IEEJ：June 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (434)June 26, 2019

At the Asia Oil & Gas Conference (AOGC) 2019
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn June 23-25, the Asia Oil & Gas Conference (AOGC) 2019 took place in the Malaysian
capital of Kuala Lumpur. The AOGC is a very large-scale international conference sponsored byMalaysian state-run oil company Petronas. Since the first conference in 1996, it has been held
annually in the initial phase and biennially in the later phase. The latest one was the 20th. Under thecentral theme of “Forging a New Energy Future,” an official opening ceremony was followed by two
special addresses and discussions in eight sessions, with participants including representatives from
the Malaysian government, Petronas, other state-run oil companies and international oil companies,
as well as famed experts and journalists. In the following, I would like to summarize the mostimpressive points for me in the conference.
At the official opening ceremony, the Petronas president’s welcome address was followed
by a keynote address by Malaysian Prime Minister Mahathir Mohamad. The speech by the prime
minister, turning 94 in July, was very impressive and vigorous. I would like to summarize his speech
as follows:
The last AOGC in which I took the rostrum was the eighth one, in 2003, when the Middle East wasin chaos amid the Iraq War before crude oil price hikes. The current AOGC also coincides with theIranian situation that has suddenly grown tense, with Middle Eastern geopolitical risks shaking theworld. As the U.S.-China trade war has escalated, the global energy market has come under stronginfluence of international relations and geopolitics. Given moves to enhance climate change
countermeasures and to develop and diffuse innovative technologies, the situation for the oil and gas
industry is challenging from the short to long-term viewpoint. As in the past, however, the oil andgas industry is expected to develop and implement adequate strategies to overcome difficulties evenat a time when uncertainties make it difficult to forecast the future;
The central theme of “Forging a New Energy Future” for the latest conference implies theimpact of enhanced climate change countermeasures on fossil fuels, renewable energy expansion andthe electrification of the transportation sector and other future challenges from the medium tolong-term viewpoint. In fact, however, geopolitical risks grew due to the current situation. Prime
Minister Mahathir’s keynote address impressively and steadfastly covered key short-term challenges
as well as long-term ones facing the oil and gas industry.
On the current geopolitical risks and international situation and their influence on the oiland gas market, AOGC Chairman Fereidun Fesharaki, a famed oil and gas industry expert serving aschairman of consulting company Facts Global Energy, presented an interesting analysis in his special
address at the outset of the second day of the conference. He pointed out that U.S. President Donald
Trump has exerted greater influence on the oil and gas market than any past U.S. president through1

IEEJ：June 2019○ｃIEEJ 2019
his China, Iran and Venezuela policies. Regarding the Iranian situation, Dr. Fesharaki noted that no
optimism could be warranted, pointing to a high chance of some clash. Depending on the scale andseriousness of any clash, crude oil prices could spike. His address indicated turbulent developmentsin the future international oil market.
Many presenters took up the U.S.-China trade war and relevant risks to the global
economy in the conference, leading me to feel that oil and gas industry stakeholders in the world
have shared these problems as a very important challenge. Given that growth in China’s demand andimports has supported the oil and gas market, its economic deceleration is destined to exert
downward pressure on demand and prices on the oil and gas/LNG market, as indicated by stock andoil price fluctuations triggered by speculation about a U.S.-China summit.
Pointing out that massive U.S. LNG should have flowed into China if without theU.S.-China trade war, Dr. Fesharaki predicted that the fate of the trade war would continue to havegreat influence on the future global LNG flow. Apart from the U.S.-China trade war, he forecast thatthe LNG market would remain weak in the next few years and see a rapidly tightening
supply-demand balance before plunging into oversupply again in the second half of the 2020s. He
meant that such cyclical market changes would be unavoidable due to the massive initial investment
required for LNG projects. While being exposed to such changes, LNG market buyers and sellers are
required to make strategic decisions and take adequate measure while responding flexibly to market
changes.
Regarding grave long-term challenges for the oil and gas industry, I felt that many
speakers at the conference were conscious of how enhanced climate change countermeasures andtechnological innovation would affect oil and gas demand expansion, or whether the oil and gas
market would continue growing or peak. While oil and gas demand is dominantly expected tosteadily increase in Asian emerging and developing countries in the future, the rich member
countries of the Organization for Economic Cooperation and Development have great uncertainties
about future oil and gas demand amid their ongoing energy transition. In Asia, demand is expected tosteadily increase for gas/LNG destined to replace coal and contribute to decelerating air pollution as
the cleanest fossil fuel. In Europe, however, gas/LNG as fossil fuel has no choice but to be subjected
to decarbonation to achieve an ambitious target of cutting greenhouse gas emissions by more than
80% by 2050. The environments surrounding oil and gas industries widely differ by region or
country. Overall, however, oil and gas suppliers will place even greater hopes on the growing Asianmarket.
In such circumstances, the global oil and gas industry’s strategy features (1) enhanced
business initiatives for gas/LNG as cleaner fossil fuel, (2) expansion into renewable energy on which
hopes are growing globally, (3) initiatives for hydrogen and other innovative energy technologies oroptions, (4) initiatives for carbon capture and storage, carbon recycling and other CO2 measures and(5) Giving due consideration to the so-called ESG investment and reputation risks. However, these
initiatives are not easy to implement. As for the first initiatives regarding gas/LNG business, theindustry must address not only the long-term impact of enhanced climate change countermeasures
but also the price affordability as an immediate issue to realize demand expansion in Asia with agas/LNG market expected to grow. Regarding innovative technologies, the biggest challenge is tosubstantially cut costs and develop social infrastructure for their diffusion. In the renewable energy
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IEEJ：June 2019○ｃIEEJ 2019business, it is hard to expect to get the profits as large as that the oil and gas industry enjoyed in thepast based on its “super normal profits”. The oil and gas industry will have to closely watch future
developments regarding international relations and geopolitical risks, analyze major countries’
energy and environmental policy trends and the development and diffusion of innovative and otherenergy technologies and develop flexible strategies responding to the uncertain world.

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