IEEJ e-NEWSLETTER
No. 235(Based on Japanese No. 226)

Published: July 21, 2022
The Institute of Energy Economics, Japan(As of July 19, 2022)

Sources:(1) DOE-EIA(2) Investing.com

Sources:(1) Ministry of Finance "Japan Trade Statistics"(2) Ministry of Economy, Trade and Industry (arrival month basis)(3) Estimated by World Bank (Netherland Title Transfer Facility)(4) DOE-EIA, NYMEX (Front-month Futures)

Source: x-rates.com

Sources:(1) Finance. Yahoo.com(2) Investing.com

Contents
Summary【Energy Market and Policy Trends】
1. Developments in Nuclear Power
2. Recent Developments in the Oil and LNG Markets
3. Update on Climate Change, Energy Conservation, and Renewable Energies【Global Monitoring】
4. Europe and US: “Network-based” Economic Sanctions and the Oil Market
5. China: New Renewable Energy Development Five-Year Plan Aims to Double Variable
Renewable Electricity
6. ME: Efforts to Strengthen Anti-Iran Network Continue
7. Russia: Squeezing Energy Supplies to Hostile Countries

1Summary
1. Developments in Nuclear PowerThe US is working to reduce its dependence on Russia for uranium fuel. In the UK, adocument on accelerating the implementation of a new financing model based on full cost
distribution (FCD) to be applied to nuclear new builds was published.
2. Recent Developments in the Oil and LNG Markets
The upward momentum of oil prices is weakening, but Russia’s output is certain to fall once
the EU executes the agreed embargo. In Europe, concerns about the gas supply stability inwintertime are rising.
3. Update on Climate Change, Energy Conservation, and Renewable Energies
The European Parliament adopted the EU bills on EU-ETS, CBAM, and so on among thebills in Fit for 55. In Japan, the revised Act on the Improvement of Energy Consumption
Performance of Buildings passed the Upper House and was legislated. The Act additionallyrequires new houses and medium and small buildings to comply with energy efficiency
standards.
4. Europe and US: “Network-based” Economic Sanctions and the Oil Market
Access to the international financial network has played a bigger role as a tool for economic
sanctions, as seen in the EU’s new sanction on Russia that bans insurance. Wary of further rises
in oil prices, the US will have to gain cooperation from oil-producing countries.
5. China: New Renewable Energy Development Five-Year Plan Aims to Double Variable
Renewable Electricity
The Chinese government published a Five-Year Plan that would increase the share of
renewable energy in primary energy consumption to 18% in 2025 and double the output ofwind, solar PV and heat power generation from 2020 levels. The progress of these efforts
deserves attention.
6. ME: Efforts to Strengthen Anti-Iran Network Continue
Ahead of US President Biden’s visit to their countries in mid-July, Israel and Saudi Arabia
are strengthening ties with countries in the region to strengthen containment against Iran.
7. Russia: Squeezing Energy Supplies to Hostile Countries
Gazprom slashed gas supplies via Nord Stream, reducing supplies to Germany, Italy, andAustria. In addition to the delay in refilling underground gas stores, a further decrease due toperiodic inspections is approaching. Tensions with the three Baltic nations are also mounting.

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1. Developments in Nuclear Power
Emiri Yokota, Senior Researcher
Nuclear Energy Group, Strategy Research Unit
According to media reports, on June 8 the US government proposed a plan to directly
purchase $4.3 billion worth of enriched uranium from US producers to curb its dependency on
Russian uranium fuel. The US currently imports up to 20% of its national uranium requirementfrom Russia based on a bilateral agreement; the share of imports from Russia in 2020 was 16%.
Russia is a major producer of enriched uranium and owns more than 40% of the world’s
enrichment capacity. Suspension of Russian uranium is already being discussed in Congressand reducing the dependency on Russian uranium is an urgent issue for the US. The
government’s aim is to enhance the country’s energy security by implementing this purchaseplan with approval from Congress and thereby reducing the dependency on Russia, according
to media.
On June 14, the UK government released a document describing the progress toward
implementing the Regulated Asset Base (RAB) model, a new financing model for developing
nuclear and other energies. This model aims to attract private investment into nuclear newbuilds and other large-scale infrastructure projects by providing necessary financial support
based on a fully distributed cost (FCD)-like system, to make sure that projects reach completion.
The Sizewell C Project may become the first nuclear new build project to be run based on thismodel.
In Japan, on May 31, the Sapporo District Court ruled against resuming operation of
Hokkaido Electric Power’s Tomari Units 1 through 3 citing a lack of adequate protection
against tsunami. This was the third District Court decision to suspend operation of a nuclear
plant after the Fukushima Daiichi accident in March 2011, and the first to be grounded oninadequate protection against tsunami. Hokkaido Electric said on the same day that it willpromptly file an appeal.
Meanwhile, there was progress toward restarting nuclear power: on June 2, the Governor of
Shimane Prefecture agreed to the restart of Chugoku Electric’s Shimane Unit 2, and on June
15, gave his consent to the restart to the national government.
New moves among domestic manufacturers were also observed. On June 8, Toshibaannounced that it had “reached an agreement with US constructor Bechtel Power Corporation
to collaborate on the delivery of equipment for Poland’s first nuclear power plant, jointly with
its affiliate Toshiba America Energy Systems Corporation (TAES).” Heavily dependent on coal
power, Poland is proceeding with a nuclear new build project amid a rise in environmental
awareness. Bechtel and US Westinghouse are working on building an AP1000, and incollaboration with Toshiba, the three will supply steam turbines and generators for the AP1000
plant. The three will also discuss the details for supplying equipment going forward.

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2. Recent Developments in the Oil and LNG Markets
Tetsuo Morikawa, PhD
Senior Economist, Manager
Oil Group
The upward momentum of oil prices is weakening. After rising to around $120/bbl in early
June, oil prices fell back to $110/bbl on June 22 for the first time in almost a month. This was
driven by the risk of recession and the less-than-expected decline in Russia’s output. The
Federal Reserve Board began to raise interest rates in March in an attempt to contain inflation
which has reached its highest level for 40 years, and decided on a huge raise of 0.75% on June
15. Monetary tightening is causing the US dollar to soar, which is curbing the rise in oil prices
by making oil prices higher in non-dollar currencies. Furthermore, the Fed’s tapering of asset
purchases carried out before the rate hikes has diminished the inflow of funds into money
markets, making stock prices volatile. Moreover, there is speculation that the US economy isheaded for recession. The Fed is likely to put more weight on controlling inflation thanmaintaining stock prices, and is therefore likely to keep raising interest rates this year. Fear ofrecession is likely to put downward pressure on oil prices in the second half of this year.
Meanwhile, defying forecasts of a drop of 3 mb/d, Russian oil production has decreased only
slightly and remains at 10.55 mb/d as of May (down 0.85 mb/d from February). This is largely
because the EU’s ban on Russian oil has yet to take full effect, and because China and India are
increasing imports. However, when the EU executes the already agreed embargo, its imports ofRussian oil will drop from 3.9 mb/d in February to just 0.3–0.4 mb/d by the end of the year.
Considering the need to secure tanker shipping capacity and the ban on insuring tankers
carrying Russian oil, it will be difficult for Russia to divert all of its EU exports to China, India
and other markets, and thus Russia’s exports and production will surely decline. Moreover, theWest is likely to toughen its sanctions if the war continues, and should the West decide toinitiate secondary sanctions (which would effectively force other countries including China andIndia to stop importing Russian oil), serious supply shortages would occur again, pushing up
oil prices significantly.
Natural gas prices are becoming even more volatile, especially in Europe. From the end of
May to mid-June, Russia slashed its gas supplies to Western Europe. Further, on June 8,
Freeport LNG (liquefaction capacity of approx. 15 million tonnes per year) of the US, a majoralternative supply country, shut down due to a fire. These factors combined to push up the
Dutch TTF, the benchmark price for continental Europe, to as high as $38/Mbtu (approx.
$220/bbl in oil equivalent). LNG spot prices for Northeast Asia have also gone up in tandemwith the European price to as high as $37/Mbtu. Meanwhile, the spot price for US Henry Hubnatural gas remained mostly at $7–9/Mbtu in June though upward pressure has mounted since
the invasion of Ukraine. The average import price for Japan for June is estimated at around$16/Mbtu. The EU is planning to fill its gas storages to 80% by November, but it may bedifficult to achieve this target and concerns about wintertime supply stability are growing.
Europe’s gas shortages lead directly to higher spot LNG prices for Northeast Asia, and threaten
the gas and power supply stability particularly for Asian importers who depend on spot
purchases.

43. Update on Climate Change, Energy Conservation, and Renewable Energies
Naoko DOI, PhD
Senior Economist, Manager
Energy Efficiency Group
Climate Change and Energy Efficiency Unit
On June 22, the European Parliament adopted three key EU bills from Fit for 55, the policy
package formulated to reduce GHGs by 55% by 2030 (from 1990 levels). The European Parliament,
the European Commission, and the EU Council will now hold a “trialogue” toward legislation.
The first are the proposed revisions to the EU Emissions Trading System (EU-ETS). Specifically,
the Council agreed to: 1) raise the 2030 GHG reduction target for the operators in scope from 61%
to 63% from 2005 levels; 2) newly include maritime shipping emissions in stages from 2024
through 2027; and 3) create a separate EU-ETS for suppliers in the buildings and road transport
sectors in 2029.
The second is the Carbon Border Adjustment Mechanism (CBAM) bill. The CBAM imposes
taxes on products imported from non-EU countries that have less stringent climate measures.
Meanwhile, the EU-ETS is allocating free emission allowances to prevent industry from relocating
to regions with lighter environmental regulations. These free allowances will now end for those
products covered by the CBAM progressively by 2032 in order to eliminate “dual protection.” TheCouncil adopted the expanded version of the proposal, which covers hydrogen, organic chemicals,
and polymers on top of the European Commission’s initial proposal of iron and steel, cement,
electricity, aluminum, and fertilizers.
The third is the proposal to establish a Social Climate Fund with the proceeds from EU-ETS. To
mitigate the impact of the looming rise in road transport and heating fuel prices on the low-income
bracket, the Fund will be used to reduce and waive energy taxes in the short term, and for energy
efficiency renovation of houses and other buildings, and extending financial support, subsidies, andlow-interest loans for introducing public transport in the long term.
In Japan, on June 7, the Ministry of Energy, Trade and Industry decided on energy conservation
measures for this summer in view of the current power supply situation. The Ministry will call on
all parties to improve energy efficiency and to save electricity. Measures include improving theoperation of existing equipment and introducing high-efficiency equipment in various sectors,
tougher electricity saving measures in the government, energy efficiency renovations of municipal
buildings, and implementing demand response measures with monetary remuneration. On June 13,
the revised Act on the Improvement of Energy Consumption Performance of Buildings was adopted
at a plenary session of the Upper House and was legislated. The revised Act additionally requires
new houses and medium and small buildings to comply with energy efficiency standards startingfrom FY2025.
In the area of renewable energy, the European Commission proposed the criteria for greenhydrogen on May 23. For hydrogen to be counted as “green hydrogen,” it must be produced using
a newly established renewable power source, water electrolysis must take place in the hours deemed
beneficial for the grid integration of renewable energy, and large amounts of renewable energy mustalready be in use in the region where the hydrogen supply is to be produced. Behind these standards
is the idea of “additionality” of hydrogen, which specifies that renewable energy should contributeprimarily to decarbonizing electricity, and may be used to produce hydrogen only when it is inexcess. The hydrogen industry is displeased and thinks that the standards are overly strict, but the
public comment period will end on June 17 and the standards are due to be finalized thereafter.

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4. Europe and US: “Network-based” Economic Sanctions and the Oil Market
Yoshikazu Kobayashi, Senior Economist
Manager, CCUS Group
Fossil Energies & International Cooperation Unit
Europe continues to toughen its economic sanctions against Russia over Ukraine. In the sixthround of sanctions against Russia released on June 3, the EU at last included an oil embargo.
When the embargo is launched, EU member states except a few will stop all their imports ofRussian oil and petroleum products via marine transport by December 5, 2022 and February 5,2023, respectively. The initial plan was to include all oil and petroleum products, but imports
via pipelines were excluded from the scope due to opposition from Hungary and others thatcannot easily abandon Russian energy.
However, many are skeptical about the impact of the oil embargo on the Russian economy.
Unless all countries stop importing Russian oil and not just Europe, Russia will continue toobtain revenues from oil exports. China and India are likely to switch from the Middle East andAfrica to Russia for oil in exchange for a price discount. While 80% of Russia’s natural gas
exports go through pipelines and therefore to limited destinations, 70% of its oil exports aredelivered via maritime transport and so it is relatively easy to change destinations even if
exports to the EU stop. The recent oil price surge is also helping Russia to make up for the dropin its oil exports.
Among the EU sanctions imposed this time, the one that is expected to hit harder than the oil
embargo itself is the ban on providing insurance to third countries. This sanction bans, from
December 5, 2022, providing insurance to a third country for the transport of Russia-producedoil; when effective, no third country will have access to insurance provided by EU member
state companies for the transport of Russian oil supplies. As a large number of international
insurers and reinsurers are based in the EU, the ban on insurance may have a greater impact
than outright oil embargoes. When a similar sanction was imposed on the transport of oil from
Iran in 2012, governments of importers including Japan had to take unprecedented action andissue government guarantees. In recent years, access to the international financial network has
played a bigger role as a tool for economic sanctions, as seen in the US’ limitation on the useof the dollar and removal from the SWIFT settlement messaging network. It is noteworthy that
the EU has also started financial sanctions via its insurance business network, which is its
strength.
Amid these moves, the US government faces a tough dilemma as it wants to tighten sanctions
against Russia but cannot afford to let oil prices rise further ahead of the midterm elections.
One of the keys for solving this problem is to get Middle Eastern countries to increase output,
particularly Saudi Arabia and the UAE whose oil has similar properties to Russian oil andwould therefore have an immediate effect. President Biden has so far been cautious about
discussing production increases directly with Middle Eastern countries, but he will have to workwith these oil producers if prices head higher. Attention must be paid to the President’sscheduled visit to Saudi Arabia in July.

6

5. China: New Renewable Energy Development Five-Year Plan
Aims to Double Variable Renewable Electricity

Li ZHIDONG, Visiting Researcher
Professor at Graduate School
Nagaoka University of Technology

On June 1, the 14th Five-Year Plan on Renewable Energy Development (public version) prepared bynine government agencies including the National Development and Reform Commission (NDRC) andthe National Energy Administration (NEA) was released. Analyzed together with reports of government
media outlets such as Xinghua News Agency and China Energy News, the Modern Energy System
Planning, which is the overall plan, and the Mid-/Long-term Plan for Pumped-Storage Hydropower,
which is a field-specific plan (see the May 2022 edition and October 2021 edition of this Newsletter),the Five-Year Plan indicates the government’s focus on renewable energy and reveals the big picture.
Here are the main points.
The Five-Year Plan declared that renewable energy consumption will be expanded from 680 milliontce (tons of coal equivalent, 1 tce = 7×106 Kcal) in 2020 to 1 billion tce (including 940 million tce of
renewable electricity) in 2025. While not mentioned in the public version, Xinhua and others reported
on a target to increase the share of renewable energy in primary energy consumption from 13.6% in2020 to 18%. Based on this information, primary energy consumption, which is not mentioned in theoverall plan, will reach 5.56 billion tce in 2025, up 580 million tce from 2020, with renewable energy
accounting for 55% of the increase. Further, assuming that the goal of expanding nuclear to 70 GW in
2025 is met and the operating time does not change, the share of nuclear in primary energy will increase
from 2.3% in 2020 to 2.8% in 2025. As a result, the share of non-fossil energy will increase to 20.8% in
2025, taking a big step toward the 2030 target of 25% submitted to the United Nations. Clearly, China
is strengthening its renewable energy development systematically, determined to meet the 25% target it
considers an international commitment.
China has introduced a system in which it sets a target for the share of renewable electricity inelectricity consumption for each region and holds the regions responsible for meeting the target. China’s
share of renewable electricity in consumption was 28.8% in 2020, exceeding the national target of 28.2%(estimate). The new Five-Year Plan unveiled a national target to increase the share in consumption to
33% in 2025. It also set a target to increase renewable electricity output to 3,310 TWh in 2025 from
2,220 TWh in 2020, with the increase in renewable electricity from 2020 accounting for at least 50% of
the increase in electricity consumption. In summary, the total generation output will increase from 7,630
TWh in 2020 to 9,810 TWh in 2025 and the ratio of renewable electricity will increase from 29.1% to33.8% in that period. The Plan further states that the output of variable renewable electricity (wind, solar
PV and heat power) will double from 730 TWh to 1,460 TWh in the same period, with the share in total
generation output increasing from 9.5% to 14.8%. The Plan does not mention the installed capacity ofvariable renewable electricity (535 GW in 2020), but assuming that it will double as with the generation
output, the capacity is estimated to be 1,070 GW in 2025. Since the existing target is to increase the total
installed generation capacity (2,202 GW in 2020) to 3,000 GW, the share of variable renewableelectricity (24.3% in 2020) will increase by 11.4 points to 35.7%, and the share of renewable electricity
as a whole (42.5% in 2020) by 10.5 points to 53%. In other words, China plans to have variable
renewable electricity spearhead the transition of renewable electricity into a main power source. The
country has also submitted to the UN a target of increasing variable renewable electricity to at least
1,200 GW in 2030. This target is likely to be overachieved if the new Five-Year Plan can be fulfilled.
The key is whether electricity supply stability can be ensured along with the expansion of variable
renewable electricity. To this end, the government has mobilized all available policy resources including
increasing grid balancing capacities and guaranteeing rational profits for operators, and accelerating theconstruction of ultra-high-voltage transmission networks. The progress of these efforts deservesattention.

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6.

ME: Efforts to Strengthen Anti-Iran Network Continue
Sachi SAKANASHI, Senior Research Fellow
Assistant Director, JIME Center

Ahead of US President Biden’s tour of the Middle East scheduled for mid-July, Israel andSaudi Arabia are strengthening ties with countries in the region. Israel signed a Comprehensive
Economic Partnership Agreement (CEPA) with the UAE, while also signing, together with
Egypt, a memorandum on natural gas supply with the EU. Saudi Arabian Crown Prince
Muhammad bin Salman visited Egypt, Jordan, and Turkey and discussed cooperation in a wide
range of areas including food security.
The greatest concerns for President Biden during his Middle East tour are said to be energy
prices and the Iran issue, but it is not clear how much support he can secure from Saudi Arabia
on increasing crude oil production. Meanwhile, on the subject of Iran, Israel remains fiercely
opposed to reviving the Iran nuclear deal (JCPOA), which is sure to be tabled during President
Biden’s visit, and considers that Middle Eastern countries should join hands and toughen thecontainment against Iran, while securing the support of the US.
Israel is already accelerating attacks on Iran in the country. Iran saw a series of mysterious
deaths of security personnel, such as an officer of the Islamic Revolutionary Guard Corps(IRGC), a drone development engineer, an aeronautical researcher, and an employee of the
Defense Ministry’s aerospace unit around the time of the Board of Governors Meeting of theInternational Atomic Energy Agency (IAEA) that began on June 6 (the IRGC officer was shotand killed by an unknown attacker in front of his house), and Israel’s involvement is suspected
in all these cases. Israel has openly declared that it will block Iran’s nuclear development at any
cost and has been involved in the sabotage of nuclear facilities and assassination of nuclear
scientists in Iran. Recently, Iran’s drone development (and the people involved) has started to
be included in the scope of attack.
With Israel carrying out a string of attacks causing Iran a lot of damage, it is almost
impossible for Iran to “offer a compromise” to the US (which backs Israel) on the nuclear deal.
In these circumstances, the IAEA Board of Governors adopted a resolution criticizing Iran; thisresolution does not request that Iran’s nuclear development issue be referred to the UN Security
Council. However, with the Biden administration maintaining “toughest sanctions against Iran”
that began during the Trump presidency, and with Iran continuing to expand its nuclear
development program, the JCPOA is increasingly becoming merely a name. It had been hopedthat the JCPOA’s revival would allow Iranian oil to return to the market to replace sanctioned
Russian oil, but the prospects are now unclear.
Both Israel and Iran, the belligerent parties of an intensifying “shadow war,” havedestabilizing factors in their own countries. In Israel, the coalition led by Prime Minister
Bennett is suffering a series of departures and an early dissolution of the parliament is becoming
inevitable; in Iran, cuts in subsidies to prop up worsening finances have caused consumer prices
to soar, prompting anti-poverty protests to spread across the country. Both countries are facing
a difficult balancing act to keep the government stable.

87. Russia: Squeezing Energy Supplies to Hostile Countries
Sanae KURITA, Senior Researcher
Global Energy Group 2Strategy Research Unit
As the Russian invasion of Ukraine continues, the St. Petersburg International Economic
Forum was held from June 15 through 18. The Forum was attended by representatives of thepro-Russian separatist forces in eastern Ukraine, Belarussian president Lukashenko, andmembers of the Taliban from Afghanistan. Western countries and companies refrained fromparticipating. In the past, the Forum was attended by the leaders of Germany and France andWestern oil majors and saw spectacular signing ceremonies for energy-related agreements. This
year, the Forum’s only key agenda items were the gas processing partnership with Kazakhstan
and the progress of discussions on the Far Eastern route of the China-Russia gas pipeline. In
February 2022, Gazprom and China’s CNPC agreed on long-term gas sales (of up to 10
Bcm/year) via the Far Eastern route. Based on the talks which discussed passing through thelayers beneath the River Ussuri, the parties are apparently considering extending the SakhalinKhabarovsk-Vladivostok (SKV) gas pipeline to China.
Russia is weaponizing energy as a means of threatening hostile countries. On June 14,
Gazprom reduced gas supplies via Nord Stream by 40% from 167 Mcm/day after announcingthat “only three gas compressors are in operation as the unit that Siemens is repairing in Canada
has not been returned and the gas compressor unit (near the start of Nord Stream) is to undergo
periodic inspection”; the reduction was then increased to 60% on June 15, resulting in supply
cuts to Germany, Italy, and Austria. Gazprom claims that the reduction was the result of
Canada’s economic sanctions, but Western stakeholders have fiercely countered that the
reduction was a deliberate act by Gazprom as the periodic inspection was scheduled for autumn
of 2022. Gazprom claims that periodic inspections of European gas pipelines are approaching(Nord Stream: July 11-21, Turk Stream: July 21-28), and with the refilling of underground gas
stores running behind schedule, there is growing concern about further cuts in gas supplies.
Lithuania has banned the transport through Lithuania of products sanctioned by the West(such as construction materials, metals, coal and steel) between Russia and Kaliningrad, fuelingtensions between Russia and the West (Kaliningrad is a semi-enclave of Russia on the Baltic
Sea, sandwiched between Lithuania and Poland). On the 20th, the Russian government called
this ban an illegal and openly hostile act and warned that it will take measures to protect its
national interest if cargo transport does not resume promptly. Lithuanian Foreign Minister
Landsbergis talked with the European Commission and refuted the claims, stating that they
were acting in line with the EU’s additional sanctions against Russia since March. However,on the 21st, President Putin threatened to use military force, revealing his intention to build up
and strengthen military forces and deploy its new inter-continental ballistic missile (ICBM)Sarmat within this year to respond to potential military threats and risks. On the 22nd,
Lithuanian President Nauseda indicated that the country will prepare for Russia’s retaliation
including a shutdown of power supplies. With the EU’s support, the three Baltic states finishedconnecting to Poland’s power grid system in 2021, and are planning to cut themselves off fromthe grid systems of Russia and Belarus and switch to Europe’s grid system in 2025. Meanwhile,
while denying the possibility of a military clash, Lithuania expressed its intention to bring up
the bilateral stand-off at the NATO Summit. Tensions between the three Baltic states and Russia
are growing.
9

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