Assessing Taiwan's Strategic Energy Stockpiles| MENAFN.COM

Wednesday, 29 June 2022 03:13 GMT

Assessing Taiwan's Strategic Energy Stockpiles


(MENAFN- Caribbean News Global)

By Jordan McGillis and Patrick Yu

Energy policy is and will continue to be a contentious issue in Taiwan's competitive politics . The Democratic Progressive Party (DPP, 民主進步黨), led by president Tsai Ing-wen (蔡英文), has sought to implement a transformative energy plan to decrease the island's carbon emissions and phase out all nuclear power by 2025. The opposition Kuomintang (KMT, 中國國民黨) staunchly supports nuclear power and has been critical of Tsai's energy proposals. These debates are in no way a recent phenomenon.

Regardless of the domestic politics surrounding the future of Taiwan's energy and environmental outlook, it is of the utmost importance that the island maintains sufficient strategic oil and gas stockpiles that are insulated from political turns of fortune.

Such energy stockpiles are critical due to the increased threat of a blockade by the People's Republic of China (PRC) in the event of a cross-Strait crisis. As the Taiwan Ministry of National Defense's November 2021 report outlined, the People's Liberation Army (PLA) is capable of stopping the oil and gas imports that Taiwan relies on for both standard economic activity and national defense. This article will review Taiwan's existing framework for its strategic stockpiles, with a specific focus on oil as well as provide a comparison with other similarly situated countries in order to inform a more robust strategy for the island.

Taiwan's strategic stockpiles

Taiwan's strategic petroleum stockpile is regulated by the Petroleum Administration Act (石油管理法). Specifically, Article 24 of the Act states,“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” with“oil” here referring to both crude oil and petroleum products, including gasoline, diesel oil, kerosene, naphtha, liquefied petroleum gas, jet fuel, and fuel oil. On top of the 60 days of supply maintained by industry, the law also requires the government to maintain an oil security stockpile of no less than 30 days.

To finance the storage of these volumes, the government makes use of the Petroleum Fund, paying more than NTD $2 billion (USD $72 million) annually to CPC Corporation (台灣中油股份有限公司) and Formosa Plastics Corporation (台灣塑膠公司) for the service. Although public information regarding the government's oversight of the storage process is scarce, past reporting has suggested that CPC and Formosa Plastics, rather than a government agency, have been responsible for the relevant assessments and reviews . Only the finalized reports and assessments are transferred to the relevant supervisory authority at the Ministry of Economic Affairs (MOEA).

Regarding response to a crisis, Article 21 of the petroleum law states,“In the event of an oil shortage or a great fluctuation in oil prices that might impact the steady supply of oil or national security, the central competent authority may institute measures on oil control, such as quotas, price controls, and security stockpile adjustments and utilization.” The“central competent authority” refers to the MOEA at the national level, and municipal governments on more local levels.

Additionally, in May 2020, president Tsai announced a plan to promote“Six Core Strategic Industries” on the island. Launched in response to the supply chain disruptions and vulnerabilities caused by the coronavirus pandemic, the initiative prompts Taiwan to strengthen critical sectors , including the national defense and strategic stockpile industries.

Specifically, crude oil was identified by the MOEA in 2021 as among the strategic stockpile industries around which“the government is making plans to ensure the country is well prepared for any sudden shortages caused by unexpected events,” according to Wu Ming-huei (吳明蕙), director of the MOEA's Department of Economic Development. Moreover, under Tsai's initiative, the National Development Council has been collating action plans to increase the capacity of the island's liquified natural gas (LNG) terminals, which at the moment have the ability to store less than two weeks' worth of reserve supply. Natural gas remains an important source of the island's electricity generation.

In the event of conflict

The real threat of a PRC blockade of the island means Taiwan must, at a minimum, hold reserves capable of meeting wartime fuel requirements. In an April 2022 interview with the South China Morning Post , Alexander Huang Chieh-cheng (黃介正), an associate professor of strategic studies at Tamkang University and a leading defense scholar on the island, expressed his skepticism regarding Taiwan's ability to withstand such a scenario. According to Huang, the PLA would only need to restrict traffic off of Kaohsiung in southern Taiwan and Keelung in the north in order to significantly disrupt commercial shipping. He also argued that the Taiwan government must make contingency plans based on the assumption that“no one will help Taiwan.”

An in-depth 2013 study carried out by Rosemary Kelanic, now of the University of Notre Dame, analyzed the respective oil requirements for Taiwan and the PRC in the event of a cross-Strait air war. While the air war scenario is not certain to transpire in the event of a PRC blockade, the scenario remains relevant because the PRC would likely have to establish air superiority over the island before taking any direct military action. The Kelanic study had two important takeaways that remain extremely relevant. First, the report found that military demand for petroleum products during wartime is much larger than commonly anticipated.

This means that average domestic consumption, upheld as the reserve standard in the Petroleum Administration Act – may be far exceeded by wartime fuel requirements. Second, the report underscored the importance of anticipatory measures, specifically in terms of policies related to stockpiling and air defense. Clearly, potential fuel requirements from military demand would severely strain the government's present reserve supplies.

Across the Taiwan Strait, the PRC has recently completed the institutionalization of its own strategic reserve program, making it better prepared for a potential cross-Strait crisis. According to a study published by the Oxford Institute for Energy Studies in 2021, the PRC's drive to establish a strategic petroleum reserve has reached maturity. The report stated that“all stocks combined, China has now probably reached 90 days of forward cover.” In September 2020, China announced the first public release of its state crude oil reserve, a move that the Oxford report called“a test of mechanisms.”

Furthermore, even as the United States and a few of its allies have banned imports of Russian oil due to Russia's invasion of Ukraine, China has maintained its energy trade with Russia . It is not difficult to imagine a conflict scenario involving Taiwan wherein the PRC could work with Russia to evade countermeasures from a US-led coalition to cut off China from oil imports.

Global partnerships as a way to mitigate risks

Two possibilities are immediately evident for enhancing Taiwan's resilience in global energy supply chains. One possibility is for Taiwan to expand its participation with the International Energy Agency (IEA). A second and non-mutually exclusive possibility is for Taiwan to implement a version of the international joint stockpiling regimes found in South Korea and Japan. This would require Taiwan to improve its ties with key oil-producing countries, particularly in the Middle East, through diplomatic and/or economic measures. Both of these possibilities could be effective in addressing Taiwan's current energy vulnerabilities. Inevitably, the effectiveness of these efforts will hinge upon Beijing's capacity to obstruct and deter them.

The IEA is an intergovernmental organization created in 1974 to help coordinate collective responses to major oil supply disruptions. It comprises 31 countries , all of which attain status through their membership in the Organization for Economic Cooperation and Development (OECD). Although Taiwan (officially the Republic of China) is not an OECD member, it is an observer on some OECD committees, including the steel, competition, and fisheries committees. Enhancing Taiwan's relationship with the IEA and adhering to IEA guidelines would add another level of accountability to Taiwan's energy security regime.

Recently, the IEA has played a visible role in blunting the shock caused by Russia's invasion of Ukraine and the subsequent exclusion of Russian energy resources from certain foreign markets, aligning the efforts of its member states to release barrels from their respective reserves. Compared with the controversy surrounding Taiwan's participation in the World Health Organization (WHO) amidst the coronavirus pandemic, the IEA dynamics differ: although the PRC is a member of the WHO, it is only an affiliate of the IEA, albeit one with high stature. In 2017, the IEA and the PRC's National Energy Administration expanded collaboration in areas including oil emergency management and preparedness. Nevertheless, the IEA is among the few multilateral arenas in which PRC influence is less pronounced.

Besides seeking greater coordination with the IEA, Taiwan authorities should also closely study the stockpiling regimes in South Korea and Japan, two countries with comparable geopolitical situations. Not only do these countries have clear mechanisms in place for emergency management, but they also consistently maintain high levels of reserves way above the IEA's 90-day standard. South Korea and Japan are able to achieve this partly because of their international joint stockpiling programs, which Taiwan should also closely examine.

In 2006, South Korea became the first Northeast Asian country to complete a joint stockpiling agreement with an oil-producing country, Kuwait. The program gives Korea priority rights to purchase barrels of oil held within the country in the case of an emergency, an ingenious scheme that serves dual commercial and security purposes.

Under Japan's“New International Resources Strategy” launched in March 2020 by its Ministry of Economy, Trade, and Industry (METI), Japan has enhanced its diplomatic efforts toward building closer relationships with key oil-producing countries such as Kuwait and the United Arab Emirates. While self-reliance is the appropriate watchword, forging agreements with key oil-producing nations would create additional resilience that would help safeguard Taiwan's strategic stockpiles, and at the same time protect Taiwan's self-determination.

The main point: To prepare for the possibility of a PRC blockade, Taiwan must set aside its polarized energy and environmental debates and build consensus around more robust strategic oil and gas stockpiles. Taiwan should learn from the examples of comparable countries and enhance both the codification and the visibility of its stockpile regime.

Jordan McGillis is Deputy Director of Policy at the Institute for Energy Research.

Patrick Yu is an MA candidate at Johns Hopkins School of Advanced International Studies (SAIS) with a research focus on East Asian security issues.

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