IEEJ © July 2015. All Rights Reserved.

The 420th Forum on Research Work

10th July 2015

Economic and Energy
Outlook of Japan throughFY2016Is low oil price a silver bullet?
The Institute of Energy Economics, JapanYANAGISAWA Akira | Senior Economist and Group Manager
The Energy Data and Modelling Center
R. Ikarii, S. Iwata, R. Eto, K. Tomokawa, L.E. Soon, C. Onda,Y. Shibata and K. Ito

Context
Background

Outlook toward FY2016

Japanese economy is recovering after
unexpectedly long dullness by VAT rise.

▌ Macro economy and production

8%GDP growth(Y-o-Y,annualised)

0%-8%

13Q4 14Q1 Q2

Q3

Q4 15Q1

Oil prices rebound from the lowest in the early2015. LNG prices, which reflect oil prices withabout three-month lag, are in the bottom now
and will rise gradually toward the second half of2015.
Hokkaido and Kansai Electric Power Companies
hiked their rates due to delay of restart of nuclear
power plants. Consumers’ burdens by the Feed-in
Tariff system have doubled.

IEEJ © 2015

activities▌ Primary energy supply▌ Final energy consumption▌ Energy sales▌ Renewable power generation

Special topics▌ Restarting nuclear and macro economy,etc.
▌ Higher energy prices and related risks

We projected Japanese economy, energy supply
and demand and analysed various cases toward
FY2016.
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Major assumptions
World economy

Nuclear power generation▌ United States: supported by low oil prices
and unemployment▌ The first commercial operation resumes inlate this summer or early fall 2015. Fiveplants restart by the end of FY2015,generating 10.6 TWh▌ Europe: slow recovery thanks to monetaryeasing with concern about the Greek issue▌ Asia: keeping relatively fast growththough China slows down

▌ Eight more plants restart by the end ofFY2016, generating 63.9 TWh in FY2016.

Import CIF prices

Electricity supply and demand

May 2015  FY2015  FY2016▌ Oil: $59/bbl  64  69
▌ LNG: $459/t  470  502($8.9/MBtu  9.1  9.7)
▌ Steam coal: $82/t  84  89
Referring to Kobayashi, Morikawa and Sagawa’s research

Exchange rates
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May 2015  FY2015  FY2016▌ JPY121/$  122  125▌ Each electric utility will secure a reserve
capacity of at least 3% by saving andinterchange of electricity.
Based on a government’s report

Weather conditions▌ Hotter late summer FY2015 than theprevious year
▌ Temperatures in winter FY2015 and later
are assumed to be same as in the average
year, meaning winter FY2015 is colder by-0.3°C than the previous year.
2Economy gets back to healthy growth▌ Production activity recovers apparently
toward the latter part of FY2015.
Domestic demand continues to be a major
driver of the economy thanks toimproving labour situation in FY2016.

▌ Wages are hiked by around 1% for threestraight years.
Consumer prices also rise by about 1% inFY2016.

▌GDP and industrial production▌Wages and inflation

4%

3%

3.4%

2.7%

3.3%
2.1%

2%
1.7%

0%

1.9%

IIP
Real GDP

-0.5%

Y-o-Y

2%

1%

Nominalwages
Consumerprices

0%

IEEJ © 2015

-0.9%-2%
2013

2014

2015

2016

-1%
2013 2014 2015 20163

Little change in total consumption but in mix▌ Total primary energy supply rebounds
from the low level in FY2014 due toeconomic and weather conditions,followed by a slight decrease in FY2016
because of energy conservation.

▌ Oil dependency dips below 40% for the firsttime in 55 years. Natural gas falls from thehistorical high in FY2014. Only coal increases
among fossil fuels in next two years.

▌Primary energy supply▌Changes by energy source

Mtoe

520

New energies

+3.1

510

Nuclear

+2.2

500

Hydro

+1.0

Coal+0.8

490

480

514

485

488

474

477

477

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470
460
2010 2012 2013 2014 2015 2016
New heat contents are applied since FY2013.

-1.0

Natural gas-2.5Oil-10-50 +5 +10 +15
Y-o-Y (Mtoe)

2015

2016
4Final consumption shows transient increases▌ Total final energy consumption slightly▌ Economic recovery and weather conditions
increases for the first time since theinduce more energy use in all of the final
Earthquake from the lowest in last quarter of sectors in FY2015. All but industry supported
a century. The increases, however, disappear
by brisk production activity, turn to decrease
owing to energy conservation in FY2016.
in FY2016.

▌Changes by sector▌Final energy consumption
340

339

Mtoe

330
322

322

320
312

313

311

IEEJ © 2015

3103002010 2012 2013 2014 2015 2016
New heat contents are applied since FY2013.

Commercial+0.5

Transport+0.4

Residential+0.3

Industry+0.3-1.5 -1.0 -0.5 0.0 +0.5 +1.0
Y-o-Y (Mtoe)
2015
20165

Decline trend in electricity sales ends
▌ Electricity sales significantly increase fromthe unexpected dullness in FY2014. Still,
the amounts are less than before theEarthquake by 5% or more.

▌ Sales for any use grow in FY2015. Industrial
users keep strong increases backed byproduction expansion whilst growth inlighting services slows due to notemperature effect in FY2016.

▌Electricity sales▌Changes by use

927920TWh900880IEEJ © 2015

860871875

871865851

840
2010 2012 2013 2014 2015 2016

Changes from FY2014

6%

Large-scaleindustrial users

4%
2016

Commercialuses

Lightingservices

2%

Small-scaleindustrial users

2015

0%

0200
400
600
FY2014 (TWh)800
6Thermal power generation declines to 78%▌ Although some nuclear power plants restart, they generate electricity only 22% of that in
FY2010.
▌ New energies continue growing to 7% as 63 GW of approved plants of 99 GW will be inoperation by the end of FY2016. Most of the increases are brought by solar PVs.
▌ LNG shrinks to 40% but it is still more than before the Earthquake by about 10pt.

▌Power generation and purchased mixture by electric utilities
100%
80%
60%

(1%)
(9%)

(29%)

(2%)
(8%)
(2%)
(18%)

(8%)
(43%)

40%

3%
8%
1%
14%

11%

44%

46%

4%
9%

6%
9%
1%
10%

45%

7%
9%
7%
8%

Nuclear40%

Oil, etc.

(29%)

LNG

20%
(25%)

(28%)

30%

2010

2012

2013

30%

30%

30%

Coal

0%
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New energies,etc.
Hydro

General electric utilities for FY2010 and FY201220142015

2016
7

City gas hits a new high in two straight years▌ City gas sales reach an all-time high due
to economic recovery and weather
conditions for the first time in four years.
The momentum continues in FY2016.

▌ All uses show increases from the previous
year in FY2015. Industrial use accounts for
96% of increases in FY2016.

▌City gas sales▌Changes by use
41.7

41.0

4140.3

40

40.2
39.8

39.3

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6%392010 2012 2013 2014 2015 2016

Changes form FY2014

Billion m3

42Commercial

5%Others4%

2016

3%2%
2015

1%0%Industrial-1%0Residential

102030FY2014 (Billion m3)
8Fuel oil diminishes to the least since 1969
▌ Fuel oil sales plunge in FY2016 owing torestarts of nuclear power plants and fuelswitching after slight decreases in FY2015
because of weather conditions and the oil
price drop.

▌ Gasoline shows the largest increases among
the products in FY2015 for the first time inlast decade. All products reduce in FY2016
from the previous year. Heavy fuel oil Cshows especially sharp drop.

▌Fuel oil sales▌Changes by product

1965%

198

194195GL190 188180

175
170

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183

185
178

182

179
176
172

172

168

165
2010 2012 2013 2014 2015 2016
Fuel oils
Other than heavy fuel oil C for electric utilities

Changes from FY2014

2000%

Heavy fueloil A
Gasolione Naphtha Diesel oil-5%

2015

Kerosene-10%

Jet fuel oil-15%

2016

Heavy fuel oil C-20%

050
100
150
FY2014 (GL)9Solar PV leaves all the others, requiring grid measures▌ 63 GW of FIT plants start their operation by▌ Cumulative burdens by FIT over 20 years
the end of FY2016 generating about 10% ofexpand to JPY50 trillion or JPY2,900/MWh –Japan’s total electricity. Non-residence solar
equivalent to 12% and 17% of residential andPVs account for 84% of new additions in next industrial rates, respectively – if all of thetwo years.
99 GW* of approved plants start operation.

▌Installed capacity in operation
40

35.7

GW

3020IEEJ © 2015

100
2012

26.1

16.5

Solar PV for
nonresidence
Solar PV for
residence
Wind

9.3
8.3
7.4
4.2
3.0 3.8

Biomass

2.9 3.3 3.6

2014

2016

Mini- and small-hydro, geothermal, etc. are omitted.

▌Cumulative burdens by FITIn operation

10Approved

14420
Solar PV for
non-residence

502040
JPY trillion
Wind*: As of the end of February 2015

Solar PV for
residence

Others10Low fuel prices | How long Kamikaze?
▌ Whilst drop of prices in the dollar in FY2014 ▌ Higher oil price by $10/bbl depresses real GDP
contributed to reduce fuel import spending
and GNI per capita by 0.4% and JPY15 thousand,respectively. Higher fossil fuel dependency
by JPY4.2 trillion from the previous year,
depreciation of the yen increased it byresults in larger damage when oil price rises.
JPY2.4 trillion.

▌Fuel imports and contribution
Contribution

3030+1025兆円
JPY trillion

25+5202001515-5IEEJ © 2015

10Real GDP-0.4%

Prices inthe dollar

GNI per capita-0.4%

Exchangerates

Consumer prices(right axis)

Quantity
For power
generation
Imports

102010 2012 2014 2016-10

2010 2012 2014 2016

The Reference Scenario in and after FY2015▌Impacts of oil price rises by $10/bbl

IIP

-0.8%
+0.4%

TPES-0.9%

Natural gas-1.0%

Oil -1.4%
Electricity sales
City gas sales

-0.5%

-0.9%

Fuel oil sales -1.4%-2%-1%FY2015FY20160%
11Huge benefits by utilisation of nuclear▌ Fuel import spending decreases by JPY1.5 trillion if nuclear generates more electricity by151 TWh (Low Case vs. Highest Case). Whilst real GDP increases by 0.2%, CO2 emissions
reduce by 70 Mt.

▌ Power generation cost lowers by JPY1,700/MWh. Rational utilisation of nuclear brings
enormous benefits even under a situation with low energy prices.

▌Impacts of nuclear power plants’ restart [FY2016]
Nuclear powergeneration (TWh)Power generation Real GDP(JPY trillion)
cost (JPY/kWh)

1500.6(Restarted plants by theend of FY2016: 24)

150100(17)IEEJ © 2015

50
000.2
0.0-0.4(13)-0.6-0.8(3)CO2 emissions

0.6

630

0.4

4

20

0.2

20.0

0

10-0.2-2-0.4-4-0.6-6-0.8-8-30-1.0-10
Nuclear(TWh)-0.4-1.2-12
Reference Scenario
High Case

-40

0.4

-0.2

10050

LNG imports

0.6-1.0-1.2
Low Case

0.40.20.0-0.2

Fuel imports(JPY trillion)

Changes from the Reference Scenario except for nuclear power generation

(Mt)

(Mt)

0-10-20-50
Highest Case
12

Impacts of nuclear power plants’ restart
FY2010
Low Case
Cumulative number ofrestarted nuclear reactors1[FY2015]
FY20016

Average period for operation (months)
Electricity generation by nuclear (TWh)EconomyPower generation cost2 (JPY/kWh)Total fossil fuel imports (JPY trillion)
Oil
LNG
Trade balance (JPY trillion)
Real GDP (JPY2005 trillion)
Gross national income (JPY trillion)

..
..
..
288.2

[2]
3815.3

FY2016
ReferenceHigh Case
Scenario[5]13663.9[8]1710132.7

Highest Case

..
24..
165.9

FY2010FY2016 (Changes from FY2010)
ReferenceHigh Case Highest Case
Low Case
Scenario

(8.2)
18.1
12.3
3.5
5.3
512.7
493.8

+3.3
+3.1
+1.2
+2.0
-9.2
+32.1
+46.3

+2.7
+2.6
+1.0+1.7
-8.7
+32.3
+46.7

+2.0
+1.9+0.8
+1.2
-8.1
+32.7
+47.3

+1.6
+1.6
+0.7
+1.0
-7.9
+32.9+47.5

232.3
73.3
70.6
18.0%
1,139
[-7.8%]-23.7+17.2+17.9-8.5p+33[-5.1%]-26.7+12.0+12.7-6.4p+10[-6.9%]-30.7+4.6+5.3
-3.4p
-22
[-9.5%]-32.6+0.9+1.6-2.0p-37[-10.8%]IEEJ © 2015

Environ-ment

EnergyPrimary energy supply
Oil (GL)
Natural gas (Mt of LNG equivalent)
LNG imports (Mt)
Self-sufficiency rate
Energy-related CO2 emissions (Mt)

Changes from FY2013
1. Thirty-nine reactors operated at the end of 2010.
2. Power generation cost in FY2010 is for the general electric utilities, estimated based on
their profit-and-loss statements.

Reference Scenario: The firstcommercial operation resumes
in late summer or early fall2015. Restarts of three to fiveplants follow in every about sixmonths.
Low Case: The first restarts
delay a bit compared with theReference Scenario. The second
group restarts about one year
later.
High Case: The firstcommercial operation resumes
in late summer or early fall2015. Then one plant restarts
about a month on average
thanks to more efficient
assessment.
Highest Case: A hypotheticalcase in which 24 applicant
plants for the assessment
generate electricity with 80% ofcapacity factor.

Contact: report@tky.ieej.or.jp

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