IEEJ：December ©IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (617)

December 26, 2022

Reviewing Japanese and International Energy Situations in 2022
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanSix days are left before the end of 2022. Every year, the Japanese and global energy
situations experience various great changes and are exposed to their impacts. In 2022, however,historically unprecedented changes rattled the international energy situation. It was an extremely
impressive year for me. In particular, the year’s biggest highlights were the impacts on the energy
situation of the Ukraine crisis that was triggered by Russia’s military invasion into Ukraine on
February 24 and escalated rapidly. In the following, I would like to review the Japanese and global
energy situations in 2022, focusing on the crisis.
First, I would like to point out that prices of all energy sources in international markets
skyrocketed, affecting the global economy and civic life seriously. International energy market prices
started an uptrend in the second half of 2021 before the Ukraine crisis and accelerated their hikes
under the crisis. Crude oil prices topped $100 per barrel in response to the Russian military invasion
and rose above $130/bbl briefly on the United States’ announcement of a Russian energy embargo inMarch, hitting the highest levels since the 2008-2009 global financial crisis. Later, however, crude
oil prices declined on concern about global economic deceleration and the slowdown in oil demand.
They stood at around $80/bbl last weekend. Despite their plunge from highs in March, they are stillhigh.
However, European gas prices soared even faster than crude oil prices. As concern on gas
shortages grew amid a substantial decline in Russian pipeline gas supply on which Europe depended
heavily, the European benchmark gas price shot up to a record high of some $100 per million British
thermal units (close to $600 per barrel of oil equivalent). As there was no effective surplus supply
capacity in the international market for gas/LNG, unlike oil, global gas supply decreased due to theRussian supply drop, leading to the unusual price spikes. The supply-demand balance for LNG as analternative gas source also tightened, prompting spot LNG prices to soar to record highs close to$70/MMBtu. Spot steam coal prices in the international market also rose above $400 per ton torecord highs. European electricity prices as well hit all-time highs. In 2022, all energy prices thus
soared simultaneously.
The price spikes for energy as an indispensable good have had enormous impacts. Energy
price spikes and market destabilization have exerted negative impacts on the global economy. As
energy price spikes were coupled with European and U.S. interest rate increases to counter growing
inflation triggered by energy and other price hikes, the slowdown of the global economy accelerated.
Energy price spikes became a social, political and economic problem mainly in Europe where energy
price hikes were remarkable. Even developed countries such as European nations and Japan wereforced to implement various energy subsidy systems primarily targeting for low-income people.
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Energy price hikes that have regressive effects became an even more serious issue in low-income
developing and emerging countries.
Second, energy issues were linked to international politics or geopolitics and politicized as
the Ukraine crisis escalated. The Western bloc embarked on energy and other tough economic
sanctions on Russia. Russia for its part reduced pipeline gas supply to Europe substantially, exerting
great pressure on the region. In an attempt to maintain energy supply, Russia sold energy at lower
prices than international market prices to countries that did not join the Western sanctions. In thisway, international energy markets were divided over Russian energy supply. Differences over crude
oil price hikes between oil-consuming and -producing countries grew conspicuous. Particularly,
special relations between the United States and Saudi Arabia deteriorated. Geopolitical tensions anddivision related to the Ukraine crisis and energy price hikes were intricately intertwined with theescalation of earlier U.S.-China confrontation, highlighting confrontation between the Western bloc
and the China-Russia alliance. Their tug-of-war to woo third-pole countries also intensified, making
the 2022 global geopolitical environment extremely severe and uncertain.
Third, energy security rapidly grew critically important in response to such situation.
Securing stable energy supply became a matter of utmost urgency mainly in Europe on the energy
crisis front. Symbolically, the European Union’s REPowerEU Plan urges the EU to urgently reduce
its dependence on Russia by accelerating its decarbonization plan to promote renewable energy andenergy efficiency and by procuring non-Russian fossil fuels. Meanwhile, Europe’s additional fuelprocurement to ensure its energy security caused a tighter energy supply-demand balance and energyprice spikes. At the same time, the importance of U.S. LNG was increasingly recognized in thegas/LNG market where the tightening supply-demand balance and price hikes became remarkable.
Nuclear energy as a stable baseload electricity source free from CO2 emissions grew important forenhancing energy security while promoting decarbonization. In Europe, France and the United
Kingdom came up with large-scale nuclear power plant construction plans, attracting globalattention. Germany, on the energy crisis front, modified its plan to end nuclear power generation
within 2022 and decided to increase coal-fired power generation for stable electricity supply. In theyear, coal attracted attention amid the energy price spikes, resulting in a return to coal in many partsof the world.
Fourth, the year saw moves that ran counter to decarbonization amid energy price hikes
and energy security enhancement initiatives. Symbolic among such moves was the abovementioned
return to coal. Some initiatives to phase out dependence on Russia and enhance energy security canbe expected to contribute to decarbonization over a medium to long term. These initiatives seek topromote renewable energy, energy efficiency, nuclear energy, hydrogen use and electrification. Afuture focus of attention is whether these initiatives would be realized in the real world where there
are so many uncertainties over the energy future. As indicated by the 27th Conference of Parties tothe United Nations Framework Convention on Climate Change, confrontation and collision between
developed and developing countries over the enhancement of climate change countermeasures greweven more serious. While the division of the world deepened amid the enhancement of energysecurity measures in 2022, various challenges loomed in regard to the promotion of decarbonization
initiatives.
Fifth, Japan’s energy problems grew more complex and serious under the abovementioned
international energy situation. As energy prices in Japan soared sharply due to international energy
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market price hikes and the yen’s depreciation, the government introduced and increased gasoline
subsidies and decided to introduce subsidies for electricity and gas. As concern grew about atightening electricity supply-demand balance, stable electricity supply became a serious challenge
for the Japanese economy and civic life. Japan implemented omnidirectional energy initiatives
including those to promote energy efficiency, renewable energy and stable fossil fuel procurement.
Particularly important was a policy change to promote nuclear energy. Based on Prime Minister
Fumio Kishida’s instruction on nuclear energy promotion in August, the government has enhanced
efforts to increase the number of restarted nuclear reactors to 17 by the summer of 2023. The
government’s Green Transformation Implementation Council in December adopted basic policies
including the promotion of the development of next-generation nuclear reactors to replace
decommissioned reactors and the effective extension of nuclear reactors’ service life beyond 60years. In 2022, energy policies to respond to the present energy crisis while trying to strike a balance
between energy security and decarbonization became indispensable for Japan.

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