Energy Supply and Demand Forecast for FY Amid Flagging Economy

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1 Energy Supply and Demand Forecast for -99 Amid Flagging Economy Soichiro OTANI, Senior Economist Hiroyasu MORI, Economist Energy Policy and Forecast Research Group 1. Actual Energy Supply and Demand 1-1 Supply and demand trends in recent years General descriptions of FY1997 Though propped up by overseas demand, real gross domestic product (GDP) in FY1997 fell by 0.7% from a year ago for the first time since the oilshock-hit year of FY1974. The decline reflected not merely shrinking private demand largely due to the dampened spending by the consumption tax increase in April 1997, but the contraction of public demand as the government squeezed its spending in an effort to rebuild public finance. The exchange rate averaged JPY122.7/$ in FY1997, which is a 8.9% weaker than in. The exchange rate once moved toward a strong yen until June. But, due to the Asian currency crisis, the move reversed to a weak yen again in the second half, and the yen kept wobbling at the JPY130/$ level till March. The crude oil price (CIF) averaged $18.8/bbl in FY1997, down sharply by $2.7 from a year earlier. (Annual growth) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Oil total GDP growth New energies, etc. It was because the crude oil market slumped considerably during the second half, because the OPEC increased total production quotas at its general meeting in November, and because oil demand remained sluggish in reflection to Asia s economic turmoil, among other things Actual primary energy domestic supply In FY1997, though GDP sank into a minus in real terms, primary energy supply and demand (in both prompt and definite values) remained positive, and posted a 1.0% growth as measured by primary energy domestic supply, and a 0.7% growth in final energy consumption terms. After the burst of the bubble, the real GDP growth has hovered below 1% for three consecutive years. Yet, the growth of energy consumption averaged 2.0% over the same three years, as a brief plunge in FY FY1993 was more than offset by a subsequent bounce in FY1994. Thus, energy consumption was apt to grow to some extent even when the economy was feeble (Fig. 1-1). Analyzing the FY1997 primary energy domestic supply by source, oil plummeted sharply by 2.4%. Coal soared steeply in the second half and marked a 4.7% growth on a basis. Nuclear power increased by 5.6% in reflection to newly-commissioned Fig. 1-1 Contribution to Primary Energy Domestic Supply Fluctuations by Source Coal, coke, etc. Natural gas Nuclear Growth of primary energy -1.0% Hydro -2.0% 88/85 91/88 94/ (FY) Primary energy domestic supply has grown to some extent even at the post-bubble economic adjustment phase, but increased at a slower tempo in recent years. (Source) MITI, General Energy Statistics, the Economic Planning Agency, Yearbooks of National Economic Accounts, etc. 1

2 capacity and a higher utilization factor. Natural gas, having increased high in the previous fiscal year, ended in a 2.5% rise. Reviewing the period after FY1985, oil has been on the constant rise until the first half of the 1990s. But, the upward trend reversed completely in FY1995, which led to a considerable fall in oil in FY1997. Though falling below the ordinary years during the first half, hydro increased by 13.4% as the second half proved wet in many places. 1- Actual final energy consumption By sector, industrial energy consumption, favorable in the first half but tumbling in the second, remained at a 0.4% growth in FY1997. Though bolstered by stock buildups, residential and commercial energy consumption ended in a low 0.9% growth partly due to a warm winter in the second half. Transport energy consumption increased only by 1.5%. The low growth was attributable to the sluggish economy in the second half, which axed the amount of freight transportation by road vehicles and nullified the effect of increasing passenger car registration. Thus, final energy consumption, which grew by 2% in the first half, fell by 0.4% in the second half due to drastically changing demand situations, and ended in a 0.7% rise in FY1997 on a basis (Fig. 1-2). During the latter half of the 1980s, industrial energy consumption swelled considerably along with the booming economy, but the growth slowed down after the burst of the bubble. Yet, the moves (growth) between sector-wide industrial energy consumption and GDP have not always coincided these days, partly because the strong overseas demand supported brisk production of the materials-producing industries, whose added values were limited. Backed by stock buildups (commercial floorspace, larger-capacity consumer durables, etc.), residential and commercial energy consumption has been on the increase as an underlying trend even after the bubble withered in FY1985. Yet, if measured on a single year basis, a fall can be posted depending on atmospheric temperatures, a critical determinant of energy use in the residential and commercial sectors. Similarly, helped by the trends of growing passenger car registration and increased vehicle horsepower, transport energy consumption remained firm and upward as an underlying trend after FY1985. But, road-vehicle freight transportation is so sensitive to economic moves that it can pose a significant contributor to fluctuating transport energy use. Examining FY1997 final energy consumption by source, oil slipped a little by 0.0% due to a slower growth in the transportation sector, on top of the falls in the remaining sectors. Electricity grew by 2.5% backed by the growth in the commercial sector, etc. Despite a warm winter, town gas grew by 3.0%, a stronger growth than posted by any other energy sources in FY CO 2 emissions In FY1997, CO 2 emissions decreased by 0.5% Fig. 1-2 Contribution to Final Energy Consumption Fluctuations by Sector (Annual growth) 5.0% GDP growth 4.0% 3.0% Energy growth 2.0% 1.0% Residential Industrial 0.0% -1.0% -2.0% Transport Commercial Non-energy -3.0% 88/85 91/88 94/ (FY) At the post-bubble economic adjustment phase, the growth of energy consumption slowed down in the industrial sector, but remained firm in the rest of consuming sectors, which helped final energy consumption keep growing to some extent. Later, however, slowdowns were noted in energy consumption in and FY1997. Particularly, along with an economic plunge, energy use was falling in the days toward the second half of FY1997. (Source) Prepared from MITI s General Energy Statistics, the Economic Planning Agency s National Income Statistics Prompt Reports, etc. The first- and second-half data are in terms of estimated actual records compared with the previous corresponding periods. 2

3 from the previous fiscal year, which largely stemmed from a low growth of primary energy domestic supply, combined with greater shares held by hydro and nuclear power. The outcome, however, still stood 8.7% above FY1990 records. By contributor, as GDP registered a minus growth, the economic growth acted as a negative contributor to CO 2 emissions and sent it down. Yet, the principal contributor to slashing the emissions was the fuel substitution by CO 2 -free energy sources, typically nuclear and hydro. 1-2 Contributors to demand fluctuations and recent moves by sector Reviewing sector-by-sector energy consumption moves since FY1985 unveiled that the growth slowed down in the industrial and freight transport sectors as a result of the post-bubble economic stagnation, while the growth remained strong in the passenger transport, commercial and residential sectors. It is because industrial and freight transport energy consumption can easily and greatly be affected by their business conditions which heavily depend on aggregate economic activity. In sharp contrast, energy use in the passenger, commercial and residential sectors is closely linked to stock buildups (passenger car registration, commercial floorspace, consumer durables, etc.) and hardly influenced much by the flow, or economic activity. Short- and medium-term demand trends as well as contributors to demand fluctuations are reviewed by sector below Industrial sector In the second half of the 1980s, industrial activity has been favorable thanks to brisk domestic spending and investment activities. The materials-producing industries enjoyed a high growth largely led by domestic demand. As a result, industrial energy consumption grew a high 2-3% during FY Even after the collapse of the bubble, the materials-producing industries were bolstered by exportsbound production, though some had to curtail production due to plunging domestic demand. Particularly, Asia s strong demand allowed petrochemical output increases to continue into the 1990s, which, in turn, helped industrial energy consumption keep growing. Thus, industrial energy consumption became heavily dependent on, not merely domestic economic moves, but overseas demand trends. In FY1997, overseas demand acted as a principal contributor to propping industrial energy consumption up, as the weak yen helped increase steel exports to the U.S., instead of falling petrochemical exports after the Asian economic crisis (Fig. ). FY1997 showed distinct moves of energy consumption; simmering in the first half, but plummeting in the second half. The energy trends mirrored the industrial sector s restless moves: Inventory drawdowns to meet booming demand before the consumption tax increase enabled the materials-producing industries to keep their production high even after April, but the subsequent reactionary demand falls Fig. Effect of Overseas Demand on Industrial Energy Consumption (Ups downs in energy use kcal) 10,000 8,000 6,000 4,000 2, ,000-4,000-6,000-8,000 Fluctuations in the three materials-producing industries Others Domestic demand Sector-wide fluctuations in industrial energy use Imports Overseas demand After the burst of the bubble, production of the materials-producing industries has been propped up by overseas demand amid dwindling domestic demand. From FY1994 onward, industrial energy consumption has been on the increase as an underlying trend. Particularly, overseas demand has been a steady positive contributor, thus showing a decoupling move from the domestic economic trend. In FY1997, amid a low growth of industrial energy use sector-wide, energy consumption kept growing in the three materials-producing industries, particularly among steelmakers backed by favorable exports to the U.S. (FY) (Note) The three materials-producing industries are steel, cement, and petrochemicals. (Source) Estimated by IEEJ from MITI s Dynamic Statistics on Consumption of Oil and Others, etc. 3

4 precipitated inventory buildups, thus driving all industries to enter an inventory adjustment phase, where output curtailment was inevitable Residential sector Even after entering the 1990s, residential energy consumption kept growing steadily. Per household energy consumption in FY1997 was as much as 28% larger than in FY1985. Particularly over FY , the growth averaged 3% a year, which confirmed that residential energy consumption was apt to rise even in a low economic growth period. When analyzed by use from the medium-term perspective, residential energy consumption showed that a larger energy use in power source was responsible for as much as about 50% of the entire growth recorded during the post-fy1985 days, compared with 20% attributable to space cooling and heating. Focusing on the category of power source and others alone, stock buildups and larger capacity of such appliances as TVs and refrigerators were found as the primary contributors to the greater energy use in this category. As the purchase of household electric appliances has been encouraged by lower-priced models, their energy consumption has been growing steadily as well. In the short term, however, atmospheric temperatures have a more crucial effect. Due to a warm winter, among others, residential energy consumption in FY1977 resulted in a 0.5% fall on a basis Commercial sector Aside from a post-bubble temporary slowdown caused by a falling office occupancy, etc., commercial energy consumption kept growing thanks to expanding floorspace. By energy source, electricity and town gas alike have shown increasing intensity per unit floorspace. Though affected by economic moves and atmospheric temperatures, electricity and town gas consumption has been on the increase as an underlying trend along with expanding floorspace. Apart from an atmospheric temperature-linked portion, we examined what contributed to electricity demand fluctuations. We found that, in reflection to the flagging economy, the working hours posed a negative contributor and sent FY1997 energy consumption falling. Office occupancy also tended to slow down (Fig. 1-4). In FY1997, sector-wide commercial energy consumption grew by 2.4% over the previous fiscal year Transport sector Since 1985, total energy consumption for transportation kept soaring in reflection to surging distri- Fig. 1-4 Factor Analysis of Fluctuations in Commercial Electricity Use (Unit: kcal) 600 Fluctuations total Equipment ownership (+)Adjusted by room occupancy Room occupancy Working hours Cross items Floorspace (-)Adjusted by operating hours (-)Adjusted by room occupancy (Note) The factor analysis is based on the following equation: E= ((E/H)/(F*R))*F*R*H+((E/H)/(F*R))* (F)*R*H+{((E/H)/(F*R))*F* R*H+((E/H)/(F*R))*F*R* H+ cross items Equipment ownership Floorspace Occupancy Working hours E: Electricity consumption; already adjusted by outdoor temperatures (kcal) H: working hours in real terms (hrs.); all-industry average, the Ministry of Labor, Monthly Labor Statistics F: Floorspace (10 6 m 2 ); nationwide, EDMC Energy and Economic Statistics R: Room occupancy (%: Tokyo 23 Wards), Ikoma Data Service System Office Occupancy Prompt Reports Floorspace has constantly contributed to increasing electricity consumption. Office occupancy also became a positive contributor from 1995 onward. Entering 1997, the shrinking working hours became a negative contributor. (Source) Estimated by IEEJ from MITI s General Energy Statistics, etc. 4

5 Fig. 1-5 Contributors to Fluctuations in Truck Energy Consumption (Unit: kcal) 1,300 Transport amount Intensity Carrier share Cross items Fluctuations total -1, (Note) The factor analysis is based on the following equation: (Carrier shares represent changing shares held by different truck models in the amount of transportation.) æ Ei Ti å ö E = ç T è Ti T ø E: Energy consumption (kcal), T: Transport amount (ton km), i: truck model æ Ei Ti å ö E = ç T è Ti T ø : 1st factor (intensity) æ E i Ti ö + å ç D T è Ti T ø : 2nd factor (changing carrier shares) æ E i Ti ö + å ç DT è Ti T ø : 3rd factor (fluctuating transport amount) * Models include business- and private-use ordinary, small and light-duty trucks. (Source) Estimated by IEEJ from the Ministry of Transport s Road Vehicle Transportation Monthly Statistics, Road Vehicle Monthly Statistics, etc. In the category of freight transportation by road vehicles, a growing amount of transport by less energy-consuming models (changes in carrier share) has constantly contributed to sending energy use shrinking. With this combined with a falling growth of transport amount, energy use in freight transport marked a downturn. Table 1-1 Energy Consumption Trends by Sector Post-Heisei boom energy consumption trends FY1997 energy consumption trends Industrial sector * Increasing energy use even amid an economic stagnation. * A modest rise on a basis, which was backed by greater energy use by the steel and petrochemical industries. * Energy consumption greatly propped up by brisk production * Great contribution to increasing energy use made by constant of steel, cement and petrochemicals to meet strong overseas steel exports, prompted by a weak yen-led export drive, etc. demand. * Energy consumption dwindling toward the second halion Monthly Statistics,"Road Vehicle Monthly Statistics," etc. Residential sector * Steadily increasing energy consumption even during the economic * Energy consumption bolstered by firmly continuing stock stagnation, thanks to growing energy use inpower sources and others. buildups of power sources and lighting equipment. for the two consecutive years. * Sharply fluctuating energy use in space cooling and heating * Overall energy consumption shrinking, largely due to falling in correspondence with changing atmospheric temperatures. space heating demand as a result of warm winters Commercial sector * Energy consumption bolstered by an expansion of * The growth of energy consumption contributed by floorspace, which continues regardless of economic moves. expanding floorspace and rising office occupancy. * Fluctuating growth of energy consumption due to such factors as * No considerable growth ion Monthly Statistics, office occupancy and working hours which heavily "Road Vehicle Monthly Statistics," etc. depend on economic moves. Transport sector * Energy consumption growing constantly in reflection to increasing * The popularity of bigger vehicles and stock buildups still passenger car registration and a growing popularity of bigger vehicles. remaining as firm trends. * Freight transport energy consumption falling in reflection to fuel efficiency gains, which resulted from the shifts toward energy-efficient * The amount of road-vehicle freight transportation models, from private- to business-use trucks and from small to turning downward in the second half of FY1997, ordinary trucks. and acting a negative contributor to energy use. * Greater transport energy demand contributed by growing amounts of road-vehicle freight transportation in the past. 5

6 bution by road vehicles as well as the increases in both passenger car registration and horsepower. In FY , road-vehicle freight transportation shrank in amount, but sector-wide energy consumption recorded an annual growth of 2.6% thanks largely to the steadily growing fuel use by passenger cars. The ratio of ordinary passenger cars to overall passenger car registration confirmed a continuing inclination toward larger vehicles, a principal contributor to pushing energy consumption up. On the other hand, road-vehicle freight transportation showed fuel efficiency gains through the shift from private- to business-use trucks and the introduction of larger vehicles. Namely, the carrier shift acted as a negative contributor to transport energy consumption. In FY1997, a downturn in road-vehicle freight transportation during the second half posed a negative contributor to diesel consumption (Fig. 1-5). For this reason, overall transport energy consumption grew but only by 1.5% in FY Energy Supply and Demand Forecast for Macro economic forecast Table 2-1 Macro Economic Forecast (Base Case) FY1997 In, the Japanese economy is likely to fall by 0.6% from a year ago for the second straight year. It is because of the persisting fears for the future which would lead to the fall of private housing Gross domestic expenditure 483, , , , , , , ,321 (GDP) (3.2) (0.6) (-1.9) (-0.7) (-1.5) (0.3) (-0.6) (0.5) Private demand Private final consumption expenditure Private housing investment Private equipment investment Public demand Government final consumption expenditure Official fixed capital formation (Unit: 1 billion yen in 1990 price) 395, , , , , , , ,558 (4.6) (0.1) (-3.7) (-1.9) (-2.6) (-0.8) (-1.7) (0.4) 285, , , , , , , ,705 (2.8) (0.4) (-2.6) (-1.1) (-0.3) (0.3) (0.0) (0.5) 25,915 11,085 9,354 20,439 10,166 9,349 19,515 19,616 (13.7) (-17.4) (-25.1) (-21.1) (-8.3) (-0.1) (-4.5) (0.5) 83,338 40,370 43,511 83,881 37,188 41,815 79,003 79,113 (9.1) (4.3) (-2.5) (0.7) (-7.9) (-3.9) (-5.8) (0.1) 85,728 38,143 44,572 82,715 37,994 45,815 83,809 84,253 (-0.9) (-6.3) (-1.0) (-3.5) (-0.4) (2.8) (1.3) (0.5) 44,223 21,540 22,671 44,211 21,718 22,629 44,347 44,392 (1.0) (-0.4) (0.4) (-0.0) (0.8) (-0.2) (0.3) (0.1) 41,407 16,662 21,744 38,405 16,371 23,010 39,381 39,759 (-2.7) (-12.9) (-2.4) (-7.2) (-1.7) (5.8) (2.5) (1.0) Net exports of goods 2,246 3,976 5,378 9,353 5,516 6,380 11,896 12,511 and service (-43.6) (2214.1) (159.2) (316.4) (38.8) (18.6) (27.2) (5.2) Exports of goods and service Imports of goods and service 60,091 32,403 33,122 65,525 31,930 33,333 65,263 65,303 (5.1) (12.9) (5.5) (9.0) (-1.5) (0.6) (-0.4) (0.1) 57,844 28,427 27,745 56,172 26,414 26,953 53,366 52,792 (8.7) (-0.4) (-5.3) (-2.9) (-7.1) (-2.9) (-5.0) (-1.1) (Cf.) Gross national product 489, , , , , , , ,670 (GNP) (3.5) (0.7) (-1.8) (-0.6) (-1.6) (0.5) (-0.5) (0.4) Index of industrial production ('95 = 100) Wholesale price index ('95 = 100) Consumer price index ('95 = 100) Exchange rate (JPY/$) Crude oil CIF price ($/bbl) Crude oil CIF price (JPY/bbl) (3.4) (4.9) (-2.3) (1.2) (-8.2) (-4.7) (-6.5) (1.3) (0.4) (2.0) (0.5) (1.2) (-1.2) (-0.9) (-1.1) (-0.2) (0.4) (2.1) (2.0) (2.0) (0.1) (-0.2) (0.0) (0.5) (17.0) (9.7) (8.2) (8.9) (14.1) (10.5) (12.3) (1.6) (17.8) (-0.7) (-22.1) (-12.6) (-32.8) (-25.1) (-29.2) (0.8) 15,217 14,663 14,255 14,491 11,260 11,846 11,553 11,846 (37.5) (8.8) (-15.7) (-4.8) (-23.2) (-16.9) (-20.3) (2.5) (Note) In parenthesis are the growth rates over a year ago (%). (Source) Actual records from the Economic Planning Agency s National Income Statistics Prompt Reports, etc. Forecast by IEEJ. 6

7 and equipment investments, though public investment is increased by the government s economic stimulus efforts. Despite the falling yen s values, exports remain flat partly due to the Asian currency crisis. Imports appears to shrink, either, due to the wobbling domestic economy. Overseas demand acts as a positive contributor to the economy. Official fixed capital formation contributes to the growth of economy, because the measures to the public finance reconstruction is suspended for the time being amid the calmor for an economic stimulus. On the other hand, private equipment investment plunges as sharply as in the previous fiscal year because industrial production enters an adjustment phase and because uneasiness about the future keeps lingering. Private final consumption slips during the first half, but virtually fattens out on a basis. In, though a slower growth is projected, overseas demand will remain strong enough to keep playing as a positive contributor. Thanks to an emerging effect of the tax cuts, etc., private final consumption will pick up, though very moderately. Public investment, to be increased again by the government s economic stimulus package, will continue to fulfill an important role in propping the economy up. While private housing investment slumped sharply for the two consecutive years and private equipment investment also posted a considerable fall last year, the both are likely to bottom out and stay virtually flat throughout. As a result, real GDP is projected to turn upward in by 0.5% in comparison with the previous fiscal year. Fig. 2-1 Domestic and Overseas Demand Contribution to Real GDP (1 billion yen in 1990 price) (Growth over a year ago: %) 20,000 15,000 10,000 5,000 Private demand Public demand GDP growth rate Forecast ,000 Net exports , (Source) Actual records from the Economic Planning Agency s National Income Statistics Prompt Reports, etc. Forecast by IEEJ. Table 2-2 Industrial Activity Forecast Output of major materials (1,000t) Production index ('95 = 100) Crude steel Paper/ paperboard Cement Ethylene Food Textile Nonferrous metals Metals/ machinery Other manufacturing FY ,793 52,796 50, ,800 46,771 47,477 94,248 95,346 (0.8) (7.6) (-3.3) (2.0) (-11.4) (-5.1) (-8.3) (1.2) 30,105 15,518 15,490 31,007 14,895 15,053 29,949 30,078 (1.0) (4.8) (1.2) (3.0) (-4.0) (-2.8) (-3.4) (0.4) 94,362 44,949 44,496 89,445 39,061 43,493 82,554 83,137 (3.0) (-1.4) (-8.8) (-5.2) (-13.1) (-2.3) (-7.7) (0.7) 7,248 3,630 3,708 7,338 3,425 3,545 6,970 6,935 (4.3) (2.2) (0.3) (1.2) (-5.6) (-4.4) (-5.0) (-0.5) (1.0) (-0.5) (-1.8) (-1.2) (0.3) (0.3) (0.3) (0.4) (-2.3) (-1.9) (-6.6) (-4.2) (-7.0) (-0.2) (-3.7) (-0.8) (4.9) (6.1) (-5.3) (0.2) (-8.0) (-1.6) (-4.9) (2.0) (15.2) (10.4) (-2.7) (3.5) (-9.7) (-6.6) (-8.1) (2.4) (2.8) (2.5) (-5.0) (-1.3) (-6.0) (-2.3) (-4.2) (-1.1) (Note) In parenthesis are the growth rates over a year ago (%). (Source) Actual records prepared from various relevant statistics. Forecast by IEEJ. 7

8 2-2 Production activity forecasts by industry In, ethylene output is likely to remain at the 6.90-million-ton level due to sharp declines in both domestic demand and exports to the Asian countries. Crude steel production stays at the 94-millionton level, falling much below the previous year s records due to considerable inventory buildups, which not merely reflects sluggish domestic demand but wipes out the effect of favorable exports largely to the U.S. Despite an expected increase in public investment during the second half, shrinking private investment sends cement production plummeting by 7.7% from the previous year. The machinery industries, particularly automobiles and electrical machinery, are destined to have much lower production levels than in a year ago, due to reactionary falls to FY1997 high production records, plus massive inventory buildups. In, a partial recovery of domestic demand is expected, but ethylene production is projected to fall further from records and remain at the first half of the 6.90-million-ton level, because overseas demand can be eroded by the exports from South Korea, etc. Crude steel production will increase a bit over the previous fiscal yearõs level as inventory adjustment comes to a pause. There will be little hope for a strong recovery of domestic steel demand, despite an enhanced public investment. Cement production will rise but just modestly because private investment levels off albeit a stepped-up public investment. Industrial production level as a whole is likely to outrun the records modestly in reflection to a mild recovery of spending jerked up by the tax cuts, etc. 2-3 Final energy consumption forecast In, final energy consumption is expected to fall by 1.3% from a year earlier, which is the first drop since the oil crisis. By sector, industrial energy consumption posts a 4.1% fall on a basis, which largely reflects a sharp decline in the first half from the previous corresponding period when production activities were strong. Despite a constant growth of passenger car fuel consumption, transport energy consumption grows only by 0.1% over the previous year. The modest rise is attributable to a slower growth of transport amount and fuel efficiency gains, both in freight transportation by road vehicles. By sector By energy source Industrial Residential and commercial Residential Commercial Transport Non-energy Coal and others Oil Town gas Electricity Others Table 2-3 Final Energy Consumption Forecast (Unit: kcal = 1,000 TCE) FY ,897 84,301 88, ,592 79,432 86, , ,030 (1.2) (2.6) (-1.7) (0.4) (-5.8) (-2.5) (-4.1) (0.3) 94,352 40,471 54,686 95,157 41,382 56,023 97,405 99,457 (0.1) (0.4) (1.2) (0.9) (2.3) (2.4) (2.4) (2.1) 51,218 19,877 31,076 50,952 20,136 31,767 51,902 52,792 (0.0) (-2.1) (0.7) (-0.5) (1.3) (2.2) (1.9) (1.7) 43,133 20,595 23,610 44,205 21,247 24,256 45,503 46,665 (0.2) (3.0) (1.8) (2.5) (3.2) (2.7) (2.9) (2.6) 88,910 45,517 44,718 90,236 45,699 44,634 90,332 90,539 (2.6) (2.8) (0.2) (1.5) (0.4) (-0.2) (0.1) (0.2) 8,346 3,838 4,311 8,149 3,746 4,248 7,995 8,037 (2.6) (-3.2) (-1.6) (-2.4) (-2.4) (-1.4) (-1.9) (0.5) 40,409 20,470 20,151 40,621 18,769 19,390 38,159 38,313 (0.7) (3.1) (-2.1) (0.5) (-8.3) (-3.8) (-6.1) (0.4) 220, , , ,334 99, , , ,374 (0.8) (1.1) (-1.0) (-0.0) (-2.5) (-0.9) (-1.6) (0.3) 21,529 10,094 12,071 22,165 10,265 12,514 22,779 23,590 (4.1) (3.7) (3.0) (3.0) (1.7) (3.7) (2.8) (3.6) 76,637 39,742 38,782 78,524 40,012 39,111 79,123 80,304 (2.4) (3.5) (1.5) (2.5) (0.7) (0.8) (0.8) (1.5) 4,567 2,296 2,192 4,488 2,206 2,145 4,351 4,420 (-0.7) (3.1) (-6.2) (-1.7) (-3.9) (-2.1) (-3.0) (1.6) 363, , , , , , , ,063 (1.3) (2.0) (-0.4) (0.7) (-2.2) (-0.6) (-1.3) (0.8) (Notes) 1. In parenthesis are the growth rates over a year ago (%). 2. Coal and others includes coke, coke oven gas, blast furnace gas and briquette. (Source) Actual records from MITI s General Energy Statistics, etc. Forecast by IEEJ. 8

9 Fig. 2-2 Final Energy Consumption Forecast (Contribution by Sector-specific Fluctuations) (Ratio of contribution to total fluctuations: %) Transport Non-energy Commercial Residential Industrial -1.3 Forecast (Source) Actual records from MITI s General Energy Statistics, etc. Forecast by IEEJ. Residential and commercial energy consumption as a whole grows at a slower pace of 2.4%, partly because the previous winter was rather warm. A primary contributor to the growth is an increase in commercial floorspace. In, residential and commercial energy consumption will grow by 2.1% over the previous year as the underlying upward trend continues. Though different industries may show different trends, overall industrial energy consumption will rise. Transport energy consumption will rise by a scant 0.3%, continuing from the previous year. As a result, total final energy consumption is expected to mark a 0.8% upturn from the previous fiscal year. Coal Oil Natural gas Hydro Nuclear Others Real domestic total expenditure (1 billion yen in 1990 price) GDP intensity (FY1995 = 100) Table 2-4 Primary Energy Domestic Supply Forecast FY1997 (Notes) 1. In parenthesis are the growth rates over a year ago(%). 2. Others include geothermal power generation and new energies. 3. Due to the omission of coke exports, adding up won t accord with the total. (Source) Actual records from MITI s General Energy Statistics, etc. Forecast by IEEJ Primary energy domestic supply forecast In, primary energy domestic supply is likely to drop by 1.0% from the previous year in accordance with the economic growth. By source, coal posts a 2.2% fall from a year ago largely due to crude steel and cement production declines. Oil drops from the previous year, either, partly in reflection to the falls in petrochemical-use naphtha and generating fuels. Natural gas increases a high 3.8% with newlybuilt power plants put onstream. Hydro rises by 1.2% mainly because of high water availability in April and May. Even in the absence of newly-commis- (Unit: kcal = 1,000 TCE) 88,947 45,847 47,270 93,116 43,872 47,175 91,047 93,398 (1.3) (2.6) (7.0) (4.7) (-4.3) (-0.2) (-2.2) (2.6) 284, , , , , , , ,595 (0.6) (0.9) (-5.3) (-2.4) (-3.5) (-1.8) (-2.6) (-0.2) 63,026 31,030 33,542 64,573 31,713 35,333 67,046 71,141 (7.0) (2.4) (2.5) (2.5) (2.2) (5.3) (3.8) (6.1) 18,487 12,437 8,521 20,958 12,944 8,270 21,214 20,770 (-2.1) (9.7) (19.2) (13.4) (4.1) (-3.0) (1.2) (-2.1) 67,995 36,581 35,207 71,788 37,990 35,350 73,340 72,753 (3.8) (5.9) (5.2) (5.6) (3.9) (0.4) (2.2) (-0.8) 7,320 3,801 3,672 7,473 3,660 3,578 7,238 7,321 (3.4) (5.6) (-1.3) (2.1) (-3.7) (-2.6) (-3.1) (1.2) 530, , , , , , , ,978 (1.8) (2.5) (-0.4) (1.0) (-1.6) (-0.4) (-1.0) (1.0) 483, , , , , , , ,321 (3.2) (0.6) (-1.9) (-0.7) (-1.5) (0.3) (-0.6) (0.5)

10 Fig. 2-3 Primary Energy Supply Forecast (Contribution by Source-specific Fluctuations) (Ratio of contribution to total fluctuations: %) Nuclear 5 Natural gas Hydro 0.3 Oil Others sioned capacity, nuclear power posts an increase because of rising utilization factor. In, natural gas will show a constant growth because newly-built power plants are scheduled to start operation. Coal will mark an upturn in reflection to an expected rise in generating fuel needs and a modest rise in crude steel production. Oil will continue to fall, because shrinking generating fuel needs are likely to continue. Without capacity additions, paired with scheduled periodical inspections, nuclear power will decline slightly. With all these taken into account, total primary energy domestic supply is expected to increase by 1.0% over the previous year. 2-5 Demand forecasts by energy industry Electricity In, the amount of electricity sold (by ten utilities + other power producers) to meet total By use Coal Domestic supply total 1.0 GDP -1.0 Forecast (Source) Actual records from MITI s General Energy Statistics, etc. Forecast by IEEJ. Table 2-5 Electricity Demand Forecast (for Utilities by End Use) (Unit: GWh) Lighting services Power services Commercial power services Small industrial power services Large industrial power services electricity demand FY1997 (Notes) 1. Utilities: 10 electric utilities + other power producers 2. In parenthesis are the growth rates over a year ago (%). (Source) Actual records from the Japan Electric Utilities Association s Electric Power Survey Monthly Statistics. Forecast by IEEJ. 1.0 electricity demand is likely to increase by 0.8% over a year ago. The modest rise reflects an estimated fall of 2.8% in large industrial power severely hit by a steep plunge in production. In sharp contrast, the demand for lighting and commercial power services grows strongly at the 3-4% level in part because the atmospheric temperatures remained high during the first half particularly in the western part of Japan. In, total electricity demand is expected to grow higher than in at 1.5%. By consuming sector, lighting demand is likely to go up by 1.8% over a year ago, and commercial power also up by 3.0%. Large industrial power is expected to post a 0.8% rise as well, because industrial production is likely to pick up, though feebly, as an underlying trend Town gas The sales amount of town gas increases by an estimated 2.8% over a year ago in, and is projected to show a 3.8% growth in. By 228, , , , , , , ,060 (1.6) (1.7) (2.0) (1.8) (4.0) (2.4) (3.2) (1.8) 566, , , , , , , ,828 (2.6) (3.7) (0.8) (2.3) (-0.5) (0.1) (-0.2) (1.4) 159,681 87,587 79, ,883 91,850 81, , ,042 (4.5) (5.1) (3.9) (4.5) (4.9) (3.3) (4.1) (3.0) 109,479 58,271 52, ,847 58,410 52, , ,783 (1.4) (2.6) (-0.2) (1.2) (0.2) (0.3) (0.3) (0.6) 296, , , , , , , ,002 (2.0) (3.4) (-0.5) (1.4) (-3.8) (-1.7) (-2.8) (0.8) 794, , , , , , , ,888 (2.3) (3.1) (1.1) (2.1) (0.7) (0.8) (0.8) (1.5) 10

11 Residential Commercial Industrial Others sales amount Table 2-6 Town Gas Demand Outlook FY1997 (Note) In parenthesis are the growth rates over a year ago (%). (Source) Actual records from MITI s Energy Production, Supply and Demand Monthly Statistics, etc. Forecast by IEEJ. sector, industrial demand grows low by an estimated 2.1% in, but is projected to grow by 5.1% as a mild recovery of production activity is likely. Residential demand rises by an estimated 1.6% in as a reactionary rise to the warm winter in the previous fiscal year. The growth of residential demand is put at 2.2% for. In reflection to a growing popularity of gas-powered space heating, etc., a favorable demand growth is likely in the commercial sector and others during Oil In, the sales amount of fuel oils declines by an estimated 2.1% from the previous fiscal year for the second straight year. By product, motor gasoline remains favorable and rises by an estimated 2.1% over a year ago. Motor diesel drops by an estimated (Unit: m 3 /10,000kcal) 9,170 3,614 5,444 9,058 3,604 5,596 9,200 9,403 (1.5) (-3.3) (0.2) (-1.2) (-0.3) (2.8) (1.6) (2.2) 3,473 1,803 1,778 3,581 1,907 1,873 3,780 3,945 (3.4) (3.2) (3.1) (3.1) (5.8) (5.3) (5.6) (4.4) 7,504 4,004 4,067 8,071 4,023 4,216 8,239 8,657 (7.3) (10.0) (5.3) (7.5) (0.5) (3.7) (2.1) (5.1) 1, , ,719 1,811 (5.9) (4.4) (5.2) (4.8) (8.1) (5.9) (6.9) (5.3) 21,682 10,172 12,146 22,318 10,346 12,593 22,939 23,817 (4.1) (3.3) (2.6) (2.9) (1.7) (3.7) (2.8) (3.8) 3.1% from a year ago in reflection to a falling of transportation and an increasing fuel efficiency, both in freight transportation by road vehicles. B and C heavy fuel oils also drop by an estimated 5.8% largely due to a shrinkage of generating fuel demand. Naphtha too slips by an estimated 5.3% due to ethylene production curtailment. In, while a strong growth of gasoline is likely to continue, diesel and generating-use C heavy fuel oil are projected to keep falling. As a result, the total sales amount of fuel oils is projected to slip by 0.3% from. 2-6 Sensitivity analysis - To learn which factors could contribute to energy supply and demand fluctuations to what extent, Table 2-7 Petroleum Product (Fuel Oil) Domestic Demand Forecast Gasoline Naphtha Jet fuel Kerosene Diesel A heavy fuel oil B, C heavy fuel oil Generating-use C heavy fuel oil Fuel oil total FY1997 (Unit: 1,000kl) 53,032 27,847 26,473 54,319 28,567 26,879 55,447 56,451 (2.7) (3.5) (1.4) (2.4) (2.6) (1.5) (2.1) (1.8) 45,285 22,872 22,894 45,766 21,455 21,884 43,339 43,113 (2.9) (5.7) (-3.2) (1.1) (-6.2) (-4.4) (-5.3) (-0.5) 4,736 2,332 2,442 4,773 2,480 2,464 4,944 5,004 (-2.3) (1.7) (-0.0) (0.8) (6.3) (0.9) (3.6) (1.2) 29,790 7,771 21,020 28,790 7,350 21,412 28,762 29,145 (-0.8) (-5.9) (-2.4) (-3.4) (-5.4) (1.9) (-0.1) (1.3) 46,064 22,653 22,365 45,018 21,867 21,744 43,611 42,887 (1.3) (-0.6) (-3.9) (-2.3) (-3.5) (-2.8) (-3.1) (-1.7) 28,720 12,284 15,997 28,281 12,015 15,918 27,933 27,983 (-0.3) (-0.0) (-2.7) (-1.5) (-2.2) (-0.5) (-1.2) (0.2) 37,661 17,828 18,450 36,278 16,697 17,461 34,158 32,904 (-7.4) (-2.9) (-4.4) (-3.7) (-6.3) (-5.4) (-5.8) (-3.7) 16,363 7,183 7,495 14,678 6,657 6,541 13,198 12,056 (-12.4) (-8.7) (-10.3) (-10.3) (-7.3) (-12.7) (-10.1) (-8.6) 245, , , , , , , ,487 (-0.0) (0.9) (-2.3) (-0.8) (-2.8) (-1.4) (-2.1) (-0.3) (Note) In parenthesis are the growth rates over a year ago (%). (Source) Actual records from MITI s Energy Production, Supply and Demand Monthly Statistics, etc. Forecast by IEEJ. 11

12 Fig. 2-4 Sensitivity Analysis Results (Primary Energy Domestic Supply) (up or down from the base case: %) (Note) The intense heat severe winter case assumes the summer in 1994 and the winter in Fig. 2-5 Sensitivity Analysis Results (Final Energy Consumption) (up or down from the base case: %) Economic recession Economic recovery Intense heat severe winter Economic recession we made a sensitivity analysis on by preparing two economic cases, one assuming a continuing economic recession and the other an economic recovery, as well as an additional case where an intense heat and a severe winter were assumed. First, in the continuing economic recession case, we assumed real GDP would fall by 0.5% from the previous fiscal year (lower by 1% than in the base case). On top of a fall in private final consumption, we also assumed that overseas demand would remain as a positive contributor, but with a lesser magnitude. Under these assumptions, primary energy domestic supply would grow by 0.5% over a year ago. The growth is slower by 0.5 points from what s assumed in the base case. In final consumption terms, this case would result in a mere 0.2% growth, down by 0.6 points from the base case. In the economic recovery case, we assumed real GDP to grow by 1.5% (higher by 1% than in the base case) over a year ago. Thanks to a dissipating sense of fears for the future, private housing and equipment investments would rebound, and overseas demand would also contribute to propping the economy up. Under these assumptions, primary energy domestic supply would increase by 1.4% over a year ago, higher by 0.4 points than in the base case. Mea- Economic recovery Intense heat severe winter (Note) The intense heat severe winter case assumes the summer in 1994 and the winter in sured in final energy consumption terms, this case would post a 1.2% growth, up 0.4 points over the base case. The intense heat and severe winter case would post a 2.5% growth of primary energy domestic supply, and a 2.0% growth of final energy consumption over a year ago, up 1.5 points and up 1.2 points, respectively, over the base case. This case particularly highlights the magnitude of the effect of atmospheric temperatures. 2-7 Summary In, both GDP and energy consumption are expected to shrink from the previous year s records. In, GDP is projected to mark an upturn to a positive growth, paired with an energy consumption growth. In specific terms, GDP, falling by an estimated 0.6% in, is likely to post a 0.5% growth in, while final energy consumption, down by an estimated 1.3%, to grow by 0.8%. The sharper fluctuations in energy reflect that energy trends in energy-intensive industries, typically steel and petrochemicals, and in the residential and commercial sectors heavily depend on atmospheric temperatures. 12