IEEJ：July 2019○ｃIEEJ 2019

Special Bulletin
A Japanese Perspective on the International Energy Landscape (438)

July 24, 2019Japanese and Global Energy Outlook for 2020
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn July 23, the Institute of Energy Economics, Japan, held its 432nd forum on researchworks, dealing with the Economic and Energy Outlook of Japan for FY2020 and reports on the latest
international oil, natural gas and coal situations and on the Japanese and global renewable energy
outlook. As indicated by these reports, we at the forum analyzed and made projections on thesupply-demand balance and prices for international oil, natural gas, coal and renewable energy
markets for 2020 and provided Japan’s short-term economic and energy outlook for FY2020. In thefollowing, I would like to comment on key points of the outlook and summarize Japanese and global
energy situations up to 2020.
First, the international oil market and crude oil prices could wildly fluctuate depending on
future developments regarding Middle Eastern geopolitical risks, global economic slowdown risks
and other factors exerting great influence on the future. In the reference scenario excluding these riskfactors, we predict that global oil demand would increase mainly in Asian emerging countries underglobal economic expansion, that U.S. shale oil production expansion would drive substantial
non-OPEC oil production growth continuing to exceed global oil demand growth, and that global oil
supply would be balanced with demand as the OPEC-plus group maintains a coordinated production
cut.
In the reference scenario, the average Brent crude oil price would fluctuate mainly in a$60-70/bbl range in the second half of 2019 and 2020. As non-OPEC production expansion raises oil
supply pressure in 2020, however, the price is predicted to fluctuate within the lower half of therange. In a higher oil price case in which oil supply would be disrupted by some military clash
caused by geopolitical risks amid growing tensions over Iran, the international oil market isprojected to see a tighter supply-demand balance that would push the crude oil price up by some
$15/bbl from the reference scenario. In the lower price case in which the global economy woulddecelerate on the deterioration of the U.S.-China trade war, however, the crude oil price would besome $10/bbl lower than in the reference scenario. Given that there are great uncertainties about thefuture course of the international oil market, we must keep close watch on future developments.
Second, our international natural gas market report focused on an analysis of supply anddemand and a price outlook for the LNG market. As global natural gas demand continues increasing,LNG is expected to maintain robust expansion driven by growing demand in China. However, LNGdemand growth has slackened in Japan and South Korea, the first and third largest LNG consumers.
Asian LNG demand growth has thus been patchy. Global LNG demand would expand to 356 million
tons in 2020 due to demand growth in China and other Asian emerging countries and increasing
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imports into Europe. However, global LNG supply would substantially increase to 388 million tons
as new U.S. and Australian LNG projects reach production phases. In this way, supply expansion
through capacity growth is driving LNG market growth.
Under such situation, spot LNG prices reflecting the international market supply-demandbalance are projected to fluctuate in a $5.5-6.0/MMBtu range in the East Asian market amid
abundant supply. As LNG prices under long-term contracts in Asia are indexed to crude oil prices,
however, deviations between spot LNG prices and long-term contract prices indexed to oil prices
would be kept or expand depending on some developments. In such case, improving terms andconditions of long-term LNG transaction contracts would become a very important challenge forbuyers.
Third, we analyzed supply and demand, and prices for steam coal for power generationand coking coal for steelmaking regarding the international coal market. The following outlook
focuses on the steam coal market. In the steam coal market, China’s consumption and import trends
attract attention as the most influential factor. Spot steam coal prices have wildly fluctuateddepending on the Chinese trends. In response to the easing supply-demand balance, spot steam coalprices in the Asian market have recently moved within a $70-80/t range. The price levels also reflect
the trend in Europe, another major coal consumption and import market, where prices of natural gas
competing with coal have declined, exerting downward pressure on steam coal prices in the Asianmarket. Although attention must be paid to long-term decarbonization initiatives and their impact oncoal demand, we project that spot steam coal prices in the Asian market would move in a slightly
higher range around $80/t up to 2020 as steam coal demand in China and other Asian emerging
countries grows robustly.
Fourth, renewable energy excluding hydro accounted for 9.4% of global power generationin 2018 and is expected to continue expanding. In the global market, solar photovoltaics would
replace wind power as the leader of renewable energy expansion. A key background factor to theexpansion would be a rapid decline in renewable energy power generation costs. As intermittent
renewables including wind and solar PV expand, an increase in storage battery installation, grid
extension and other costs for integrating such intermittent power generation into the grid networkwould loom as a challenge.
Japan has rapidly expanded renewable energy power generation including solar PV under
the Feed-in Tariff scheme introduced in 2012. As renewables’ share of total power generation isrising close to a target for FY2030, the renewable energy surcharge on power bills under the FIT
scheme has swollen. If 90 GW in renewable energy power generation capacity approved under theFIT scheme is all in operation, the cumulative surcharge on power bills would reach 60 trillion yen,pushing up power costs substantially. Japan will have to fundamentally modify the FIT scheme,
explore measures for resolving renewable power generation problems efficiently under the so-called“connect and manage” approach and consider fundamental measures such as grid enhancement.
Japan is required to develop renewable energy into a major economically independent electricity
source, as urged in its Fifth Strategic Energy Plan.

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Fifth, Japan’s primary energy supply is projected to level off by increasing by 0.3% in
FY2019 and decreasing by 0.3% in FY2020 due partly to temperature changes as its economic
growth decelerates from 0.7% in FY2019 to 0.5% in FY2020. Although coal’s share of primaryenergy supply would rise due to the launch of new coal-fired power plants, Japan would generally
and gradually switch from fossil fuels to non-fossil fuels. In FY2020, Japan’s energy-related CO2
emissions would decline to the lowest level since FY1990.
Nuclear power generation would clearly influence Japan’s so-called 3E’s – energy security,
economic efficiency and environmental protection. If the restart of nuclear power plants makes
progress through functional safety examinations, it would contribute to the 3E’s. If crude oil prices
rise by $15/bbl on the destabilization of the Middle Eastern situation, the Japanese economy would
shrink by 0.2%, with primary energy supply cut by 0.4%. If global GDP declines by 0.8% on thedeterioration of the U.S.-China trade war, global coal consumption would decrease by 1.1% and oiland natural gas consumption by 0.7%, exerting great downward pressure on the international energymarket.

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