IEEJ e-NEWSLETTER
No. 237(Based on Japanese No. 228)

Published: September 16, 2022
The Institute of Energy Economics, Japan(As of September 12, 2022)

LNG & Natural Gas prices
70
60
50
40
30
20
10
0

(US$/mmbtu) (Sep'21-Sep'22)
Europe (NG) (2)Japan LNG import price, CIF (1)

/ S

/ O

2021-2022/ N / D X J / F

Henry Hub (NG) (3)/ M/ A / M / J

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70
60
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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. 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 and US: Growing Interest in “Setsuden”
5. China: Decarbonization, Stable Power Supply and Planned Outage
6. ME: Zawahiri, Leader of Al Qaeda, Killed
7. Russia: Intensifying War and Slowing Russian Economy

1Summary
1. Developments in Nuclear Power
Germany decided to keep two reactors on standby until mid-April 2023 in order, if necessary,
to provide an additional contribution to the electricity grid based on the results of stress tests.
2. Recent Developments in the Oil and LNG Markets
Oil prices have been facing upward pressure in late August and natural gas prices for Europe
and spot LNG prices remain extremely high. Japan is also struggling to secure stable suppliesof electricity and city gas.
3. Update on Climate Change, Energy Conservation, and Renewable Energies
In the US, the Inflation Reduction Act, which includes massive spending on climate action,
came into effect. The EU set a goal of reducing its gas demand by 15%.
4. Europe and US: Growing Interest in “Setsuden”
Amid the energy crisis, Europe is increasingly interested in “Setsuden,” Japan’s energysaving experience after the Great East Japan Earthquake. The worst drought in five centuries isalso adding to Europe’s distress.
5. China: Decarbonization, Stable Power Supply and Planned Outage
In China, where the introduction of non-fossil energies and reduction of dependency on
imported fossil energies are making progress, scheduled blackouts were implemented in several
regions. It is becoming difficult to secure a stable supply of electricity amid the abnormal
weather conditions.
6. ME: Zawahiri, Leader of Al Qaeda, Killed
The United States killed Ayman al-Zawahiri, the leader of Al Qaeda. Tunisia held aconstitutional referendum. Political turmoil continues in Iraq and Libya.
7. Russia: Intensifying War and Slowing Russian Economy
As Ukraine celebrated its anniversary of gaining independence from the former Soviet Union,
the fighting intensified. Economic indicators suggest that the Russian economy is slowing down,
and Russia is making desperate efforts to stop the exodus of foreign capital, including banning
the sale of assets until the end of the year.

21. Developments in Nuclear Power
Tomoko MURAKAMI, Senior Economist, Manager
Nuclear Energy Group, Strategy Research Unit
Germany’s determination to permanently terminate all operating nuclear reactors by the endof 2022 has slightly changed. Amid the mounting threats to energy security, on July 17 theFederal Ministry for Economic Affairs and Climate Action decided to conduct stress tests
related to the stable supply of electricity and grid operations, with a view to continuing tooperate the three remaining nuclear power plants in 2023 and beyond. On July 25, Prime
Minister Olaf Scholz stated that whether the lifetime of the three plants will be extended will
be decided pending the results of the stress tests, which are due to come out in a few weeks. On
September 5, German government decided to keep two reactors, Isar 2 and Neckerwestheim,
instead of shutting down at the end of 2022, on standby until mid-April 2023 in order, if
necessary, to provide an additional contribution to the electricity grid.
The German people’s views are divided. The opposition Free Democratic Party (FDP) has
long opposed shutting down at the end of 2022 but the Green Party, which is part of the rulingcoalition, is staunchly demanding that the plants be shut down at the end of the year. The debate
remains gridlocked. According to a telephone survey and online poll conducted by ARDDeutschlandTrend, a survey firm, from August 1 through 3, 15% of 1,313 respondents
supported closing the plants, 41% supported a few months’ extension, and another 41% longerterm use. When it decided to abandon nuclear power, Germany could have foreseen that energy
security could deteriorate critically in the coming decades due to international disputes and thepolicies of resource-rich countries. It will be interesting to see how the German government
handles the criticisms for being “reactive” and what decisions it makes.
Since early August, there has been continued shelling of the Zaporizhzhia Nuclear Power
Plant (ZNPP) currently held by Russia in southern Ukraine, with both sides blaming the otherfor the attacks. IAEA Director General Mariano Grossi observed the current situation of ZNPP
on August 30 and confirmed that all safety and security systems must be fully functional. At
the NPT (Non-Proliferation Treaty) Review Conference held at the UN Headquarters from
August 1 through 26, the draft final document, which demands that ZNPP be put back in thehands of the Ukrainian authorities, was opposed by Russia, and so the demand was watereddown to the phrase “reaffirm the importance of control by the Ukrainian authorities.”
Nevertheless, the document was still not approved unanimously. It is hoped that experts fromvarious areas work together to secure the safety of ZNPP.
Prime Minister Fumio Kishida participated online in the second meeting of the GX (Green
Transformation) Implementation Council held at the Prime Minister’s Office on August 24, andordered that discussions begin on the subjects of (1) restarting the seven nuclear power plantsthat have obtained a reactor installation license for the summer of 2023 or later, in addition to
the ten that have already restarted (including six in operation), (2) reviewing the lifetime
extension of nuclear power plants, (3) proceeding with developing and constructing nextgeneration reactors, and that a conclusion should be reached by the end of this year.

32. Recent Developments in the Oil and LNG Markets
Tetsuo MORIKAWA, Senior Economist, Manager
Oil Group
Fossil Energies & International Cooperation Unit
Oil prices have been facing upward pressure in late August. At a meeting on August 3, OPEC
Plus decided to increase production by 100,000 b/d in September. The decision came as aminimum gesture of politeness by Saudi Arabia and OPEC Plus in response to President Joe
Biden’s request to increase output, but it also showed that many oil-producing countries haveinadequate spare capacity to produce more as missing production targets is the norm now. On
August 8, the EU presented a draft proposal for reviving the JCPOA, but the media reported
that the US may not make further compromises to Iran, which would make the revival difficult.
On August 22, Saudi Arabia’s Energy Minister Abdulaziz bin Salman al Saud mentioned that
OPEC Plus may start to cut production again.
According to the International Energy Agency (IEA), Russia produced 11.09 mb/d andexported 7.4 mb/d of oil in July, similar to the previous month. Europe is prioritizing controllinginflation and is steering itself away from building a strict framework for banning Russian oil,with the EU not opposed to transporting Russian oil outside the EU, and the UK bans insuring
Russian oil exports only to exports to the UK. Meanwhile, demand for oil remains robust. In its
August 11 Oil Market Report, the IEA raised its forecast for oil demand in 2022 by 0.5 mb/dfrom the previous month to 99.7 mb/d. While the supply of oil is likely to remain in surplus
into the first half of 2023 even without the JCPOA revival, the market reacted to the possibilityof another OPEC plus production cut mentioned earlier, causing Brent to rise again to$100/barrel on the 23rd.
In the natural gas market, prices remain extremely high in Europe and for spot LNG. On
August 22, the Dutch TTF price rose to $81/Mbtu ($476/barrel in oil equivalent) and the spot
LNG price for Asia to $58/Mbtu ($341/barrel in oil equivalent), surpassing the levels before
the Ukraine crisis. On the same day, the US Henry Hub price, which has been relatively low,
also rose temporarily to $10/Mbtu ($59/barrel in oil equivalent). Europe is now being forced tocurb demand, and on August 5 adopted a regulation to reduce the demand by 15% this winter.
On August 5, Sakhalin Energy LLC was established as the new operating company of the
Sakhalin 2 project. According to media reports, Mitsui and Mitsubishi, which are participatingin the project, are set to join the new company. There are concerns about electricity shortages
in Japan this winter, and the demand restriction for both gas and electricity might be introduced.
Amid the tight LNG supply-demand balance, Japan is also struggling to secure stable suppliesof electricity and city gas.
In Tokyo, the 43rd IAEE International Conference was convened from July 31 throughAugust 4 co-hosted by the IEEJ, the International Association for Energy Economics (IAEE),
and the National Graduate Institute for Policy Studies (GRIPS). One of the central themes wascarbon neutrality, but energy security also took center stage given the soaring energy prices andthe war in Ukraine. Ideally, both carbon neutrality and energy security should be achieved
simultaneously, but in reality priority is being given to energy security.

43. Update on Climate Change, Energy Conservation, and Renewable Energies
Sichao KAN, Senior Researcher
New Energy System GroupElectric Power Industry & New and Renewable Energy Unit
On August 16, US President Joe Biden signed the Inflation Reduction Act (H.R.5376). The
legislation anticipates spending approximately $369 billion on energy security and climate
action. According to an estimate by the US Department of Energy, the clean energy initiative,
which consists mainly of the Inflation Reduction Act and the 2021 Bipartisan Infrastructure
Law, could reduce the US’ 2030 GHG emissions by 40% from 2005 levels. It is also anticipatedto help the US meet its 2030 GHG emissions reduction target (of 50–52% from 2005 levels).
The legislation extends the term of the investment tax credit (ITC) and production tax credit(PTC) for renewable energy to include projects whose construction began on or before January
1, 2025. Both the ITC and PTC are essential support measures for solar PV and wind power,
respectively, and their terms have been extended repeatedly. The scope of the ITC now
additionally includes energy storage facilities, biogas projects that satisfy certain requirements,and micro grid control facilities.
Further, measures to foster domestic clean energy industries were also incorporated in the
Inflation Reduction Act. For the ITC and PTC, projects that meet certain domestic sourcing
requirements are entitled to an additional 10% tax deduction. When the legislation becomes
effective on August 18, only EVs assembled in North America will be eligible for the EV credit
for new EV purchases. New tax credits were also introduced to support the production and saleof domestic parts for solar PV, wind power, and batteries.
Japan, too, is facing an urgent need to address constraints on the supply of resources andgoods caused by the pandemic and the Ukraine crisis, as well as rising consumer prices. At theIndustrial Structure Council meeting held on August 4, energy security and the stable supply of
resources were identified as key issues in economic and industrial policies for FY2023. In
addition to securing electricity and LNG supply capacity, the meeting proposed a policy tomaximize the use of clean power sources such as renewables and nuclear power that contributeto energy security.
On July 20, the European Commission formulated Save Gas for a Safe Winter, with the goalof Member States reducing their gas demand by 15%. In addition, the Commission also
proposed the Council Regulation on Coordinated Demand Reduction Measures for Gas, whichurges all Member States to reduce gas demand in an emergency. The Regulation was adopted
on August 5, and each Member State is now considering concrete measures to comply with thisRegulation. For example, Germany will ensure that electricity and gas are saved in publicbuildings, and will keep the temperature to which offices are heated in winter to a maximum of
19°C, at both public and private offices. In the industrial sector, operators are working to savegas and shift to renewables, while the government is examining the gas demand data of 2,500
companies to develop a Gas Safety Platform that allows the government to consider reduction
measures in an emergency. The Platform also plans to introduce a mechanism that allocates anyenergy surplus arising from efforts by companies to those companies in need.

54. Europe and US: Growing Interest in “Setsuden”
Ichiro KUTANI, Senior Research Fellow
Manager, Global Energy Group 1
Assistant to Managing Director, Strategy Research Unit
In Europe, there is growing interest in the power saving programs that Japan implemented
after the Great East Japan Earthquake. The earthquake caused many power plants in East Japanto stop and resulted in rolling blackouts in Tokyo. Through combined efforts at all levels
spanning from individuals to industries, East Japan managed to reduce peak power demand by
over 15% from the previous year. Japan’s power saving scheme at the time is known in othercountries as “Setsuden.” Europe is struggling to eliminate its dependency on Russian energy
supplies and is being increasingly intimidated by Russia’s weaponization of natural gas. In
particular, it is hard to find alternatives to meet the demand for natural gas for heating andindustry, and a stable gas supply is critically and directly connected with the lives and economic
activities of the population. Accordingly, in addition to urgently topping up its wintertime gas
reserves, Europe has set a goal of reducing its gas demand by 15%. Europe plans to also saveelectricity in order to reduce the gas that is consumed for generating power, and that is where
Japan’s experience caught Europe’s attention.
Gas and electricity prices continue to soar in Europe due to concerns over the tighter andunstable balance of supply and demand. This has led to various problems, including utilities
suffering financial difficulties and wider energy poverty (households spending a certain
percentage of disposable income on energy). To address the former, for example, Germany has
announced plans to impose a surcharge on the use of gas and spend the proceeds to rescue
utilities. For the latter, for example, the UK will offer general households an electricity bill
discount worth 400 pounds (approx. 65,000 yen) in total over six months from October 2022.
Europe has liberalized its electricity and gas markets since the 1990s, but with the energy crisis,
governments now seem to be playing a bigger role. One clear example is France, where thegovernment announced that it will re-nationalize the country’s largest power company, EdF,
with the dual goals of controlling energy prices and developing nuclear power.
As Europe descends into an energy crisis due to its high dependency on Russia, another factor
adding to the distress is the worst drought in five centuries. Many parts of Europe developed as
logistics hubs by using the Rhine and other major rivers. As the scorching heat continues, riverlevels are falling, threatening the transport of petroleum products and coal in those regions.
Further, nuclear power plants that use river water for cooling will be forced to lower their output
as the water level falls, with the media in France reporting that some plants are already reducing
their output.
Meanwhile, in the United States, the media have reported strong earnings reports from oiland natural gas companies such as ExxonMobil, Chevron, Occidental, and Chesapeake Energy.
Just like in Europe and Japan, soaring energy prices are imposing enormous burdens on
consumers in the US and are becoming a political issue, while generating huge profits forenergy producers in the country. As the US has both producers and consumers, it can gain
profits at times of both high and low energy prices. This highlights the strength and depth of
the US as a major energy-producing country, in contrast to many other countries.

65. China: Decarbonization, Stable Power Supply and Planned Outage
Li ZHIDONG, Visiting Researcher
Professor at Graduate School
Nagaoka University of Technology
According to the National Bureau of Statistics of China (NBS), primary energy consumption
increased by 1.7% year-on-year in the first half of 2022. This is slower than the economic growthrate for the same period (2.5%). The ratio of non-fossil energies in primary energy consumption isestimated to have increased to 18%, up 1.6 points year-on-year, while falling by 0.3 points to 56.1%
for coal, dropping by 1 point to 17.7% for oil, and down 0.3 points to 8.2% for natural gas. Further,according to the National Energy Administration (NEA), China Nuclear Energy Association, andothers, the ratio of non-fossil power sources in power output increased by 1.9 points to 36.5%(including 31.5% of renewable energy, up 1.8 points, and 5% of nuclear power, up 0.1 point) from2021. Thus, decarbonization is making progress.
Progress was also observed in the stable supply of fossil energies through both an increase indomestic production and decrease in imports. According to NBS, the General Administration ofCustoms of China, and others, domestic coal production increased by 11.5% to 2.56 billion tonnes
and exports decreased by 18.2% to 140 million tonnes between January and July. The export
dependency of nominal consumption (output + imports) decreased by 1.7 points to 5.1%. Oil
production increased by 3.7% to 120 million tonnes and oil imports decreased by 4% to 290 million
tonnes, causing import dependency to decrease by 1.6 points to 70.7%; natural gas production
increased by 5.4% to 126.7 billion m3 and imports decreased by 9.6% to 85.8 billion m3 (62.21
million tonnes, 1 tonne = 1,380 m3), resulting in import dependency to decrease by 3.8 points to
40.4%. Domestic production marked a record high for both oil and natural gas.
Further, the sourcing structure was optimized, taking into account import prices, resource
quantity, geopolitical risk, and so on. For example, for natural gas, because the average import priceof LNG per tonne was $758 for January-July (up 83% year-on-year), 2.2 times as high as that ofpipeline gas (PNG) at $350 (up 40%), LNG imports decreased by 21.6% to 35.93 million tonnes
and PNG imports increased by 10.8% to 26.28 million tonnes. As for the sources of LNG imports,
among the seven major exporters (Indonesia, Malaysia, Qatar, US, Australia, Papua New Guinea,
Russia), which are long-term contractors with China, imports from Qatar, a stable supplier that has
a low price ($659) and the third largest reserves in the world, increased by 66% to 8.99 million
tonnes while imports from the five other countries excluding Russia all decreased. Imports from the
US decreased by 79% to 1 million tonnes and those from Australia decreased by 27% to 13.05
million tonnes. The 2022 China Natural Gas Development Report (NEA) predicts that in 2022, fullyear natural gas consumption will increase by 1.6–3% to 375–380 billion m3, production will growby 6% to 220 billion m3, and imports will decrease by 7.4–4.8% to 155–160 billion m3. The importstructure is expected to continue changing as it is doing now, and both LNG and PNG imports from
Russia are expected to increase.
Meanwhile, in mid to late August as abnormal weather continued, scheduled blackouts forindustry were implemented in Sichuan Province, Chongqing City, and others. The direct cause of
the supply-demand crunch was the worst heatwave on record since 1961 with temperatures
surpassing 40°C, which sent electricity demand soaring in the residential/commercial sector, whilea historic drought with only half the normal rainfall caused hydropower capacity, which accounts
for around 80% of total power output (81% for Sichuan Province in 2021) to plummet to less thanhalf the usual capacity. The challenge going forward is how to make renewables a main powersource while securing a stable supply of electricity even under abnormal weather conditions. All
policy resources will need to be mobilized, including diversifying the generation mix, ramping up
grid balancing capacities, enhancing inter-regional power interchange capabilities, andstrengthening demand response.

76. ME: Zawahiri, Leader of Al Qaeda, Killed
Shuji HOSAKA, Senior Research Fellow
President of JIME Center
On July 31, the United States killed Ayman al-Zawahiri, the leader of international terroristgroup Al Qaeda, in a drone strike in the Afghani capital of Kabul. Neither the Taliban
administration of Afghanistan nor Al Qaeda has officially admitted Zawahiri’s death, but if thekilling did take place, it is a major win for the US in its war against terrorism. Meanwhile, thefact that the leader of Al Qaeda was in the capital city has raised suspicion that the Taliban has
not severed its ties with the terrorist group. In Afghanistan, the terrorist group Islamic State
carried out suicide bombing attacks targeting Shia Muslims around the major Shia celebrationof Ashura.
In Jeddah in western Saudi Arabia, a terrorist on the wanted list killed himself in a suicidebombing as the security police laid siege on him. In terms of public security, the intensifying
clash between Israel and Palestine warrants caution. Since the start of August, armed clashes
between Israel and the radical group Palestinian Islam Jihad have escalated, killing more than
40 people on the Palestinian side. A ceasefire became effective on August 7 but the cause of
the clashes has not been resolved. Thereafter, clashes between Israel and Palestine havecontinued to occur in Jerusalem and elsewhere. In Yemen, the ceasefire between the legitimate
government and the Houthis occupying the north was renewed for two months from August 2,
but it is not clear whether this will lead to a truce or end of the war.
Gulf oil and gas producer countries are recovering economically as the pandemic subsides
and oil prices remain high due to the Ukraine crisis. For instance, the net income of Saudi state
oil company Saudi Aramco rebounded strongly in the second quarter of 2022, increasing 90%
year-on-year. However, many non-oil producing countries are facing serious energy and foodcrises due to the war in Ukraine.
Lebanon is suffering not only economically but also due to domestic political battles that are
adding to the difficulty. Though the World Bank and Gulf countries are extending assistance,
the country’s administrative arm is not functioning and cannot appropriately distribute the aid
in the country. There is also no end in sight for the political turmoil in Iraq, an oil-producing
country, where supporters of Muqtada al-Sadr temporarily occupied the parliament building.
Meanwhile, on July 25, Tunisia held a referendum on a new constitution. Many opposing theincreasingly authoritarian President Saied boycotted the referendum on the new constitution,
which significantly expands the powers of the president, resulting in a low voter turnout of just
30% or so. The new constitution went into effect with a vote of about 95% in favor.
In the renegotiation of the Iran nuclear deal (JCPOA), the EU submitted the final document
for the agreement. In response, Iran put forward a proposal, and the US then submitted its
answer to the proposal to the EU. However, it is not clear whether an agreement will be reached.

8

7. Russia: Intensifying War and Slowing Russian Economy
Sanae KURITA, Senior Researcher
Global Energy Group 2, Strategy Research Unit
The fighting between Ukraine and Russia over southern Ukraine is intensifying. On August
16, explosions occurred at a military warehouse in the northern part of the Crimean Peninsula,and on August 18, a fire broke out at a Russian arms storage depot in Belgorod in western
Russia bordering Ukraine. There were also explosions in Kerch in the eastern part of Crimea
and in Sevastopol in the southwest. Meanwhile, the US government announced additional
military aid worth up to $775 million to Ukraine (including additional ammunition for highmobility artillery rocket systems (HIMARS), 16 howitzers, 1,000 Javelin anti-tank weapons,mine-clearing vehicles, 15 unmanned aircraft vehicles and night vision devices). August 24, theanniversary of Ukraine gaining independence from the former Soviet Union, also marked 6months since the start of Russia’s military invasion. Security was tightened in many regions,
including in Kiev where celebrations were canceled due to the heightened risk of Russian
attacks, and in Kharkiv where a curfew was imposed amid intensifying attacks.
According to the Central Bank of Russia, Russia’s balance of payments for the second quarterof 2022 was a surplus of $70 billion, a four-fold increase from a surplus of $17 billion recordedat the same time last year. Exports of goods and services rose 20% year-on-year due to higher
international commodity prices, but the growth was smaller than last quarter’s (59%) due to the
sanctions and retaliatory measures. Meanwhile, imports of goods and services were down 22%
year-on-year. Exports from the EU accounted for the greatest portion of the decline, while
restrictions and the suspension of exports by foreign companies including from the US,
Australia, Japan, Canada, the UK, South Korea, and Taiwan also had an impact, as did theexodus of overseas companies from the Russian market.
Russia’s foreign reserves, as reported by the Central Bank, stood at $571.2 billion as of July
29, down from the peak of $643.2 billion on February 18 just before the invasion. As of March
2022, it is believed that “$300 billion has been frozen due to the West’s financial sanctions”(Finance Minister Siluanov, Tass News Agency), and about half of the country’s foreign
reserves are subject to restrictions. According to the Russian Federal State Statistics Service,
the GDP growth rate for the second quarter of 2022 declined 4% year-on-year, worsening froma 3.5% increase in the previous quarter but not as much as the Central Bank had expected (a4.3% decrease). Likely reasons for the negative growth include a slowdown in domestic
consumption and the impact of the West’s economic sanctions. The Central Bank commented
that “the overall decline for 2022 will be smaller than was expected in April, but at the sametime, the supply shock may cast a long shadow; it is forecast that the current account surplus
may shrink in the second half of 2022.”
On August 5, a presidential decree was issued banning the companies of “unfriendly
countries” from selling their stakes in the product-sharing projects Sakhalin-1 and Kharyaga,
strategic companies designated by Russia, rare minerals, and others until December 31. There
has been an exodus of Western energy companies since the invasion of Ukraine, and the decree
apparently aims to stop such moves and alleviate the negative impact on Russia’s majorindustries. While views vary on the effectiveness of the economic sanctions by the West andothers, the decree reveals that Russia is worried that the sanctions, though they may not be
immediately effective, may erode the country’s future growth potential.

9

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