IEEJ：December ©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (565)

December 27, 2021

Reviewing Japanese and International Energy Situations in 2021
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Five days are left before the end of 2021. The year saw events that were unusuallyimportant and led to dramatic changes in the Japanese and global energy situations and the overall
international situation. Regarding them, I would like to summarize impressive points for me.
First, I would like to note that as a global trend toward enhancing decarbonization
initiatives accelerated further in 2021, global interests grew in the impacts of decarbonization onenergy industries, markets and investment and in future decarbonization measures.
The U.S. Biden administration, inaugurated in January 2021, reversed the previous Trumpadministration’s climate policy and designated global warming countermeasures as one of its toppriorities, launching extremely proactive initiatives to prevent global warming. Particularly, theBiden administration strongly promoted diplomatic initiatives to enhance climate change
countermeasures. In April, President Joe Biden hosted a climate summit, where the United States,
Japan and other countries vowed to substantially raise their greenhouse gas emission reduction goals
in their Nationally Determined Contributions, or NDCs.
In May, the International Energy Agency released a report titled “Net Zero by 2050” aheadof the annual Group of Seven summit and the 26th Conference of Parties to the United Nations
Framework Convention on Climate Change, or COP26, hosted by the United Kingdom. The report
adopted a backcasting approach to analyze potential global energy market changes on theassumption of net zero global GHG emissions in 2050. The net zero emission scenario served as amajor pillar for analyzing global energy markets through 2050 in the “World Energy Outlook 2021,”
an IEA flagship product published in October. The net zero emission scenario based on thebackcasting approach does not represent any outlook but was misinterpreted by media as indicatingthat the IEA sees no need for new upstream oil and gas investment or that the world will achieve netzero emissions in 2050.
Over about two weeks from late October, COP26 took place in Glasgow. Toward theconference, Indonesia, Saudi Arabia, Russia, Australia and India announced their carbon neutrality
goals in the second half of the 21st century. All of the Group of 20 economies thus set carbon
neutrality goals by 2021. The United Kingdom as the host of COP26 took leadership in paving theway for the Glasgow Climate Pact to be adopted. The Pact clarified the importance of goal oflimiting global warming to 1.5℃ from preindustrial levels, urged NDCs to be reviewed in line withthe temperature goal in the Paris Agreement to raise emission reduction goals as necessary, andcalled for phasing down unabated coal power plants.
COP26, while achieving the Pact, fell short of clarifying a pathway to the 1.5℃ goal. At
the same time, a conflict of interest between developing and advanced economies emerged over the1IEEJ：December ©IEEJ 2021
enhancement of climate change countermeasures, indicating the possible escalation of thenorth-south confrontation. Asian developing and emerging market economies and resource-richcountries grew interested in transitioning to decarbonization steadily, pragmatically and inclusively
in line with their respective economic development phases and resource endowment conditions.
Technological innovation initiatives for the carbon neutrality goal were globally enhanced
in 2021. Countries and major companies promoted initiatives to build international supply chains for
CO2-free hydrogen and ammonia. The significance of rulemaking regarding technological options
and systems for decarbonization was recognized, while talks on carbon pricing, border carbon
adjustment measures and emission credit trading became a global matter of interest.
As the second important trend regarding the international energy situation in 2021, I wouldlike to cite the simultaneous energy price hikes and their impacts. The energy supply-demandbalance tightened generally as energy supply failed to catch up with demand growth amid theworld’s recovery from the COVID-19 crisis. Prices shot up for crude oil, natural gas, liquefied
natural gas and coal. Electricity prices also soared. Abnormal electricity price hikes and the tighter
electricity supply-demand balance were seen in some parts of the world.
Crude oil prices rose above $80 per barrel to seven-year highs from late October toNovember. The United States and other oil-consuming countries exerted pressure on the OPEC-plus
group of oil-producing countries to further increase production. Finding that such pressure wasunsuccessful, the United States led a coordinated multilateral release of oil reserves. The release wascoupled with the emergence of a new COVID-19 variant named Omicron to push down crude oilprices. In December, the OPEC-plus group decided to retain its existing plan to gradually increase
production in a manner to defy predictions by oil market players and avoid escalation of theconfrontation with oil-consuming countries. Later, however, crude oil prices rose back and remained
high above $70/bbl.
Natural gas and LNG prices staged even faster hikes than crude oil prices. Asian LNG spot
prices topped $50 per million British thermal units temporarily as supply growth failed to catch up
with robust demand expansion driven by China’s explosive demand increase. In Europe, natural gas
hub prices shot up to record highs around $60/MMBtu as low inventories were combined withseasonal winter demand growth, geopolitical factors such as rising Ukraine tensions, and insecurity
about Russian supply. Crude oil, gas and LNG prices soared as supply and demand fundamentals
were coupled with geopolitical factors.
International coal prices increased more than fivefold from last year’s lows as China’s
domestic coal prices shot up due to a production decrease that led to a tightening supply-demandbalance. The electricity supply-demand balance also tightened in China, affecting civic life andeconomic operations including industrial production. Authorities were busy with measures tostabilize the supply-demand balance. Europe also faced a tighter electricity supply-demand balanceand electricity price spikes as a long suspension of wind farms was combined with insufficientsurplus supply capacity and hikes in prices of power generation fuels. Authorities including theEuropean Commission had no choice but to take consumer protection measures such as energy
subsidies for low-income people.
This year, decarbonization alone temporarily attracted attention among energy issues, but
the simultaneous energy price hikes turned the situation around. The price hikes and tightening
2IEEJ：December ©IEEJ 2021
supply-demand balance for energy as an indispensable good for civic life and economic operations
led governments to focus on energy supply stabilization measures as a top energy policy priority. Inaddition to short-term energy supply and demand adjustments and energy subsidies to cope with theabovementioned energy price spikes, various changes emerged in the second half of 2021, including
growing interests in the significance of investment to secure stable energy supply and in nuclear
energy that was identified as useful again in regard to decarbonization.
In such international situation, Japan saw the inauguration of the Kishida administration
and a cabinet decision on the sixth Strategic Energy Plan in October. Under the plan, Japan will
pursue safety, energy security, environmental protection and economic efficiency and promote
initiatives to cut GHG emissions by 46% by 2030 and achieve carbon neutrality by 2050.
Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3