Market Report, "Taiwan Oil & Gas Report Q1 2014", published

From: Fast Market Research, Inc.
Published: Thu Dec 19 2013

Plans are presently under way to begin deepwater exploration off Taiwan's south-western coast and near the Itu Aba island, the largest island in the disputed and potentially oil-rich Spratly islands in the South China Sea. Despite the fact that the government has allotted a monthly budget of approximately NT $17mn per month towards exploration activities, Taiwan is set to remain almost entirely dependent on energy imports for the foreseeable future. Meanwhile, a growing appetite for imported gas has created a need for fresh liquefied natural gas (LNG) purchase schemes, with Australian and Qatari volumes on the rise and Papua New Guinea set to become a new source of supply. However, we note that the country's current LNG import capacity could temporarily limit the growth of LNG imports, and therefore of gas consumption. The construction of a planned LNG terminal in 2018 could relieve some of the pressure. We therefore expect gas consumption to grow slowly until 2018, and to increase at a faster pace after 2018.

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The main trends and developments we highlight in the Taiwanese oil and gas sector are:

* In December 2012, state-owned CPC Corporation and Husky Energy reached an agreement to cooperate on deepwater exploration projects off the south-western coast of Taiwan. Any discoveries would serve as a significant boost to Taiwan's bleak upstream outlook. Successes would also confirm the resource potential of the eastern South China Sea, where China - led by CNOOC - is actively stepping up its exploration efforts.
* Exploration efforts are also centred around Itu Aba Island, which may prove to be a source of political tension between Taiwan and other South China Sea territorial claimants. This is particularly true for China, which has itself devoted considerable resources towards the exploration and development of oil and gas fields in both the South and East China Seas. The location for a third liquefied natural gas (LNG) terminal has been finalised and is set to be constructed near Taipei. Operations are expected to commence in 2018. Industry is the backbone of Taiwan's industry, and the large industrial demand is inherent in the country's energy equation. Consumption of oil is therefore expected to move broadly in line with GDP trend. However, oil consumption growth could be slightly subdued with governmental plans to increase gas-fired power generation capacity, renewables and various policies aiming at increasing energy efficiency. Our forecast for crude oil consumption is for an increase from a planned 1.09mn b/d in 2013, to around 1.21mn b/d in 2017 and to 1.37mn b/d by 2022.

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