Data explainer: The IEEJ & Japan’s unrealistic gas forecasts

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Key points:

  • The Institute for Energy Economics Japan (IEEJ) is a Japanese research institute that has significant influence in Japan, Asia, Australia and the US. Its two scenarios for the future energy systems have higher carbon emissions and significantly higher levels of forecast gas demand than forecasts by other organisations.
  • In the IEEJ’s forecast based on current trends, by 2050 gas demand is 20% higher than the comparable scenario from the IEA, and higher than those projected by oil and gas companies ExxonMobil and BP.
  • This high demand for gas is driven by much higher forecasts for the use of gas in power. Based on current trends the IEEJ projects this to increase by approximately 950 billion cubic meters (bcm) a year between 2030-2050. In the same period, the IEA expects it to fall by 117 bcm.
  • This difference is even more acute in its energy transition scenario for South East Asia, where the IEEJ projects gas will generate 743% more electricity than the comparable IEA scenario.
  • The IEEJ assumes that solar and wind will be 56-108% more expensive than the IEA predicts. This means that under IEEJ assumptions, solar and wind are much less competitive than gas.
  • The IEEJ’s modelling prioritises thermal power as a backup to renewables, stating that it is “desirable to not depend excessively on renewables”, rather than relying on a mix of technologies, such as batteries or demand response to reduce the need for thermal power.
  • The IEEJ’s energy transition scenario also forecasts huge growth in the deployment of carbon capture and storage (CCS), forecasting more than six times the amount of thermal power with CCS by 2050 than the IEA.

What is the IEEJ?

The Institute for Energy Economics Japan (IEEJ) is an energy research institute based in Japan, focused on energy analysis and recommendations for Japan and the Asia-Pacific region. It was founded in 1966 by the Japanese government’s Ministry of International Trade and Industry — now the Ministry of Economy Trade and Industry (METI) — but became an independent organisation in 2012. The institute has retained close links with the government. The current Chairman and CEO of the IEEJ is a former vice minister and director-general of the METI, while two of the other seven executive officers have also previously worked for METI. The IEEJ is also closely linked to industry, with its operations funded by a membership of over 100 companies. The IEEJ does not publicly disclose which companies are members or what role they play in the governance of the institute on its website.

The IEEJ is an influential organisation, though not as high-profile as the International Energy Agency (IEA) or the Organization for Petroleum Exporting Countries (OPEC). The IEEJ was cited as a “respectable energy modeling organization” by leading US Congress members in their criticism of the IEA, and it has played a leading role in developing national power development plans in Asia – such as in Bangladesh. IEEJ CEO Tatsuya Terazawa is frequently quoted in the media, often in relation to Japanese energy imports.

Japan is a significant promoter of gas in Asia, with its government and major companies deeply involved in the industry. The Japanese government is the second largest provider of public finance forf gas projects in the world, providing USD 52 billion in state support over the 10 years up to 2022. Japanese energy companies earned over USD 14 billion gas-related profits in 2023, according to Bloomberg estimates. Japanese companies have also become powerful LNG traders in Asia, buying large volumes of the gas to sell on to other countries in the region. This resale of LNG accounted for 37% of the total gas handled by Japanese companies in 2023.

The IEEJ is notable for its forecasts of very high levels of future gas demand. Our analysis of its two main scenarios shows that it forecasts significantly higher levels of gas demand than other organisations, including those from the oil and gas industry. This analysis, based on the IEEJ 2025 and 2024 Outlooks, seeks to understand how the IEEJ modelling reaches these conclusions and assess the credibility of its assumptions.

Comparing the IEEJ and IEA scenarios

The IEEJ produces two scenarios for the future of the energy system, which are broadly comparable to similar scenarios by the IEA:

Current trends scenarios refers to those that are based on current policies:

  • The IEEJ Reference scenario assumes current trends in low-carbon technologies and energy efficiency continue without acceleration.
  • The IEA Stated Policies (STEPS) scenario projects future energy trends based on current government policies.
  • Exxon Global Outlook and BP Current Trajectory also sit in this category.

Energy transition scenarios refer to the comparable scenarios in which the energy transition accelerates in future:

  • IEEJ Advanced Technologies (AdvTech) assumes “maximum implementation of policies for energy security and climate action” and further renewable cost reductions.
  • The IEA Announced Pledges (APS) scenario is based on the governments achieving long-term climate targets, such as for 2030 or long-term net zero goals.
  • These two scenarios offer similar projections for the pace of the energy transition, though these are far slower than would be needed to achieve the goals of the Paris climate agreement, as outlined in the IEA Net Zero Emissions (NZE) scenario.
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Notes
  • Carbon capture and storage (CCS) is the capture of carbon dioxide, usually from large single emitters such as power or industrial facilities, and its storage, usually underground.
  • Thermal power refers to energy generated from converting heat into electricity, usually from coal, gas, oil or biomass.
  • Power generation costs are for the Levelised Cost of Energy (LCOE), a metric that measures the average cost of generating electricity over the lifetime of an energy project.
Sources

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