Located across the Taiwan Strait from mainland China (80 miles at the closest point), Taiwan is governed by Chinese Nationalists who fled the mainland after losing a civil war to the Communists in 1949. The People's Republic of China (PRC) considers Taiwan a renegade province. The United States and most other nations recognize the PRC as the sole legal Government of China while maintaining strong commercial, cultural, and other unofficial ties to Taiwan -- a leading economic and trading center with one of the busiest ports in the world (Kaohsiung).

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GENERAL BACKGROUND
Taiwan claims its independence as the Republic of China -- a separate political entity from mainland China -- even though China claims it as one of its provinces and most other countries do not formally recognize its government. Nevertheless, Taiwan maintains strong economic relations with the United States, Japan, and other major countries of the world. In November 1997, the value of the local currency hit a 10-year low relative to the U.S. dollar, largely due to the impact of a regional financial and economic crisis in Asian markets. Nevertheless, the government continues to predict economic growth of 6.7% in 1997 and 6.5% in 1998, and only a modest increase in inflation.

Taiwan held its first direct presidential election in 1996, in which incumbent President Lee Teng-hui (who was appointed by the legislature in 1988) was elected to a 4-year term. In addition to ongoing security concerns with respect to mainland China, the current government is concerned about growing economic ties with its political rival and has banned investments over $50 million in mainland China. (Indirect investments in China have been allowed since 1990, and Taiwan has engaged in indirect trade through Hong Kong -- which reverted to Chinese rule in July 1997 -- for many more years). According to Taiwan government statistics, China is the second largest export market for Taiwanese goods (16.5% of total exports) and its largest foreign investment market ($14.9 billion between 1991 and 1996).

ENERGY SITUATION
Oil is the dominant fuel in Taiwan's energy mix, accounting for more than half of total primary energy consumption. Coal also plays an important role (over one-fourth of total energy consumption), followed by nuclear power (over 10%), natural gas (over 5%), and hydroelectric power (less than 5%). Taiwan has limited domestic energy resources and relies on imports for most of its energy requirements ($7.8 billion in 1996, including $5.7 billion for oil). Industry is by far the largest energy user (56% of 1996 consumption), compared with about 18% for transportation and 17% in the residential/commercial sectors combined.

Energy demand is expected to increase 4% annually between 1996 and 2010. Shares of petroleum, coal, and hydropower are expected to decline as nuclear power, natural gas, and alternative energy sources become more important in the overall energy mix.

Taiwan's Energy Commission, which is part of the Ministry of Economic Affairs, is responsible for overall energy policy. "The Energy Policy of Taiwan," as revised in 1996, aims to establish a free, orderly, efficient, and clean energy demand and supply system. Current priorities include liberalization and privatization of energy-related enterprises (including private sector investment in power plants and oil refineries).

OIL
Chinese Petroleum Corporation (CPC), Taiwan's national oil company, is the dominant player in all sectors of the petroleum industry, including exploration, refining, storage, transportation, and marketing. However, significant competition is expected from Formosa Plastics Group, a private Taiwanese firm which aims to capture half of the domestic gasoline market by 2000. The company is building a major petrochemical complex in Mailiao (including Taiwan's first private oil refinery) and is investing in oil pipelines and storage tanks to distribute its products. Another competitor, the Tuntex Group, also plans a refinery as part of a petrochemical complex in Tainan. These investments are in response to revised regulations allowing the private sector to establish refineries and engage in related petroleum production, import/export, and marketing businesses. Full opening of the petroleum market is planned by 2002. An initial public offering for shares in CPC is also expected within the next year.

The Middle East was the source for most (63%) of Taiwan's crude oil supply in 1996. As part of its effort to diversify supply, Taiwan began importing 10,000-15,000 b/d of Alaskan North Slope (ANS) crude oil from British Petroleum Oil Trading Co. under a 12-month term contract beginning in May 1996. A new term purchase contract for the same volume of oil will go into effect in December 1997. The biggest consumers of petroleum in Taiwan's economy are the industrial, transportation, and electric power sectors (38%, 34%, and 16% of total 1996 petroleum consumption, respectively).

NATURAL GAS
In addition to oil, CPC is responsible for domestic natural gas production and liquefied natural gas (LNG) imports. In 1996, domestic production provided 21% of natural gas consumption, with the other 79% filled by imported LNG. Industry and the electric power sector are the largest users of natural gas (45% and 35% of total consumption, respectively). CPC plans total LNG imports of 3.32 million tons in 1997, increasing to 3.34 million tons by 2000.

Indonesia is currently the main supplier of LNG to Taiwan (1.5 million tons annually, slated to increase with the signing of a second contract for 1.8 million tons annually beginning in 2001). However, Taiwan has also begun to import LNG from Malaysia (500,000 tons annually since 1995, slated to increase gradually to 2.24 million tons). In 1996, Indonesia provided 58% of Taiwan's LNG imports, and Malaysia provided the other 42%.

Taiwan operates an LNG import facility at Yungan (about 18 miles north of the port of Kaohsiung) with annual receiving capacity of 4.5 million tons. Taiwan plans to boost the facility's capacity to 7.4 million tons by 2000. In addition, Tuntex (a Taiwanese conglomerate) plans the first private LNG import terminal, an 800 million cubic feet per day complex to be built at Taoyuan in northern Taiwan. Tuntex plans to sell the gas to independent power producers and the state power company, Taipower.

COAL
In Taiwan, coal is used mainly for electric power generation (56% of 1996 consumption) and in the steel, cement and petrochemical industries. The addition of cogeneration units in manufacturing operations is boosting demand for coal. Taiwan produces small quantities of coal, but the bulk of its demand (99.5%) is met with imports. The major suppliers in 1996 were Australia (35%), Indonesia (21%), South Africa (17%), mainland China (15%), the United States (8%), and Canada (3%).

ELECTRIC POWER
Taiwan Power Company (Taipower), the state electric power utility, currently dominates Taiwan's electric power sector. However, its monopoly status is waning under a 1994 measure allowing independent power plants (with up to 30% foreign investment) to provide up to 20% of Taiwan's electricity. Eleven applications for $8 billion worth of projects totaling 10,300 megawatts by 2002 have been approved (1,950 megawatts LNG; 4,200 megawatts coal; 1,450 megawatts oil; 2,700 megawatts orimulsion). In addition, industrial plants operated by private corporations have been encouraged since 1988 to develop cogeneration systems and wholesale any surplus power to Taipower for distribution. Independent power producers are also required to sign power purchase agreements with Taipower, which will distribute the power to market.

As of the end of 1996, Taipower operated 58 power plants (38 hydropower, 17 thermal, 3 nuclear) with total capacity of 23,763 megawatts (32% coal-fired, 23% oil-fired, 22% nuclear, 18% hydro, 5% gas-fired). In addition, cogenerators had 2,356 megawatts of capacity in place, which they used to generate about 10% of Taiwan's total electric power in 1996. As of February 1996, cogeneration capacity had increased to 2,654 megawatts at 69 plants.

In addition to increasing capacity from cogeneration and independent power producers, Taipower plans to complete its own capacity expansion plans (8 additional coal-fired plants by 2001) and boost the use of natural gas in existing plants. Taipower retains exclusive control over nuclear and hydropower plants. Although hydropower plays a relatively small role in Taiwan's electric power industry, Taipower currently has 4,884 net megawatts of nuclear generating capacity at 3 plants (Kuosheng and Chinshan stations in the north and Maanshan station in the south). The company plans a fourth nuclear plant at Yenliao in the northeast (Lungmen plant, also known as Dragongate) which would add another 5,000 megawatts by 2004. Construction of the fourth plant had been suspended in 1986; however, funding was restored in October 1996 and construction has resumed despite objections from nearby residents, environmentalists, and opposition political parties. GE Nuclear Energy, a U.S. company, has the overall contract to supply the design, equipment, and fuel for the $1.8 billion project.

ENVIRONMENT
Taiwan has serious air pollution problems, mostly attributable to motor vehicles (60% of pollutants) and emissions from factories and power plants. The current stock of 14.5 million motor vehicles includes 9.5 million motorcycles, many of which emit up to 10 times the amount of hydrocarbons produced by many types of cars. With the number of vehicles projected to reach 15.5 million, including 10 million motorcycles, by 2001, the government is promoting the use of electric motorcycles. In addressing pollution from industry, Taiwan is offering a package of measures to reward companies with good records and penalize the worst polluters through emission fees. Subsidies are also offered for setting up liquefied petroleum gas (LPG) stations and for converting buses and taxis to clean-burning fuels such as LPG, compressed natural gas (CNG), or LNG. Although standards for sulfur and lead content are being progressively tightened, most gasoline sold today (82%) is leaded.

COUNTRY OVERVIEW
President: Lee Teng-hui (next election in 2000)
Population (7/97E): 21.7 million, heavily concentrated along the West coast
Area: 14,000 square miles (slightly larger than Maryland and Delaware combined)
Major Cities: Taipei (Capital), Kaohsiung, Taichung, Tainan
Major Religions: Mixture of Buddhist, Confucian, and Taoist 93%, Christian 4.5%, other 2.5%
Languages: Mandarin (official), Taiwanese (Min), Hakka Chinese dialects
Ethnic Groups: Taiwanese, 84%; mainland Chinese, 14%; aborigine, 2%
Armed Forces (8/96): Army, 240,000; Air Force, 68,000; Navy, 68,000

ECONOMIC OVERVIEW
Currency: New Taiwan Dollar (NT$)
Exchange Rate (11/20/97): US$1 = NT$31.7
Gross Domestic Product (GDP, 1996): $274 billion
Real GDP Growth Rate (1997E): 6.4%
Inflation Rate (consumer prices, 1997E): 1.6%
Unemployment Rate (9/97): 2.8%
Total Reserves, Non-Gold (9/97): $85.7 billion
Current Account Balance (1996): $10.5 billion
Trade Surplus (1996): $18.1 billion ($11.4 billion with U.S.)
Exports: $114.8 billion ($29.9 billion to U.S.)
Imports: $96.6 billion ($18.5 billion from U.S.)
Major Exports: Textile products, electrical machinery & apparatus, machinery, chemical & allied products, iron & steel, plastic articles
Major Imports: Crude oil, capital goods, consumer goods, agricultural and industrial raw materials
Major Trading Partners: United States, Japan, Europe, Hong Kong (China)

ENERGY OVERVIEW
Minister of Economic Affairs: Wang Chih-kang
Oil Reserves (1/1/97): 4 million barrels
Oil Production (1H97E): 4,000 barrels per day (b/d), of which 1,000 b/d is crude oil
Oil Consumption (1996E): 789,000 b/d
Refining Capacity (1/1/97): 770,000 b/d
Natural Gas Reserves (1/1/97): 2.7 trillion cubic feet (Bcf)
Natural Gas Production (1996E): 34 Bcf
Natural Gas Consumption (1996E): 158 Bcf
Liquefied Natural Gas (LNG) Imports (1996E): 125 Bcf
Coal Reserves (12/31/93): 109 million short tons (MMST)
Coal Production (1996E): 0.2 MMST
Coal Consumption (1996E): 32.9 MMST
Coal Imports (1996E): 34.3 MMST
Electric Generating Capacity (1/1/96): 24 gigawatts
Electricity Generation (1996E): 135 billion kilowatthours

ENVIRONMENTAL OVERVIEW
Director General, Environmental Protection Administration: Tsai Shun-hsiung
Total Energy Consumption (1995E): 2.69 quadrillion Btu (quads)
Energy Consumption Per Capita (1995E): 126.4 million Btu (versus 345.9 million Btu for the United States)
Energy-Related Carbon Emissions (1995E): 46 million metric tons (0.8% of world carbon emissions)
Carbon Emissions Per Capita(1995E): 2.17 metric tons (vs. 5.4 metric tons in the United States)
Major Environmental Issues: Water pollution from industrial emissions, raw sewage; air pollution; contamination of drinking water supplies; trade in endangered species

ENERGY INDUSTRY
State Energy Companies: Chinese Petroleum Company (CPC), Taiwan Power (Taipower)
Oil Refineries (1/1/97 capacity): Kaohsiung (570,000 b/d), Taoyuan (200,000 b/d)
Major Ports: Kaohsiung, Keelong, Hwalien, Taichung, Suao
LNG Terminal: Yungan (4.5 million tons annual capacity)

Links to other sites:
1997 CIA World Factbook - Canada
U.S. Department of Energy's Office of Fossil Energy's International section - Canada
U.S. Department of State - Canada Background Notes

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File last modified: November 24, 1997

Contact:

Lowell Feld
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Phone: (202)586-9502
Fax: (202)586-9753