IEEJ：December 2019 ｃ○ IEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (461)January 1, 2020

2020 Energy Outlook in Japan and WorldKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe New Year 2020 opened after various changes shook the world last year. In thefollowing, I would like to forecast the Japanese and international energy situations in 2020 whilereferring to a short-term energy outlook published by the Institute of Energy Economics, Japan, onDecember 23, 2019.
First, the enhancement of joint oil production cuts by the Organization of the Petroleum
Exporting Countries and some non-OPEC oil-producing countries at the beginning of the year is thekey to forecasting the supply-demand balance in the international oil market. While global oil
demand increases moderately, non-OPEC oil production including U.S. output will grow even faster.
As the enhanced joint production cuts are designed to respond to such oil supply-demand situation,
the OPEC-plus group’s production policy is attracting attention. In such situation, the benchmark
Brent crude oil price will average $65 per barrel in 2020. Depending on developments regarding theU.S.-China trade war, U.S. shale oil production expansion and the Middle East, however, the oilmarket could become volatile. As the International Maritime Organization begins to toughen its
regulation on the sulfur content of ship fuel this year, we must pay attention to how price gaps
between petroleum products, gaps between heavy and light crude oil and sulfur content gaps
between crude oil varieties would affect the oil industry and oil flow.
Second, demand in the global liquefied natural gas market will expand to 369 million tons,
driven by growing Chinese and Indian demand. However, supply capacity will increase in suchcountries as the United States to 381 million tons, surpassing demand. Reflecting suchsupply-demand balance, the spot LNG price will slip below $6 per million British thermal units.
Meanwhile, LNG prices under long-term contracts covering most of LNG supply are basicallyindexed to crude oil prices. Reflecting the abovementioned oil price forecast and a decline in the rateof LNG prices indexed to oil prices, Japan’s average LNG import price will fall from around$10/Mbtu in 2019 to less than $9/Mbtu in 2020. While the LNG market is being globalized, attention
must be paid to LNG imports in China and other Asian emerging market countries and in Europe. On
the supply side, attention must be paid to how far final investment decisions for new LNG projects
would increase over a medium term. Given the deviation between long-term contract and spot LNG
prices, it would be interesting how LNG suppliers and buyers would negotiate terms and conditions
for long-term contracts.
Third, coal market prices are forecast at around $70 per ton for steam coal and $140-150/t
for coking coal, remaining close to current levels. Although the world is growing more critical ofcoal because of climate change and air pollution countermeasures, coal consumption will continue toexpand mainly in Asian emerging market countries at least in 2020, reflecting the reality that coal isvery important as a competitive energy source for Asian emerging market countries. On the supply
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side, Australia and Russia have ample supply capacity, indicating a relatively stable coal market in2020.
Fourth, attention regarding climate change will be paid to young people’s growing interestin climate change as symbolized by the “Greta Thunberg phenomenon”, ESG (environmental, socialand governance) investment initiatives, and trade and financial policies’ growing relations withclimate change. Policy side developments including the European Commission policy trend and theU.S. presidential election would also be worthy of close attention. The 25th Conference of Parties tothe United Nations Framework Convention on Climate Change produced an outcome documentencouraging all countries to advance their climate change countermeasures in line with theirrespective conditions and set ambitions as high as possible, but indicated that it was very difficult tocoordinate national interests and stances. We should take note of whether major countries would
submit tougher emission reduction targets for 2030 as nationally determined contributions in 2020.
Fifth, renewable energy power generation will continue global expansion in 2020.
Particularly, renewable energy power generation capacity will increase by some 8% during 2020 to2,900 gigawatts (1,300 GW in hydro capacity and 1,600 GW in non-hydro capacity) at the end of theyear. Renewable energy expansion will be led by China, Europe, the United States and India, anddriven by growth in solar photovoltaics power generation. As of 2018, renewable energy accounted
for 25% of global power generation. The share consisted of 16 percentage points for hydro and 9points for non-hydro renewables, indicating that solar PV and wind power accounted for only asmall share. As renewable energy power generation costs decline, policy support and businesscorporations’ enhancement of renewable energy procurement will back up overall renewable energy
expansion. As intermittent renewable energy power generation expands, new challenges will emerge,including costs for integrating such intermittent electricity into the grid, as well as the so-called“cannibalism phenomenon” in which very large-scale introduction of solar PV capacity generates
massive electricity on sunny days to cause a substantial fall in electricity prices to its own
disadvantage. Japan in particular will have to revise policies and enhance measures to develop
renewable energy into an economically independent major power source.
Sixth, nine nuclear power plants restarted operation in Japan by the end of 2019. Attracting
attention will be whether the nuclear plant restart would make progress through examinations by the
Nuclear Regulation Authority and plant operators’ talks with relevant local governments. At thesame time, however, some plants now in operation could be forced to suspend operation due to adelay in the completion of counterterrorism facilities beyond the respective deadlines set be NRA.
We must keep close watch on developments regarding the restart and use of nuclear power plantsthat exert great influence on Japan’s 3Es – energy security, economic efficiency and environmental
friendliness. While the utilization and construction of nuclear power plants face more complex andchallenging situations in developed countries, China and Russia are proactively developing nuclear
power plants both domestically and internationally. Meanwhile, the U.S. Nuclear Regulatory
Commission permitted a nuclear power plant in December to operate until they are 80 years old,
attracting global attention.
Seventh, spot electricity prices are exerting increasing influence on power generation
facilities’ profitability and power retail competition in Japan’s electric power industry as spotelectricity trading is expanding. Attention should also be paid to renewable energy expansion’s
downward pressure on spot electricity prices. Last year, trading was launched in baseload, indirect
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power transmission right and non-fossil value certificate markets. In the future, Japan plans to startdelivery in the baseload market and trading in non-FIT non-fossil value certificates and set
intermediate targets under the Energy Supply Structure Sophistication Act. Attention should be paid
to how such trading or prices would be. As surplus electricity supply capacity declines generally,
how best to secure capacity for stable electricity supply is a future challenge.
Eighth, Japan’s primary energy supply will decrease by 0.4% for the second straight year
as GDP growth decelerates from 0.7% in FY2019 to 0.6% in FY2020. Supply will increase for coal,renewable energy and nuclear energy while decreasing for natural gas and oil, indicating a moderate
shift to non-fossil energy. Coal supply will expand as new coal-fired power plants go on stream.
Carbon dioxide emissions in Japan in FY2020 will decrease by 15.1% from FY2013 to 1,048 million
tons. Electricity sales will increase slightly through FY2020. City gas sales will also rise due to anincrease in those for power generation. Petroleum products sales in FY2020 will decrease for theeighth straight year, posting a fall of one-third from the peak in FY1999. Japan’s LNG imports inFY2019 will slip below 80 million tons for the first time after the March 2011 Great East Japan
Earthquake. If all renewable energy power generation capacity approved under the FIT system is inoperation, cumulative burdens on consumers by surcharge may reach as high as 60 trillion yen topush up power bills.
While watching the 2020 Japanese and foreign energy situations including theabovementioned points, I would like to follow up on these situations through this bulletin.

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