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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Taiwan Doubles Down On U.S. LNG

LNG vessel

Taiwan, which has seen increased military exercises off its coast by Chinese forces this year, has just inked a major energy deal with a U.S. energy firm.

On Monday, Taiwan’s CPC Corp., a major LNG importer, announced a preliminary deal to buy liquefied natural gas (LNG) from U.S. based LNG producer Cheniere Energy for a period of 25 years. CPC signed a Heads of Agreement to purchase 2 million tonnes of LNG annually from the major gas exporter, which is gearing up to start exports from its second export plant at Corpus Christi, Texas.

LNG import needs

Taiwan is the fifth largest LNG importer in the world after Japan, China, South Korea and India. With scant hydrocarbon resources of its own, and with nuclear power needed for electricity generation falling out of favor with the Taiwanese populace, the island country will increasingly rely on both oil and gas imports to fuel its economy.

However, this presents several geopolitical complexities for the country of some 24 million people. Amid Chinese President Xi Jinping’s more muscular approach in the Asia Pacific region, including pressing against its neighbors in overlapping claims in the South China Sea, China’s stance toward Taiwan has also worsened, pitting Washington (which has a more than 50 year old mutual defense treaty with Taiwan) on a potential collision course with Beijing. China has vowed to bring Taiwan under is control, even at the threat of armed conflict.

In June, the Chinese navy brought even more pressure on Taiwan by conducting large scale naval drills every day for a week off the Taiwanese coast, according to Chinese media reports. Just two months earlier, the Chinese navy also conducted live fire drills off of Taiwan’s coast. It was the first naval exercise in the waters since September 2015, which occurred in the lead-up to the self-ruled island’s presidential election.

Taiwan Strait caught in geopolitical cross-hairs

The Pentagon is also reportedly considering sending U.S. navy warships through the Taiwan Strait and increasing arms sales to Taiwan after Chinese military aircraft, including the H-6K strategic bomber, conducted exercises around the self-ruled island - a development that invoked typical backlash from both official Chinese state run media and those that operate independently. Related: Libya Stops Pumping Oil

The stakes for not only Sino-U.S. relations are heightened amid these developments but also pressure within Taiwan itself. In January, the Wilson Center, a Washington-based think tank, said in a report that after a decade of relative quiet, tensions across the Taiwan Strait are poised to return to the fore as a major issue in the Asia-Pacific and a significant driver of tension between China and the U.S.

Much of this push-back from China came after the election of Taiwan’s new president Tsai Ing-wen in mid-2016. Tsai lng-wen, for her part, never signed off on the 1992 Consensus acknowledging “one China,” provoking anger in Beijing. However, her predecessor Ma Ying-jeou had pivoted closer to Beijing during his term, while Beijing had hoped for a continuance of these closer ties with eventual unification, possibly coming from closer economic development between the two sides.

Now, with more American gas headed for Taiwan, the possibility of a future clash between the U.S. and China in the waters off Taiwan has increased. Since Beijing considers Taiwan as part of mainland China and with the U.S. seemingly digging in its heals to support its embattled ally, American gas exports will increasingly travel not only the heavily contested South China Sea but the increasing volatile Taiwan Strait.

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By Tim Daiss for Oilprice.com

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