IEEJ：February 2021

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Special Bulletin
A Japanese Perspective on the International Energy Landscape (518)February 5, 2021

Prospects for Future Oil/Energy Situation
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, JapanOn February 5, an international panel discussion on the future oil/energy situation took
place in the form of an online webinar, cosponsored by ENEOS Corporation, ENEOS ResearchInstitute, Ltd., and the Institute of Energy Economics, Japan. The panelists at the online meetingwere FACTS Global Energy Group Chairman Fereidun Fesharaki, U.S. Center for Strategic andInternational Studies Senior Vice President Sarah Ladislaw, and I. Nikkei Shimbun editorial writer
Hirofumi Matsuo served as moderator. The landmark 30th annual international panel discussion on
the matter was the first one to take the form of an online meeting under the COVID-19
pandemic. As well as the past meetings, the vigorous discussion covered prospects andchallenges for the international oil situation, and Asian natural gas and LNG markets over theshort, medium, and long term. In the following, I would like to summarize the points that were
impressive to me at the panel discussion.
As noted above, interesting arguments were made about the international oil situation, oilprices, and global natural gas and LNG supply and demand outlooks as at the past meetings.
Impressively, these arguments indicated high interest in structural background factors behind supply
and demand outlooks, rather than those outlooks themselves. Panelists’ arguments were extremelyinteresting on crude oil prices in 2021 under the impact of COVID-19, medium to long-term oil
price trends, the sharp LNG spot price hike early this year, and short to medium-term LNG supply
and demand. As a participant in the panel discussion, I was inspired by the discussion very much.
Even more impressively, however, I felt that the latest international panel discussion
focused on great interest in (1) what the arrival of the U.S. Biden administration would bring tointernational energy markets and (2) how carbon neutral initiatives offered by major countries wouldchange global energy markets.
As for the first point, it is natural that interest is high in the impacts of the new U.S. Biden
administration on international energy markets. The just inaugurated administration has set out
environmental, Iran and other policies to reverse those of the previous Trump administration. The
impacts of these Biden policies are attracting global attention. As the Biden administration hasindicated a less positive or proactive attitude on the development, production, and use of fossil fuels
including oil and gas, how the U.S. shale revolution would be affected after transforminginternational energy markets over the past decade has become a matter of global interest.
In fact, there is a view that short-term impacts on oil and gas development and production
would be extremely small as a ban on fracking as a matter of concern regarding the environment isto be limited to federal land. For the U.S. oil and gas industry in which business performance has
deteriorated on oversupply and weak prices under the COVID-19 pandemic, however, uncertainties
regarding future investment are growing as the new administration enhances the promotion ofelectric vehicles, restrictions on gasoline-powered vehicles, and fuel efficiency standards and holds
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down financial investment in fossil fuels. In such situation, U.S. oil and gas companies are shifting
priority to profitability or investment return from production volume and company sizes that havebeen emphasized in the past decade. In expanding oil and gas production, these companies will thus
have to pay attention not only to oil and gas price trends but also to other factors.
The Biden administration set out the enhancement of domestic climate change
countermeasures through a strong message just after its inauguration and is likely to advocate theenhancement in the international arena. The promotion of international clean energy investment andsubsequent initiatives to discourage investment in fossil fuels may become worthy of attention. An
important point for Japan and Asia will be the new U.S. administration’s stance on the promotion ofLNG use and market functions in Asia, which has been a key part of Japan-U.S. energy cooperation
since the Obama administration period. Will the Biden administration position natural gas and LNG
as a key energy source for Asia’s cost-efficient promotion of decarbonization or leapfrog from fossilfuels? This question will have a great impact on the balance between environmental conservationand economic development in Asia.
It was noted in the panel discussion that these various great changes are still limited tothose in messages, leaving real changes unclear or uncertain. Domestic policies must be legislated
and funded by budget in Congress before their promotion. Given domestic U.S. divisions,confrontation between Democrats and Republicans, a narrow gap between the numbers of
Democratic and Republican Congressional seats, and challenges regarding unity within theDemocratic Party, policy reforms resulting in extreme changes and their impacts are dominantly
viewed as difficult to realize. While what the president and the federal government can do arelimited, state government and private sector initiatives are influential. In such situation, we must pay
attention to how and whether real changes may deviate from message changes and what impacts
these real changes would exert on the world. Towards an international climate change summit thatPresident Joe Biden plans to hold on April 22, I would like to watch what policies the United States
would set out, whether the Biden administration could give a greenhouse gas emission reduction
target for 2030, and how ambitious the target would be.
As the second point, major countries’ announcement of carbon neutral initiatives and theirimpacts on international energy markets, is the most important matter of interest to energy
stakeholders in the world, it is also natural that the matter became a key topic at the panel discussion.
Given energy market realities, however, the carbon neutral status target would be difficult even foradvanced economies to realize by 2050 and could be achieved by 2070 or 2080, according to anargument presented in the discussion. Given realities in developing economies, it may be moredifficult for them to realize carbon neutral status.
The argument represents a view based on energy realities including the convenience andusefulness of fossil fuels in energy markets, the great size of legacy assets in the energy sector, thelong time required for stock-based changes, and carbon neutral initiatives’ balance with economic
growth or energy price affordability. Even if the carbon neutral challenge is viewed as difficult,however, global low-carbonization or decarbonization trends are emerging, with major governments
being about to promote policies to realize carbon neutral status. Irrespective of whether or whencarbon neutral status could be realized or whether or when oil demand could peak, it is important todevelop different scenarios for the uncertain future and strategies for these scenarios in considerationof potential dramatic changes. The panel discussion gave me an opportunity to reaffirm thesignificance of strategic thinking at a time when global interest is growing in carbon neutral status.
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