IEEJ e-NEWSLETTER
No. 220(Based on Japanese No. 218)

Published: November 9, 2021
The Institute of Energy Economics, Japan(As of November 8, 2021)

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

Contents
Summary【Energy Market and Policy Trends】
1. Energy Policies
2. Developments in Nuclear Energy
3. Recent Developments in the Oil and LNG Markets
4. Update on Policies Related to Climate Change and Energy Conservation
5. Update on Renewable Energies
1Summary【Energy Market and Policy Trends】
1. Energy Policies
The newly-launched Kishida cabinet is following the energy and environmental policiesof the Suga administration and has approved the Sixth Strategic Energy Plan. However, theoutcome of the House of Representatives election may affect the course of basic energy
policies.
2. Developments in Nuclear Energy
The special inspection necessary for applying for a lifetime extension license began at
Sendai Unit 1. It is hoped that the inspection results will be reflected in the maintenanceplan for the next 20 years and that the plants will be utilized to the maximum into the future.
3. Recent Developments in the Oil and LNG Markets
In addition to surging spot gas prices in Northeast Asia and Europe, rising crude oil prices
are causing concern over higher retail electric and gas prices in the Northern Hemisphere
winter. The global LNG trade grows further in 2021.
4. Update on Policies Related to Climate Change and Energy Conservation
In COP26, discussions on the international credit trading rules deserve attention. For
COP26 to succeed, a package containing elements such as finance and adaptation, whichdeveloping countries demand, must be created.
5. Update on Renewable Energies
Work on e-fuel and e-gas is accelerating globally. Choosing between hydrogen and efuel/e-gas must be discussed in terms of not only fuel price but also the future of supply
infrastructure and related industries.

21. Energy Policies
Shigeru Suehiro, Senior Economist, Manager
Econometric and Statistical Analysis Group
Energy Data and Modelling Center
On October 4, the cabinet of the new prime minister Fumio Kishida was formed. In his firstpolicy speech on October 8, he named three key policy areas: fighting the pandemic, a new form ofcapitalism, and foreign relations and national security. He only touched briefly upon energy andenvironment policies, stating “In working to achieve carbon neutrality by 2050, we will also
formulate a clean energy strategy that ties global warming mitigation into growth, and will
vigorously promote that strategy” as part of a new form of capitalism. This compares with his
predecessor and former prime minister Yoshihide Suga, who emphasized his determination to create
a green society.
Nevertheless, PM Kishida’s energy and environment policies follow those of the Sugaadministration. The LDP policy pamphlet echoes the draft Sixth Strategic Energy Plan and theGreen Growth Strategy towards 2050 Carbon Neutrality, and makes the following promises:“mobilizing all possible policies including a two-trillion yen fund, tax systems for promoting
investment, and regulatory reforms to support companies and individuals in taking new challenges,
to meet the 2030 greenhouse gas reduction goal of 46% and the 2050 carbon neutrality goal” and“achieving a virtuous cycle of the environment and economy through carbon neutrality, by
improving energy efficiency, restarting nuclear power plants whose safety has been assured,
electrifying automobiles, and actively backing investments in clean energy including batteries,hydrogen, underground siting of small modular reactors (SMRs), and carbon recycling technologies
such as synthetic fuels.”
On October 19, the House of Representatives election was officially announced and campaigningbegan (with votes to be cast and counted on October 31). Covid-19 measures and economic policies
are key agenda items, and debate is heating up, particularly on the latter around the keywords of“growth” and “distribution.” Although there is less discussion on energy and environmental policies,
all parties pursue the 2050 carbon neutrality goal and the policy direction is now fixed.
However, the campaign promises of the parties show that their 2050 visions are polarized. As
with the draft Energy Plan, the Liberal Democratic Party (LDP), Komeito, National Democratic
Party (NDP), and Japan Innovation Party (JIP) have not set specific numerical targets. Meanwhile,
the Constitutional Democratic Party (CDP) aims for 100% natural energy sources for electricity,and the Japanese Communist Party (JCP), Reiwa Shinsengumi, and the Social Democratic Party(SDP) call for 100% natural energy sources, without mentioning electricity in particular. Similarly,
while the LDP, Komeito, and JIP have set 2030 reduction targets at 46%, the CDP aims for a
reduction of 55%, JCP 50–60%, and SDP 60%, raising targets yet further. Another major difference
among the parties is their stance towards nuclear power plants. The LDP plans to push ahead withrestarting the plants but says nothing about expanding existing plants or building new ones.
Meanwhile, Komeito, the CDP, and NDP do not allow any new builds or expansions and intend tophase them out. Reiwa calls for immediate abolishment, and the JCP and SDP for abolishment by2030.
On October 22, during the election campaign period, the Sixth Strategic Energy Plan wasapproved by the cabinet, in time for COP26, as had been expected. The Plan basically adopts thedraft prepared in August. However, as described above, there are differences in direction among
the parties. Depending on the outcome of the election, the basic energy policies may be overhauled
yet again.

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2. Developments in Nuclear Energy
Tomoko Murakami, Senior Economist, Manager
Nuclear Energy Group, Strategy Research Unit
According to the campaign promises of parties published ahead of the House ofRepresentatives election on October 31, the parties have different stances on nuclear power.
The Constitutional Democratic Party (CDP), a long-term advocate of abandoning nuclear
power, set a clear goal of achieving “carbon neutrality without depending on nuclear” as their
third campaign promise on their 2021 House of Representatives election website, while the
Liberal Democratic Party mentioned “restarting nuclear power plants that have been confirmed
to be safe” and “underground siting of small modular reactors (SMRs)” as part of their second
promise of “reconstructing a robust middle-class through a ‘new form of capitalism’.” Thisdifference may be significant considering that both parties put “protecting lives and living fromthe pandemic” at the top of their list of campaign promises.
However, apart from the CDP, only the Japanese Communist Party, Komeito, and the
National Democratic Party have explicitly included abandoning nuclear power in the future asa campaign promise. This may reflect weak voter interest in the future of nuclear power at thispoint, compared to Covid measures and economic initiatives that affect lives more directly.
Even if a change of government does not occur and the Kishida administration remains in power,a major change in nuclear policy looks unlikely any time soon.
Nuclear operators are positive about extending the operating life of plants that have excellent
records. On October 18, Kyushu Electric began the special inspection necessary for applying
for a lifetime extension license for its Sendai Unit 1 (PWR, 890 MW, started operation in 1984).
The company is also set to start the same inspection at Unit 2 from late February 2022. In thespecial inspection, the status of degradation of the reactor vessel and other important equipment
is checked in detail, providing valuable input to the plant’s integrity assessment andmaintenance plan for the next 20 years. It is hoped that the plants will be utilized to the
maximum in the future.
At Krsko Unit 1 in Slovenia (727 MW, started operation in 1983), a reactor of the same typeand age as Sendai Unit 1, the International Atomic Energy Agency (IAEA) conducted a
Preliminary Safety Aspects (review) of Long-Term Operation (pre-SALTO review) from
October 4 to 14. The plant had already obtained a 20-year lifetime extension license from the
Slovenian nuclear regulator in 2015, and the review was conducted at the operator’s request.
The review concluded that the plant has an excellent safety management program, gave a highevaluation for the aging management of key components, and suggested that the management
plan continue to be improved heading toward a future lifetime extension.
Slovenia has had a 10-year average national capacity factor of 92.2% between 2010 and 2019,second in the world following Romania’s 93.1%. The list of 10-year average national capacity
factor rankings includes other Eastern European countries, namely Hungary, Slovakia, andBulgaria, where nuclear power plants over 30 years old continue to serve as main power sources
for the countries. In decarbonizing the power sector, it is important to consider contributions
from existing technologies with excellent records, as well as innovative technologies.

43. Recent Developments in the Oil and LNG Markets
Hiroshi Hashimoto
Head of Gas Group
Fossil Energies & International Cooperation Unit
Unprecedented high levels of gas prices persist around the world. Assessed spot LNG prices
in Northeast Asia and spot gas prices in Europe nearly doubled in September while those in the
United States gained 30% in the month. They were as of the end of September 6.5, 7.3 and 2.3
times more expensive than a year earlier in Northeast Asia, Europe, and the United States,
respectively. The spot gas prices in Northeast Asia and Europe have kept hefty premium against
crude oil for three months. Meanwhile, oil-linked term-contract LNG prices are also expected
to be higher in the coming winter following the higher levels of crude oil prices.
Although commercial crude oil inventories in OECD countries have been significantly
below five-year averages, the OPEC-plus producers have not accelerated the pace of increasesof production, driving up the Brent price to over USD 80 per barrel during October. The surgeof gas prices has resulted in unusual gas-to-oil switching by some end-users mainly in the power
generation sector.
The average inventory level of European underground gas storage, which has been referred
as one of the causes of the global gas price rally, stood at 77% as of the end of October being
lower than the 10-year average. However, it should not be automatically interpreted as too low
on the European Continent where multiple pipeline connections have been established between
national markets. The balance of the market in the coming winter is highly dependent on
temperatures.
China's vibrant purchasing appetite has been the main driver of growth of the LNG market
and rising spot prices in 2021 while term-contract purchasing activities have also been geared
up. In October, Shenzhen Gas Group signed a contract with bp to purchase up to 300,000 tonnesof regasified LNG per year for 10 years from 2023, while ENN signed another contract with
Cheniere to purchase 900,000 tonnes per year of LNG for 13 years from July 2022. In late
September, CNOOC concluded a long-term purchase contract with QatarEnergy for 3.5 million
tonnes per year of LNG for 15 years from January 2022.
On the new LNG production project development front, the LNG Canada project announced
in early October that its work had surpassed the 50% completion mark. However, the projectcompany remained concerned about schedules the connecting Coastal GasLink pipeline.
Meanwhile, it was confirmed that the Mozambique LNG's liquefaction plant would becompleted only in 2026 or thereafter.
The world traded 277 million tonnes of LNG during the first nine months of 2021, increasing
by 4.6% or 12 million tonnes year-on-year. Asia's LNG import increased by 20 million tonnes,
including China's increase of 11 million tonnes. The European Union and the United Kingdom
decreased their combined LNG imports by 11 million tonnes. On the supply side, Australia andQatar exported just shy of 58 million tonnes apiece, similar to their volumes a year earlier. The
United States increased LNG export by 60% or 19 million tonnes year-on-year to 50 million
tonnes during the nine-month period.

54. Update on Policies Related to Climate Change and Energy Conservation
Takahiko Tagami, Senior Coordinator, Manager
Climate Change Group
Climate Change and Energy Efficiency Unit

On October 5, it was announced that the Nobel Prize in Physics would be awarded to Dr.
Syukuro Manabe “for the physical modelling of Earth’s climate, quantifying variability andreliably predicting global warming.” Dr. Manabe developed a “coupled atmosphere-ocean
model,” which combines a general circulation model (GCM) of the atmosphere and that ofocean, by dividing up the Earth’s atmosphere and ocean into grids, and applying
thermodynamic and fluid dynamic to them. This “atmosphere-ocean model” has become thestandard method for simulating climate change on computers.
On October 6 and 7, Innovation for Cool Earth Forum (ICEF) 2021 was convened, in which
the draft roadmap for carbon mineralization was unveiled. ICEF roadmaps have so far beendeveloped for including CO2 utilization, direct air capture (DAC), industrial heat
decarbonization, and biomass carbon removal and storage (BiCRS). Carbon mineralization is aprocess in which CO2 becomes bound in rocks as a solid mineral. One of its strengths is thatthe chemical reactions that mineralize CO2 do not require energy input. There are two
approaches to mineralize CO2: injecting CO2-rich fluids into rock formations deep underground,and exposing crushed rocks on the Earth’s surface such as farmland to CO2 bearing gases. It
was estimated that carbon mineralization could remove 1 Gt CO2 per year by 2035 and 10 Gt
CO2 per year by 2050. The roadmap recommends launching dozens of pilot projects worldwide.
For COP26, which will commence in Glasgow, UK on October 31, increasing the NDC for
2030 is becoming a political issue. On October 28, China submitted its updated NDC whichcontains the already announced pledges, and it is still possible that India may update its NDC
to reflect the increase in its renewable target. The United States is also seeing its policy
measures for meeting its 2030 emission reduction target of 50–52% stuck in Congress, and isunlikely to be able to take the lead at COP26. On October 7, the UAE announced a strategic
initiative to achieve net-zero carbon emissions by 2050, followed by an announcement by Saudi
Arabia on October 23 to do the same by 2060. Furthermore, on October 26, Australia alsodecided on a long-term emission reduction plan to achieve net-zero emissions by 2050.
On the subject of the Paris Agreement “rulebook,” attention must be paid to the discussions
on the outstanding agenda related to Article 6 of the Paris Agreement, namely guidance on theuse of internationally transferred mitigation outcomes, and the rules, modalities, and proceduresfor the mechanism for mitigation activities, as well as whether the CDM should be continued
or halted. Other challenges include deciding common target years beyond 2030 (common timeframes) and common tabular formats for ex-post review of the progress of each country(transparency).
Meanwhile, on the subject of climate finance, developed countries committed to a goal ofmobilizing jointly USD 100 billion a year by 2020 to address the needs of developing countries
under the 2009 Copenhagen Accord. At COP26, deliberations will be initiated on setting a newcollective quantified goal from a floor of USD 100 billion per year. However, according to theOECD report presented on September 17, the amount of climate finance provided andmobilized by developed countries remained at 79.6 billion dollars as of 2019. Developing
countries are becoming increasingly distrustful claiming that the COP26 agenda is skewed tothe subject toward emissions reduction (mitigation), and that the 100 billion dollar goal has notbeen reached. To be successful, COP26 will need a package that includes crucial elements fordeveloping countries, such as finance and adaptation.
65. Update on Renewable Energies
Yoshiaki Shibata, Senior Economist, Manager
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit

Work on e-fuel is accelerating globally. E-fuel is a collective name for fuels such as ethanoland diesel produced from renewable electricity-based hydrogen; methane is called an e-gas.
Cases of commercialization include efforts by Carbon Recycling International launched in 2012
in Iceland, in which methanol is produced by synthesizing the hydrogen produced byelectrolysis using zero-emission geothermal and hydropower with the CO2 in steam fromunderground used for geothermal power generation. Audi of Germany is also conducting
research and development and social implementation of e-diesel, e-ethanol, and e-gas as auto
fuels.
Last year, a consortium named Norsk-e-Fuel was launched in Norway, aiming to supply 10
million liters of aviation e-fuel within three years. The consortium comprises Germany’s
Sunfire known for its SOEC co-electrolysis technology (electrolysis of water and CO2 using asolid oxide electrolysis cell) and Switzerland’s Climeworks with its direct air capture (DAC)
technology. Siemens Energy, Enel, ExxonMobil, and Porsche have also jointly announced aplan for the production of e-fuels for automobiles using inexpensive wind power from Chile.
Announcements on the start of e-fuel development have continued this year by overseas
companies, including Finland’s shipping engine company Wärtsilä, Rolls-Royce, Finnish
research institute VTT (jointly with Finland’s energy firm Neste), and Swedish renewableenergy development company Liquid Wind (jointly with Siemens Energy). Aviation fuel,which has high added-value, is considered to be a promising initial market for e-fuel; theGerman government formulated a roadmap for aviation e-fuel in April that sets a goal of
producing 200,000 tonnes of e-kerosene by 2030. In September, major Danish wind power firmØrsted and US gas company Williams signed an MOU on the joint development of e-gas.
E-fuel and e-gas are one of the options for using hydrogen. They can be used in existing
infrastructure and equipment, which is an advantage, but their production costs will always behigher than that of hydrogen. Take passenger cars as an example. Since the car price is thedominant factor for users when judging a car’s economic efficiency, inexpensive conventional
internal combustion engine (ICE) vehicles may have an advantage over expensive fuel-cellvehicles, even though e-fuel price is expensive. However, at a car race in May, Toyota Motor
successfully burned hydrogen fuel in a car combustion engine, which had been consideredextremely difficult technically. If hydrogen ICE cars become available at the same price levels
as existing ICE cars, the advantage of e-fuel over hydrogen would shrink.
Naturally, the choice between hydrogen and e-fuel/e-gas must take into account not only
economic efficiency as perceived by users but also the existence and availability of fuel supply
infrastructure. The impact on related industries is also a crucial factor. Whether to use e-fueland e-gas to maintain existing infrastructure and technologies, and in turn, the businesses andindustries that rely on them, or to build new infrastructure and technologies around hydrogento create transformative new industries—this is a key question that requires in-depth discussion
from various standpoints, as well as decarbonization.

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