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Editor’s Note: This is the second of a two-part article series addressing infrastructure security issues in Taiwan’s petroleum-based energy sectors. The first article, “Securing Taiwan’s Black Gold: A Crude Analysis,” which appeared in our September 6, 2023 issue, identified critical weaknesses in Taiwan’s energy security architecture and outlined key phases of production in the petroleum industry. This second article examines processes and vulnerabilities in the latter stages of Taiwan’s petroleum supply chain.
Petroleum is the lifeblood of Taiwan’s economy. Refined petroleum products, ranging from gasoline and diesel fuel to fuel oil and lubricants, sustain Taiwan’s transportation and industrial sectors. However, recent geopolitical developments—most notably the move by China’s People’s Liberation Army Navy (PLAN) to simulate a blockade in retaliation for then-US House Speaker Nancy Pelosi’s August 2022 visit to Taiwan—threaten Taiwan’s national security and sustainable access to natural resources.
How can Taiwan best protect its oil industry, to include building resiliency and ensuring strategic oil reserves for both military and civilian use? This two-part article series seeks to address these questions by critically reviewing Taiwan’s oil supply chain, identifying key vulnerabilities, and offering policy recommendations. Drawing on industry modeling from the American Petroleum Institute, this analysis examines Taiwan’s oil industry through six linked phases:
- Production
- Transportation
- Short-Term Storage
- Refining Capacity
- Terminal Capacity
- Point of Use
Phase Four: Refining
After extraction, transport, and short-term storage, crude oil is moved to an oil refinery complex. Within the refinery, crude oil is moved through a network of piping and chemical systems and is transformed into its end-use product. Crude oil can be refined into gasoline, diesel, aviation (jet) fuel, power supply fuel, and manufacturing feedstock (such as petroleum-based lubricants, pharmaceuticals, plastics, organic chemicals, and refined gases).
Taiwan has three oil refineries: CPC Corporation Taiwan’s (CPC, 台灣中油股份有限公司) Taoyuan facility (桃園煉油廠), Formosa Petrochemical Corporation of Formosa Plastics Group’s (FPCC, 台塑石化股份有限公司) Mailiao facility(麥寮煉油廠), and CPC’s Dalin facility (大林煉油廠). These privately managed refineries produce the vast majority of Taiwan’s refined petroleum products (for both public and private use).
Taiwan’s Full Petroleum Refining Capacity
Refinery | Refining Capacity | Notes |
Taoyuan Refinery | 200,000 barrels/day | |
Mailiao Refinery | 540,000 barrels/day | Output is composed of naphtha, jet fuel, gasoline, fuel oil, and diesel. |
Dalin Refinery | 400,000 barrels/day | The refinery maintains offshore pontoons and wharves for both import and export. |
Graphic: The production capacities of Taiwan’s three oil refineries. (Data source: CPC Corporation; Reuters)
According to the US Energy Information Administration (an agency of the Department of Energy), it is estimated that Taiwan consumes nearly 1.1 million barrels per day (mbd) of petroleum, and is capable of refining over 1 mbd at full production capacity. By comparison, Japan consumes nearly 3.4 mbd of petroleum and is projected to produce less than 3 mbd by 2024, while the United States consumes 20.0 mbd of petroleum and produces 20.1 mbd. Thus, the output capacity of Taiwan’s refineries is not a strategic risk—instead, it is the geographic location of these refineries that presents a primary concern.
To address this vulnerability, Taiwan should subsidize the development of a fourth refinery on the eastern coastline (possible locations are denoted by the green stars on the graphic above). The development of this new refinery would directly increase Taiwan’s survivability in the event of a militarized cross-Strait conflict, providing three key benefits: 1) supply chain diversification of refined petroleum products; 2) improved supply chain survivability against military action; and 3) reduced transportation costs for east coast-bound petroleum.
Building on the recommendations from part 1 of this series, which called for crude oil shipping routes to shift to the east coast of Taiwan, the government should subsidize the development of a new refinery in the vicinity of either Hualien (花蓮) or Keelung (基隆). More precisely, Taiwan should take advantage of existing transportation, electrical, and logistical infrastructure at the Port of Keelung, its auxiliary port at Suao (蘇澳), or the Port of Hualien. Given these ports’ strong connection to Taipei—via Taiwan’s North Link Railway, Tai No.9 Highway, and national Coastal Highway—it is clear that these sites are well-connected to transport infrastructure and easily accessible from Taiwan’s capital.
It is also important to note two key potential roadblocks to this plan. The first is that this type of subsidization and development of new infrastructure is not currently covered under Taiwan’s Petroleum Administration Act (石油管理法 [Article 56]). The second problem is that moving Taiwan’s above-ground refinery facilities will not reduce their vulnerability to short-range or medium-range ballistic missiles (SRBM and MRBM). Nevertheless, this movement of key infrastructure to the eastern coastline would increase the difficulty of a PLAN blockade, an amphibious invasion, or targeting by PLA strike assets. In terms of a PLAN blockade, this would require a diversion of PLAN assets to the east coast to restrict shipping and refinery operations at the Port of Keelung or Port of Hualien. This additional area of blockade coverage would further expose PLAN assets to shore-based Taiwanese military defense systems. In terms of a land-based invasion, an additional refinery outside the scope of ground operations would enhance Taiwan’s military capacity and improve overall energy security resiliency. Finally, PLA longer-range strike assets would be forced to shoot over the Central Mountain Range, providing Taiwan with a longer flight window in which to conduct interdiction and counterfire operations.
Phase Five: Terminal
After transformation at the refinery, petroleum products and refined fuels are transported to terminals. Terminals manage the flow and supply of petroleum into the economy and are the final large-capacity location in the oil supply chain. They are designed for a specific type of petroleum product and vary widely in capacity, design, and management.
Taiwan’s Petroleum Administration Act and Measure Governing Oil in Emergency Management ( 緊急時期石油處置辦法) are the primary regulations governing the oil industry and its storage of refined petroleum products. [2] The Petroleum Administration Act’s Article 24 directly establishes guidelines for Taiwan’s Strategic Petroleum Reserve (SPR) program for both government and civilian supplies, as follows:
Oil refinery operators and importers are required to maintain an oil security stockpile of no less than sixty days of supply. The supply amount will be based on the average domestic sales and private consumption of the past twelve months […] The aforesaid security stockpile, oil refinery’s total storage quantity must be no less than 50,000 kiloliters [314,490 barrels], and no less than 10,000 kiloliters [62,898 barrels] for oil importers.
The government should make use of the Petroleum Fund to finance the storage of oil. The amount stored shall be calculated according to thirty days of the average domestic sales and consumption of the previous year.
In summary, civilian oil refineries are required to store an overall minimum of 314,490 barrels of all of the varied types of petroleum (crude oil, gasoline, light oil, jet fuel, kerosene, diesel oil, and liquefied petroleum gas [LPG]). Though the refineries should plan to store at least 60 days’ supply of each type of petroleum based off market sales and consumption (see Article 56 for military guidelines), these facilities are run by private organizations and are only periodically inspected by the government [3]. As a result, the responsibilities for monitoring and inspecting this critical national security asset are delegated to commercial entities.
To rectify this shortcoming, the government of Taiwan should develop government managed short-term and long-term national SPR terminals and bases in the Central Mountain Range. [4] While the existing, privatized approach may be more efficient in terms of oil stockpile management, it places the onus of control and responsibility for distribution on existing civilian systems. This would be a significant issue in a militarized conflict, in which civilian stocks may need to be redirected toward government or military use.
In addition to the physical SPR facilities, Taiwan should amend the Petroleum Administration Act’s Article 24 to focus on emergency-use petroleum products more precisely. For example, rather than using a historical consumption model for storage calculation, government planners should determine the actual emergency use requirements for a hypothetical blockade, invasion, or cessation of supplies. This degree of detail would require strategic planning and estimation across sectors and end-users (such as consumer, public, or military). If done effectively, this would allow Taiwan to determine the specific quantities of each refined petroleum type required at each facility. In turn, this would enable a greater deal of control in the event of a national crisis.
In the absence of such reforms, the government will not be able to conduct up-to-date monitoring of crude oil, refined petroleum, and fuel stocks at each location, as this information is currently controlled and overseen by the commercial importer or refinery. This is a critical information gap on strategic energy security and should be fixed immediately via revised government policy or legislative amendments. While Article 21 of the Petroleum Administration Act reserves this right in the event of emergency, it does not begin the planning process ahead of a crisis. [5]
Phase Six: Point of Use
The finished petroleum product is transported from terminals to its final supply chain location. Point of use facilities include fuel stations, airports, power plants, and other consumer-facing locations. This is the smallest-capacity stage and is the final step before transfer to the end-user.
Taiwan has a wide range of point-of-use facilities. This is a critical stage in moving refined petroleum products from the producer to the consumer. However, given the geographic diversity and sheer number of small-scale distribution facilities, this should not be an area of strategic focus for the Taiwanese government.
Conclusion
In the face of rising geopolitical tensions, Taiwan must address critical weaknesses in its national security planning related to energy resources: specifically, a lack of energy security and supply-chain resiliency. First, in the event of cross-Strait military conflict, Taiwan faces extreme limitations in its ability to provide petroleum products for both wartime military and civilian needs due to geographic clustering. Second, its domestic legislation requires reform to enable more effective strategic planning, stockpiling, and preparation. This legislative reform and planning must happen immediately, as the legislative process and physical stockpiling will require significant lead time. If Taiwan can implement these changes, and the government begins to seriously assess the impacts of a long-term strategic PLAN blockade, it may yet improve the overall resiliency and strength of its domestic supply chains.
The main point: Taiwan must address shortcomings in its national energy security and petroleum supply chain by: 1) leading planning, oversight, and management of a strategic petroleum reserve for refined petroleum products; and 2) subsidizing the development of east coast oil refineries and infrastructure. These improvements would greatly enhance Taiwan’s survivability during any future geopolitical conflict.
[1] For related geographical analysis of Taiwan’s port infrastructure, see the first article in this series, “Phase Two: Transportation.”
[2] In the case of Taiwan, oil is defined as petroleum crude oil, bituminous crude oil, and petroleum.
[3] Per Article 28 of the Petroleum Administration Act, “The central competent authority may ask oil refinery operators, importers, exporters, and gasoline/diesel oil wholesalers to report on their operations. The central competent authority may also send personnel or entrust a professional institution conduct an inspection of the actual operations, security stockpile, and relevant data of these businesses. A business may not obstruct, refuse, or evade such inspection.”
[4] See the first article in this series, “Phase Three: Short Term Storage.”
[5] For an example of the importance of securing oil production amid conflict, see: Rosemary Kelanic, Oil Security and Conventional War (Council on Foreign Relations, October 15, 2013), https://www.cfr.org/report/oil-security-and-conventional-war.
