Fortnightly Review

Fortnightly Review

Fortnightly Review

Russell Hsiao is the executive director of the Global Taiwan Institute and the editor-in-chief of the Global Taiwan Brief.

Taiwan to Boost Energy Cooperation and Reduce Trade Deficit with US through LNG Imports

In an apparent effort to assuage the Trump administration’s principal trade concern of reducing the United States’ trade deficit with foreign partners, Taiwan’s Minister for Economic Affairs, Shen Jong-chin (沈榮津), announced that Taiwan would import more liquefied natural gas (LNG) from the United States to reduce the former’s trade surplus with the world’s largest economy. In an interview with US-based Politico in December 2017, the minister said that Taiwan’s state-owned energy company, CPC Corp., has signed a 20-year contract to import LNG from the United States. According to the minister, “we [Taiwan] believe we can efficiently solve the problem of deficits between Taiwan and the US.”

Immediately upon taking office, the new US president quickly signaled his administration’s intent to prioritize the reduction of the nation’s ballooning trade deficits. In March 2017, President Trump issued Executive Order 13786—Omnibus Report on Significant Trade Deficits. The Executive Order highlighted that the US annual trade deficit in goods exceeded $700 billion and overall trade deficit exceeded $500 billion in 2016. Consequently, the President directed the Commerce Department and the Office of the US Trade Representative to assess the major causes of the trade deficit with foreign trading partners that the United States had a significant trade deficit in goods in 2016 and whether those trading partners were engaged in “unfair and discriminatory trade practices.” The United States’ trade deficit with Taiwan was reportedly US$15.5 billion through the first 11 months of 2017. As such, Taiwan was targeted along with 12 other trading partners (i.e., Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Switzerland, Thailand, and Vietnam).

Minister Shen’s announcement that Taiwan will increase LNG imports also follows in line with the Tsai administration’s ambitious push towards green energy that will see gas become the dominant fuel source in the country’s energy profile for electricity production by the mid-2020s.

Under the current government’s plan, Taiwan is undergoing a long-term transformation of its energy profile for electricity production. Indeed, the current energy mix is composed of coal (46 percent), gas (32 percent), nuclear (12 percent), renewables (6 percent), and oil (4 percent). In pursuit of the Tsai administration’s goal to completely phase-out nuclear power, the Tsai government is aiming to rebalance the country’s energy mix to gas (50 percent), coal (30 percent), renewables (20 percent), while eliminating nuclear and oil as fuel sources for electricity production by 2025.

The long-term contract signed by CPC Corp. touted by the minister was for 800,000 tons of LNG per annum that will be delivered over 20 years and worth US$ 10.7 billion from the Cameron LNG liquefaction project in Louisiana.  By comparison, CPC Corp. received only two LNG shipments in June and in December in 2017. In accordance with the new contract, starting from 2018 CPC Corp will receive from ENGIE, a global business providing electricity, natural gas and energy services, a monthly delivery of LNG shipments at the country’s Yongan regasification terminal in Kaohsiung.  

With a population of just 23.5 million, Taiwan was the 5th largest LNG buyer in the world in 2016—only behind Japan, South Korea, China, and India. The top five countries from which Taiwan imports LNG from Qatar, Malaysia, Indonesia, Papua New Guinea, and Russia. Taiwan began importing LNG from Qatar in 2005, and the gulf state quickly began the leading supplier accounting for between 30 – 40 percent of Taiwan’s total LNG imports in 2016. However, as tensions in the Middle East festers, there are concerns in Taiwan that events like the mid-2017 row over Middle Eastern countries with Qatar could negatively impact the availability of LNG imports from the region. As Taiwan increases the profile of gas in its future energy mix, Taipei may be looking for more reliable and less-risk prone suppliers for its LNG supplies to increase its energy security. At the same time, the United States is set to become the world’s second largest exporter of LNG by the end of 2022—just behind Australia and ahead of Qatar—accounting for 22 percent of the total global gas output.

There appears to be a growing alignment of interests between Taiwan’s energy security and US concern over the bilateral trade deficit. While Taiwan’s decision to import more LNG from the United States will help lessen friction over the bilateral trade deficit and deepen energy ties between Taipei and Washington, the former’s capacity to utilize the growing supply and demand of LNG depends on more than adding additional supply. To be sure, Taiwan must also address capacity issues such as in its ability to store and reprocess the LNG for use by its limited regasification facilities and power generators. Additional infrastructure such as new receiving terminals and storage, pipelines, as well as regasification facilities are necessary to increase the capacity to provide and transmit increased supply under the government’s plan.

The main point: Taiwan state-owned CPC Corp.’s deal to import more LNG over the next 20 years from the United States will help kill two birds with one stone: one, it will help reduce the trade deficit with the United States and also contribute to the push towards increasing gas in the country’s energy profile.

Correction: A previous version of the article imprecisely described ENGIE as an electric utility.

Ready, Set, Go: Race for 2018 Nine-in-One Elections Begins

With the date for Taiwan’s local elections set for later this year on November 24, the race for the nine-in-one elections is officially underway. The local elections combine municipal mayors/councilors, county magistrates, county/city councilors, township chiefs/councilors, borough chiefs in six municipalities and 16 counties/cities, chiefs of indigenous districts in municipalities, and councilors of indigenous districts in municipalities. The primary season is heating up with Taiwan’s major political parties horse-trading with coalition partners and prospective candidates jockeying to be their respective party’s nominee in these elections that will serve as a bellwether for the 2020-presidential election.

The last local elections held in 2014 resulted in the ruling-Democratic Progressive Party (DPP) controlling a majority of the city/county seats with 13 of the 22 city and county mayoral posts—notably wresting control of Taichung city in central Taiwan from the Nationalist Party (Kuomintang, KMT) and successfully supporting an independent candidate to win in a traditional-KMT stronghold, Taipei city. The KMT managed to retain only six of the seats with the remaining three won by independent candidates. The political momentum generated by this landslide electoral victory for the DPP in the local elections paved the way towards its return to power in the national-level 2016 presidential and legislative elections.

While local elections in Taiwan generally focus on domestic issues and prior local races before 2014 may shed little light on nation-wide trends, all politics in Taiwan is increasingly local. Since President Tsai Ing-wen has made domestic issues the focal point of her administration’s priority, the results of the upcoming elections will likely be seen as an assessment of her administration, as well as DPP’s ability, to govern and deliver on those social promises.

As much as the elections will be about Tsai’s and the DPP’s performance, it is also a test of the voters’ confidence in the ailing-KMT to govern again—which has been undergoing an intense intra-party reformation since its crushing defeat in 2016. Relatedly, it provides a window into the lingering power competition between different factions within the KMT, most notably the faction of the former pro-China KMT Chairwoman Hung Hsiu-chu (洪秀柱) and the current more moderate Chairman Wu Den-yih (吳敦義).

Interestingly, a new power base within the KMT seems to be emerging with the formation of the so-called the Pan-Blue Alliance (泛藍聯盟) established by former New Party (新黨) lawmaker Cheng Lung-shui (鄭龍水), National Committee of Civil Servants (全國公務人員協會) Chairman Li Lai-hsi (李來希), and former KMT National Development Institute Chairman Lin Chung-san (林忠山), who will serve as the coordinator of the group and is a close ally of former KMT Chairwoman Hung. The group’s aim is to field their preferred candidates in the upcoming local elections.

Two electoral races that are being closely watched by political observers are for Taipei city and New Taipei City, positions currently held by the non-affiliated Ko Wen-je (柯文哲)—which the DPP supported in 2014 by not fielding its own candidate—and the KMT’s Eric Chu (朱立倫), respectively. In a surprising statement, a promising KMT contender for the Taipei city position, Chiang Wan-an (蔣萬安), announced that he will not be running in the party’s primary—leaving open to question whom will emerge from the KMT’s primary to compete against the incumbent for the important post of mayor of Taiwan’s capital. At the moment, the most likely candidate will be KMT Taipei mayoral candidate hopeful Ting Shou-chung (丁守中). In New Taipei City, which is under KMT control but considered in play due to the razor thin margin of the incumbent’s victory in 2014 and since KMT mayor Chu has reached the term limit, the Deputy Mayor Hou Yo-yi (侯友宜) or former Taipei County commissioner Chou Hsi-wei (周錫瑋) may become the Party’s pick to become Chu’s successor.

With some already looking towards Taiwan’s 2020 presidential election, the green-leaning Taiwan Brain Trust (新台灣國策智庫)—funded by pro-independence heavyweight Koo Kwang-ming (辜寬敏)—recently conducted a public opinion poll that showed only 32.4 percent of respondents believe that President Tsai would be re-elected in 2020, and 43.9 percent said she would not. Some analysts interpret the polling data to mean that President Tsai has lost support from independent voters, yet it is also plausible that the likely cause of the result is from waning support from the deep-green elements from within her own party.

The godfather of Taiwan independence and also senior adviser to the president, Koo has publicly indicated his preference for Premier and former Tainan mayor William Lai (賴清德) to run as the DPP’s presidential candidate in 2020. Interestingly, the TBT poll also asked respondents whether they prefer Tsai or Lai as the next president with 42.3 percent supporting Lai and only 24.4 percent supporting Tsai. In a match up against KMT candidates, Tsai’s support rating was 45.4 percent compared with KMT Chairman Wu Den-yih’s 29.6 percent, and lower at 38.2 percent against the former KMT presidential candidate and current New Taipei City Mayor Eric Chu with a support rating of 43.9 percent. Whereas if Lai was the DPP’s presidential candidate, according to the poll, he would have a 57.7 percent support rating against Wu’s 22.1 percent, and 47.9 percent support against Chu at 35 percent.

The main point: The race for the nine-in-one elections is underway. The results of the elections will likely be seen as an assessment of Tsai administration as well as DPP’s ability to govern and deliver on domestic concerns. At the same time, it is also a test of the voters’ confidence in the ailing-KMT to govern again.