IEEJ：September 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (395)September 28, 2018

Participation in Oxford Energy Seminar and Discussions in U.K.
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Between September 24 and 27, I had an opportunity to discuss a wide range of topics on
the global energy situation with energy experts, industry officials and intellectuals in the United
Kingdom. In the first half of the period, I participated in the 40th Oxford Energy Seminar sponsoredby the Oxford Institute for Energy Studies, giving a presentation. In the second half, I exchanged
views with various intellectuals in London. In the following, I would like to summarize impressive
points at these meetings.
At the time-honored Oxford Energy Seminar, more than 50 people from oil companies inoil producing countries, international oil companies, governments and the energy industry attended
lectures and discussions over nine days from September 17. I made a presentation titled “Japaneseand Asian Energy Policy and Demand for Oil and Gas (LNG),” answered questions and exchanged
opinions on September 25
While a wide range of questions and opinions came on my abovementioned presentation,
discussions on issues about Japan’s future nuclear energy and the Asian LNG market wereparticularly impressive to me. As for nuclear energy, I explained that the Japanese government in its
new Strategic Energy Plan decided on last July reaffirmed nuclear energy’s share of the target
FY2030 energy mix at 20-22% as set in 2015 and called for pursuing safe nuclear reactors to restore
public confidence and achieve the so-called 3E’s – energy security, environmental protection andeconomic efficiency – over a long term. I also pointed out that it would be challenging for Japan toachieve the target energy mix.
Seminar participants asked frank questions about how difficult it is to position nuclear
power generation as a key energy option in Japan after the Fukushima accident and about how
nuclear energy is economically efficient. They indicated interest in how Japan is about to tackle thenuclear energy challenge at a time when the market environment for nuclear energy is getting
severer in the world. My notion that the degree of Japan’s restart of nuclear power plants would
greatly influence the future of LNG and other energy demand might have stimulated interest among
participants from the energy industry. Seminar participants also indicated their interest in theeconomic efficiency of nuclear plants for future construction amid power market deregulation in
Japan. It was interesting for me to exchange views about nuclear power generation in a deregulated
market that has become a major challenge not only in Japan but also in the rest of the world.
As for the LNG market, a main argument was that LNG oversupply could be eliminatedearlier than 2023 or 2024 as expected before as last year’s rapid increase in Chinese LNG demandand steady LNG demand growth in other Asian emerging markets accelerate the market’s
rebalancing. While annual LNG supply will remain abundant until 2020, the supply-demand balance
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may tighten particularly in winter, according to some seminar participants. There was an argumentthat LNG price hikes could invite the deceleration of demand growth from the viewpoint ofaffordability in emerging Asian countries where demand is expected to increase. Seminar
participants indicated interest in whether Asian LNG pricing mechanisms could be diversified amid
structural changes in the market and the supply-demand balance or whether and how Asian LNG
buyers would break away with the indexation of LNG prices to crude oil prices.
At meetings with various intellectuals after the Oxford seminar participation, discussions
on crude oil price trends and forecasts, and relevant Middle East problems such as the Iraniansituation were interesting. On September 24, the benchmark Brent crude oil futures price topped thepsychologically important barrier of $80 per barrel, closing at $81.20/bbl. The price above $80/bbl
was the first since November 2014. Buying came as OPEC and non-OPEC oil producing countries attheir meeting in Algeria on the previous day did not recognize any need for expanding oil production
but agreed to just monitor the market for the immediate future, despite U.S. President Donald
Trump’s pressure on them to cut oil prices.
Behind the price hike was market speculation that Iranian oil exports would decline fasterthan earlier expected as the United States’ stance on Iran grows tougher toward the November
deadline for economic sanctions involving oil. Any faster-than-expected decrease in Iranian oil
exports may work to tighten the supply-demand relationship. If Saudi Arabia increases oil
production in response to such development, its surplus production capacity may decline remarkably.
In such situation, tensions and geopolitical risks inside and outside Iran may grow, exerting furtherupward pressure on crude oil prices. On September 22, terrorist attacks came amid a military paradein the major southwestern Iranian city of Ahwaz, killing and injuring many people. The “IslamicState” and other terrorist organizations claimed responsibility for the attacks. However, theirauthenticity is still unknown. Iran suspects reginal U.S. allies’ involvement in the attacks, helping toraise regional tensions.
Meanwhile, the U.S.-China trade war is escalating further, with no sign of abating. The
imposition of additional tariffs and the subsequent exchange of retaliatory actions could decelerate
the two countries’ economic growth, leading to a global economic slowdown. Such development
would decelerate global oil demand growth and dramatically change the supply and demandenvironment, bringing about sharp falls in crude oil prices. In the London discussions, I heard thatthe international oil market could be destabilized for both up and down sides toward late 2018 or the
first half of 2019.
I also had interesting discussions in London on the international gas and LNG market. As
noted above, China’s fast gas and LNG demand expansion has had great influence on thesupply-demand balance. My discussion partners emphasized the importance of future analyses on
the Chinese gas market. It was pointed out that analyses should cover not only gas/LNG demand
growth under economic growth and environmental policies but also supply to satisfy growing
demand. Particularly, some experts noted that we should analyze China’s future domestic gas
production including shale gas production over a medium to long term and collect and examine
information on the expansion of pipeline gas supply from Russia.
At a time when the United States’ relations with China and Russia were becoming soured,
Chinese forces participated in Russia’s “Vostok 2018” military drills, demonstrating their strategic
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approach to each other that began to attract global attention. In such situation, we must pay attention
to what role China-Russia natural gas trade would play. Given that the expansion of Russian pipeline
gas supply to China will exert great influence on growth in China’s LNG demand and on the LNG
market supply-demand balance, we may have to keep close watch on future developments regarding
China-Russia relations.

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