IEEJ：April ©IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (583)

May 6, 2022

Energy Security during transitional period of “Global Energy Transition”
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn April 28, the Institute of Energy Economics, Japan, and the Asia Pacific Energy ResearchCentre held their seventh joint international energy symposium, titled “Multiple Pathways to Carbon
Neutrality -- Reality, Innovation and Resilience.” The annual symposium has been held since the firstone marking the 50th anniversary of the IEEJ and the 20th anniversary of APERC in 2016, becominga flagship IEEJ/APERC event. Like the fifth and sixth ones, the seventh took the form of an online
meeting under the COVID-19 disaster. As consideration was given to the time difference problem
regarding speakers from Europe and the United States, Session I ended at shortly past 10:30 a.m. andwas followed by the next session that started at 3 p.m. The symposium featured panel discussions inthree sessions and a special address by Shin Hosaka, Commissioner of the Japanese Agency for
Natural Resources and Energy. Panelists also held vigorous discussions with other participants.
As indicated by the title, the symposium was designed for participants, including experts inthe world, to discuss various challenges and problems that should be considered for promoting carbon
neutrality initiatives. In this sense, the symposium was a timely event. Particularly timely was Session
3 titled “Stabilization of energy prices and supply-demand balance during the transition period tocarbon neutrality,” which came amid the destabilization of energy markets through simultaneousenergy price spikes since the second half of 2021 and the escalating Ukraine crisis. Panelists forSession 3 that I moderated were three famed experts who can be described as leading authorities inthis field: Prof. Jonathan Stern, Distinguished Research Fellow, Natural Gas Research Programme,
Oxford Institute of Energy Studies; Dr. Kenneth Medlock III, Senior Director, Center for Energy
Securities, Rice University’s Baker Institute; and Mr. Keisuke Sadamori, Director of Energy Markets
and Security, International Energy Agency. In the following, I would like to make my personalcomments on key points of discussions at the Session 3 of the symposium, as well as the latest
developments regarding the Ukraine crisis.
First, the discussions indicated that natural gas and LNG pose the most complicated, difficultand serious issue regarding energy security that has become an urgent global issue amid high energy
prices after their spikes through the destabilization of international energy markets under the Ukrainecrisis. Energy prices peaked on March 7 when benchmark crude oil prices rose above $130 per barrel
to the highest level since the global financial crisis in a manner to make headlines in the world. It is
understandable that crude prices are the most important for analyzing the global economy and theoverall energy situation and have an extremely high news value.
Regarding the tightening of the supply-demand balance and the degree of market
destabilization, however, it is easily understandable that European gas hub and Asian LNG spot prices’rises above $70 per million British thermal units or $400/bbl oil equivalent were a far bigger problem.
Asian LNG sport prices do not necessarily represent natural gas prices in Asia. In Japan known as thesecond largest LNG consumer in the world, for instance, LNG prices that are mostly indexed to crude
oil prices, which rose along with crude oil prices but were not as high as spot LNG prices. However,1

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Europe is in a different situation. European gas hub prices basically represent overall gas prices. Theirhikes directly affect consumers. Given that gas is a key fuel for power generation, gas price hikes leadto electricity price increases.
European gas prices rose so much because the market understood that a severe gas supply
and demand situation in which disruptions to Russian gas supply would leave the market without any
alternative gas supply sources, with LNG reserves limited. A Russian gas supply decline would beequivalent to a global gas supply fall, forcing Europe to race with other gas or LNG consumers tosecure gas supply. This is the reason European gas hub prices soared above $400/bbl oil equivalent.
On April 27 just before the symposium, Russia suspended gas supply to Poland and Bulgaria
for the reason that the two countries failed to make payments for gas in rubles as requested by Russia.
This was Russia’s first decision to suspend energy supply since the start of the Ukraine crisis. Earlier,energy consumers such as the United States, Canada and the United Kingdom, as well as the Groupof Seven industrial democracies and the European Union, announced their embargoes on Russianenergy sources. The EU plans to accommodate gas supply to Poland and Bulgaria and dip into
underground gas inventories. Whether Russia would expand gas supply suspension is attracting
attention.
On March 8, the United States and Canada banned energy imports from Russia. However,they have not been dependent on Russian energy supply. The problem has been responses from Europe
and Japan that depend on Russian energy supply. In this respect, the G7 and EU decided to impose anembargo on Russian coal on April 7. At a time when oil was expected to become the next embargo
target, the European Commission on May 4 proposed to phase out Russian oil imports within 2022.
The oil embargo would be gradually expanded. A measure is under consideration to allow EU countries
that depend heavily on Russian oil to delay the phaseout deadline until the end of 2023. Earlier, any
embargo on Russian oil had been viewed as not easy. As the war and damage in Ukraine have escalated,
however, oil imports from Russia have come under growing fire, prompting the European Commission
to consider the embargo on Russian oil. The proposal seemingly indicates that the commission now
views a Russian oil phaseout by the end of this year as feasible.
However, a Russian gas embargo, even though being phased in, would not be easy. The EU’sREPowerEU plan seeks to replace Russian gas imports totaling 155 billion cubic meters withalternative energy sources by 2030. Many experts see the plan as extremely ambitious, although theEU countries are expected to strive to implement the plan. Although it may be feasible to replace someof Russian gas imports by renewable energy, energy savings and nuclear energy to some extent, mostRussian gas imports may have to be basically replaced with other gas imports. Unless global gas
supply is expanded to meet the additional EU demand, the supply-demand balance would tighten topush up prices. In this sense, the EU, if willing to use LNG for breaking away from dependence on
Russian gas, would have to promote investment in the entire gas supply chains, including the upstream
sector, in order to make its LNG procurement feasible and stabilize the international LNG market.
In the symposium, it was pointed out that the United States would play an extremely
important role in expanding LNG supply. U.S. LNG supply has continued expanding and is expected
to increase further if relevant investment decisions are secured. U.S. LNG supply expansion will not
only contribute to stabilizing the supply-demand relationship in the international LNG market but also
increase U.S. export revenue and allow the United States to maintain international energy orderthrough energy exports. LNG supply expansion will thus be strategically important for the UnitedStates. How the Biden administration would assess these points and take advantage of them for its
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energy policy would attract attention in the future. At the same time, we will have to pay attention towhat influence hikes in U.S. domestic prices for gas, gasoline, electricity and other energy sources
would exert U.S. energy policy as well.

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