IEEJ e-NEWSLETTER
No. 234(Based on Japanese No. 225)

Published: June 20, 2022
The Institute of Energy Economics, Japan(As of June 20, 2022)

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

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)

Source: x-rates.com

Sources:

Summary(1) Finance. Yahoo.com(2) Investing.com

Contents【Energy Market and Policy Trends】
1. Developments in Nuclear Power
2. Recent Developments in the Oil and LNG Markets
3. Update on Climate Change, Energy Conservation, and Renewable Energies【Global Monitoring】
4. Europe & US: Shift Away from Russia Accelerates but the Reality Remains Difficult
5. China: Growing Attention to the Course of China-Russia Energy Trade
6. ME: Ukraine Crisis Prompting Food and Fuel Crises in Non-oil-producing Countries
7. Russia: Ukraine Crisis Descends into Quagmire as International Pressure Mounts

1Summary
1. Developments in Nuclear Power
Finland’s Fennovoima terminated the EPC contract for its Hanhikivi Unit 1 nuclear new build
project with Rosatom. The decision will have a major impact on the stable supply of power inNorthern Europe. Developments must be monitored.
2. Recent Developments in the Oil and LNG Markets
As the LNG trade flow from the United States shifted to Europe, LNG imports in Japan and
China decreased year-on-year during the first four months of 2022. The gap between TTF and
NBP is widening, while the Henry Hub price is also expensive. Upward pressures are on oil
prices, too.
3. Update on Climate Change, Energy Conservation, and Renewable Energies
The Joint Meeting on the Clean Energy Strategy published an interim report on the Clean
Energy Strategy. The direction of green transformation (GX) was indicated for 17 industries.
4. Shift Away from Russia Accelerates but the Reality Remains Difficult
Active efforts to shift away from Russia continue in Europe, such as disposing of assets in
Russia and securing alternative energy sources. Despite these efforts, it will not be easy to breakfree from Russia soon, especially for natural gas.
5. China: Growing Attention to the Course of China-Russia Energy Trade
China and Russia are becoming increasingly dependent on each other in energy. The bilateralrelationship is attracting closer scrutiny in view of the Ukraine crisis; the countries’ trading ofenergy, particularly long-term trading of natural gas, is likely to expand.
6. ME: Ukraine Crisis Prompting Food and Fuel Crises in Non-oil-producing Countries
Turkey’s position as an intermediary for Russia and Ukraine and as the holder of the casting
vote over allowing Finland and Sweden to join NATO is growing.
7. Russia: Ukraine Crisis Descends into Quagmire as International Pressure Mounts
As the Ukraine crisis deepens and international pressure on Russia increases, signs are emerging
as to what might weaken the foundation of the Putin administration, including the visible impactof economic sanctions on people’s lives and calls to end the war.

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1. Developments in Nuclear Power
Tomoko Murakami, Senior Economist, Manager
Nuclear Energy Group, Strategy Research Unit
On May 2, Finnish electric utility Fennovoima announced that it had terminated the EPC
contract for plant delivery with RAOS Project (a European subsidiary of Rosatom) for its
Hanhikivi Unit 1 nuclear new build project. The company attributed the termination to thesignificant delay by RAOS to deliver the project, which has been worsened by the Russian
invasion of Ukraine. Fennovoima has also commented, “Unfortunately, the termination of the
EPC contract is estimated to have a significant employee impact in Fennovoima and Pyhäjoki
region (where Hanhikivi is to be hosted),” and expressed its intention to make utmost effort tomitigate the impact.
Meanwhile, Rosatom stated that the decision is utterly inexplicable as the project has been
progressing without issues and that it will consider demanding some form of compensation andengage in dialog to resume construction. This setback for one of the largest power plant
construction projects in Northern Europe is a major miscalculation for European countries
which are seeking to shift away from Russian natural gas. Further decisions by Fennovoima
will be closely watched.
Besides Hanhiviki, the Rosatom group’s other international nuclear new build projects seemto be progressing without problem. On May 11, pre-assembly of the containment vessel at
Rooppur Unit 1 in Bangladesh began. On the 19th, the first concrete was poured for Unit 4 of
the Xudapu Nuclear Power Plant under construction in China. At Rooppur Units 1 and 2 andXudapu Unit 3, the impact of the pandemic has been kept to a minimum in the past two years
and the situation has not changed even after the invasion of Ukraine.
This compares with the Hinkley Point C project (two 1720-MW EPRs) by EDF Energy in
Britain. On May 20, EDF Energy announced that it will postpone the start of commercial
operation of Hinkley Point C by yet another year to around June 2027, adding to the pandemicinduced delays in the schedule. With the construction cost for the two plants combined having
risen further to 25 to 26 billion pounds (at 2015 prices), it is not clear how long it will take torecoup the investment even with the compensation from the FIT-CfD program. On May 20, theUK government announced plans to work with the Nuclear Decommissioning Authority (NDA)
to consider measures to support the siting of nuclear plants in Wales; however, currently it ismore important for the future of the UK’s nuclear program to get Hinkley Point C back on track
toward completion. Future actions by the UK government and EDF Energy deserve attention.
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2.

Recent Developments in the Oil and LNG Markets
Hiroshi Hashimoto, Senior Analyst, Head of Gas Group
Fossil Energies & International Cooperation Unit

Japan imported 25.97 million tonnes of LNG during the first four months of 2022, 8% lessthan the same period in 2021. Notably LNG import from the United States nearly halved fromone year earlier to 1.60 million tonnes. China's LNG import also declined during the four-month
period by 17% to 21.59 million tonnes. As a result, Japan surpassed China to return to theposition of the largest LNG importer in the world for the first four months of 2022. Most of thedecrease of LNG imports in Japan and China was effectively shifted to Europe.
Shipments of LNG to Europe, notably from the United States, have increased in recent
months. The United States exported 22 million tonnes of LNG during the first quarter of 2022,
the largest ever from one country for a three-month period. The share of the European Unionand the United Kingdom in destinations of LNG from the United States has nearly doubled to
65% from around a third in 2020 and 2021. As European gas prices have been often traded at
higher levels than Asian spot LNG prices so far in 2022, trade flows have also shifted.
NBP's (the gas hub price in the United Kingdom) discount against TTF (the most prominent
gas hub price on the continent) expanded from less than USD 2 at the end of March briefly to
USD 14.5 per million Btu in early May. This was partially caused by relatively relaxed supply
balance in the United Kingdom with increasing number of laden LNG carriers waiting fordischarge at different LNG import terminals around Europe, as well as limited transportation
capacity of interconnecting pipelines from the United Kingdom to the continent.
The Henry Hub Futures settlement prices for front-month delivery, after USD 6.032 of 4
April 2022, have been the highest since December 2008 and the highest since the shale
revolution, hitting USD 8.783 on 5 May and USD 9.322 on 6 June 2022.
Numerous long-term LNG sales contracts have been negotiated for supply from thosegrassroots and expansion LNG production projects in the United States in recent weeks.
Progresses have been announced for LNG receiving terminal projects in Europe, notably FSRU
chartering activities in Germany where LNG imports have been recently proposed.
International crude oil prices have been traded higher than USD 100 per barrel since earlyMay. As EU member countries agreed to ban imports of Russian oil except for volumes
transported via pipeline at the end of May, EU's import of Russian oil is expected to decline in
the coming months. As other markets cannot absorb all the redirected volumes from Russia,
reduction of Russian oil production looks inevitable, resulting in further upward pressures on
prices. The balance between the import ban and the sluggish outlook of major economies is
expected to dictate the direction of crude oil prices in the coming months.

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3. Update on Climate Change, Energy Conservation, and Renewable Energies
Takahiko Tagami, Senior Coordinator, Manager
Climate Change Group
Climate Change and Energy Efficiency Unit
On May 19, the Joint Meeting on the Clean Energy Strategy, which is a joint meeting between
the Green Transformation Promotion Subcommittee of the Industrial Structure Council and the
Subcommittee on the Next Generation Supply-Demand Structure in View of 2050 Carbon
Neutrality of the Advisory Committee for Natural Resources and Energy, released an interim
report on the Clean Energy Strategy. For Japan to decarbonize while simultaneously growing
and developing its economy, it is essential to transform its energy supply-demand structure andindustrial structure. To achieve this, since December 16, 2021, discussions have examined theactual transformation path for each potential growth industry, demand-side energy
transformation, and policy measures necessary for transformation into clean-energy-centeredsocioeconomic and industrial structures. Given Russia’s invasion of Ukraine and the tightelectricity supply, possible measures for decarbonizing while establishing energy security werealso identified.
The interim report indicates the direction of GX (green transformation) for 17 industries: 1)
ammonia, 2) hydrogen, 3) offshore wind power, 4) battery cells, 5) nuclear power, 6) CO2
capture, 7) concrete and cement, 8) sustainable aviation fuel (SAF), 9) synthetic methane, 10)
synthetic fuels and green LPG, 11) chemicals, 12) biotech-based monozukuri (manufacturing),
13) steel, 14) automobiles, 15) transportation, 16) housing, building, and infrastructure, and 17)
foods, and agriculture, forestry and fisheries. The report also identifies the challenges and the
direction for commercializing the technologies essential for carbon neutrality, such as CCS andnegative emission technologies (NETs).
As for the transformation of the energy supply-demand structure for industry, the report
pointed out the need to pursue thorough energy conservation and switching to carbon-freeenergy consumption as a cross-industry policy, and to draw up appropriate transition paths
depending on what technologies are available and the position of the sector in the supply chain.
The report described renewable energy as a power source featuring high energy security anddecarbonizing effect, along with nuclear power. By utilizing it to the maximum, it is expected
to contribute to shifting away from Russian energy in the short term and to the transition toward
decarbonization in the medium to long term. The report set out policy directions such as
attracting investments by formulating an offshore wind power industry vision, strengthening
inter-regional transmission lines, upgrading grid operations by digitalization, and promoting
battery storage and demand response (DR).
The basic concepts to improve the foreseeability of GX investment are “maximum utilizationof growth-oriented carbon pricing,” and “investment stimulus packages that integrate
regulations and support,” including roadmaps. Five initiatives for achieving GX wereannounced (1. budget measures, 2. regulatory and institutional measures, 3. financing package,
4. phased development of the GX league, a voluntary framework for emissions trading, and 5.
global strategies for the decarbonization-related industries to gain overseas market share),which initiatives (pillars) are slated to be firmed up toward the end of the year.

54. Europe and US: Shift Away from Russia Accelerates but the Reality Remains Difficult
Ichiro KUTANI, Senior Research Fellow, Manager
Global Energy Group 1, Assistant to Managing Director
Strategy Research Unit
Active efforts to shift away from Russia continue in European countries. European oil majors
such as Shell and BP are disposing of their assets in Russia at the cost of posting huge losses,
as has been reported in Japanese newspapers. The countries are also scrambling to secure
replacements for Russian pipeline gas for natural gas supplies. Being the most dependent on
Russian gas, Germany began constructing a floating LNG import terminal and put together shipcharter contracts at an extraordinary speed. The country has reportedly managed to reach a basic
agreement with Qatar on a new LNG agreement thanks to ministerial-level diplomacy. Italy,
among others, is making similar efforts by negotiating on natural gas procurement withneighbors Algeria and Egypt through its leading oil and natural gas company, ENI.
Given their extremely high dependency on Russian gas supplies, however, it will not be easy
for European countries to shift away from Russian natural gas soon despite these efforts. It is
important to understand first that the LNG supplies which Europe is seeking to use are notparticularly large relative to Europe’s demand. According to BP’s statistics, the world’s total
LNG imports were about 490 billion m3 in 2020, while in that same year, Europe (including
Turkey) imported roughly 170 billion m3 of Russian natural gas. If Russian gas is to be replacedwith LNG, the global LNG trade volume will have to increase by as much as 35%. It is
impossible to increase the volume by so much in a short time, and the impact is alreadyappearing; there have been frequent reports in the media that European natural gas majors aremaking preparations to pay in rubles, and that the European Commission has set guidelines toenable this. This suggests that while Europe will continue its policy to shift away from Russia,
it will do so only gradually and will secure Russian gas imports in the meantime. Faced with
the need for a stable energy supply, Europe’s decision seems inevitable.
Meanwhile, Russia has begun to implement countermeasures. In late April, Russia cut off
natural gas supplies to Bulgaria and Poland which refused to pay for the gas in rubles, and hasannounced that it will stop transporting gas via the Yamal-Europe pipeline and cut off supplies
to Finland which announced its intention to join NATO. Russia has so far acted as a reliablesupplier for Europe, but now appears ready to wield its influence without restraint. Japan
currently plans to hold on to its interest in Sakhalin, but it must remain vigilant of Russia’s
moves and be aware of the possibility of supply disruptions and make preparations.
The United States is working with its allies across the Atlantic to further strengthen the antiRussia network. At the online G7 summit in May, the US announced that it will work towardphasing out or banning the import of Russian oil. The US has increased its LNG exports to
Europe, assisting Europe’s policy to turn away from Russia. The US is also weaponizing its
abundant fossil energy resources in the fight against Russia.

65. China: Growing Attention to the Course of China-Russia Energy Trade
Li ZHIDONG, Visiting Researcher
Professor at Graduate School
Nagaoka University of Technology
According to the China Customs Statistics, China imported 510 million tonnes of crude oilin 2021, of which 16% or 79.66 million tonnes came from Russia. Natural gas imports measured
161.8 billion m3, including 10% or 16.5 billion m3 from Russia. Coal imports totaled 320
million tonnes, of which 18% or 56.99 million tonnes came from Russia. For China, Russia is
the second largest crude oil supplier after Saudi Arabia, the third largest natural gas supplierafter Australia and Turkmenistan, and the second largest coal supplier after Indonesia.
Meanwhile, according to the US Energy Information Administration (EIA), Russia exported
240 million tonnes of oil, 252 billion m3 of natural gas, and 240 million tonnes of coal in 2021,
of which exports to China presumably accounted for 33%, 7%, and 24%, respectively. For
Russia, China is the largest export destination of its oil and coal. In other words, the two are somutually dependent in terms of energy that China’s stable energy supply is integrally linked
with Russia, and Russia’s energy exports with China. The Ukraine crisis has amplified attention
on the direction of this bilateral energy trade, which is likely to expand going forward for thefollowing reasons.
First, expanding China-Russia energy trade is a fixed policy for both countries. On February
4, before the Ukraine crisis, President Xi Jinping and President Vladimir Putin held talks in
Beijing and announced a joint statement to strengthen cooperation. At the same time,cooperative agreements were signed in 15 areas. One of these was an agreement to build
pipelines in Russia’s Far East to export 10 billion m3 of Sakhalin’s natural gas to China via
Vladivostok. When complete, combined with an annual volume of 38 billion m3 transported via
the Power of Siberia Pipeline (signed in May 2014, started operation in December 2019, andplanned for completion in 2024), the total natural gas exports by pipeline to China will expand
to 48 billion m3. As for crude oil, Russia plans to export 10 million tonnes annually to China
through a pipeline in Kazakhstan. When combined with the East Siberia Pacific Ocean (ESPO)
pipeline already in operation, pipeline oil exports to China will increase to 40 million tonnes
from the current 30 million.
Next, the US-led economic sanctions against Russia could induce China-Russia trade to
expand. According to media reports, Russia is selling energy below international market prices
to counter the sanctions. For example, according to one China-Russia broker, “The CIF priceof ESPO oil for Chinese ports is set at 10 dollars below those of comparable North Sea Brent
oil prices per barrel. Prices are not negotiable. There is no limit on the supply volume. The
currency for settlement is open to negotiation (yuan, ruble, euro).” These conditions are surely
attractive for oil refiners. As China opposes the sanctions, it would not be surprising if China
opts to expand its imports of cheaper Russian energy. In a written interview with the TASS
News Agency released on May 5, Chinese Ambassador to Russia Zhang Hanhui said that thetwo countries will continue to deepen their ties in the energy area in a spirit of fairness andmutual benefit, implying that imports will be expanded.
China and Russia are also thought to be accelerating negotiations to export an estimated 50
billion m3 of natural gas per year via the West Siberia pipeline via Mongolia. Chinese companies
are also believed to be keen to acquire the natural gas and other interests previously held byShell and other Western oil majors that have pulled out of the development projects in Russia.
All of these factors will contribute to expanded natural gas trade in the long term.

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6. ME: Ukraine Crisis Prompting Food and Fuel Crises in Non-oil-producing Countries
Shuji HOSAKA, Board Member
Director of JIME Center
Middle Eastern countries are being hit hard by the Ukraine situation. Particularly, in the
countries that rely on Russia and Ukraine for wheat and cooking oil, people are facing
increasing difficulties in daily life due to soaring energy prices and inflation.
Turkey’s presence as an intermediary for Russia and Ukraine is growing. However, thecountry has not joined the sanctions against Russia and is viewed critically by the West as being
pro-Russia. Meanwhile, the plunging Turkish lira has caused consumer prices to surge in the
country, adding to the difficulties of making a living.
Furthermore, when Finland and Sweden applied to join NATO (North Atlantic Treaty
Organization) as the Ukraine situation worsened, Turkey criticized the countries for supporting
the Kurdistan Workers’ Party (PKK), whom they designate as a terrorist group, and expressed
its intention to oppose their NATO membership. This gives Turkey the casting vote for the
expansion of NATO as admission to the Organization requires unanimous approval, and couldin turn affect Turkey’s admission to the EU in future.
Meanwhile, Europe’s effort to break away from its reliance on Russian fossil fuels hasbrought renewed attention to Middle Eastern oil and gas producing countries as alternative
sources. In April, Italy’s ENI signed a contract with Algeria’s Sonatrach to expand natural gas
supplies, and on May 20, the German government exchanged a document with Qatar tostrengthen cooperation in energy-related areas, including LNG imports.
On May 13, UAE President Sheikh Khalifa died and was succeeded by Crown Prince
Muhammad of Abu Dhabi, his younger half-brother and effectively the most powerful figure in
the UAE. The death of the leader of a top oil-producing country caused heads of state and other
Western leaders to flock to the UAE, including French President Emanuel Macron, UK Prime
Minister Boris Johnson, German President Frank-Walter Steinmeier, and US Vice President
Kamala Harris (House of Representatives member Akira Amari visited from Japan).
The West has been pressuring Middle Eastern oil producers to produce more, but has notreceived a favorable answer. In particular, the “special bilateral relationship” between the US
and Saudi Arabia has lost its effect and has soured following the murder of a Saudi journalist.
Some speculate that US President Biden may visit Saudi Arabia but the situation remains
uncertain.
Another uncertainty is the course of the Joint Comprehensive Plan of Action (JCPOA) with
Iran. The JCPOA was believed to be close to being revived in March, but the situation thenstagnated as both sides struggled to compromise over the removal of Iran’s Islamic
Revolutionary Guard Corps from the list of designated foreign terrorist groups. There is also
growing international attention to the clash between Israel and Palestine after anger flared up
on the Palestinian side over the murder of a renowned Palestinian American journalist.

87. Russia: Ukraine Crisis Descends into Quagmire as International Pressure Mounts
Shoichi ITOH, Manager, Senior Analyst
Global Energy Group 2, Strategy Research Unit
On May 8, Russia celebrated Victory Day for World War II with a military parade in
Moscow’s Red Square, with no foreign leaders attending, unlike in other years. President Putin
delivered a speech in which he justified what Russia calls the “special military operation” asthe only correct decision and called for loyalty to the country and solidarity. Despite initial fears,
he did not declare that Russia is at war, which would have made it possible to mobilize theentire nation, nor could he boast of any concrete accomplishments.
On May 14, the Ukrainian forces announced that Russian forces had begun to retreat from
Kharkiv, the country’s second largest city located in northeastern Ukraine. On the 15th, the UK
Ministry of Defence shared the view that Russian forces’ plan to invade Donbas in eastern
Ukraine is falling behind the initial plan. However, on May 11, the pro-Russian provisional
government in the southern Ukrainian city of Kherson asked President Putin to incorporate thecity into Russia, and on the 21st, the Russian forces announced the complete seizure of the
Azovstal iron and steel works in Mariupol in southeastern Ukraine. Amid media reports that
Russia’s initial aim is to gain control of the entire Donbas region, on May 22 the Ukrainianparliament approved the presidential decree to extend the period of martial law and generalmobilization, in place since the start of the invasion, by 90 days.
On May 4, European Commission President von der Leyen announced the sixth round of EU
sanctions against Russia that include a ban on oil imports through the end of 2022 and theremoval of Russia’s largest bank Sberbank from SWIFT. The sanctions are yet to be enacted
due to Hungary’s opposition, but it is widely believed that with the right conditions, Hungary
will eventually agree as even those countries that are more dependent on Russian oil haveagreed. On May 12, the Japan-EU summit reaffirmed that the parties will cooperate on the
sanctions against Russia, and in a joint statement on the 20th, the G7 Finance Ministers andCentral Bank Governors Meeting underscored their commitment to isolate Russia from theglobal economy. On May 18, Finland and Sweden submitted an official application to join
NATO (North Atlantic Treaty Organization). Turkey alone is withholding approval due to its
disagreement with Northern European countries over the Kurdish issue, but as with the case of
Hungary above, the move is seen as an attempt by Turkish President Erdogan to “obtain better
conditions.” On May 21, US President Biden signed into law a $20.1 billion supplemental
appropriations bill to strengthen military, economic, and humanitarian support to Ukraine,
which had passed both houses with bipartisan support.
International pressure against Russia is mounting and is starting to affect people’s lives.
Inflation has soared to 17.83%, the highest since January 2002 (May 13, 2022, Federal Bureauof Statistics), and on May 17, the Russian Ministry of Economy released a projection that thecountry’s full-year GDP will shrink by 7.8% in 2022. With calls to stop the war emerging even
within the Putin administration, social discontent is likely to mount as the Russian military
death toll rises. Any impact of the international sanctions on Russia on the administration’s
stability must be watched closely.

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