly shaken. As I mentioned at the outset, however, I
feel that oil-producing countries are regaining confidence in the future and importance of oil and gas,
although there are still great uncertainties about the far future. Of course, this does not mean that they
have become optimistic that oil and gas demand would grow persistently over the long term, as seenin the past. I feel that they are beginning to think that the oil and gas market may not shrink as rapidly
and substantially as indicated in the NZE scenario, that oil and gas demand may peak far later, andthat oil and gas demand may decline more slowly. This seems to be the result of their renewed
awareness about the realities of developing and emerging countries supporting future energy demand
growth and about the difficulties of rapid, drastic innovation envisioned in the NZE scenario.
In this regard, we cannot overlook the impact of the drastic changes in the internationalenergy situation caused by the Ukraine crisis. Amid energy price spikes and market destabilization,
the global focus of attention regarding energy shifted from climate change and decarbonization toenergy security or a stable energy supply. This is an important point. While decarbonization has
remained important, energy security has become the most important, urgent challenge, leading theworld to be confronted with the reality that coal consumption must be increased to secure a stableenergy supply even if CO2 emissions increase. We learned how important it is to secure a stable fossil
fuel supply in order to support real livelihoods and the economy. Furthermore, the importance of nonRussian oil and gas has suddenly increased as the Russian energy supply has become a risk factor. In
this regard, the presence of the United States has been greatly highlighted along with the importanceof oil and gas in the Middle East. The affordability of energy prices has also become a crucial challenge
as well. As even developed countries such as European nations and Japan have introduced energy
subsidies, energy affordability has become an essential factor in developing countries with lowincomes. Strengthening energy access under such circumstances is a challenge for developingcountries. Amid this trend, there is a growing awareness that the role of oil and gas will remain
important during the long-term energy transition. This may have led to oil-producing countries’
restoration of their self-confidence.
As confidence in the future of oil and gas increases, it is only natural for oil-producing
countries, especially major Middle Eastern oil producers, to become confident in themselves. As theinternational energy situation continues to be unstable in the short to medium term, it may be inevitablefor Middle Eastern oil-producing countries with surplus oil supply capacity to increase their power.
With oil prices rising, the United States and other Western countries are increasingly urging oilproducing countries to increase production and China is keenly interested in cooperation with oilproducing countries. So, oil-producing countries naturally believe that their power is increasing. Froma wider point of view, I think that in the current international situation where the division of the worldis deepening due to intensifying confrontation between the United States and China and between theWest and the China-Russia group, oil-producing countries are strengthening their position as key
energy suppliers in the international energy situation as confronting countries try to win over these
key energy market players.
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Of course, it is difficult to predict whether this situation will continue and be stable, orwhether new major changes will emerge. The future of oil and gas remains highly uncertain. Theinternational energy situation is so uncertain that it is impossible to predict future developments. In
this context, there is a good possibility that the situation surrounding oil-producing countries willchange significantly. However, it seems to me that understanding the reality of oil-producing countries,
which are strengthening their self-confidence, is becoming extremely important for analyzing theinternational energy situation.

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