IEEJ：December 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (408)

December 26, 2018

Reviewing Japanese and International Energy Situations in 2018
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanSix days are left before the end of 2018. The year saw many important events and greatchanges in the Japanese and global energy situations and the overall international situation.
Regarding them, I would like to summarize the impressive points for me.
First, wild crude oil price fluctuations characterized 2018 as a year of turbulence. As crude
oil prices enhanced their uptrend from late 2017, the benchmark Brent futures price rose above $70
per barrel in the beginning of 2018 for the first time since December 2014 and basically remained
above the level from April before hitting the year’s high of $86.29/bbl on October 3. When the Brent
price surpassed $80/bbl, some analysts said that the price could soar above $90/bbl or $100/bbl.
Since early October, however, the market environment has turned around, with crude oil
prices declining rapidly. The Brent price slipped below $60/bbl in November and fell to $50.47/bbl
on December 24, threatening to drop below $50/bbl. Factors behind the price hike included declining
oil inventories, concerns about a drop in Iranian oil exports and growing geopolitical risks in theMiddle East. Those behind the later downturn included increasing inventories and concerns about
global economic risks. In only less than three months, the Brent price plunged more than 40%,
reversing market sentiment.
When seeing background factors behind the turbulence from a different angle, we find thepresence, behavior and influence of major actors such as the United States, China, the Middle Eastand Russia, which affected the oil market and prices. The US policy destabilized the oil market andinduced oil price hikes by withdrawing from the Iran nuclear deal in a manner to cause concerns
about a tighter oil supply-demand balance and play a role in destabilizing the Middle East. On theother hand, the US market development suppressed price hikes by expanding shale oil production
substantially to provide a supply and demand factor triggering the oil price plunge in the second halfof the year. The U.S.-China trade war and the recent U.S. economic deceleration resulted ineconomic downside risks that contributed to the oil price plunge. China played a role in driving
demand growth in the international energy market by expanding oil demand to support the oilmarket and prices. On the other hand, China as a main actor in the trade war became subject toconcerns about economic downside risks, shaking the market in the second half of the year.
In the Middle East as the gravity center of supply in the international energy market, theeconomic sanctions on Iran and their influence on oil exports, a rivalry between Saudi Arabia andIran, a suspected killing of an antigovernment Saudi journalist and other developments in the region
increased geopolitical risks, making the international energy situation more uncertain. The oilproduction policy of the Saudi Arabia and Organization of the Petroleum Exporting Countries, aswell as the Middle East’s relations with the United States, China and Russia attracted globalattention. Russia expanded oil and gas production even under Western economic sanctions,1

IEEJ：December 2018○ｃIEEJ 2018
increasing its presence in the international energy market. Russia also entered the spotlight as a key
player in the OPEC/non-OPEC coordinated oil production cut designed to stabilize the market.
Russia’s expansion into the growing Chinese or Asian energy market and its rivalry with the Middle
East and the United States over the expanding Asian market attracted global attention.
Second, China’s great presence in and influence on the international oil market wererecognized anew in 2018 while the gravity center of consumption and imports in the internationalenergy market shifted further to Asia. Not only in the oil market but also in the natural gas/LNG andcoal markets, China’s consumption and imports exerted great influence on the supply and demandenvironment and market sentiment. China also attracted global attention by expanding renewableenergy substantially and building new nuclear power plants to replace Japan as the world’s thirdlargest owner of nuclear plants. At the same time, China aggressively expanded into the international
nuclear energy market, increasing its presence in the market. Therefore, the fate and influence of theU.S.-China trade war will exert great influence on the international energy situation through changes
in China’s economy and energy market.
Third, the year saw various interesting developments in the non-fossil energy field. Bid
prices in auctions for solar, wind and other renewable energy power generation declined further,
attracting global attention. How best to utilize renewable energy or integrate renewable energy into
the electric power system has loomed as a key challenge or a global matter of interest. China andother emerging countries, as well as Russia, expanded nuclear power generation capacity, whiledeveloped countries saw stagnation in nuclear expansion, including the United States where someexisting nuclear plants were shutdown. Behind such developments have been weak U.S. natural gas
prices amid the shale revolution as well as power market deregulation and expanding renewableenergy power sources. In such situation, interests grew in small module reactors (SMR) technology
as a new technological option mainly in developed countries.
As interests globally grew in hydrogen in the new or innovative technology field, the firstinternational ministerial meeting on hydrogen took place in Japan. As serious air pollution became
an urgent challenge in China and India, their implementation of relevant countermeasures began toaffect energy choices. As for climate change, the 24th Conference of Parties to the United Nations
Framework Convention on Climate Change adopted work programme for implementing the Paris
Agreement, paving the way for climate change countermeasures to be carried out in line with theprogramme.
In Japan, the cabinet decided on the fifth Strategic Energy Plan reaffirming that Japan
should seek to achieve the FY2030 target energy mix as set in 2015. The plan calls for renewableenergy to become an economically independent major power source through policy revisions andcost cuts. However, the cumulative burden on consumers was estimated to expand to 6.1 trillion yen
if renewable energy power generation capacity totaling 86 gigawatts as approved (by March 2018)
under the feed-in tariff system becomes fully operational, indicating a challenge for theeconomically reasonable promotion of renewable energy.
As for nuclear energy, the plan calls for efforts to establish a stable business environment
while giving top priority to sincere remorse for the Fukushima accident and Fukushima’s
reconstruction and revitalization and seeking to continuously improve safety. However, the numberof restarted nuclear power plant is limited to nine in late 2018. Japan is still far away from attaining
the target of increasing nuclear energy’s share of the energy mix to 20-22%, with the future of2IEEJ：December 2018○ｃIEEJ 2018
nuclear power generation left uncertain. The ongoing electricity and gas system reform, thoughdesigned to promote competition and efficiency in the energy market, has brought about new
challenges including how to secure necessary investment in a deregulated market and how to realizea desirable energy mix. After a wide-area blackout in Hokkaido in September indicated thesignificance of stable electricity supply, Japan is required to consider energy policies and implement
necessary investment and measures in a changing and complicated situation.
It is interesting for the new energy plan to indicate a “multi-path scenario” to resolve
problems over a long term through 2050. The plan thus became the first basic energy policy
document to specify the significance of a scientific review mechanism to prepare and check a“multi-path scenario” to respond to uncertainties about the long-term future. How to implement
long-term initiatives including the realization of the target energy mix will be important.
Given the significant Japanese and global situations, I would like to keep a close watch on
what the year 2019 will be like.

Contact: report@tky.ieej.or.jp
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