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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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Chinese Power Play Could Threaten Taiwan’s Energy Industry

Ever since Tsai Ing-wen was elected as Taiwan’s president in 2016 as head of the pro-independence ruling party, tensions between China and Taiwan have escalated to multi-decade extremes. Before her election, relations between the two sides had reached a new era of conciliation or, as Beijing would like to call it, reconciliation during the administration of President MaYing-jeou, a Beijing-leaning bureaucratic that seemed prepared to allow the merging of the two sides through economic cooperation.

Now that Tsai has been in office nearly three years, cross-strait relations can arguably be called the worst since 1979 when China stopped firing artillery barrages across the strait at Taiwanese outlaying islands. However, Beijing hasn’t been satisfied with just a war of words lately but it is backing up its oft-saber rattling by conducting naval war games close to the Taiwanese coast as well as sending bomber sorties near or even into Taiwanese air space.

This stepped-up tactic of using the stick instead of the carrot fits all too well with Chinese President Xi Jinping’s more muscular approach in the Asia-Pacific region. Soon after becoming president in 2012, Xi pledged to not militarize the numerous islands, reefs and formations that it occupied, or in the case of Scarborough Shoal in the Philippines’ own UN-mandated 200 natural mile Exclusive Economic Zone (EEZ), it seized after a tense standoff between Chinese naval and maritime vessels and a less equipped Philippine navy. But in the ensuing years, Beijing has not only broken Xi’s promise, it has upped the ante to a dangerous level, by enforcing its ill-founded claim to around 90 percent of the South China Sea, based on historical claims, something that other rival claimants can also promulgate, particularly Vietnam which reportedly has ancient maps and documents backing its overlapping South China Sea claims.

Coming full circle

Now, Taiwan is stating that it will not bow to Chinese pressure for international support against what it calls Beijing’s “out-of-control actions”, a Taiwanese presidential spokesman said on Thursday, after Beijing urged companies to change the way they refer to the self-ruled island. Alex Huang, the spokesman for the Taiwanese president told reporters in Taipei that as for China’s related out-of-control actions, we need to remind the international community to face this squarely and to unite efforts to reduce and contain these actions.

The power of words

The Chinese state-run Legal Daily reported on Wednesday, citing a report released by Chinese government think tanks, that U.S. companies including tech heavyweights Apple and Google had erred and wrongly labeled Taiwan and should take immediate action to correct their mistake. This is not the first time that Beijing has lashed out at Western companies over how they refer to Taiwan. Last year, Beijing put considerable pressure on U.S. airlines on how they refer to Taiwan, asking them, actually forcing them, to refer to Taiwan as “China Taiwan.” Related: Oil May Never Return To The Triple-Digits

According to a Washington Post article in July, American Airlines wiped Taiwan from its website, and United Airlines said it was working to meet China’s requirements. The kowtow by the American-based airlines came three months after Beijing ordered dozens of foreign airlines to refer to the island (Taiwan) as a Chinese territory or face consequences in the world’s second-largest aviation market. The same week, the Post report added, Chinese users could no longer see the name “Taiwan” on a map of Asia on the American Airlines website, while China, Japan and the Koreas remained.

Energy markets intersect

While the tit for tat war of words will continue between China and Taiwan, a self-ruled island of less than 30 million people, there is also an energy markets intersect. As China’s Blue Ocean Navy continues to increase its technological prowess amid Xi’s increased funding of the Chinese military apparatus, there remains a potential threat to coal, oil and liquefied natural gas (LNG) shipments to Taiwan. Taiwan's reliance on imported energy sources makes it even more vulnerable to any ill-intents of the Chinese navy should they ever decide to encircle the island, even as a temporary show of force or as part of a naval war game.

According to Taiwanese official statistics, oil, coal, and natural gas made up 48 percent, 29 percent, and 13 percent of Taiwan’s total primary energy consumption in 2015, respectively, while the remainder was mostly nuclear (7 percent) and smaller amounts of various renewable energy sources. Total energy import dependence was about 98 percent, according to the Taiwanese government.

Despite some analysts that claim this could be a far-fetched scenario, it should be remembered that China’s air force conducted several island encirclement patrols near Taiwan beginning on April 18, 2018. The drills reportedly featured different types of Chinese warplanes including H-6k bombers, Su-30 and J-11 fighters, and surveillance, alert aircraft, which aimed to test and hone their real combat capabilities. Chinese Air force spokesman Shen Jinke said at the time that China would continue to carry out such patrols, adding that the country has the determination, confidence and capability to safeguard national sovereignty and territorial integrity.

Upping the ante

Two weeks ago, Xi said he proposed “democratic consultations” for “peaceful development of cross-strait ties” but would not renounce force to regain control of the island if needed. A South China Moring Post article said that the People’s Liberation Army Navy and Air Force are expected to continue patrols around Taiwan, as they have been doing regularly since Taiwan’s pro-independence president Tsai Ing-wen came to power in 2016. Related: U.S. Oil Outlook Slammed By Lower Prices

All of this saber-rattling hasn’t been lost on Washington or President Trump that approved $330 mn in arms sales to Taiwan in September, provoking a stern rebuke from Beijing. However, that amount is the lowest in recent years, as U.S. policy makers weigh their obligation to help defend Taiwan against provoking Beijing in a delicate cat and mouse game that has been ongoing for years.

At the end of the day, its simply impossible to predict how the U.S.-China row over Taiwan will play out, though there are a plethora of pundits offering various analysis. It also remains to be seen how any ratcheting up of tensions between China and Taiwan, either with or without U.S. intervention, would impact global energy markets, particularly LNG markets in Asia, which accounts for nearly three-quarters of all global LNG demand.

The way forward for Taiwan is fraught with troublesome diplomatic challenges as it continues to lose the remaining few countries that recognize its self-ruled status, while the option of Taiwan pivoting to more reliance on nuclear power, a popular notion until the Fukushima nuclear disaster in 2011, has largely been taken off the table.

By Tim Daiss for Oilprice.com

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  • Horace Granger on January 17 2019 said:
    Twenty four F35 fighter jets headed to Taiwan last night from one local airport. A Chinese invasion of Taiwan would be a good way to balance the Chinese male/female ratio. Chinese war chants insure that President Trump will apply 25% tariffs in March. 50% tariffs follow.
  • Mitch Farney on January 17 2019 said:
    Stockpile lots of coals and petroleum...

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