TAIWAN TO BOOST CONSUMPTION OF OIL, LNG

Oil and LNG will claim a greater share of energy consumption in Taiwan during the 1990s than was forecast 5 years ago, says Resource Systems Institute's East West Center, Honolulu.

In addition, Taiwan will have to expand refining capacity to meet a corresponding demand increase for gasoline and diesel.

Its renewed growth in demand for imported low sulfur fuel oil will then subside as domestic production, diesel and gasoline demand, and LNG imports combine to squeeze-possibly end-fuel oil imports, RSI says.

Taiwan began implementing an agreement to import 1.5 million tons/year of LNG from Indonesia this year.

Officials have discussed the building of more storage facilities to allow for LNG imports of 4-4.5 million tons/year by 1995. RSI says those plans are on hold until Taiwan Power Corp. wraps up plans for gas fired plants.

About two thirds of the Indonesian gas is scheduled for use in electrical power generation, backing out 100,000 b/d in equivalent oil demand.

By acquiring Huffco Indonesia for $600 million, Taiwan's state owned Chinese Petroleum Corp. (CPC) acquired Huffco's 17% interest in the Bontang LNG project, source of Taiwan's imports. Huffco also holds Indonesian oil producing acreage and a 30% interest in PT Badak NGL, also in East Kalimantan.

ENERGY FORECAST

In 1985, Taiwan's Ministry of Economics predicted that by 2000 the island's total energy demand would be 1.29 million b/d of oil equivalent (BOE). Of that amount, it forecast that petroleum would account for 42%, coal 29%, nuclear 20%, hydroelectric power 4%, and gas and LNG 3.4%.

The ministry's revised April 1989 forecast showed a 12% increase in total demand, compared with its 1985 figures. It scrambled the energy mix, with fossil fuels gaining 230,000 BOE/d over nuclear, hydropower, and alternatives. Oil is still expected to maintain its 42% share.

Oil may, however, increase its share if Taiwan's fourth nuclear plant, with 2 million kw, is not built, RSI says. The plant originally was planned to be operating in 1992-93, but because of hardened Taiwanese opposition it has been pushed back and is now projected for start-up in 1999-2000.

Similar environmental concerns have led to problems in building coal fired plants, RSI reports.

GASOLINE, DIESEL SURGE

Oil rebounded to account for 27% of power generation in 1989, but its share of total energy supply has fallen 6 percentage points from a high of 50% in 1980.

The Ministry of Economics predicts any delays building coal fired power plants, combined with nuclear's problems, will mean oil will continue to provide about half of Taiwan's total energy at the end of the century.

Growth in oil demand, RSI reports, will be centered on gasoline and diesel fuel. It says CPC expects gasoline demand to be 112,000 b/d in 2000, accounting for 27% of total oil demand. Its oil demand share was 19% in 1989 and 10% in 1980.

Diesel's share, now 18.5%, is forecast to hit 25% at 104,000 b/d in 2000.

As a result of these factors, RSI foresees a trend in the 1990s in which another round of fuel oil substitution by Taiwanese consumers puts pressure on the refining system to increase upgraded capacity.

"These pressures will be joined by demands for higher quality products, including higher octane unleaded gasoline, diesel with lower aromatics and sulfur, and lower sulfur fuel oil," RSI said.

FUEL OIL FALL

The changing energy mix in fossil fuels will be at the expense of fuel oil demand, projected to tumble to a pre-1973 low of 42%, or 174,000 b/d.

At first glance, it appears fuel oil is undergoing a rally of sorts. After failing from a peak of 69% in 1977 to 46% in 1987, fuel oil's share of total petroleum fuel demand surged to 53% last year.

RSI predicts the inflow of Indonesian LNG will signal the end of the fuel oil rebound as gas displaces it in power generation.

This year, fuel oil demand is expected to fall by more than 20,000 b/d. A "slow decline" will ensue as lower power plant use offsets increased industrial demand.

SRI report further contends that a lot of Taiwan's demand for fuel oil imports, especially from the U.S. West Coast, stems from an "artificial" market for low sulfur fuel oil.

To meet the 1.5% sulfur specification for power plant use that took effect Jan. 1, Taiwan has had to import as much as 20,000 b/d of 1% sulfur fuel to blend with its higher sulfur streams.

Construction of resid desulfurization and distillation units may result in a complete halt of fuel oil imports in the near term. RDS units of 30,000 and 15,000 b/d are to start up in 1990. Also, a 100,000 b/d distillation unit designed to process low sulfur waxy crude imports, including 400,000 b/d from Indonesia, is being built at the Kaohsiung refinery.

Fuel oil imports would likely resume, however, if Taiwan bowed to pressure to lower its fuel oil sulfur specification to 1%.

REFINING CRUNCH

To keep pace with increasing demand for transport fuels, RSI says, Taiwan will need to expand refining capacity. Since 1986, its gasoline demand has risen an average 10%/year and diesel 8.3%/year.

Present refining capacity is 600,000 b/d, which includes a 100,000 b/d tower kept in backup reserve. Increased processing of lighter Asian crudes has had the effect of derating capacity to about 450,000 b/d.

The 100,000 b/d added capacity at Kaohsiung will be partly offset by closure of an old 50,000 b/d tower. CPC plans to expand its Taoyuan refinery by 70,000 b/d and has proposed a site in northern Taiwan for a new refinery. Opposition to the latter project has been strong.

CPC also is looking overseas for new sites. It is thinking about building a refinery in Hawaii, in part to guarantee access to Alaskan crude. Sites in Indonesia and the Philippines also are under consideration.

Because CPC faces such great opposition to upgrading and expansion plans in Taiwan, the strain on its refining system will not likely be solved soon.

This dilemma has led it to begin trying offshore processing of 500,000 bbl cargoes in Singapore, Hawaii, Japan, and South Korea, receiving gasoline/reformate and low sulfur fuel oil in return.

Although start-up of new resid cat cracker and isomerization units this year is expected to ease the gasoline production crunch, Taiwan's octane crunch will continue for awhile. A 30,000 b/d reformer, with JGC of Japan as contractor, is to go on stream in 1992-93.