IEEJ: November 2012 All Right Reserved

Short-term Energy Supply and Demand Outlook－Energy Supply and Demand Forecast for FY2012－

and Forecasts for the International Oil and Gas Markets
Yu Nagatomi *Yoshikazu Kobayashi **Tetsuo Morikawa ***Summary
2011 was a year of tight constraints in economic and production activities resulting from the damage to
production capacity and disruption of supply chains (supply networks) caused by the Great East Japan
Earthquake, the downturn in consumer confidence, and the implementation of an order to restrict electricity
consumption for the first time in 37 years. On the other hand, the world economy is gradually expanding,driven by the recovery of the United States and solid growth of emerging countries such as China. With the
upturn of the external environment and the boost from reconstruction needs, the Japanese economy isexpected to gradually recover in 2012. Energy consumption, which fell in 2011 due to the slump in economic
activities following the Great East Japan Earthquake and the rise in awareness of energy conservation, isshowing signs of rebound from last year with the recovery of the economy, reconstruction of production
equipment and supply networks, and the easing of the mood of self-restraint, though people’s propensity tosave electricity and conserve energy appears to remain. Regarding the near future, the outlook for theEuropean economy and the restarting of nuclear power stations in Japan remains highly uncertain. The issueof restarting plants is particularly worrisome due to the power shortage and its consequent impact on theJapanese economy which may result from the reduction in nuclear power generation capacity, although work
is under way to restart the Ohi Nuclear Power Station Units 3 and 4 of Kansai Electric Power Company after
all nuclear power stations in Japan were stopped in May this year. This report presents a forecast of theenergy supply and demand in FY2012 based on the domestic and overseas situations outlined above.
Looking overseas, the major disruption of energy supplies caused by the Great East Japan Earthquake was
not the only one the world saw in 2011. Disruption also occurred outside the country, due most notably to the
spread of a series of insurgencies called the “Arab Spring” in the Middle East and North Africa. These events
are still continuing today, strongly affecting the energy supply of Japan both directly and indirectly. In
addition to these factors, other uncertainties have emerged since the start of the year, namely concerns for
global recession stemming from the financial crisis in Europe and the strengthened sanctions by the Westagainst Iran for its alleged attempts to produce highly enriched uranium. Domestically, Japan is being forced
to modify the direction of its nuclear policy, and is expected to increase its dependency on fossil fuels at leastin the short- to mid-term. Based on these domestic and overseas conditions, this report presents an outlook
for energy supply and demand, an overview of the international situation surrounding oil and natural gas, anda price forecast for the near future.

*
Researcher, Energy Demand, Supply and Forecast Analysis Group, Energy Data and Modelling Center, IEEJ** Oil Group Manager, Oil & Gas Unit, IEEJ*** Gas Group Manager, Oil & Gas Unit, IEEJ-1-IEEJ: November 2012 All Right Reserved

1.

Introduction

This report presents the outlook for short-term energy supply and demand of Japan and a forecast of theinternational oil and gas markets up to FY2012. The structure of the report is as follows. Chapter 2 describes
the outlook for short-term energy supply and demand of Japan up to FY2012. In presenting the
supply-demand forecast, we first present an overview of the economic and production trends for FY2012 as
inputs to the energy forecast, then estimate the supply and demand for energy based on the economic andproduction trends described in the preceding section, and detail the supply-demand forecast for each energy
source (based on industrial statistics) as well as the primary domestic supply and final consumption ofenergy (based on the energy balance table). Furthermore, as part of the supply-demand forecast, a sensitivity
analysis on nuclear power plant operation is presented to address the uncertainties surrounding nuclear
power. Chapter 3 presents an overview of the respective international oil and gas markets, and a forecast of
prices.

2. Short-term Energy Supply and Demand Forecast －Forecasts for FY2012－
The purpose of this short-term energy supply and demand forecast is to estimate the energy supply anddemand of Japan for FY2012. As energy is considered to be a “derivative demand” of economic activities,
which are a primary demand, it is important to first determine the trend of economic activities. At present,
the world economy is expanding moderately driven by emerging countries such as China. Meanwhile, theJapanese economy is picking up pace gradually with the reconstruction after experiencing a significant drop
due to the Great East Japan Earthquake on March 11, 2011. This also applies to the energy demands of Japan,
which fell in FY2011 due to the drop in economic activities, implementation of the order to restrict
electricity consumption and the rise in awareness of energy conservation, but is now recovering in line withthe economy.

Premises for the Electricity Supply and Demand Forecast
The national average reserve margin of electricity this summer is expected to be 3.9%, assuming that thealready-established power-saving practices and the government’s power-saving goals are implemented
without fail and that Kansai Electric Power Company’s Ohi Nuclear Power Station Units 3 and 4 arerestarted and operated stably. This summer, electric power companies may be forced to meet the electricity
supply and demand requirements with a bare minimum reserve margin of 3%, whereas a reserve margin of
7–8% is normally required in operating the power grid. The analysis in this report does not take abnormally
hot summers and harsh winters into account, and assumes that power generation facilities run without
problems. Thus, the economic impact that would result from power shortages is not considered. In reality,
however, the electricity supply and demand situation is tight, considering possible temperature fluctuations
and the fact that the thermal power stations are continuing to run at full capacity.

2-1

Forecast of Major Economic Indices for FY2012

2-1-1

Framework for the Short-term Forecast1

In this forecast, we evaluated the trends of elements that define the supply and demand for energy, using
twomeasurement models: (i) a macro economic model and (ii) an energy demand model. The major indices used1Note) This forecast is based on the information dated no later than June 18, 2012.

-2-

IEEJ: November 2012 All Right Reservedin the forecast are assumed as follows. The world economy is expected to continue to expand driven by
emerging countries such as China, regardless of the slowdown due to the currency turmoil in Europe. The
CIF import price for crude oil, which is used as an input in this forecast, is estimated on average to be 103
USD/barrel (cf. 114 USD/barrel for FY2011) (estimation based on Kobayashi, Y. & Morikawa, T. (2012.
July 3), International Oil and Gas Outlook). The exchange rate is expected to remain at the 80 yen/USD
level. Regarding temperature which affects the energy demand, especially in the buildings sector, we based
the first half of the year on the three-month forecast of the Japan Meteorological Agency (published on May24) assuming slightly higher temperatures than average, and the second half on the average temperature of
the past ten years. As for nuclear power, this forecast considers the restart of only Ohi Units 3 and 4. The
economic, energy and environmental policies currently being considered by the government in principle
were not incorporated in this forecast, as they are still mostly uncertain in terms of the timing and scale of
implementation.
Figure 2-1 Model analysis flow

Macroeconomic model

Major inputs

GDP components

World economy, exchange rate

Prices, labor and finance

Prices of crude oil, LNG and coal

Industry and service activities

Secondary energy prices

Energy supply-demand model
Final energy consumption

Temperature

Energy transformation demand

Nuclear and hydropow er capacity

Primary energy supply
CO2 emissions

2-1-2

Outlook for the Macro Economy and the Industry

The world economy is expected to expand moderately in 2012, driven by emerging countries such as
China, despite the slowdown due to the currency turmoil in Europe. The U.S. economy will grow steadily,backed by solid private consumption and exports to emerging countries. The European economy is expected
to suffer negative growth due to the financial turbulence mainly in Greece and other Southern European
countries, despite the growth in German exports to emerging countries. The emerging economies such as
those of Asia, despite a gradual slowdown, are expected to maintain their high growth rates
We estimate the real growth rate of Japanese GDP for 2012 at 2.1% from the previous year. Japan will beback on the recovery track as it was before the earthquake, driven by the rise in exports due to foreign
demand such as the expansion of the world economy and the increase in private consumption due to the
upturn in consumer confidence. The contribution of domestic private demand will be 1.6% points in total.
Growth of final private consumption will be positive due to an upturn in consumer confidence. Private
housing investment will continue to grow from last year due to the continued reconstruction demand. The
contribution of public demand will be 0.6% points in total. Public investment will continue to grow in 2012as government assistance for reconstruction will continue. Government consumption supported by continued-3-

IEEJ: November 2012 All Right Reserved

government assistance for the disaster victims, will continue to increase following last year. The contributionof foreign demand is estimated at 0.0% points in total. While significant growth in exports is expected due tothe recovery of domestic production capacity and strong exports to emerging countries, imports will also
remain solid due to the economic turnaround and to the increase in fossil fuel imports for electricity
generation.
Figure 2-2 Forecasts of macroeconomic indices
Historical

Forecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

Nominal GDP (trillion yen)

479.3

470.0

477.8

1.1

-1.9

1.7

Real GDP (trillion yen, 2005)

511.1

511.1

522.1

3.2

-0.0

2.1

Private consumption

299.6

302.9

306.8

1.5

1.1

1.3

Private investment

64.8

64.9

66.4

3.5

0.2

2.2

Public demand

118.7

121.5

124.1

0.6

2.3

2.1

Exports

83.6

82.4

86.2

17.2

-1.4

4.6

Industrial production index (2005=100)

94.1

93.2

96.3

9.4

-1.0

3.3

Consumer price index (2010=100)

99.9

99.6

99.8

-0.6

-0.2

0.1

Crude oil import price (USD/barrel)

84.0

114.1

102.7

21.9

35.8

-10.0

50,31564,62766,000

18.1

28.4

2.1

85.7

79.1

80.0

-7.7

-7.7

1.2

LNG import price (yen/tonne)
Exchange rate (yen/USD)

2-1-3

Outlook for Production Activities

The Japanese Indices of Industrial Production (IIP) is expected to grow by 3.3% from the previous year in
FY2012. Production will be driven by the growth in export industries such as transport machinery andelectric machines fueled by the continuing high growth of emerging economies and the upturn of the U.S.
economy, despite concerns over the European economy. Production will also grow within Japan, driven by
the growth in private demand supported by the eco-car subsidies and the reconstruction demand which isaccelerating, pushing up the production of steel and cement. The production trends of the major industries
are as follows.
Figure 2-3 Forecasts of raw materials production
Crude steel (10,000 tonnes)

11,079Paper and paperboard (10,000
tonnes)Cemen t (10,000 ton n es)

2,734
10,646Ethylene (10,000 tonnes)
722

5,900
700

5,838

10,625

5,758

2,689
2,673

647

9,645

5,605

2,653

FY2009 FY2010 FY2011 FY2012

FY2009 FY2010 FY2011 FY2012

FY2009 FY2010 FY2011 FY2012

-4-

631

FY2009 FY2010 FY2011 FY2012

IEEJ: November 2012 All Right Reserved(a) Crude Steel

Crude steel production is expected to decrease by 0.2% from the previous year in FY2012. Exports will
decrease slightly due to the worsening trade conditions caused by the strength of the yen even though exports
to the U.S. are expected to be solid, while imports are expected to grow because of the increasing crude steel
production capacities in China and South Korea, resulting in a continued increase in steel imports from thosecountries for ship-building. Based on the estimated moderate recovery of private demand in Japan due to thefull-scale reconstruction demand and the recovery of automobile production thanks to the eco-car subsidies,
the positive domestic factors and the negative external factors will cancel each other out, and so crude steel
production will remain mostly flat from last year at 106.25 million tonnes (-0.2% from the previous year).
(b) Ethylene

Ethylene production is expected to decline by 2.6% from the previous year in FY2012. Regarding foreign
demand, domestic ethylene production is declining as exports continue to drop and imports rise due to thestrong yen and the launch of overseas petrochemical plants. As for domestic demand, the full-scalereconstruction demand and the large increase in transport machinery production are raising hopes for an
increase, though the overall size of any increase in demand may be small. Ethylene production for FY2012 is
expected to face a third consecutive year of decline at 6.31 million tonnes (-2.6% from the previous year) as
the tough external demand situation continues despite some boost from internal demand.
(c) Paper and Paperboard

Paper and paperboard production is expected to increase by 0.7% from the previous year in FY2012. Paper
imports are expected to increase due to the high yen. In the current industry, as imports are starting toincrease for paper board as well as for printing paper, both these imports are expected to continue to increase.
Domestic demand for paper may increase temporarily in 2012 due to the Olympics, but will decrease overall
due in part to the transition from paper to digital media. On the other hand, paperboard will grow steadily
due to the increased movement of goods due to the reconstruction demand, and the expansion in production
and consumption. In total, production of paper and paperboard for FY2012 will grow only slightly to 26.73
million tonnes (+0.7% from the previous year) due to the rise in imports driven by the strong yen, despite therestart of large, disaster-hit factories and steady domestic demand.
(d) Cement

Cement production is expected to increase by 2.5% from the previous year in FY2012. No significant
growth in exports is expected due to inventory problems resulting from the shift of production timing inJapan. Domestic demand will grow strongly due to the increase in housing demand and redevelopment as the
economy picks up, especially in the Kanto region. Reconstruction is also expected to boost the demand for
cement as it gets into full swing. Consequently, cement production for FY2012 is expected to increase to 59
million tonnes (+2.5% from the previous year) at a rate similar to last year.

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IEEJ: November 2012 All Right Reserved

Figure 2-4

Forecasts of industrial production, services and automobile ownership
ResultForecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

Non-ferrous metal

89.3

87.7

91.7

6.4

-1.8

4.5

General and electric machinery

96.4

93.5

96.7

16.8

-2.9

3.4

Industrial production index (2005=100)

94.1

93.2

96.3

9.4

-1.0

3.3

Automobile production (10,000 units)

899

927

961

1.5

3.0

3.7

Tertiary industry activity index (2005=100）

97.8

98.5

99.2

1.1

0.7

0.8

Gasoline vehicle ownership (10,000 units)

6,843

6,892

6,936

0.4

0.7

0.6

Diesel vehicle ownership (10,000 units)

630

608

586

-4.4

-3.5

-3.6

(e) Automobiles

Automobile production is expected to grow constantly in FY2012, up 3.7% from the previous year. The
North American automobile market is forecasting strong sales as consumer spending rebounds from theslump after the Lehman collapse, and as exports to emerging countries will remain relatively strong.
Foreign demand is expected to rebound from last year regardless of the uncertainties in the European
market. Domestic demand is also expected to grow in the first half of the year due to the boost in sales
volume by the eco-car subsidies, but may slow down in the second half as the effects of the subsidies fadeaway. Automobile production is expected to increase to 9.61 million vehicles (+3.7% from the previousyear), fueled by strong external and domestic demand.
(f) General and Electric Machinery

General and electric machinery production is expected to grow constantly in FY2012, up 3.4% from theprevious year. Foreign demand will increase for electricity infrastructure systems as the growth of emerging
economies remains solid. For domestic demand, constant demand for electricity-saving appliances, as well as
strong growth in non-utilities power facilities and heavy electrical machinery for power generation, such as
thermal power plant turbines, are expected. These trends will together boost the production of general andelectrical machinery by 3.4% from last year.

2-2

Energy Supply and Demand Outlook for FY2012

2-2-1

Outlook for Domestic Primary Energy Supply

Domestic primary energy supply for FY2012 is expected to drop by 0.9% from the previous year. This isdue to a drop in primary energy supply caused by further progress in electricity-saving and energy
conservation, driven by concerns over electricity supply, despite the upturn in production and economic
activities due to the post-earthquake reconstruction.
Coal will increase by 2.6% from the previous year as the coal-fired thermal power plants that were hit by
the earthquake are restarted. Oil will increase by 1.8% due to the soaring demand for oil for generating
electricity, despite the decrease due to the switch to other fuels in various sectors. Natural gas is estimated torise by as much as 6.3% due to the increased fuel switch from oil and the operation of non-utilities power-6-

IEEJ: November 2012 All Right Reserved

facilities, as well as to the increased use of city gas in the industrial sector resulting from the progress of fuelsubstitution and for electricity generation. Nuclear energy is estimated to drop drastically by 84.4%, as thisanalysis assumes that only two nuclear reactor units are restarted. Based on the above, energy-related CO2
emissions will increase by 3.5% as a result of the upturn in economic activities and the increased use offossil fuels for electricity generation.
Furthermore, as a result of the upturn in economic activities and the increase in use for electricity
generation, fossil fuel imports will increase to 22.6 trillion yen in FY2012, up 4.5 trillion yen from 2010
levels (of which, 3.1 trillion yen for electricity generation). Consequently, fossil fuels will account for 31.7%of the total imports of Japan, and will become one of the reasons why Japan runs a trade deficit(customs-cleared export excess of −3.8 trillion yen).
Figure 2-5 Forecasts of domestic primary energy supply
Result(million tonne of oil equivalent)
Coal
Oil
Natural gas
Hydro
Nuclear
New energies, etc.
Total domestic primary energy supply
Energy selfsufficiency rates(without nuclear)(with nuclear)

Energy-related CO 2 emissions (million tonne)(FY1990＝100）

Forecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

120.2
212.3
95.5

117.1
217.9
111.6

120.2
221.8
118.7

11.4
1.2
5.8

-2.6
2.6
16.9

2.6
1.8
6.3

17.9
60.7
7.7
514.2

17.5
21.4
7.5
493.1

17.0
3.3
7.8
488.7

5.3
3.0
3.7
4.7

-2.2
-64.7
-2.3
-4.1

-3.0
-84.4
3.0
-0.9

5.9%
17.7%

6.1%
10.4%

6.0%
6.7%

1,123
(106)

1,142
(108)

1,181
(112)

4.5

1.6

3.5

Figure 2-6 Components of energy-related CO2 emissions
10.0%

Kyoto Protoc ol
Commitme n t Pe riod
Confounding items

Year-on-Year Changes

6.0%
GDP factor(economic activities)

2.0%

Intensity factor(Energy saving)

-2.0%

-6.0%

Carbon intensity
factor(Lower carbon)-10.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012-7-

IEEJ: November 2012 All Right Reserved

2-2-2

Outlook for Final Energy Consumption

Final energy consumption for FY2012 is estimated to drop by 1.1% from the previous year. It is expected
to decrease in all sectors due to the promotion of energy conservation such as electricity-saving and to
relatively mild temperatures, despite the upturn in economic activities. Consumption is estimated to remainlevel from last year in the industrial sector despite the recovery of various sectors such as general machineryand automobiles, due to the progress in energy conservation such as electricity-saving. Consumption will
drop by 3.8% in the residential sector due to the rebound from last year’s temperature and the spread ofelectricity-saving appliances, and by 1.4% in the services sector despite the recovery of service activities dueto the easing of the self-restraint mood, due to the relatively moderate temperatures compared to last year
and strengthened electricity-saving. Final consumption will decrease in the transportation sector by 1.5% due
to improved fuel economy and transportation efficiency, despite the increase in transportation demand in linewith the economic recovery. Consequently, the final consumption for FY2012 is estimated at −1.1% in total.
Figure 2-7

Forecasts of final energy consumption by sector
Result(million oil-equivalent tonnes)

Forecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

Industry

161.1

154.8

154.8

3.7

-3.9

0.0

Residential

54.5

52.7

50.7

5.6

-3.2

-3.8

Servicies

42.6

39.9

39.3

3.1

-6.3

-1.4

Transportation

83.6

81.6

80.4

0.9

-2.4

-1.5

341.7

329.0

325.3

3.2

-3.7

-1.1

Total final energy consumption(Note) The industrial sector includes non-energy use

2-2-3

Outlook for Energy Sales Volume(a) Electricity

The sales volume of electricity for FY2012 is estimated to drop by 0.9% from the previous year. Lighting
contract demand will drop by 3.0% due to the rebound from last year’s unusual temperatures and theawareness of energy conservation that has taken root through strengthened awareness of electricity-saving,
and to the spread of electricity-saving appliances. Power contract demand will increase by only 0.1%
despite the continued recovery of production and service activities, due to the electricity-saving measurestaken since last summer and the strengthened awareness of electricity-saving, particularly in the businesssector such as offices. Demand from large industrial users is expected to grow by only 0.5% due to thesluggish growth in energy-intensive industries, despite the growth in overall activities and in some sectors
such as the machine industry.

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IEEJ: November 2012 All Right Reserved

Figure 2-8

Forecasts of electricity sales volume by usage
Result(TWh)

Forecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

Lighting

304.2

288.9

280.4

6.8

-5.0

-3.0

Power (including specified demand)

637.9

605.9

606.2

5.5

-5.0

0.1

Total electricity sales

942.1

894.8

886.5

5.9

-5.0

-0.9

Large industrial sales

300.2

290.8

292.1

6.9

-3.1

0.5

Chemical

28.1

27.2

26.8

5.2

-3.3

-1.3

Steel

53.3

53.2

53.0

15.2

-0.2

-0.5

Machinery and appliances

74.6

71.6

73.8

7.3

-3.9

3.0

(b) City Gas

The sales volume of city gas for FY2012 is estimated to grow by 1.9% from the previous year. Gas forresidential use will decrease by 2.2% despite the solid growth in customers and the upturn after theearthquake, due to the rebound from the harsh winter last year. Gas for business use will also decrease by
0.5% for commercial use and 0.0% for others despite the recovery of service activities and solid growth in
new developments, due to the rebound from last year’s unusual temperatures and higher awareness of energy
conservation. Gas for industrial use will increase by 4.9% driven by the increase in operation of existing
facilities and that of non-utilities power facilities out of concern over power supply shortages, as well as fuelconversion from oil, as recovery from the damages caused by the earthquake progresses and various
production activities remain strong.
Figure 2-9 Forecasts of gas sales volume by usage
Result(100 million ?)Forecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

Residential

97.9

97.9

95.8

1.7

0.0

-2.2

Commercial

47.4

44.8

44.6

2.7

-5.5

-0.5

Industrial

176.3

186.7

195.9

5.5

5.9

4.9

Other

31.3

29.7

29.7

8.3

-5.0

-0.0

352.8

359.1

366.0

4.3

1.8

1.9

Total city gas sales(c) Oil

The sales volume of fuel oils for FY2012 is estimated to increase in total by 1.3% from the previous year.
Gasoline sales will decrease by 2.1% as fuel economy improves with the spread of eco-cars and theincreased usage of “Kei” mini-cars. Sales of diesel oil will decrease by 1.3% despite the upturn in the
movement of goods, due to the improvement in transportation efficiency. Sales of naphtha will drop by 1.9%
due to a decrease in ethylene production. The sales volume of kerosene will decline by 6.2% despite the-9-

IEEJ: November 2012 All Right Reserved

growth in demand due to economic recovery, due to the progressive shift to electricity and city gas in boththe buildings (space and water heating) and industrial sectors, and to temperature effects. Fuel oil A will
decrease by 1.4% despite the upturn in production and transportation activities, due to the progress inswitching to city gas and in energy transformation. Fuel oil C for electricity generation will add to last year’s
growth by 43.4% this year due to the growth in fuel demand resulting from the drop in nuclear power plant
operation. Extremely tight supply logistics operations, including securing domestic vessels, will be required
to ensure a stable supply of Fuel oil C for electricity generation. Fuel oil C for other uses, such as industrialuse, will continue to decline due to fuel substitution and energy conservation like Fuel oil A, but will
decrease by only 0.7% as the increase in demand for privately-owned electrical power facilities will cancelout some of the decrease.
The sales volume of LPG for industrial use will continue to fall due to fuel substitution despite the growthin activities, and will decrease for use as a chemical raw material due to the decrease in ethylene production
and also for civilian use due to temperature effects. It will decrease in total by 0.9%.

Figure 2-10 Forecasts of oil sales volume by oil type
Result(million kL)

Forecast

Year-on-Year Changes (%)
FY2010 FY2011 FY2012

FY2010FY2011FY2012

16.4

16.0

15.9

0.2

-2.7

-0.9

Gasoline

58.2

57.2

56.0

1.0

-1.6

-2.1

Naphtha

46.7

43.7

42.9

-1.3

-6.4

-1.9

Heating oil

20.4

19.6

18.4

1.5

-3.6

-6.2

Diesel oil

32.9

32.9

32.4

1.6

-0.1

-1.3

Bunker A

15.4

14.7

14.5

-3.9

-4.8

-1.4

Bunker B, C

17.3

23.7

30.1

5.5

36.9

26.9

(for electricity generation)(7.7)(14.8)(21.3)(3.9)(93.5)(43.4)

196.0

196.1

198.6

0.5

0.0

1.3

LPG sales (million tonnes)

Total fuel oil sales

2-2-4
Impact of Reduction in Nuclear Power Plant Operation on the Supply and Demand of
Electricity, Fuel Import and CO2 Emissions
As already mentioned, all nuclear power stations are currently shut down, and assuming that no otherplants except for Ohi Units 3 and 4 will be restarted, the following are expected to occur: (i) The reserve
margin for the summer will be 3.9%, but the supply-demand operation will be like a tightrope and thesituation will be extremely tight especially in Hokkaido during wintertime. (ii) The increased operation ofthermal power plants will cause the costs for fossil fuel imports to soar to 22.6 trillion yen, raising concerns
about the outflow of national wealth and rise in electricity costs. (3) CO2 emissions will also soar, which
could have serious implications in view of the 3E’s, namely Energy Security, Economy and theEnvironment.

- 10 -IEEJ: November 2012 All Right Reserved

2-3

Sensitivity Analysis on the Operation of Nuclear Power Stations (FY2012 and 2013)

In this analysis, the restarting of only Ohi Units 3 and 4 is considered as the outlook for restarting otherplants remains uncertain. As of June 2012, 22 units (including Ohi Units 3 and 4) have completed andsubmitted the results of the stress tests, and have the possibility of being restarted at any time. Consideringthat moves for restarting are already under way at some plants, we performed our sensitivity analysis basedon the assumption that 6 additional units will be restarted in 2012 and 20 units in 2013.
The result of the sensitivity analysis shows that restarting additional units would improve the electricity
supply by raising the reserve margin during the winter, and would lessen fuel imports, namely coal by 2.10
million tons, LNG by 1.06 million tons and oil by 3.00 million kL, reducing fuel costs by 0.24 trillion yen in
total for FY2012. For 2013, restarting additional plants would raise the reserve margin by 10.9%, and reduce
fuel imports, namely coal by about 12.50 million tons, LNG by about 6.20 million tons and oil by about
17.60 million kL, reducing fossil fuel costs by about 1.4 trillion yen, all compared to when only Ohi Units 3
and 4 are running. Furthermore, CO2 emissions would drop by 92 million tons.
Figure 2-11

Summary of sensitivity analysis of nuclear power stations

FY2012FY2013

2 units

8 units

2 units

8 units

22 units

Fossil fuel costs
for electricity
generation

6.8 trillion yen

6.5 trillion yen

6.8 trillion yen

6.5 trillion yen

5.3 trillion yen

Increase in cost
per unit of power(from FY2010)*

3.4 yen/kWh

3.1 yen/kWh

3.4 yen/kWh

3.1 yen/kWh

1.8 yen/kWh

CO2 reduction

10 Mtonnes(0.8%)

25 Mtonnes(2.1%)

10 Mtonnes(0.8%)

30 Mtonnes (2.5%)

100 Mtonnes(8.6%)

Electricity supply
margin forsummer

3.9%

-

3.9%

6.8%

14.8%

3.

Outlook for Oil and Gas International Situation

3-1

Issues and Interests

2011 was a year of major disruptions in energy supply in both Japan and overseas, caused in Japan by theGreat East Japan Earthquake and by the spread of the “Arab Spring” anti-government movement in the
Middle East and North Africa. These events still strongly affect the energy supply of Japan today, both
directly and indirectly. In addition, new uncertainties have emerged since the start of the year, namely
concerns over global recession stemming from the financial crisis in Europe and the strengthened sanctions
by Europe and the U.S. against Iran for allegedly attempting to produce highly enriched uranium. Japan iscurrently being forced to modify the direction of its nuclear policy, and is expected to increase its
dependency on fossil fuels at least for the short- to mid-term. This chapter focuses on the internationalsituation surrounding oil and natural gas, and presents a price forecast for the near future.

3-2

Short-term International Oil Situation and Forecast of Oil Prices

The international oil prices (Brent and Dubai), which have remained in the “high stable zone” of- 11 -IEEJ: November 2012 All Right Reserved$110–120/bbl since the beginning of 2011, has been dropping after peaking in March this year to as low as$100/bbl.
One main reason for this price drop is the easing of the supply-demand balance. On the supply side,oil-producing countries of the OPEC such as Saudi Arabia, Libya and Iraq have significantly boosted
production. The OPEC countries in total increased their production by at least 3 million B/D since the start ofthe civil war in Libya from April 2011 to May 2012, dramatically easing the supply-demand balance
worldwide. We must also note the steady growth in oil production in the U.S., supported by the recent highoil prices and the progress in the development of non-conventional oils. On the demand side, demand
continues to drop in advanced countries such as Europe, U.S. and Japan, while the growth in demand isslowing in emerging countries that have been driving the global growth in demand in recent years. In China,
where economic growth has been slowing down for the last five consecutive terms, demand for diesel oil andfuel oil, which are closely linked with economic activities, is also slowing.
In addition to the easing supply-demand balance, another reason for the current drop in oil prices is theglobal economic slowdown. In Europe, the Euro zone economies are becoming increasingly unpredictable
due to a host of uncertainties, such as the economic policy of Greece after the general election and thecolossal bad debts of the Spanish banks. Aside from Europe, the U.S. is also struggling as its employment
situation shows no sign of recovery and due to the burden of the economic recovery, while the economies of
emerging countries such as China and India that have been driving the world economy are showing signs ofa slowdown. In view of these factors, the supply-demand balance is likely to continue to ease, causing oil
prices to fall.
On the contrary, one factor that could cause the supply-demand balance to tighten is the confrontation
between Iran and the West concerning Iran’s nuclear development. Iranian oil in the international oil market
is likely to decrease from this summer due to the series of economic sanctions enforced by Europe and the
U.S. against Iranian oil exports. The strengthening of sanctions will inevitably enrage Iran and escalate its
confrontation with European countries and the U.S., which in turn could lead to the much feared
destabilization of the entire Middle East including Israel. In addition, there are many flashpoints andgeopolitical risks in the Middle East and Africa, such as Syria which is currently trapped in civil war, thehostility between North and South Sudan, and the confrontation between the Iraqi government and theKurdistan region of the country.
In view of these situations, oil prices are expected to rise to $85/bbl for WTI, $100/bbl for Brent and$98/bbl for Dubai in the latter half of the year even though the supply-demand balance is likely to remain
weak, since the reduction in Iranian oil exports from this summer, the drop in OPEC’s production capacity
margin, and geopolitical risks such as Iran all serve to prop up oil prices. Of course, these price levels could
fluctuate significantly due to various factors in the international oil market. The current downward trend in
oil prices could accelerate if the global economic slowdown stemming from the financial problems of Europe
becomes worse than expected. On the contrary, oil prices could rise again if any of the geopolitical risks
increases. Oil prices are likely to remain highly uncertain in the latter half of the year as well.

3-3

Short-term International Gas Situation

In 2011, demand for natural gas increased by 2.9% from the previous year to 3.31 trillion m3. Though
there are regional differences, demand for natural gas is expected to grow further due to its pricecompetitiveness against other fuels and relatively better environmental characteristics. The international
trade volume of natural gas is growing faster than the overall demand, in particular LNG, which grew by
10.1% to about 240 million tonnes in 2011.
The international natural gas markets can be roughly divided into North America, Europe and Asia. North- 12 -IEEJ: November 2012 All Right Reserved

America is currently experiencing an oversupply due to increased production, particularly of shale gas, andthe Henry Hub price, the American natural gas price index, is stable at around $2-3/MMBtu. The low pricewill not only expand the demand for natural gas mainly for electricity generation, but there is also hope that
it will be exported to Asia through the many planned LNG export projects, and provide a new supply source
to the area. In the European market, demand is expected to grow in the mid- to long-term although it dropped
by as much as 4.5% from the previous year in 2011 due mainly to the economic slowdown. In Asian
countries, demand for natural gas is growing rapidly due to economic expansion, with additional demand for
LNG being generated in Japan for generating electricity.
The outlook for the global supply-demand balance of LNG is characterized by a solid expansion indemand and an abundant LNG supply potential to meet the demand, especially from 2015 when large
additional volumes will become available. Regarding the Asian market, the supply-demand is likely tocontinue to be balanced by cargoes from the Atlantic market until 2014. From 2015, however, the need forsupplies for European and U.S. markets will lessen due to the increase in supply from the Asia and Oceania
regions, particularly Australia. Moreover, the need for such supplies could lessen even further if more
nuclear power stations are restarted in Japan. It is important to note the international situation and oil price in2012, as LNG prices for Asia are linked with oil prices.
The gap in gas prices between Asia, particularly Japan, and the West is widening. To lower the Asian
LNG prices, it is necessary to not only increase the supply volume but also to diversify supply sources andhold down demand. In terms of supply, it is important to launch new projects smoothly and to consider
importing gas through pipelines. In terms of demand, it is important to suppress additional demand byimproving the combustion efficiency by introducing latest combined cycle power generation when replacing
conventional thermal power plants, and to promote the expansion of gas co-generation.

References(1) Ministry of Economy, Trade and Industry, “Monthly Report of Mineral Resources and Petroleum
Products Statistics”(2) Ministry of Economy, Trade and Industry, “Iron and Steel, Non-ferrous Metals, and Fabricated Metals
Statistics”(3) Ministry of Economy, Trade and Industry, “Chemical Industry Statistics”(4) Ministry of Economy, Trade and Industry, “Paper, Printing, Plastics, Products and Rubber Products
Statistics”(5) Japan Cement Association, “Cement Supply and Demand Results”(6) Petroleum Association of Japan, “Monthly Report on Petroleum Data”(7) Japan LP Gas Association, “Monthly Report on LP Gas Inventory”(8) Ministry of the Environment, “Calculations of Greenhouse Gas Emissions of Japan”(9) Cabinet Office, “Preliminary Quarterly Estimates of National Expenditure”(10) Ministry of Economy, Trade and Industry, “Monthly Report on Electric Power Statistics”(11) Ministry of Economy, Trade and Industry, “Monthly Report on Gas Industry Statistics”(12) National Policy Unit, Various documents by the Supply-Demand Verification Committee(13) Meteorological Agency, “Meteorological Statistics”(14) Ministry of Finance, “Trade Statistics of Japan”

Contact: report@tky.ieej.or.jp- 13 -