IEEJ e-NEWSLETTER
No. 227(Based on Japanese No. 221)Published: February 21, 2022
The Institute of Energy Economics, Japan(As of February 21, 2022)

Sources:(1) Ministry of Finance "Japan Trade Statistics"(2) Ministry of Economy, Trade and Industry (arrival month basis)(3) Estimated by World Bank (Netherland Title Transfer Facility)(4) DOE-EIA, NYMEX (Front-month Futures)

Sources:(1) DOE-EIA(2) Investing.com

Currencies Vs US$
Jan 01, 2021= 100

1.05

Yuan

1.00

1.00

GBP

0.95

Euro

0.90
0.85

1.05

Yen

x J

F

M

A

M

J

J

A

S

O

N

0.95
0.90

2021-2022 0.85
DX J

F

/
/
/
/
/
/
/
/
/
/
/
/
/
Upwardsloping
indicates
appreciation
relativetothe US

Sources:

Source: x-rates.com(1) Finance. Yahoo.com(2) Investing.com

Contents
Summary【Global Monitoring】
1. US: Natural Gas Prices Surge in New England Region
2. EU: European Commission Completes Draft Taxonomy Bill
3. China: Switch to New Energy Vehicles Accelerates
4. ME: Drone Attacks on UAE’s Abu Dhabi from Yemen
5. Russia: Tensions in East Ukraine and Turmoil in Kazakhstan1Summary
1. US: Natural Gas Prices Surge in New England Region
Natural gas prices remained lower in the US relative to Europe, but since the start of 2022,
natural gas and spot wholesale electricity prices have surged in the New England region due to
LNG imports.
2. EU: European Commission Completes Draft Taxonomy BillThe European Commission created the draft Taxonomy bill and began consultations. The
draft bill categorizes both nuclear power and natural gas as green investments, but it could takea tortuous route to adoption.
3. China: Switch to New Energy Vehicles Accelerates
Sales of NEVs increased 2.6 times year-on-year to 3.52 million units in 2021, accounting for13.4% of all units sold, up 8 percentage points. Sales are expected to reach 5 to 6 million in
2022.
4. ME: Drone Attacks on UAE’s Abu Dhabi from Yemen
Yemen’s Houthi militants carried out drone attacks in the UAE capital of Abu Dhabi, killing
three. The attacks may stoke regional tensions, which have eased in recent years.
5. Russia: Tensions in East Ukraine and Turmoil in Kazakhstan
Tensions are rising between Russia and the West over the build-up of Russian troops along
the eastern border of Ukraine. The turmoil in Kazakhstan has affected energy markets.

21. US: Natural Gas Prices Surge in New England Region
Junichi OGASAWARA, Senior Research Fellow
Manager, Electric Power Group
Assistant Director
Electric Power Industry & New and Renewable Energy Unit

In Europe, spot wholesale electricity prices remain extremely high. Meanwhile, the UnitedStates has not suffered extreme price surges like those in Europe, though spot wholesale
electricity prices are higher than last year due to increased gas prices. However, in ISO New
England’s service area in the Northeast, spot wholesale electricity prices have been reaching a
day average of 15–20 yen/kWh caused by higher natural gas prices due to LNG imports driven
by the cold weather in early 2022. Spot prices are also rising in New York City, but this seems
to be caused by a power supply crunch due to rising electricity demand rather than an increasein natural gas prices.
The US Northeast has kept thermal power plants that can burn both natural gas and oil toavoid supply crunches in case of natural gas shortages. Since the start of 2022, oil-fired power
generation has been increasing due to high natural gas prices. The North American Electric
Reliability Corporation (NERC) stated in its 2021 winter reliability assessment report that ISO
New England, despite having sufficient supply reserves alongside the state of California, faced
the risk of a supply crunch due to vulnerabilities in its natural gas infrastructure. This prediction
has materialized.
In ISO New England’s service area, coal-fired thermal power plunged from 2,080 MW in2017 to 560 MW in 2021. The area currently depends heavily on gas-fired thermal power. Of
its total installed generation capacity of 38.12 GW, as much as 52% or 19.89 GW is gas-fired
thermal; there are limits to reducing its dependency on gas in the near future (oil-fired thermal
capacity has also decreased by 1,100 MW in the same period). With natural gas and solar PV
power plants accounting for most of its plans for new builds, this trend is expected to accelerate.
Despite this situation, New England’s plans to build a pipeline to transport natural gas to theregion have been denied by the New York state regulators due to environmental activism.
Consequently, the region has to import LNG even though there is cheap natural gas available
in the US, resulting in only ISO New England seeing a surge in natural gas and spot wholesale
electricity prices.
To stabilize natural gas supplies, Congress has begun to deliberate a bill that would introduce
gas pipeline reliability standards and create a new supervising entity. The bill was created basedon the lessons learned from the massive, freeze-induced blackout in Texas in 2021 and thecyberattacks on petroleum pipelines, but legislation is likely to be bogged down by major pushbacks from Republican lawmakers, the gas industry, and state governments. The deliberations
on the Build Back Better bill, the Biden administration’s trademark climate change and social
security bill, are also stalled. Though this occurred because the Democrats decided to prioritize
the election reform bill that prohibits state governments from limiting voting rights, it is still
uncertain whether the Build Back Better bill will be adopted. Heading into the November midterm elections, the Democratic Party is threatened by its inability to implement climate change
and electoral reform policies, the two top policies being fiercely promoted by progressives tosatisfy the Party’s support base.

32. EU: European Commission Completes Draft Taxonomy Bill
Ichiro KUTANI, Senior Research Fellow, Manager
Global Energy Group 1, Assistant to Managing Director
Strategy Research Unit

On December 31, 2021, the European Commission began consultations on the draft
Taxonomy bill, which will determine whether an investment is green or not. Following
examinations by expert advisory bodies, the formal Taxonomy bill is scheduled to be forwarded
to the European Parliament and the European Council within January for deliberation. As
scrutiny by the two entities could take up to six months (maximum four months plus a possible
extension of two months), a decision on whether to adopt the legislation will be made bysummer. According to media reports, the draft bill being discussed categorizes nuclear power
and natural gas as sustainable with certain conditions. Media reports suggest that a nuclear
project will be judged as green provided that plans for high-level radioactive waste processing
and funding are in place and a construction license is obtained by 2045. The conditions forsustainability for a natural gas-fired thermal project are that it has CO2 emissions of 270 gCO2/kWh or less, as well as plans to obtain a construction license by the end of 2030 and toswitch to low-carbon gas by the end of 2035.
The conclusion that nuclear power and natural gas should be classified as “qualified,” thoughwith conditions and pending official announcement by the European Council, was presumably
reached reflecting the reality in various EU member countries. For example, nuclear is an
important option for Eastern European countries that aim to move away from coal anddependency on Russia (for natural gas), as well as for France which already uses much nuclear
energy. Also, it goes without saying that natural gas is an economical and realistic option for astable electricity supply for the time being.
What does an emission cap of 270 g-CO2/kWh for gas-fired thermal power actually mean?
Though it depends on the generation efficiency and the composition of the fuel gas, the typicalemission level of a new large-scale gas-fired power plant is about 300 g-CO2/kWh. This meansthat the emission cap will require efficiency to be improved by at least 10%, which will not beeasy to achieve solely by improving the generation efficiency. One realistic option would be tobuild the plant as a co-generation facility (which supplies both heat and electricity) to increase
the overall efficiency of natural gas usage. This would be a viable option in regions with highcoverage of community heating or an industry cluster nearby.
Considering the differences in stance between the EU member states, the scheduled scrutiny
by the European Parliament and the European Council may face many twists and turns. For
example, Germany is reportedly considering natural gas to be acceptable for transition but
opposes nuclear power. The EU’s final conclusion warrants attention.
Another issue is the soaring energy prices in Europe. Europe’s natural gas and electricity
prices remain high, though they have come down from their peak in December 2021. A key
point is the “spark spread.” This is the difference between the wholesale electricity price andthe natural gas price assuming a certain generation efficiency, and represents the margin earned
by natural gas-fired generation. For instance, for the UK, the average spark spread was$26/MWh in 2020 by simple estimation, but is now $270 at the time of writing. This suggeststhat for Europe, the electricity supply crunch is even more serious than the increase in gas prices,and that the increase in burden is more significant for electricity users, though the extent varies
among countries.

43. China: Switch to New Energy Vehicles Accelerates
Li ZHIDONG, Visiting Researcher
Professor at Graduate School
Nagaoka University of Technology

China is shifting from gas-fueled cars to new energy vehicles (NEVs, including EVs, PHEVs,
and FCVs, but not HVs) to achieve sustainable growth, establish a decarbonized society andtransition from a major car manufacturing country to a car manufacturing powerhouse. Major
progress was made in 2021.
According to the China Association of Automobile Manufacturers (CAAM), automobile
production in 2021 was 26.275 million units, up 3.8% year-on-year. The automobile market
grew year-on-year for the first time in four years, recovering from the impact of the US-China
trade war that broke out in 2018 and the spread of the Covid-19 pandemic in 2020. What isremarkable is the change in market structure. Sales of NEVs, primarily EVs, increased by
157.5% to 3.521 million units, surpassing 3 million units per year for the first time in the world(including 2.916 million EVs, up 161.5% and 0.603 million PHEVs, up 140.2%). The share of
NEVs in all units sold increased by 8 percentage points to 13.4%. On the other hand, sales ofgas-fueled cars fell by 5% to 22.754 million units, the fourth consecutive year of decline. In
other words, China saw rapid electrification of cars in 2021 that drove the growth of the carmarket. Thus, China’s auto sector has taken a major step toward going green.
Providing NEV purchase subsidies is a common measure used around the world to spur sales.
China’s subsidy program, launched in 2009, is due to end in 2023. In 2021, subsidies werereduced by 20% per unit. For example, the subsidy cap for passenger EVs was reduced from
24.9 thousand yuan in 2020 to 19.8 thousand. Nevertheless, why did the NEV market grow so
rapidly? While registration requirements and driving restrictions on gas-fueled cars in Beijing
and other large cities played a role, more important was that BYD and other Chinese
manufacturers launched a wide range of NEV products, with prices from low to high, providing
consumers with an array of options. In 2021, the share of Chinese manufacturers in passenger
car sales was as high as 74.3% for NEVs compared to 38.9% for gas-fueled cars. The increased
usefulness of NEVs also made a contribution: the average cruising distance of passenger EVs
has grown from 253 km in 2016 to over 400 km in 2021; as of the end of 2021, 2.617 million
chargers and 1,298 battery swapping stations have been rolled out. The impact of the NEV
regulation and credit trading system introduced in 2019 (assigning target companies with an
NEV sales ratio requirement and allowing any excess or shortfall to be settled with trading
credits) cannot be ignored. The NEV credit target against gas-fueled cars assigned toautomakers was raised from 12% in 2020 to 14% in 2021. These systematic improvements inpromotional measures are thought to have encouraged the shift to NEVs.
In 2022, the subsidy per car will be reduced by 30% from the previous year and the NEV
credit target raised to 16%. CAAM estimates that NEV sales will increase to 5 million units
and its share to over 18% in 2022. Meanwhile, the China Passenger Car Association (CPCA)
estimates that EV sales will surpass 6 million units (including 5.5 million passenger EVs) andthe share will rise to around 22%. The government’s goal of increasing the share of NEVs to
20% in 2025, which was set in November 2020, is likely to be reached ahead of schedule.

54. ME: Drone Attacks on UAE’s Abu Dhabi from Yemen
Akiko YOSHIOKA
Senior Analyst
JIME Center

On January 17, several drone attacks struck Abu Dhabi, the capital of the United ArabEmirates (UAE), setting off explosions in three fuel trucks at an oil storage site in the Mussafah
Industrial Area, killing two people from India and one from Pakistan and injuring six others. A
fire also broke out at a construction site at Abu Dhabi Airport. The UAE Ministry of Foreign
Affairs and International Cooperation issued a statement condemning the series of incidents as“terrorist attacks.” Yemen’s Houthi militants have claimed responsibility for the attacks, statingthat they carried out a military operation and warning that similar attacks will follow if the UAE
continues its military intervention in Yemen.
Yemen has been mired in civil war since the collapse of the long-ruling Saleh government in2011 amid the Arab Spring. The then vice president Abdrabbuh Hadi, who took over aspresident, failed to calm the turmoil in the country, and since 2015, the Houthi militants havebeen in control of the capital city of Sanaa. In response to calls for support from the Hadi
administration to the Arab League, Saudi Arabia and the UAE have been intervening militarily
since 2015 by sending ground forces and conducting air strikes.
The Houthis carried out drone attacks in 2017 and 2018, but at the time the UAE did not
acknowledge that the Houthis were behind the attacks. This time, however, the UAE
government was quick to release a statement condemning the Houthis, indicating that the
government can no longer ignore the reality that the Houthis now have the military capability
to attack targets over 1,000 km away.
The Houthis are purportedly backed by Iran, and so the Yemeni civil war is also a proxy war
between Saudi and UAE forces versus Iran. Accordingly, the Yemen issue was a main agenda
item in the four direct dialogs between Iran and Saudi Arabia that have been held in Iraq since
the spring of 2021. The dialogs seem to be continuing; on January 10, a spokesperson of the
Iranian foreign ministry suggested restarting talks with Saudi Arabia. The UAE has alsochanged course and started to improve ties with Iran: in December 2021, Sheikh Tahnoon bin
Zayed Al Nahyan, National Security Advisor of UAE, visited Iran’s capital, Teheran. Thus,
tensions in the region seem to be easing overall; several Yemeni peace talks have also been
held with Oman as the mediator. The recent attacks by the Houthis, however, indicate that there
is still no certain path for resolving the disputes and could exacerbate tension in the region once
more.
As the nuclear talks with the United States struggle to make progress, Iran’s President Raisi
visited Russia on January 19 and 20 and had talks with President Putin. This was the first visit
to Russia by an Iranian president in five years and the first under the Raisi government. It is
assumed that Iran’s objective is to win backing from Russia, which supports the Iran nuclear
deal (JCPOA), in order to get the economic sanctions lifted.

6

5. Russia: Tensions in East Ukraine and Turmoil in Kazakhstan
Sanae KURITA, Senior Researcher
Global Energy Group 2Strategy Research Unit
Russia and the West continue to discuss the build-up of Russian troops along the easternborder of Ukraine, but have not reached any agreement. On January 18, German Chancellor
Olaf Scholz said that Germany could halt Nord Stream 2 if Russia invades Ukraine. The
pipeline had its second string charged with technical gas on December 29 and finishedpreparations to go live. However, the approval process by German regulators has beensuspended until approval is granted to the establishment of a new subsidiary (a German
corporation) that will serve as the owner and operator of the pipeline’s German section. It is
possible that Germany’s new three-party coalition government, which includes the Green Party,
might reverse the policy set by the former administration.
Neither Russia nor the West has made any compromise in their arguments. Russia explainsthat Gazprom is fulfilling its supply obligations based on an agreement and that there are no
active purchases by companies, which Uniper has acknowledged as a fact. Meanwhile, the EU
and the IEA are harshly criticizing Gazprom for intentionally reducing gas supplies, which has
caused Europe’s underground gas stockpiles to be about 20% lower than in normal years.
Gazprom has filed litigation against Poland’s PGNiG with the Arbitration Institute of theStockholm Chamber of Commerce to demand a raise in gas prices (by switching to a spot priceindexed system, to be applied retrospectively from 1996).
On January 19, US President Biden, anticipating an invasion, warned that Russia will “pay aheavy price” if it carries out a full-scale military invasion of Ukraine, and mentioned thepossibility of banning US dollar payments by Russian companies. On the 20th, Secretary of theTreasury Janet Yellen said that the US Treasury Department is prepared to impose major
sanctions on Russia if it invades Ukraine, and is working closely with allies to shape theresponse. On December 27 last year, the National Defense Authorization Act for Fiscal Year2022 was signed into law in the US, and a policy to spend $300 million to support the Ukrainian
armed forces, $4 billion for the European Deterrence Initiative, and $150 million for national
security cooperation in the Baltic Sea has been indicated.
On January 18, Kazakhstan’s first president Nursultan Nazarbayev released a video
statement for the public, stating that President Kassym-Jomart Tokayev is in control with fullauthority, and that he would retire definitively from politics. The incumbent president has been
firing a series of friends and relatives of Mr. Nazarbayev from key positions in the government
and economic entities. Protests triggered by an LPG price hike in January spread in Kazakhstan
and a state of emergency was declared nationwide. President Tokayev called on the Russia-led
Collective Security Treaty Organization (CSTO) to help calm the protests, and Russia
dispatched its airborne troops. Although over 10,000 people were detained and there were many
deaths and injuries, the troops began to withdraw on January 13 judging that public security
had been restored, but. In the energy sector, on January 6, reports emerged that oil output
decreased in Tengiz field, the country’s largest oil field, due to railway sabotage by protesters,
which temporarily pushed up oil futures prices. Spot uranium prices also soared due to market
fears over disruptions to production, despite an announcement by Kazatomprom denying any
impact on uranium production or export. Mr. Nazarbayev had a massive influence not only onpolitics and national security but also on the economy. A change in the economic power
structure may affect the course of state-run enterprises’ business management and policies;
developments must be closely monitored.
7

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