IEEJ：February ©IEEJ 2023
Special Bulletin
A Japanese Perspective on the International Energy Landscape (623)

February 10, 2023

Prospects for Future Oil/Energy Situation
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn February 9, an international panel discussion on the future oil/energy situation took
place on an online basis, cosponsored by ENEOS Corporation, ENEOS Research Institute, Ltd. andthe Institute of Energy Economics, Japan. I and two others participated in the panel discussion aspanelists. The other two were Fereidun Fesharaki, chairman of FACTS Global Energy Group, andBen Cahill, a senior fellow at the U.S. Center for Strategic and International Studies. Nikkei
Shimbun editorial writer Hirofumi Matsuo served as moderator. The 32nd annual international panel
discussion on the matter, as well as the past discussions, covered prospects and challenges for theinternational oil situation and global natural gas and LNG markets over the short, medium and longterm, including international energy security after the Ukraine crisis and the decarbonization issue.
The most impressive point to me regarding the latest panel discussion is that extremelyinteresting arguments came from the three panelists about what direction the world would go after
dramatic changes in the international energy situation one year after Russia’s invasion of Ukraine
began. As stable energy supply and energy security has loomed as the top priority in a world shaken
by energy price spikes and market destabilization, the division of the world through deepening
confrontation between the Western bloc and the China-Russia group has become a key backgroundfactor that sways the international energy order. Then, the Middle East has grown even more
important, with Saudi Arabia and Qatar increasing their presence. The United States has enhanced its
influence on the international energy market on the strength of its expanding oil and gas production
and LNG exports. Another key issue at the discussion was how the emphasis on energy security
would affect climate change countermeasures including decarbonization initiatives. Importantarguments also came about the impact of the critical mineral supply issue on decarbonization. My
participation in the discussion on these issues inspired me very much. In the following, I would liketo make comments on the most interesting arguments at the discussion.
In the international oil market, prices have recently remained in the $70-90 per barrel
range, though plunging from last year’s peaks. Global oil demand is expected to remain robust in thefuture. Russian oil supply is likely to decline moderately. The world’s dependence on the Middle
East for oil supply is expected to increase, leading a few oil producing countries such as Saudi
Arabia to possess surplus production capacity. The OPEC-plus group of oil producing countries isprojected to continue its oil production adjustment to keep oil prices high. Given these points, oilprices are likely to stay around $90/bbl as indicated by the panelists. Depending on a recovery in
China’s economy and oil demand, the oil supply-demand balance may tighten further. As a matter ofcourse, there is the possibility of global economic deceleration exerting downside pressure on crude
oil prices. Anyway, oil prices are likely to remain high or rise further depending on some events. We
will have to keep close watch on oil prices.
The panelists also discussed the Russian oil price cap. The cap on Russian crude oil prices
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was launched in December, followed by that on Russian petroleum products prices introduced inearly February. The panelists roughly agreed that while the price cap suppresses Russian oil revenue
to some extent, Russia may find sales channels for its oil through various initiatives even under theprice cap as far as demand exists for Russian oil. As the oil embargo and price cap (and relevant
constraints on oil transportation) complicate oil transactions and require longer transportation
distances, international oil trade may deviate from the optimum international trade to seriously affectmarket efficiency. Although the price cap was earlier feared to become a new trigger of oil supply
disruptions, Russian oil has so far continued to flow into the market, even though market efficiency
was affected.
As for the gas/LNG market, however, more pessimistic prospects were indicated in thepanel discussion. The combination of warmer winter weather conditions, European countries’
desperate efforts to secure gas supply and a decline in Chinese LNG demand has prevented anearlier-anticipated critical situation including European gas shortages this winter. However, thepanelists were conscious that the gas supply-demand balance may tighten greatly toward the next
winter as constraints remain on inventory accumulation from low levels in early spring. In thisrespect, the Chinese LNG demand trend is greatly uncertain. In 2022, Chinese LNG demanddecreased substantially amid economic deceleration and the strict zero-COVID policy. The decrease
allowed more LNG to flow into Europe, helping to ease the supply-demand balance in Europe. If
LNG demand expands in China in the future, however, the international LNG supply-demandbalance may tighten substantially, leading to a fierce global race to procure LNG.
The panelists mostly predicted that the global gas/LNG market may see a tightsupply-demand balance for the immediate future. One indicated that the supply-demand balance may
stay tight until U.S. LNG supply starts full-fledged expansion in 2026. To stabilize the market,
investment to meet demand will have to be implemented. It may have to be globally reaffirmed thatappropriate investment in fossil fuels including LNG must be secured to stabilize the internationalenergy market. As the host of this year’s Group of Seven summit, Japan may be required to takeleadership in discussing the fossil fuel investment and producing an agreement to serve global
interests such as the international market stability and the maintenance of market order, instead ofallowing each country to look only to its own stable energy supply. It was pointed out at the panel
discussion that oil supply capacity to meet demand should be secured. The panelists were consciousthat the international oil market may see supply shortages if constraints remain on supply from not
only Russia but also Iran and Venezuela under foreign sanctions. The constraints may accelerate theworld’s rising dependence on the Middle East. Initiatives to stabilize the Middle East and promotedialogue between oil producing and consuming countries will grow even more important.
The energy transition path to strike a balance between decarbonization and energy security
enhancement may be bumpy, requiring the world to overcome various challenges. As the division of
the world deepens along with geopolitical tensions and confrontation, the issue of excessive
dependence on limited supply sources for energy and critical materials may attract attention. As
renewable energy, electric vehicles and batteries are promoted, demand for rare minerals for them
may increase dramatically. A tighter supply-demand balance and price hikes may come for somecritical minerals around 2030 or earlier. For some critical minerals, supply sources regarding
resources or production capacity are unevenly distributed around the world. In the international
environment where the division of the world is deepening, we may have to fully consider morecomprehensive or wider-defined energy security or extensive economic security in promoting
decarbonization for future energy transition, instead of being preoccupied with the traditional
concept of energy security.
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The G7 Hiroshima summit will provide Japan with an opportunity to lead arguments andinitiatives for global stability and interests regarding complicated energy issues in the difficultinternational environment. Japan will be required to mobilize its full power to overcome toughchallenges.

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