Energy in Taiwan: Uncertainty in Liquefied Natural Gas

Credit: AP / Yomiuri Shimbun
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A natural gas receiving terminal has been postponed due to the potential impact on a coral reef.

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Citing the need for further study of the rare coral reefs that lie nearby beneath the waters off Taoyuan County, the Environmental Protection Administration (EPA) on October 26 called for further postponement of a project to build Taiwan's third liquefied natural gas (LNG) receiving terminal in Guantang, adjacent to the Datan natural-gas power plant on the Taoyuan coast. The NT$60 billion (US$2 billion) project to accommodate increased imports of LNG is considered vital to the government's plans to transform the energy mix away from nuclear power and coal and towards cleaner natural gas and renewable energy.

Standing in the way of immediate implementation of the project are concerns that it would damage two endemic species of coral and two species of crustose coralline algae. In what scientists are calling an unprecedented discovery, the coral and algae have formed a collaborative reef, estimated to be 7,500 years old, which provides a habitat for a number of marine species, many of them valuable to Taiwan's fisheries.

These endemic species were only discovered in 2000 and have not yet been adequately studied. But they have already experienced widespread damage from the large-scale development and industrial pollution characteristic of the Taoyuan coastal region.

"There is no baseline data for the endemic species of coral, so according to Taiwan law, the Council of Agriculture needs to initiate a full-scale research project, otherwise there is no way to review any proposal," says Chaolun "Allen" Chen, a research fellow at the Academia Sinica Biodiversity Research Center and an expert in coral reef ecology.

The EPA's Environmental Impact Assessment (EIA) committee voted to postpone the project for at least a year to allow time for the research to be carried out. The decision is a temporary victory for environmentalists but a disappointment for the Tsai administration's plans to greatly expand natural-gas-fired power generation capacity.

"They (EIA committee) were facing a lot of pressure from the government but didn't know how to deal with the environmental groups," explains an energy insider in Taiwan who asked to remain anonymous due to the sensitivity of the issue. "Their way out was to find something that is a legal concern, and that was the reefs."

"We are still pondering what to do next," says Lee Huang-chang, deputy CEO of the natural-gas division of state-owned oil company CPC Corp., Taiwan's only importer of natural gas. Lee notes that as one possible solution CPC is considering moving the receiving terminal to a site further from the coral reefs but still within the Datan industrial zone. He says a decision will be forthcoming in the next few weeks.

The Guantang LNG terminal would be Taiwan's third, and would provide crucial receiving and storage capacity to supply the Datan power plant, Taiwan's largest gas-fired unit and the source of the August 15 blackout. Datan is currently being supplied by an undersea pipeline from the Taichung Second LNG Terminal, but in case of problems, undersea pipelines can take hours or even days to repair, resulting in extreme power shortages. Further, energy insiders say that the existing LNG terminals are not only already running at full capacity, but in fact are in the unprecedented situation of exceeding the nameplate capacity.

The Taiwan Power Co. (Taipower), the state-run monopoly that would be the sole customer for the Guantang terminal's LNG, has two new gas-fired units under construction. Scheduled to come online starting in 2022, they will increase generating capacity by 1,000 megawatts (MW), equal to one gigawatt (GW).

"If the terminal cannot be completed on time, it will postpone our power-supply project, so we sincerely hope that the third terminal will proceed smoothly and according to schedule," says Taipower spokesman Frank Lin.

The Tsai administration's goal is to eliminate nuclear power from the mix by 2025, as well as to reduce the proportion of coal from over 40 percent of generation to 30 percent. Natural gas's share is to increase from the current 35 percent to 50 percent. Renewable energy sources, especially offshore wind and solar, are to provide the remaining 20 percent.

To meet these expectations, Taipower is working on adding 13.5GW of gas-fired capacity by 2025 (with an additional 3.5GW by 2028), according to Taipower's Long Term Power Development Project released in 2016. Factoring in the 2.93GW of current gas-fired capacity due to be retired by 2025 (with an additional 1.33GW in 2026), a net 10.61GW would thus be added to the Taipower system for a total of more than 24GW in gas-fired capacity by 2025.

These plants will need to be supported by a huge expansion in the LNG receiving capacity. Taiwan currently has just over 10 mta (million tons annual) of storage capacity – 7.44 mta at Yongan in Kaohsiung and 3 mta at Taichung, with perhaps an additional 1.5 mta in the pipeline system. It will need an additional 8-10 mta by 2025, and the Guantang terminal was expected to contribute 3 mta of that amount.

Several alternatives to building the Guantang terminal have been proposed. One idea, relocating the project to the Port of Taipei, has been rejected by CPC, which cites the difficulty of construction at that site, plus the fact that it is already an operating commercial port. For safety reasons, when an LNG tanker enters a port, the channel must be cleared of traffic and all activity halted for the 20 hours needed to unload the cargo. The two operating LNG terminals are separated from commercial ports, although the Taichung LNG terminal reportedly shares a channel with the harbor.

The use of Floating Storage Regasification Units (FSRU) – LNG tankers repurposed as floating terminals – is another alternative. This idea, too, has been rejected by both environmentalist and CPC, as it would require a breakwater as protection from Taoyuan's notoriously rough weather, including typhoons. Building a breakwater would inflict equal damage to the reefs as building the terminal there.

By itself, postponement of the Guantang terminal doesn't necessarily disrupt Taiwan's vision for expanding reliance on natural gas for power generation. In fact, Taipower hopes to build some of its own LNG importation terminals, instead of relying entirely on CPC.

The utility plans to convert its Hsiehho oil-fired power plant near Keelung to 1,300MW of gas-fired capacity by 2025. As this area is located far from CPC's main pipelines, Taipower would supply this power plant with LNG from a dedicated terminal with capacity "sufficient to meet the power station and will also include sufficient capacity for a 25-day reserve margin," says Taipower's Lin. Sources put the actual capacity at around 1.5 mta in the first phase, with the total likely rising to 2.5-3 mta by 2032 when the second- phase construction is due to be completed.

Another Taipower LNG terminal in Taichung, scheduled to come online by 2024, would supply two new gas-fired units with a combined capacity of 2,600MW and possibly other nearby power plants such as Tongxiao #5. Lin stresses that both these projects are at a very preliminary stage and are still awaiting government approval enabling them to proceed to the EIA process.

Despite also being a fossil fuel, natural gas burns up to 70 percent more efficiently than coal and emits far fewer pollutants. Most of Taiwan's new gas capacity is in the form of combined cycle units, which generate electricity first in an internal combustion engine, and then recycle the waste heat into a boiler to generate power in a second cycle. The process raises efficiencies to over 60 percent, compared to 46 percent for the highest efficiency ultrasupercritical coal-fired power plants.

The world is currently awash with natural gas as increased supplies become available in places such as Australia, but most prominently the United States, where advances in fractured drilling – fracking – have opened up previously untapped resources and sparked an energy revolution. The International Energy Agency (IEA), which forecasts growth in global demand for natural gas at 1.5 percent annually through 2022, outpacing oil and coal, sees the United States becoming one of the main global gas suppliers, accounting for 40 percent of export growth.

Previously natural gas was generally limited to regional markets bound together through pipeline networks. The vast majority of natural gas continues to be transported via pipeline, yet the increasing capacity in both export and import LNG terminals has freed the market from regionalization. According to the International Gas Union (IGU), LNG shipments last year set a new record of 258 million metric tons, a 5 percent increase over 2015. In 2005, only 15 countries imported LNG, primarily in northeast Asia, including Taiwan. That number has now surged to 39 and is still growing.

LNG is produced through liquefaction in which the gas is chilled to 161 degrees Celsius and becomes a liquid with 600 times less volume. This process allows the fuel to be transported in massive LNG tankers to import terminals, where the liquid undergoes regasification and enters the domestic pipeline network.

Taiwan procures much of its LNG through long-term contracts, primarily from Qatar, the world leader in LNG, which supplies Taiwan through a joint venture between state-owned RasGas and Houston-based ExxonMobil. Imports also come from Australia, Papua New Guinea, and Indonesia.

While LNG sold in northeast Asia previously sold for six times the Henry Hub index for U.S. natural gas, the gap has closed considerably. The IGU notes that spot LNG prices in northeast Asia averaged US$5.5 per million British thermal units (MMBtu) – a measure of the fuel's power density – in 2016, compared to around US$3/MMBtu on the Henry Hub. This pricing has helped Taipower reduce the cost of power generation from natural gas from NT$3.7 per kilowatt hour (kWh) for gas-fired power purchased from Independent Power Producers (IPP) to NT$2.64/kWh. That level is still far above the NT$1.9/kWh paid for IPP-purchased coal-fired generation, but only slightly higher than Taipower's average rate to customers of NT$2.56/kWh.

The surge of U.S. gas to the market is generating speculation that Taiwan might soon be a major customer, and already CPC has procured U.S. gas on the spot market.

The Trump administration has made reducing U.S. trade deficits with major trade partners a primary focus, and increased sales of LNG is often mentioned as a potential way to narrow the trade imbalance. However, Taiwan is unlikely to be a big buyer of U.S. LNG as long as the price remains significantly higher than that of global competitors and the supply is constrained by limited export capacity. Further, Taiwan would undoubtedly be competing for tanker shipments with Japan and increasingly China, which also has an interest in reducing its trade surplus with the United States.

The Tsai administration has set high goals for its energy transformation program, but is finding progress toward these goals stymied by various stakeholders. Its 20GW goal for solar PV installations faces issues regarding the use of farmland, while offshore wind development has been slowed by environmentalists seeking to protect undersea ecosystems. The administration's timetable for expansion of gas-fired generation is likewise looking precarious, especially considering the lengthy time needed for the approval, design, engineering, and construction of new projects.

Debate continues over whether the energy transformation is feasible, at least within the 2025 time frame. "If we need to extend this two or three years, does it really matter?" asks Academia Sinica's Chen. "Are there any alternatives? This is something that needs more discussion now."

The News Lens has been authorized to repost this article. The piece was first published by Taiwan Business TOPICS.

(Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei.)

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