IEEJ：January 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (409)January 1, 20192019 Energy Outlook in Japan and WorldKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe new year 2019 opened after the turbulent year of 2018 symbolized by wild
fluctuations of crude oil prices. How would this year be? By reference to an outlook that the Instituteof Energy Economics, Japan, released on December 21, I would like to summarize the energy
outlook in Japan and the world in 2019.
First, a coordinated oil production cut of 1.2 million bpd that OPEC and non-OPEC oil
producing countries start from the beginning of the year is attracting attention regarding theinternational oil situation. Iranian crude oil exports after the planned expiration of a temporary
waiver from the Iran oil embargo will also be a major factor influencing the international oil
supply-demand balance. On the demand side, we must pay attention to how the U.S.-China trade war
would develop from March after a 90-day truce and how the global, Chinese and U.S. economies
would perform under the development. We must also keep close watch on growing U.S. shale oil
production as well as geopolitical risks in the Middle East and potential disruptions to oil supply
from major oil producing countries. The IEEJ outlook forecasts that the average Brent crude pricewould be $65/bbl amid sufficient supply in the first half of this year before rising to $70/bbl on anassumption of a fall in Iranian oil exports in the second half. For a low oil price case where thesupply-demand balance will loosen, the annual average Brent price is forecast at $60/bbl.
Second, global LNG demand is forecast to expand to 338 million tons with growth driven
by China, while global supply capacity is predicted to reach 344 million tons mainly due to a U.S.
capacity increase. As supply capacity exceeds demand, supply will remain abundant in the market in
the year as an annual basis. Meanwhile, LNG prices will follow a crude oil price trend with a certain
time lag as LNG prices for Asian buyers remain mostly indexed to oil prices. Based on theabovementioned oil price outlook, the average LNG import price for Japan is forecast to almost leveloff from $10.5/MBtu in 2018 to $10.2-11.4/MBtu. Spot LNG prices reflecting the LNG market
supply and demand environment will slip below the average Japanese import price on annualaverage. In China that replaced South Korea as the world’s second largest LNG importer in 2017,
LNG demand is expected to robustly increase to 60 million tons. China’s LNG import trend as wellas the impact of future development of US-China relation on Chinese LNG import will be importantfor analyzing the global LNG market.
Third, the global coal market is predicted to see prices falling slightly from the presenthigh levels of about $100/t for steam coal and $170-260/t for coking coal. Holding the key to coalprice changes will be again China’s procurement that has been a main contributor to the present highcoal prices. China’s coal consumption in 2019 is likely to increase only slightly, with imports
leveling off, amid economic growth deceleration. Steam coal prices are forecast to fall to around$80/t on declining demand in early spring amid a pause in China’s procurement expansion and1

IEEJ：January 2019○ｃIEEJ 2019average $88/t in the whole of 2019. Coking coal prices are forecast to average around $185/t in 2019as supply from operating coalmines expands in response to the current high prices.
Fourth, issues and challenges in Japan’s electricity market and renewable energy market
are likely to become more complicated as massive renewable energy power sources are added to theincreasingly competitive market. While trading volume has continued to rapidly expand on the Japan
Electric Power Exchange, trading prices around 10 yen/kWh are influenced by fuel cost for oil-fired
power generation as marginal power supply source. As electricity retail competition has been
intensified, retail margins have narrowed in a manner to create a serious challenge for retailers.
Various ideas and policies are growing more important for harmonizing electricity market
liberalization with stable power supply. As renewable energy power generation has expanded, powerpurchases under the feed-in tariff system now account for around 10% of total power demand. On
the other hand, how to suppress the FIT system’s economic burden on consumers has become achallenge due to the growing value of FIT power purchases. As the FIT power purchase period
begins to expire for massive residential solar photovoltaics power generation capacity in November
2019, how to deal with the problems of the “post-FIT system” will loom as a new challenge. Whilethe electricity system reform will make progress in 2019, stakeholders will continue to explore
institutions and measures to make effective use of renewable energy electricity and increase costefficiency.
Fifth, each country will tackle climate change countermeasures from 2019 basically under
the work programme that were agreed on at the 24th Conference of Parties to the United Nations
Framework Convention on Climate Change, or COP24, late last year for implementing the ParisAgreement. In such circumstances, we will have to closely watch the international negotiation anddiscussion at such events as United Nations climate summit and the COP25 in 2019. Attracting
attention will be climate change policies and countermeasures in the United States, China, theEuropean Union, Germany and other major parties. In Japan, we will have to pay attention todiscussions at a government council on a long-term strategy under the Paris Agreement as a growthstrategy and to deliberations on and details of climate change policies and targets toward a Group of 20
summit in June in Osaka.
Sixth, the restart of the next nuclear power plants and the Nuclear Regulation Authority’s
examinations of such plants in Japan will attract attention after nine plants were restarted by the endof 2018. While the NRA examinations and restart remain uncertain, the number of restarted nuclear
power plants in Japan at the end of FY2019 is forecast at 11 at the most. The extension of nuclear
plants’ operational life is also seen as very important for Japan to achieve its target energy mix for2030. Attracting attention in this regard will be nuclear plant operators’ decisions on whether tosubmit an application to extend the operational life of 30-year-old or older plants, as well as theNRA’s relevant examinations on these plants. While nuclear power generation in developed
countries remains sluggish as symbolized by the retirement of some existing nuclear plants in theUnited States, China and other emerging countries as well as Russia are expected to briskly develop
domestic and overseas nuclear plants. Meanwhile, interests are growing in small module reactors(SMR) as a new nuclear technology mainly among developed countries. Technological advancement
and policy discussions will grow more important toward SMR development and diffusion.
Seventh, Japan’s primary energy supply is forecast to increase by 0.2% in FY2019 after
decreasing by 0.9% in the previous year. A key assumption behind the forecast is that the Japanese2

IEEJ：January 2019○ｃIEEJ 2019
economy will grow by 0.9% in FY2018 and by 0.8% in FY2019. The primary energy supply decline
in FY2018 is coming after a severely cold winter and a high economic growth rate of 1.7% in
FY2017. While oil and natural gas supply is decreasing substantially, renewable and nuclear energy
supply is increasing amid an overall shift to non-fossil energy. Japan’s carbon dioxide emissions inFY2019 will decrease to 1.07 billion tons, down 13.5% from FY2013. Among energy sales in Japan,electricity will increase by 0.6% in FY2019 after decreasing by 1.2% in FY2018. Gas sales will also
rise by 2.6% in FY2019 after falling by 2.3% in FY2018. Oil products sales will decline in FY2018
and 2019, extending their losing streak to seven years. Installed FIT renewable energy power
generation capacity will expand to 73 GW at the end of FY2019. If 86 GW in total approved FITpower generation capacity as of March 2018 becomes fully operational, cumulative FIT powerpurchases may rise to 61 trillion yen, making economically reasonable renewable energy promotion
even more important.
Including the abovementioned points, energy situation developments in Japan and theworld will continue to attract attention. Through this column, I would like to continue following up
on the energy situation in Japan and the world this year.

Contact: report@tky.ieej.or.jp
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