IEEJ：October 2016ｃ○ IEEJ 2016

Special Bulletin
A Japanese Perspective on the International Energy Landscape (294)

October 21, 2016

Key Points of IEEJ Asia/World Energy Outlook 2016
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn October 21, the Institute of Energy Economics, Japan, published the “Asia/World Energy
Outlook 2016” (hereinafter referred to as the “outlook”). The outlook provides reference and otherscenarios for the world energy supply and demand outlook through 2040 to predict the world’s
energy supply and demand structure for the future and analyze energy security and climate change
problems emerging from the structure and their economic impacts multilaterally andcomprehensively.
The IEEJ outlook has provided major case studies based on important challenges and hot
problems for each year. While giving priority to analyses related to climate change every year, theannual outlook focused on a scenario for the substantial promotion of unconventional oil and gas
resources development in 2013, that for economic deceleration in China and India in 2014 and thatfor lower crude oil prices in 2015. The 2016 outlook features analyses on three major topics – theimpacts of energy supply disruptions, climate change and the role of nuclear energy. The following
overviews the reference scenario for the 2016 outlook and summarizes key points of the three topics.
The reference scenario depicts the so-called “business as usual” world. In the scenario, thecurrent energy supply and demand trend is assumed to remain unchanged with no major change seen
in energy and environment policies and in energy-related technologies. In the reference scenario,
global primary energy demand will increase at an average annual rate of 1.2% from 2014 to 18.9
billion tons of oil equivalent in 2040 (a 38% increase from 2014) under an annual average economic
growth rate of a little less than 3%.
The demand growth will center on Asia. Particularly, China, India and the Association ofSoutheast Asian Nations (ASEAN) will account for 55% of global energy demand growth, serving
as the driver of the global growth. While demand for all energy sources will increase, growth will be
remarkable for renewable energy, nuclear and other non-fossil energy sources. Even in 2040,
however, the world will still depend on fossil energy sources (oil, gas and coal) for 78% of totalenergy supply.
As the gravity center of the global energy market is shifting to Asia, the 2016 outlook focuseson ASEAN in Asia. While China and India are important, ASEAN is also one of the important
growth centers. As coal power generation is expected to substantially increase in response to the1IEEJ：October 2016ｃ
○ IEEJ 2016robust electricity demand growth (a three-fold increase by 2040) in ASEAN, future environment
measures will be important for the region. Growing natural gas demand will prompt ASEAN tobecome a net gas importer by 2030. ASEAN will also increase its dependence on imported oil. ForASEAN as well as the whole of Asia, energy security will grow even more important in the future.
In this respect, the 2016 outlook analyzes the impact of large-scale energy supply disruptions(physical energy shortages) as a key topic. As the current international energy market is plagued withoversupply, crude oil prices have halved from $100/bbl a few years ago. At the same time, however,geopolitical risks and uncertainties have grown to unprecedented levels in the Middle East and othermajor oil producing regions.
From the viewpoint of “preparing for war in peace,” we conducted a quantitative analysis on
the impacts on the world economy of physical energy shortages amid large-scale energy supply
disruptions (e.g., 10 million bpd), using a comparative static approach. The analysis indicates thatsuch energy supply disruptions would lead the world economy to contract by 9%. Adverse effects on
Asia including Japan would be particularly great. It has also made clear that energy security is a very
important challenge for Asia.
An analysis on climate change concludes that greenhouse gas emissions, if based on intended
nationally determined contributions (INDC) for the Paris Agreement, would increase from thepresent level to 4.6 billion tons of carbon dioxide equivalent. Although the present INDC deviates
far from the target of halving GHG emissions by 2050, the 2016 outlook positions the ParisAgreement as a key global initiative as a first step.
As for long-term climate change initiatives, the 2016 outlook analyzes the importance of an
initiative to minimize comprehensive costs covering not only attention-attracting GHG emission
reduction measures and costs (mitigation costs) but also adaptation costs to reduce and respond todamage. Projected costs, though being accompanied by great uncertainties, indicate that an option to
give priority to substantial GHG emission cuts alone would not necessarily minimize thecomprehensive costs. While the development and spread of innovative technologies are seen as
indispensable for long-term initiatives, the 2016 outlook provides an analysis of hydrogen’s potential
contribution to reducing CO2 emission substantially.
Regarding nuclear energy, the 2016 outlook sets not only the reference scenario through 2040
but also lower and higher nuclear capacity scenarios and quantitatively analyzes the impacts of thethree scenarios on the so-called three Es – economic growth, energy security and environmental
protection – at global and Asian levels. In the higher nuclear capacity scenario, Asian nuclear power
generation capacity in 2040 is assumed to post a substantial increase of about seven-fold from 2014.
A sensitivity analysis of these scenarios indicates anew that nuclear energy could greatly
contribute to reducing CO2 emissions, improving the energy self-sufficiency rate and saving
electricity costs. Regarding nuclear energy, however, safety must be given top priority naturally. As2IEEJ：October 2016

ｃ○ IEEJ 2016

far as safety is secured, nuclear energy can contribute to the three Es. The outlook emphasizes that
more serious efforts to secure safety are required to allow nuclear energy to play its expected
important role.

Contact: report@tky.ieej.or.jpThe back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3