Major Domestic and International Energy Policy Trends (October 6, 2026 Edition)

October 6, 2026
Noah
Commodities
0

Overview

Today’s developments can be organized along two axes: ‘how fuel prices and volumes have begun to move’ and ‘how to secure domestic electricity.’ The most significant development is the November selling prices announced by Saudi Arabia’s state-owned oil company, Saudi Aramco, between October 4 and 5[1][2]. It lowered the price of its flagship crude oil for Asia by $3 per barrel from the previous month, marking the largest price cut in about six years since June 2020[1][2]. Meanwhile, prices for Europe have been raised by $3[1][2].

Regarding oil reserves, the International Energy Agency (IEA) revealed on October 4 that 325 million barrels of the 400 million barrels of coordinated releases decided in March have already been released[3]. On October 5, Japanese Chief Cabinet Secretary Minoru Kihara stated that ‘there are no plans for additional releases at this stage'[4][5]. As for liquefied natural gas (LNG), ships carrying Qatari LNG have been passing through the Strait of Hormuz one after another[6]. However, the volume of LNG passing through the strait remains more than 75% lower than before the war[7].

Domestically, an extraordinary Diet session was convened on October 5, and Prime Minister Takaichi stated in her policy speech that she would secure supply capacity to meet the electricity demand for data centers[8]. On the same day, it was reported that the Ministry of Economy, Trade and Industry is considering a system to cover the costs of extending the life of old thermal power plants through the market[9]. In the field of storage batteries, Keiyo Gas has begun operating a grid-scale storage station in Gunma Prefecture, marking the start of entry by city gas companies in Japan[10]. The decline in fuel prices is still limited, and businesses considering electricity procurement and rates are required to look at the ‘direction’ and ‘sustainability’ of price movements separately.

Basic knowledge to grasp first

Major policy trends and news

1. Saudi Arabia makes 6-year price cut for Asia: Prices raised for Europe, Japan maintains policy of no additional reserve releases

In its Official Selling Price (OSP) for November shipments, Saudi Aramco set its flagship Arab Light crude for Asia at $5 per barrel below the average of Dubai and Oman crude[1][2]. This is a further $3 reduction from the $2 discount for October shipments[1]. The scale of the discount is the largest since June 2020[1][2]. Heavier grades, Arab Medium and Arab Heavy, were reduced by $5[1][2]. Prices for Northwest Europe were raised by $3 for all grades, while prices for the U.S. remain unchanged[1][2].

This announcement was in the opposite direction of market expectations. A Reuters survey had predicted an increase in line with the rise in Middle East benchmark crude oil[1][2]. The OSP serves as a benchmark for refineries that purchase crude oil from Saudi Arabia under long-term contracts to determine the price for that month. Asian refineries receive crude oil at a price calculated by adding or subtracting the OSP from the price of Dubai-Oman crude. A reduction in the OSP means a direct decrease in procurement costs for buyers in Asia, including Japan.

Why was the price lowered only for Asia this time? Reuters reports that the aim is to compensate buyers for record-high freight rates and to protect market share for exports that have fallen due to the conflict[1][2]. Since September, Saudi Arabia has continued to export by transferring crude oil from ship to ship off the coast of Oman, outside the Strait of Hormuz[1]. Shipments from the Yanbu port on the Red Sea side have also resumed[1][2]. Yanbu is relatively close to Europe, and it is natural to interpret the price increase for Europe as reflecting this recovery in supply.

Let’s check the scale of the price cut. Since 1 kiloliter is approximately 6.29 barrels, a $3 reduction is about $19 per kiloliter. Assuming an exchange rate of 150 yen to the dollar, this is about 2,800 yen, which is approximately 2.5% of the crude oil price (111,869 yen/kl) for the November fuel cost adjustment indicated at the end of September[13]. The crude oil price itself also fell to the low $100 range per barrel on October 5, but it remains at a high level around $100[14].

What can be read from this table is that Saudi Arabia has set opposite pricing for Asia and Europe. Because ships cannot pass through the Strait of Hormuz, it costs more to transship or take a longer route to deliver to Asia. It appears that Saudi Arabia is absorbing part of that burden through price cuts to retain its Asian customers. Conversely, the difficulty of transportation has not been resolved, and the discount is a reflection of that ‘expensive logistics’.

In terms of reserves, the release is entering its final phase. The IEA revealed on October 4 that 325 million barrels of the 400 million barrels of coordinated releases decided on March 11 have been released, with 75 million barrels remaining[3]. It is unclear whether the additional release of up to 100 million barrels agreed upon by the G7 on October 2 is included in this remainder or is an addition[3]. Japan released about 80 million barrels in March and conducted a second round of national reserve releases in May[4]. Chief Cabinet Secretary Kihara stated on October 5, ‘There are no plans for additional releases at this stage'[4][5].

There are two implications for Japan. One is the possibility that Saudi Arabia’s price cut will lower import prices from December onwards, acting as a certain downward pressure on fuel cost adjustments from the beginning of the year. The other is that the room to use reserves is narrowing. Japan relies on the Middle East for over 90% of its crude oil imports[5], and since it is difficult to continue drawing down reserves, the need to urgently rebuild procurement routes is increasing. It should be noted that Saudi Arabia’s discount is a temporary sales policy and may return to normal in the December OSP.

2. Qatari LNG ships pass through the Strait of Hormuz one after another: Still, the volume is less than a quarter of pre-war levels

Reuters reported on October 5 that LNG ships loaded at Ras Laffan in Qatar have appeared one after another outside the Strait of Hormuz over the weekend[6]. Around October 2 to 3, four ships, including the ‘Bu Samra,’ ‘Al Gattara,’ and ‘Al Sadd,’ which are affiliated with the Qatari state-owned company, were confirmed outside the strait[6]. The Al Gattara is heading to Zhejiang Province in China, and the Al Sadd unloaded at the Dahej terminal in India on October 3[6]. All four ships were last confirmed inside the strait between September 18 and 27[6].

Many ships passing through the strait are sailing with their Automatic Identification System (AIS), which signals their location, turned off[6]. This is to avoid becoming targets of attack, and the actual situation of passage remains difficult to grasp. According to vessel tracking data, it is estimated that 21 LNG ships left the Strait of Hormuz in September, the highest monthly number since the war began[7].

Even so, the reality is that the recovery in volume is still a small step. Before the war, about three LNG ships left the strait per day[7]. If a month is 30 days, that is about 90 ships, and the 21 in September are less than a quarter of that. The volume of LNG passing through the strait is said to be more than 75% lower than before the war[7]. Qatar continues to declare force majeure for long-term contract buyers, until November for Asia and until December for Europe[11]. JERA, Japan’s largest LNG buyer, is also reported to not see the disruption in Qatari supply being resolved by the winter of 2026 to 2027[11].

What can be read from this table is that the ‘resumption of passage’ of Qatari LNG is still just a small step in terms of volume. The shortfall is being filled by U.S. production, and in September, the U.S. accounted for one-third of global LNG supply[11]. The JKM, a benchmark for Asian spot prices, is at a high level of $25.43 per million British thermal units (MMBtu) as of October 5[15].

Let’s summarize the impact on electricity. The main fuel for thermal power generation in Japan is LNG, and its price is reflected in electricity rates with a delay of several months through fuel cost adjustments. Since demand for electricity and gas increases simultaneously in winter due to heating needs, LNG inventory and the feasibility of additional procurement determine the stability of supply and demand. The fact that Qatari ships have begun to pass through is a positive factor. However, as long as sailing continues while avoiding the danger of attack, the addition of freight and insurance premiums will remain, and it is expected to take time for prices to return to pre-war levels.

3. (Follow-up) Prime Minister Announces Securing of “Power for Data Centers”: Proposal to Cover Costs for Extending Life of Old Thermal Power Plants via Market

At the extraordinary Diet session convened on October 5, Prime Minister Takaichi delivered a policy speech [8]. Regarding energy, she stated that the government would “ensure a sufficient and stable supply of electricity that can also respond to the increase in power demand for data centers accompanying the progress of AI social implementation” [8]. At the same time, she indicated that systems would be developed to diversify procurement sources and reduce risks, such as “reducing dependence on specific routes for crude oil, etc.” [8]. It is natural to interpret this as referring to the three crude oil procurement bills covered in the September 29 and October 5 editions.

On the same day, October 5, the Nikkei reported that the Ministry of Economy, Trade and Industry is considering a new system to support the life extension of old thermal power plants [9]. According to the report, the concept is to utilize a market for trading power generation capacity to cover equipment maintenance costs over multiple years [9]. It is positioned as a “stopgap” measure to secure immediate supply capacity in preparation for the increase in power demand due to the spread of artificial intelligence (AI) and the expansion of data center locations [9].

The background to this report is the secretariat’s proposal for a “supplementary auction” in the capacity market presented by the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) on September 29 [12]. The content focused on large-scale thermal power plants scheduled for suspension or decommissioning, aiming to secure a reserve ratio indicating supply-demand margin of “for example, 6%” [12]. The report did not clarify the details of the system, and it has not been confirmed whether it refers to the same mechanism as the supplementary auction. What was newly conveyed this time is the direction of covering maintenance costs for “multiple years.”

In terms of the flow of money, the costs of the capacity market are ultimately borne by retail electricity providers and are widely passed on to consumers through electricity rates. For owners of old thermal power plants, this will allow them to make decisions on annual suspension or decommissioning with a multi-year revenue outlook. On the other hand, extending the life of old thermal power plants involves fuel consumption and carbon dioxide emissions, and it also competes for investment and costs with decarbonized power sources. The design of the exit strategy, specifically how long the “stopgap” will last, is expected to be the focus of future deliberations.

4. Keiyo Gas Starts Operation of Grid-Scale Battery Storage: Domestic Entry of City Gas Companies Progresses

Keiyo Gas announced on October 5 that it began full-scale operation of a high-voltage grid-scale battery storage facility with an output of 2 MW and a capacity of 8 MWh in Isesaki City, Gunma Prefecture, on October 1 [10]. The project is operated by KG BESS LLC, which was established in February 2026 with the group’s Keiyo Gas Real Estate [10]. Development and construction are handled by Sun Village, and market operation is handled by Marubeni Power Retail [10][16]. It provides electricity and adjustment capacity through the wholesale electricity market, supply-demand adjustment market, and capacity market [10]. Keiyo Gas invested in a grid-scale battery storage business in the United States in June 2025, and this is its first project in Japan [10].

Sun Village, which is in charge of development, has set a goal of developing and constructing grid-scale battery storage facilities with a total output of 500 MW at 250 locations nationwide [16]. The strategy is to accumulate many high-voltage projects of approximately 2 MW per location. For city gas companies, battery storage facilities are a means to increase revenue sources for their power business as gas demand wanes, and it is also a business that can leverage their regional customer base and real estate.

The momentum of entry is also reflected in the numbers. According to OCCTO’s grid access records, the number of applications for grid connection studies for grid-scale batteries increased from 594 in fiscal 2022 to 24,880 in fiscal 2025, an approximately 42-fold increase in three years [17]. On the other hand, the number of connected grid-scale batteries remains at approximately 840,000 kW as of March 2026 [17]. With applications far exceeding the actual increase in facilities, the government is attempting to narrow down projects with low feasibility by making the submission of land-use documents mandatory [17].

There is also an opposing view. The price cap in the supply-demand adjustment market has been gradually lowered to 10 yen per kWh [17]. If high-voltage battery storage facilities of the same scale increase all at once, market price differentials are likely to shrink. For new entrants, the ability of the aggregator entrusted with operation and the level of construction costs will determine profitability.

Impact on Stakeholders

The impact of today’s developments on each entity is summarized as follows.

What can be read from this table is that while signs of a price decline have begun to appear for crude oil, upward pressure on costs continues for securing LNG and electricity supply capacity. The decline in crude oil prices affects petroleum product prices quickly, but the impact on electricity rates is greater for LNG. For consumers, it is realistic to assume that electricity rates will remain high for the time being.

Future Outlook and Action Points

Short-term (until December 2026)

October 7-9: Representative questions in both houses of the Diet. Energy security and the handling of the three crude oil procurement bills will be points of contention [8]
November 1: Next meeting of the seven major OPEC+ countries
Around early November: Saudi Aramco announces OSP for December shipments. The focus is on whether discounts for Asia will continue [1]
End of November: Deadline for Qatar’s force majeure for Asia. Attention on whether it will be extended [11]
December 12: End of the extraordinary Diet session

Medium-term (FY2027–2028)

Detailed design of a system to cover the life-extension costs of aging thermal power plants through the market (discussions in the council, timing TBD) [9][12]
End of G7 additional releases (4 months) and the start timing for each country’s stockpile repurchases [3]
From FY2027 onwards, full-scale operation of grid-scale battery storage facilities and narrowing price spreads in the supply-demand adjustment market [17]

Action Points

Retail electricity providers should separate the decline in crude oil prices from the high LNG prices to recalculate fuel cost adjustment forecasts for the period after the start of the year.
Petroleum and chemical procurement managers should track Saudi Arabia’s December-loading OSP and transshipment freight rates off Oman to review assumptions for next year’s procurement plans.
New entrants in the battery storage business should make investment decisions only after confirming the track record of the aggregator to whom operations are entrusted and the profit outlook under the 10-yen price cap.