The 2021 Taiwan referendum, which took place on the Dec 18 rejected the relocation of the new 3 mtpa Guantang LNG terminal and the reactivation of the 2.7 GW Lungmen Nuclear Power Plant. Both proposals lost by a narrow margin on the back of a low turnout. The result of both referendums will significantly affect Taiwan’s energy landscape in the mid- to long-term. ICIS think it might trigger a moderate power crisis for Taiwan post 2023. Here’s why.
Taiwan’s power generation dilemma
The current Taiwan administration aims to phase out nuclear power plants entirely by 2025, while raising the share of natural gas and renewable energy to 50% and 20% respectively. However, renewable energy has yet to provide a sustained level of generation and only constituted 5.8% of the power mix in 2020. Meanwhile, coal-fired power generation has its output significantly reduced over the years, due to the backlash from air pollution. Coal in the power mix is set to be reduced to 30% by 2025, from the current 36%. Consequently, imported LNG become the only viable source to replace these power supply gap, risen significantly to the current 40% in the power mix. ICIS LNG Edge shows that Taiwan imported 16.6 million tonnes of LNG in 2020, the fifth highest in the world. We expect 2021 to reach 20 million tonnes.
Taiwan’s 3rd LNG terminal and the implication on its delayed completion
80% of the island’s LNG consumption goes to the power sector. LNG Edge shows that the utilization rate for its two existing terminals – Taichung and Yung An - have reached an alarmingly high 130%. The Taichung terminal, located in the middle of the island, is currently importing 60% more LNG compared to five years ago, driven mainly by the rapid power demand increases from the Northern industrial users and a much-reduced coal power generation. According to Taipower, Northern Taiwan consumes 41% of Taiwan’s total power, yet only contributes 35% of total power supply. And this gap can vary greatly according to seasonal demand fluctuation. A 3rd LNG terminal, the Guantang terminal, is necessary to put both Taichung and Yung An operational burden into a more sustainable rate.
On the demand side, Taiwan’s power consumption growth rate has averaged 1.6% over the past five years and we expect the coming two years to continue to grow above 2.2%. This is a relatively healthy growth rate due to the island’s export driven economy. As a comparison, Japan declined 0.6% and UK, 1.7% on average over the same period. Demand has been increasing but supply has not been keeping pace. To make the matter worse, the operational 1.97 GW Kuosheng Nuclear Power Plant will be shut down completely in 2023, exacerbating the already inadequate power supply in Northern Taiwan.
The new Guantang terminal aims to supply gas to the Datan power plant in Northern Taiwan, which will add two other 1123 MW gas units in 2022. Although the referendum vetoed the relocation of the terminal, the government has decided in May 2021 to extend the jetty by 455 meters into the sea, over the concern of damages to the reef ecosystem. This will postpone the terminal’s commissioning date to June 2025 from the original 2023. ICIS envision a challenging power supply and demand gap around 2023 to 2025, unless a fuel replacement or demand curtailment plan is put in place soon.
What will a nuclear-free Taiwan mean for LNG?
The referendum has rejected the reactivation of the Lungmen Nuclear Power Plant. But this was a non-event, as even if Lungmen were to be reactivated, the plant cannot be relied upon to provide immediate supply to the power mix. Taipower has mentioned that the plant cannot be restarted within the next ten years due to various safety and technical reasons. At its full capacity, ICIS estimates that the 2.7 GW power plant can produce electricity equivalent of burning 3 million tonnes of LNG on annual basis. In addition to not reactivating the Lungmen Plant, the government will also shut down the two operating nuclear plants by 2025. As such, a non-nuclear Taiwan will need more LNG as replacement fuel.
According to the ICIS LNG Edge Contracts Database, there are currently 13.2 mtpa long-term contract in place for Taiwan. Despite having two additional new deals, adding another 3.25 mtpa by 2022, there will still be a shortfall of contracted LNG import, when compared to the expected increase in power demand. Therefore, Taiwan will need to step up its spot cargo purchase in the coming few years. This will likely give rise to higher electricity price for end users as we expect spot LNG price to remain strong due to the lack of LNG supply globally.
ICIS LNG Analytics’ demand forecasts for Taiwan and the rest of Northeast Asia are now live in LNG Edge. The LNG Edge Demand Forecast is a rolling 24-month forecast which reacts to new market developments as they happen.