IEEJ：November 2015

ｃ○ IEEJ 2015

Special Bulletin
A Japanese Perspective on the International Energy Landscape (244)November 6, 2015

At the 9th China-Japan Joint Symposium on Oil & Gas
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn November 3, the 9th China-Japan Joint Symposium on Oil & Gas took place in Beijing.
The CNPC Economics and Technology Research Institute (ETRI) and the Institute of Energy
Economics, Japan, have cosponsored the annual symposium alternately in Beijing and Tokyo. At thelatest one, five reports were made for discussions. In the following, I would like to outline the fivereports and their key points.
In the first session, IEEJ Board Member Yukari Yamashita introduced a global energy
supply and demand outlook through 2040 based on the Asia/World Energy Outlook 2015 released on
October 21. A key point she made was that the gravity center of the international energy market willgrowingly shift to Asia over a long term as Asia drives global energy demand growth through its
sustained economic growth. Another key point was that fossil energy will still be dominant,accounting for about 70% of global energy supply in 2040, although technological progress is likely
to exert downward pressures on fossil energy demand growth. As a big topic of the latest outlook
based on the recent crude oil price plunge, she then introduced an analysis on what would happen to
the global energy market and economy if crude oil prices remain at around $70 per barrel (against$100/bbl assumed in the Reference Scenario). The analysis indicated that net oil and gas importers
will enjoy great economic benefits in the Lower-price Scenario, while net oil and gas exporters willsuffer great losses, with the Middle East’s oil export revenues being some $460 billion lower in 2030
than in the Reference Scenario. Regarding global warming, she provided an analysis that it isimportant to minimize the combination of global warming mitigation and adaptation costs and losses,
in addition to an analysis or assessment of intended nationally determined contributions, or INDCs,
and carbon dioxide emission reduction (mitigation). Given the recent oil and gas price plunge, I feltthat the Chinese side was interested particularly in the Lower-price Scenario.
Next, Chen Rui from the CNPC ETRI made a report on the characteristics and direction ofthe international oil market under the New Normal. The report noted that the present international oilmarket represents the New Normal including the substantial relaxation of the supply-demandbalance and the price plunge and will gradually go in the direction of rebalancing, which is expected
to take relatively longer time. This was based on the recognition that while oil demand growth in theworld including emerging countries is slowing down, there is a great potential for supply expansion,

1

IEEJ：November 2015ｃ○ IEEJ 2015

with major oil producing countries continuing a market share expanding race. For CNPC as a major
crude oil producer, the analysis that crude oil prices will remain weak for the immediate future may
mean that CNPC will have to assume a severe business environment and adopt a strategy meetingsuch environment.
In the second session, three reports were made. First, Wang Haibo from the CNPC ETRI
reported an outlook on the substitution of natural gas for coal in China. While coal is dominantly
important in the primary energy or electricity market in China, it is urgent for China to reduce its
dependence on coal to improve its energy supply and demand structure to cope with PM2.5 air
pollution and climate change problems. Therefore, China gives priority to promoting energy
conservation, renewable energy and nuclear. In this respect, great hopes are placed on thesubstitution of natural gas for coal. But the report noted that domestically produced coal has strong
price competitiveness and that the problem is whether natural gas could penetrate into the marketand replace coal sufficiently under market forces alone. Even at a time when liquefied natural gas
prices are falling, China’s domestic gas prices are rising to make it difficult for gas to compete withcoal, according to the report. It was noted that competition between gas and coal is seen not only inthe power generation sector but also in the industrial sector where some 540,000 coal-burningindustrial boilers’ shift to gas is important. An opinion given at the symposium said that gas supply
costs should be lowered with various policy support measures taken to overcome problems andexpand gas use.
Then, I reported that the Asian LNG market sees relaxation of the supply-demand balance
as is the case with the international oil market and will remain in the same conditions until around2020. I noted that Asian LNG buyers are going in the direction of pursuing more competitive prices
and LNG procurement with greater supply flexibility, that the LNG market will develop with market
functions enhanced and that it is important to eliminate constraints (including the destination clause)on the improvement of market functions. I also reported that: a) important factors behind Japan’sLNG market development and expansion include measures against air and other pollution andenergy security policy following the oil crises; and that b) business operators have implemented
various initiatives to expand gas use under government policy and support.
Lastly, Jin Yun from the CNPC ETRI made a report on China’s oil refining industry andthe issues related to crude oil import deregulation. China has 220 oil refineries with their capacity
totaling 700 million tons. They include refineries of major Chinese oil companies CNPC, SINOPEC
and CNOOC, Chinese firms’ joint ventures with foreign companies and a large number ofsmall-medium sized relatively inefficient local refineries. The problem is that an oversupply hasarisen as refinery capacity expansion outpaced oil demand growth. China’s nationwide averagerefinery utilization rate fell from 84% in 2010 to 76% in 2014. But the rate for local refineries
slightly increased from 36% to 37% for the same period, indicating that major oil companies’refineries accounted for a major share of the decline. As the Chinese oil refining sector’s key2

IEEJ：November 2015ｃ○ IEEJ 2015

challenge is to upgrade refineries to raise the utilization rate and enhance efficiency andcompetitiveness, the government is deregulating crude oil import right (that had been limited tothose by large state companies) in exchange for shutting down outdated and inefficient refineries,
according to the report. We thus recognized that policies meeting the New Normal of the domestic
oil market have become important in China.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3