IEEJ：January 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (357)January 5, 20182018 Energy Outlook in Japan and WorldKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe new year 2018 opened after the Trump tornado shook the world in 2017. How will
this year be? Based on seven outlooks that the Institute of Energy Economics, Japan, released on
December 19 last year, I would like to summarize the energy outlook for Japan and the world in2018.
First, we predict that the supply-demand balance in the international oil market will go in
the direction heading for equilibrium or tightening slightly. Oil demand will increase by 1.5 million
bpd from the previous year on global economic expansion. U.S. oil production will grow by 1
million bpd due to growing shale oil output. However, production in other non-OPEC oil producing
countries will slacken. As OPEC and some non-OPEC oil producing countries sustain theircoordinated production cut, the market will go in the direction of rebalancing slowly. The benchmark
Brent crude oil price will average $65/bbl in 2018. If shale oil production expands faster thanexpected in response to oil price hikes since last October or if destabilizing factors arise in the global
economy, however, crude oil prices may come under downward pressure. Conversely, crude oil
prices may rise above the forecast average if geopolitical risks or supply disruptions emerge in theMiddle East, Venezuela or any other oil producing region.
Second, the international gas and LNG market will continue to see a loose supply-demandbalance in 2018. While LNG demand in 2018 will increase by 14.8 million tons from the previous
year with growth centering on Asia, LNG supply capacity will grow by 26.3 million tons on thesuccessive launches of production under new projects. Spot LNG prices reflecting thesupply-demand balance will average $6.4/MMbtu, slightly lower than in the previous year. Given
crude oil price hikes, however, Japanese LNG import prices indexed mostly to crude oil prices will
average $9.7/MMbtu in 2018, rising from $8.1/MMbtu in the first 10 months of 2017. On thedemand side, LNG demand expansion in China will attract attention since China became the world’s
second largest LNG market after Japan in 2017. Depending on demand expansion in Asia including
China and on troubles with supply projects, spot LNG prices could rise on a temporary
supply-demand mismatch.
Third, the Japanese electricity market will see spot electricity transactions continue
increasing. As various factors offset each other, spot electricity prices will remain around the present
level of around 8 yen/kWh. After the full deregulation of electricity retail in April 2016, the rate ofswitching from traditional electric utilities to new retailers rose to 12.1% in August 2017 in terms of1

IEEJ：January 2018○ｃIEEJ 2018all users including large-lot users. Particularly, Tokyo, Kansai and Hokkaido posted remarkable risesin the rate. As competition has intensified, retailers’ profit margins have narrowed, making thebusiness environment severer for new market entrants. As renewable energy power generation hasexpanded rapidly, limited capacity for connecting renewable energy facilities to electric grids has
become a constraint in some regions. In this respect, Kyushu Electric Power Co. is growingly
expected to restrict renewable power output in FY2018. Detail designs and systems will have to bedeveloped in FY2018 for a “baseload power source market” and a “non-fossil value trading market”
for non-FIT electricity to be introduced in FY2019 and for “capacity market” to be launched inFY2020. In FY2018, a system to subject bilateral electricity trading through grid interconnectionlines to trading via the exchange will start along with a “non-fossil value trading market” for FITelectricity.
Fourth, the global renewable energy market will continue expanding steadily in 2018. As
renewable power generation costs have fallen rapidly as seen in overseas projects subject tocompetitive bidding, we predict that global renewable energy power generation capacity will
increase from 2,130 GW at the end of 2016 to more than 2,400 GW at the end of 2018. Driving theexpansion will be Asia including China and India. As wind, solar and other intermittent renewableenergy generation expands, initiatives to increase flexibility for stabilizing electricity systems will
become a global challenge. While renewable energy generation capacity will continue expanding inJapan, costs of renewable energy will remain higher than international levels. In a bid to reduce costs,
Japan implemented the first competitive bidding for large-scale solar PV generation in 2017.
However, successful bids failed to add up to the scheduled capacity level for the bidding. As thesecond and third biddings are planned for FY2018, sufficient efforts are required to increase thenumber of participants to promote competition.
Fifth, international discussions and negotiations on climate change are being conducted
after the U.S. Trump administration offered to withdraw the United States from the Paris climateagreement that has already taken effect. Preparations for enforcing the Paris agreement are planned
to end by the 24th Conference of Parties to the United Nations Framework Convention on Climate
Change in December 2018 in Poland’s Katowice. Given a mountain of problems including funding
issues and the assessment of efforts to cut CO2 emissions proposed by developing countries, it may
be difficult for the preparations to be completed as scheduled. In the United States that has declared
to exit from the Paris agreement, federal discussions and initiatives as well as state- andcompany-level climate change countermeasures will attract attention. The launch of a nationwide
emissions trading system in China, the largest CO2 emitter in the world, will also attract attention.
We will have to take note of policy, technology and market trends in 2018 involving the promoted
diffusion of electric and other advanced vehicles in which interests are growing globally in respect toclimate change and air pollution countermeasures.
Sixth, the restart of nuclear power plants in Japan will continue to attract much attention.
The number of restarted nuclear power plants stood at five at the end of 2017. In addition, Units 3and 4 of Kyushu Electric Power’s Genkai Nuclear Power Station and Units 3 and 4 of Kansai
Electric Power Co.’s Ohi Nuclear Power Station are in the final examination stage toward their
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IEEJ：January 2018○ｃIEEJ 2018
restart. However, no other nuclear power plants are scheduled to be restarted within FY2018. In
December 2017, the Hiroshima High Court ordered an injunction to suspend operation of Unit 3 ofShikoku Electric Power Co.’s Ikata Nuclear Power Station, indicating that a judicial decision could
affect the restart of nuclear power plants. In November 2017, the Japan Atomic Power Company
filed an application with the Nuclear Regulation Authority for extending the service life of the Tokai
No. 2 Power Station. The acceleration of examinations on nuclear power plants’ conformity withsafety regulations and the extension of their service lives will grow even more important along withtransparent, consistent examinations based on scientific grounds.
Seventh, Japan’s primary energy supply in FY2018 will decline by 0.3% from the previous
year to 465 million tons of oil equivalent due to economic growth’s deceleration from previous
year’s 1.8% to 1.1% and continuous energy conservation efforts. While primary energy supply will
decline, renewable energy expansion and the restart of nuclear power plants will enhance a generalshift to non-fossil energy. Japan’s energy-related CO2 emissions in FY2018 will decrease by 10.6%
from FY2013 to 1.104 billion tons. Electricity sales in Japan in FY2018 will rise by 0.2% from theprevious year, while gas sales will increase more steadily by 1.4% to hit a record high for the third
straight year. Meanwhile, oil demand will drop by 2.3% to a level close to 170 million kiloliters forthe sixth straight year of decline.
I would like to follow up on the Japanese and global energy situations in 2018 through thisspecial bulletin.

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