I IEEJ：December 2019 ｃ○ IEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (460)

December 26, 2019

Reviewing Japanese and International Energy Situations in 2019
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanSix days are left before the end of 2019. The year saw many important events and greatchanges in the Japanese and foreign energy situations and the overall international situation.
Regarding them, I would like to summarize the particularly impressive points for me.
First, relations between and geopolitical situations in major countries that exert great
influence on international issues affected the international energy situation in 2019 more greatly thanever. In the most important, impressive development in the year, the United States and China, theworld’s first and second largest economies, escalated their trade war, shaking international relations,
the world economy and the international energy market. A fierce competition for global supremacy
loomed behind the trade war that escalated through a tit-for-tat exchange of tariff hikes, indicatingthat their trade dispute would be difficult for them to resolve or compromise on. As the world
economy decelerated on the trade war escalation, the world economic growth rate in 2019 wasestimated to fall to 3.0%, the lowest since the global financial crisis. In December, the United Statesand China announced their Phase 1 trade deal, leading global economic slowdown risks to recede.
However, their relations will continue to structurally influence the entire world next year.
Second, the Middle East grew even more fluid and uncertain, leading energy market
players to become conscious of rising geopolitical risks. As tensions over the Iranian situation rose
more than ever, attacks on oil tankers near the Strait of Hormuz and Iran’s shootdown of a U.S.
reconnaissance drone attracted global attention. In September, terrorist attacks on Abqaiq and othermajor oil facilities in Saudi Arabia brought about a temporary oil supply decline of 5.7 million
barrels per day, leading to growing interest in Middle East issues. A crude oil price hike on thesupply disruption ended within a short period of time thanks to Saudi Arabia’s prompt oil supply
restoration and a loose oil supply-demand balance. However, the major oil supply disruption inSaudi Arabia was taken as a key event for considering future energy security. Protest rallies also
grew in the Middle East in 2019, indicating a second Arab Spring.
Third, Asia’s growth and stability attracted great interest in 2019 as the gravity center ofthe international energy market shifted to Asia. Although growth of India and Southeast Asia willundoubtedly become more important over a long time, China’s growth is exceptionally important atpresent. The international situation and energy market were shaken by growing concern that China’senergy demand could slacken due to the abovementioned U.S.-China trade war. What energy source
would become subject to growing demand on China’s economic growth and its energy andenvironmental policies was recognized anew as one of the biggest influencers for the supply-demandbalance and prices in the international energy market. As interest in China grew, protest rallies in1

I IEEJ：December 2019 ｃ○ IEEJ 2019
Hong Kong and the next presidential election in Taiwan attracted global attention in regard to theirrespective relations with China. Also important in the year were growing tensions over North Korea
and the deterioration of Japan’s relationship with South Korea. Northeast Asia’s geopoliticalconditions and stability loomed as key issues in the year.
Fourth, the abundance of energy supply in the international market was strongly
recognized anew in 2019. The Organization of the Petroleum Exporting Countries and some
non-OPEC oil-producing countries resumed joint oil production cuts in the beginning of the year andhad no choice but to decide to enhance the production cuts from January 2020 to cope with tooabundant oil supply. In the liquefied natural gas market as well, supply projects were launched one
after another to further loosen the supply-demand balance. As spot LNG prices weakened, theirwidening gap with long-term LNG contract prices indexed to oil prices became a key matter ofconcern to market participants. Playing a central role in energy supply expansion has been theUnited States where oil and gas production has continued substantial growth under the shalerevolution. In September, the United States became a net oil exporter on a monthly trade basis forthe first time in 70 years, leading energy market stakeholders to recognize the powerfulness of theshale revolution anew.
Fifth, interest in climate change increased substantially in 2019 as young Swedish
environmental activist Greta Thunberg’s remarks and actions attracted global attention. Europe wentin the direction of enhancing climate change initiatives, as indicted by European Parliament election
results and policy proposals by new European Commission leaders. European actions to enhance net
zero emission and other initiatives attracted global attention. In such circumstances, movements
grew for business corporations to promote ESG (environmental, social and governance) investment,sustainable development goals and other climate change initiatives. At a policy level, financial andtrade policies were growingly linked to climate change. Amid the trend of enhanced climate change
countermeasures, hopes grew further on innovative technologies or innovations such as hydrogenenergy, carbon recycling and CCUS (carbon dioxide capture, utilization and storage).
Sixth, abnormal weather events occurred frequently in the world in 2019, causing severe
natural disasters involving massive damage and victims and attracting interest in climate change. At
the same time as interest grew in how to address climate change and environmental problems,
anti-disaster infrastructure development was increasingly recognized as important. From theviewpoint of energy security, interest increased in how to respond to disruptions to supply fromtraditional international energy markets and how to enhance the resilience of energy supply systems
or chains. Given that multiplexing, diversification and greater flexibility are the key to enhancing theresilience, how to promote relevant investment internationally and domestically was attracting
interest.
Finally, Japan saw a gradual shift to non-fossil energy sources in its energy market while
facing various challenges, problems and new moves. Behind the shift have been renewable energy
expansion under the feed-in tariff system, very slow progress in the restart of nuclear power plants,
energy efficiency improvements and a long-term fall in oil demand. However, various challenges
regrading the shift to non-fossil energy are looming, including uncertainties over future nuclear
power generation, as well as surcharges and electricity costs that are rising in line with renewable
2I IEEJ：December 2019 ｃ○ IEEJ 2019energy expansion under the FIT system. How to tackle these challenges in the course of energy
market liberalization and system reform is growing even more important for the government andrelevant industries.
The situation indicates anew that fossil fuels remain very important for Japan’s energy
security and that the stable procurement and clean use of fossil fuels are an urgent challenge forJapan. Meanwhile, the international or geopolitical situation is growing complex and changing more
rapidly. International strategies to flexibly, speedily and adequately respond to such changes in theworld have grown even more important.
Given such important situations in Japan and the rest of the world, I would like to closely
watch how the year 2020 will be.

Contact: report@tky.ieej.or.jp
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