International

How the U.S. and Taiwan Can Unite on Energy and Foreign Policy

(Oleksii Liskonih/Getty Images)
Increasing U.S. exports of liquefied natural gas to Taiwan would be a geopolitical and climate win.

As representatives of the United States and Taiwan engage to reaffirm trade and investment ties this summer, liquefied natural gas (LNG) ought to be at the forefront of the conversation.

The U.S. has been the world’s largest producer of natural gas for a decade. In 2019 it accounted for 23 percent of global production, and in recent years it has become a major exporter of LNG for the first time. Taiwan, meanwhile, has a growing appetite for this resource and a goal to increase its use as a way to replace higher-emitting coal power.

To date, President Joe Biden has been reluctant to endorse new American fossil-energy enterprises, angling instead to soothe the concerns of the Democratic Party’s climate wing by stopping projects such as the Keystone XL oil-import pipeline and suspending oil and natural-gas leases on Alaska’s Arctic Coast.

But in the case of natural-gas exports to Taiwan, the administration would have the ability to tout potential emissions reductions. That’s because Taiwan, like the People’s Republic across the strait, is heavily reliant on coal-fired electricity generation.

Taiwan’s Coal Status Quo

According to the International Energy Agency (IEA), Taiwan generates 46 percent of its electricity with coal. Though it now has an objective to eliminate emissions by 2050, Taiwan used more coal-fired power from 2015 through 2019 than in any other five-year stretch in its history, setting a coal-generation record of 131 terawatt-hours in 2018.

As a result, Taiwan’s emissions have been on the rise, now eclipsing Japan on a per capita basis by 24 percent and climbing above 250 million tonnes for the first time in 2016, per IEA Data Services. Taiwan’s per capita and total emissions are now about double the 1990 figures, which are often used as a global benchmark.

The U.S. electricity industry offers something of a model for Taiwan, having reduced sector greenhouse-gas emissions by 33 percent since 2005, largely by replacing 40 percent of coal generation with natural-gas generation. This switch has brought total U.S. emissions back into line with 1990 levels.

To phase down coal (and nuclear, but that’s another story), Taiwan is in the process of expanding its use of natural gas. Since 2006 when it surpassed nuclear, natural gas has been Taiwan’s second-greatest electricity-generation source. Today it makes up 33 percent of the island’s power-generation mix, and the government has set a natural-gas generation target of 50 percent by 2025.

Taiwan’s domestic natural-gas-production industry, however, is minuscule relative to its demand for the resource, so it imports more than 99 percent of the natural gas it needs. Because Taiwan is an island, LNG is the form in which the gas arrives. State-owned China Petroleum Corporation (CPC), the only LNG importer, is expected to begin operations at its third import terminal in 2023. The third terminal, sited in northern Taoyuan, will join facilities in southern Kaohsiung and central Taichung.

In 2020, Taiwan imported about 18 million tonnes of LNG. Qatar is the top supplier, with its cargoes accounting for almost 30 percent of imports. Australian exports to Taiwan have surged to claim the second spot, at more than a quarter. Russia is third and supplies about 14 percent of the total. U.S. exports of LNG to Taiwan have risen from zero in 2016 to around half a million tonnes in 2018 to over 1 million tonnes in 2020, but still make up just 6 percent of Taiwan’s imports.

Energy Geopolitics

President Tsai Ing-wen’s government in Taipei has compelling reasons beyond emissions to secure more U.S. LNG cargoes. In the wake of the COVID-19 pandemic, supply-chain reliability is top-of-mind for importers. And as an importer of nearly all of its energy, Taiwan finds itself in what Evan A. Feigenbaum and Jen-yi Hou of the Carnegie Endowment for International Peace call an intrinsically precarious trilemma, with energy security being a major worry alongside affordability and sustainability.

With Qatar as the leading source of LNG, Taiwan is vulnerable to the twists and turns of politics in the Persian Gulf. “The fact is, if political instability worsens in the Middle East, it will inevitably touch Taiwan’s LNG partners in the Gulf,” Feigenbaum and Hou write. This risk partly explains Australia’s ascendence on Taiwan’s import list in recent years.

Casting a shadow, of course, over the entire discussion is the rising tension between Taiwan and the mainland. As language from Beijing has become more strident under Xi Jinping, Taiwan has sought to strengthen bonds with the U.S., even welcoming two high-ranking U.S. officials to the island in 2020.

From President Tsai’s vantage point, linking economies with the U.S. may provide benefits beyond the traditional balance sheet. The people of Taiwan increasingly agree. Research from Pew conducted in October and November 2019 indicates that 85 percent of Taiwan’s population and nearly 90 percent of Taiwanese under the age of 50 support closer economic ties to the United States. Because this polling was conducted just before the pandemic, those figures are likely higher now.

This intangible value aligns with the emerging Biden-administration Asia-Pacific stance. While on many fronts the Biden administration has distanced itself from the positions of its predecessor, in Asia-Pacific affairs it has largely continued on Trump’s footing. This continuity has included Secretary of State Anthony Blinken’s vying to “creat[e] more space for contacts” with Taiwan and backing Taiwan’s inclusion in international fora. Consistent with its emphasis on supporting a global liberal order, the Biden administration ought also to consider co-opting former secretary of state Mike Pompeo’s championing of natural gas as a tool to link the world’s democracies. Pompeo’s natural-gas overtures were offered as a counter to strings-attached Russian gas in Eurasia; Blinken would be presenting a modified proposition, offering U.S. LNG as a means of liberating Taiwan’s energy industry from risks not only emanating from Moscow, but also sited at the Strait of Hormuz and the Taiwan Strait.

Indeed, the U.S.–Taiwan LNG trade is already responding to these signals.

Opportunity and Obstacles

Beginning in January 2021, Taiwan’s CPC will field cargoes from U.S.-based Cheniere Energy. The 25-year deal inked in 2018 will send 2 million tonnes across the Pacific annually, roughly tripling the overall trade volume. As of now, these cargoes ship from ports on the Gulf of Mexico, highlighting a significant obstacle to a U.S.–Taiwan LNG relationship.

The U.S. currently lacks even a single LNG-export facility on the Pacific Coast. This dearth can leave Asia-bound cargoes bottlenecked at the increasingly congested Panama Canal and add weeks to a delivery timeline. According to Pembina, a Canadian company waging a battle against local and federal approval boards to ship LNG from Oregon, terminals in the West could deliver LNG about 50 percent faster than those on the Gulf Coast. As the March 2021 Suez fiasco shows, in the modern shipping context, old canals have become a liability.

While U.S. domestic political opposition has hindered its own LNG prospects, neighbors Canada and Mexico are capitalizing on the trans-Pacific opening. Canada has approved the construction of more than a dozen export terminals in its Pacific provinces. Meanwhile, the self-imposed U.S. Pacific Coast LNG blockade has led one American company, Sempra Energy, to turn to Mexico. Sempra has two projects in the works that would ship LNG to Asia from just south of the border in Baja California. Mexican president Andrés Manuel López Obrador said in November 2020 that the local population had responded positively to the project and that remaining issues were nearing resolution, according to Christopher Lenton of Natural Gas Intelligence. Projects stateside, such as Pembina’s, look further than ever from realization.

While supercharging the U.S.–Taiwan LNG relationship would be mutually beneficial, political barriers stateside block the way. As CPC seeks more long-term LNG contracts in the coming years, it is important for both the U.S. and Taiwan that U.S. LNG is price-competitive. For the U.S., it’s an outlet for the copious volumes of gas that are being drawn from the ground each year. For Taiwan, stronger trade bonds with the U.S. would serve as a kind of geopolitical insurance policy while also moving it toward its climate targets. West Coast export terminals are key to turning this possibility into reality.

The economic benefit of commodity exports is obvious, and the Taiwan opportunity should magnify for the Biden administration the additional value LNG can create in both shoring up the liberal order and reducing emissions.

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