IEEJ：December 2015

○ｃ IEEJ 2015

Special Bulletin
A Japanese Perspective on the International Energy Landscape (252)

December 28, 2015

A Review of Japanese and Overseas Energy Situations in 2015
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe year 2015 is ending in a few days. The year's energy situations in Japan and othercountries saw many key developments. In the following, I would like to take up impressive points
for me regarding these developments.
First, 2015 was a year of lower prices in the international energy market, symbolized by asharp plunge in crude oil prices. Crude oil prices had remained above $100 per barrel for three and ahalf years until the first half of 2014 before plunging more than 50%. In 2015, crude oil prices hit a
total of three bottoms -- the first in March, the second in August, and the third, the year’s low in
December. The benchmark West Texas Intermediate crude price slipped below $35/bbl to the lowest
level in about seven years. Behind the oil price plunge has been an oil supply glut caused by variousfactors including high-level U.S. shale oil production, Saudi Arabia’s maintenance of a strategy
giving priority to keeping its market share, concerns on downside risks in emerging economies andthe expected impact of Iran’s comeback to the international oil market accompanying Westerncountries’ termination of economic sanctions on Iran over the nuclear development problem.
Historically, the international oil market has seen several price plunges. Some analysts have pointed
out that the latest plunge is similar to the sharp fall in the mid-1980s in that they featured growing
supply from oil producing countries outside the Organization of the Petroleum Exporting Countries
and OPEC’s strategy of keeping market shares. But others have noted that the current non-OPEC oil
supply including U.S. shale oil production differs from the past one in that U.S. shale oil production
can increase or decrease flexibly in response to price changes over a relatively short term. Crude oil
prices and international oil market developments in the future are thus attracting much attention. The
present oil prices apparently represent excessively low levels. But the low oil prices were the basefor the international energy situation in 2015.
Second, natural gas, LNG and coal prices declined along with oil prices in 2015. As shalegas production remained high in the United States, the benchmark Henry Hub natural gas priceslipped below $2 per million British thermal units (MMBtu) in line with the loosening
supply-demand balance in the second half of 2015. In Europe, the benchmark National Balancing
Point price fell below $5/MMBtu. In Asia, spot LNG prices weakened to a $6-7/MMBtu range. LNG
prices for long-term contracts that are dominant in Asia also declined sharply as they were linked tocrude oil prices. LNG import prices for Japan fell to an $8-9/MMBtu range. There is a time lag ofsome five months between Japanese LNG import and crude oil price changes. Given that crude oil
prices hit the 2015 bottom in the second half of December, Japanese LNG import prices can beexpected to remain low until the middle of 2016. Spot prices for steam coal for power generation
also followed a downward trend in response to the loosening supply-demand balance in theinternational market. They have stayed in a low range of $50-55 per ton since November. The
overall fossil fuel market in 2015 featured the global loosening of the supply-demand balance as1

IEEJ：December 2015

○ｃ IEEJ 2015

described above. Lower prices under the loosening supply-demand balance became a basic trend forthe year.
Third, the year 2015 saw growing security and geopolitical risks and international tensions
in the overall international situation while the loosening energy supply-demand balance and lower
energy prices became a basic trend. In Paris, terrorist attacks killed more than 130 people inNovember following the Charlie Hebdo incident in January. Confrontation with and military
operations against the Islamic State militant organization, which claimed responsibility for theterrorist attacks, were enhanced internationally, highlighting counterterrorism and security measures
as a key problem. Behind the problem are the complicated Syrian and Iraqi situations that haveinduced massive refugees who flowed into Europe. The overall situation is complex. While aninternational alliance against the Islamic State was given priority, Turkish fighter aircraft shot downa Russian military plane. Tensions grew between Turkey and Russia with Western countries getting
involved, complicating the situation further. Tensions over the Russia-Ukraine problem also
continued, leading Western countries to maintain or enhance economic sanctions on Russia. The
high-level tensions in the Middle East, Europe and Eurasia represent a key point in reviewing theoverall international situation in 2015. The growing tensions coexisted with the loosening
supply-demand balance and low prices in the international energy situation in 2015.
Fourth, the Chinese economy’s growth deceleration and dwindling demand greatly
contributed to loosening the supply-demand balance in the international energy market in 2015. Oil
demand including crude oil for filling into national stockpiles remained relatively firm in China, andnatural gas, coal and electricity demand growth decelerated substantially, making great contributions
to loosening the supply-demand balance in the overall international commodity market. While theChinese leadership is attempting to achieve a soft landing on a “New Normal” economy, the future
course of the Chinese economy is still largely uncertain. Developments in 2015 highlighted theimportance of China for anticipating the world economy and the international energy situation in andafter 2016. While Chinese energy demand growth slowed down in 2015, nuclear power plant
construction in China made great progress. Furthermore, the Chinese nuclear industry aggressivelyexpanded into British, French and other foreign markets, attracting global attention.
Fifth, the year 2015 saw the Paris agreement on a new international framework for climatechange measures beyond 2020. At the 21st Conference of Parties to the United Nations Framework
Convention on Climate Change in Paris, a total of 196 countries and regions participated in the pact,
agreeing to offer voluntary greenhouse gas emission reduction targets, and review the targets every
five years and verify emissions. Particularly, the agreement attracted attention by calling for
improving the voluntary targets every time they are to be submitted. It was significant that the world
successfully created a “global framework” (in comparison to Kyoto Protocol) for tackling theclimate change problem for the first time. As the implementation of the Paris agreement is expected
to greatly influence the global energy mix, future country-by-country efforts are likely to attract
attention.
Sixth, various important developments came in Japan’s energy situation in 2015. The No.
1 unit of Kyushu Electric Power Co.’s Sendai Nuclear Power Station restarted in August, followedby the restart of the No. 2 unit there, allowing Japan to reach a turning point to put an end to theabsence of domestic nuclear power generation. The government worked out a target energy mix forFY2030 through some six months of discussions from the beginning of 2015. The long-awaited
2IEEJ：December 2015

○ｃ IEEJ 2015

target energy mix, given as a desirable picture for Japan to solve energy security, economic andenvironmental problems in a balanced manner on the precondition of safety, calls for an electricity
generation share of 22-24% for renewable energy, 20-22% for nuclear energy, 27% for LNG and26% for coal. As the desirable picture was presented, how to realize the picture became the next
important challenge in 2015. In this respect, the government launched deep discussions on
renewable energy, nuclear, coal, LNG and oil policies in the year. In 2015 just before the fullderegulation of the electricity and gas market in Japan, energy industry policy discussions heated up,
with very significant developments seen for realigning the oil industry. Given these developments inJapan and the rest of the world in 2015, how the year 2016 would be is attracting attention.

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