TAIPEI (Taiwan News) – A new deal between Taiwan’s CPC corporation and U.S. firm Cheniere Energy may herald the start of a major transition in the Indo-Pacific energy market according to economists and industry insiders.
The US$25 billion dollar deal was announced on Aug. 9, the same day that Cheniere made its Q2 earning report. The deal calls for the U.S. energy company to supply two million tons of liquefied natural gas (LNG) to Taiwan every year for 25 years starting in 2021.
The deal represents a major step forward for the Taiwanese government’s plan to reduce reliance on coal and nuclear energy over the next decade. The government expects to be nuclear free by 2025, and to provide 30 percent of the country’s domestic energy needs from clean or renewable energy sources by 2030.
Liquified natural gas, while still a fossil fuel, is widely considered to be the cleanest form of fossil fuel energy. The steady supply of LNG through Cheniere and CPC will help Taiwan decrease reliance on coal, as the country develops renewable energy infrastructure, exploring possibilities in solar, wind, and geothermal energy.
According to the report at Petroleum Economist, Taiwan is already the world’s fifth largest LNG importer, and the country is aiming to increase reliance on natural gas for its energy needs from 32 percent in 2018, up to 50 percent by 2025, when the country’s nuclear reactors are slated for permanent decommission.
However, there are some potentially very serious consequences for the deal, both environmental and political, according to the analysis at Petroleum Economist.
Locally, there is likely to be serious pushback from environmental groups, as the CPC Corp. and Taipower prepare to build the infrastructure necessary for Taiwan to make optimum use of increased LNG imports, including plans for two new LNG receiving terminals, and an expansion planned for one that is already operational in Taichung.
Politically, there are also some major ramifications to the prospect of increasing LNG dependence for Taiwan in the decade ahead.
Primarily, 90 percent of Taiwan’s LNG imports passed through the South China Sea in recent years. This puts the future of Taiwan’s energy supply at serious risk should China attempt to blockade Taiwan and divert shipments.
According to a fourth quarter 2017 Energy Security Index reported by Verisk Maplecroft, Taiwan energy was at “"high risk" scoring only 3.42 out of 10 because of "extreme dependence on seaborne natural gas imports.”
An analyst at Verisk Maplecroft, Hugo Brennan was quoted by Petroleum Economist as saying "Shipments of LNG to Taiwan would be vulnerable to disruption in the highly unlikely event of a Chinese naval blockade of the island. However, the geopolitical risks associated with Taiwan sourcing LNG from the US are lower than most other import options."
This situation obviously makes deals with U.S. energy suppliers preferable, as they are more likely to provide a stable supply of energy with less risk factors than agreements with other regional partners.
Further, such a massive deal between the U.S. firm and Taiwan’s CPC corp. also heavily suggests that U.S. economic interests will continue to compel U.S. involvement in the region for the decade to come.
A deal like the one between CPC Corp. and Cheniere Energy also indicates that regional energy markets are very likely to further encourage warming relations between Washington and Taipei, to the certain ire of Beijing.
It is likely that Taiwan is not the only market in the region that Cheniere Energy will be interested in exploring. Likewise, there is plenty of incentive for other U.S. firms in various energy industries to seek out good faith, long-term partnerships throughout the Indo-Pacific