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Taiwan Oil and Gas Report Q3 2008

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Report Summary

The latest Taiwan Oil & Gas Report from BMI forecasts that the country will account for 4.29% of Asia Pacific regional oil demand by 2012, while making no meaningful contribution to supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached an estimated 25.56mn b/d in 2007. It should rise to around 29.38mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 436bcm, with demand of 591bcm targeted for 2012, representing growth of 35.57% between 2007 and 2012. Production of an estimated 354bcm in 2007 should reach 455bcm in 2012, but implies net imports rising from an estimated 82bcm per annum to 136bcm. Taiwan’s share of gas consumption in 2007 was an estimated 2.81%, while its share of production was minimal.

By 2012, its share of gas consumption is forecast to be 2.47%. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel – up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report. We are now assuming an OPEC basket price average of US$81 per barrel for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71, WTI averaging US$85.63/bbl, and Urals at US$81.88/bbl.

Taiwanese real gross domestic product (GDP) growth is now forecast by BMI at 4.1% for 2008, down from an estimated 5.7% in 2007. We are assuming 4.5% growth in 2009, 4.3% in 2010/11, followed by 4.1% in 2012. State-owned Chinese Petroleum Corporation (CPC) is tasked with securing oil and gas supply, but has no significant domestic volumes to contribute. Oil consumption is forecast to increase by 2% per annum to 2012, implying demand of 1.26mn b/d by the end of the forecast period. Gas usage is expected to rise from the estimated 2007 figure of 12.3bcm to 14.6bcm by 2012, supplied largely by LNG imports. Between 2007 and 2018, we are forecasting an increase in South Korea’s oil consumption from 1.14mn b/d to 1.42mn b/d (+24.3%), with the country’s refining capacity rising from 1.29mn b/d to 1.65mn b/d. Gas demand is expected to rise from around 12bcm in 2007 to a possible 17bcm by 2017/2018 (+40%), met largely by LNG imports.

Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections. Taiwan ranks 14th and last in BMI’s updated Upstream Business Environment rating, thanks to a virtual absence of hydrocarbon resources. The score reflects the total control of the government over upstream oil activities and a healthy country risk profile, the latter offsetting partly the lack of reserves and output growth potential. The country also ranks last in BMI’s Downstream Business Environment rating, although its score is somewhat closer to other regional players such as Hong Kong. The poor showing reflects its high level of state involvement, relatively high retail site intensity, and modest oil and gas demand growth outlook.

Table of Contents

Executive Summary 7

SWOT Analysis .9

Taiwan Economic SWOT . 9

Taiwan Political SWOT ... 9

Taiwan Business Environment SWOT 10

Taiwan Energy Market Overview 11

Global Oil Market Overview .....12

Table: Global Oil Consumption (000b/d) . 13

Table: Global Oil Production (000b/d) ..... 14

Oil Price Outlook ...15

Waiting For A Correction ... 15

Table: Crude Price Assumptions 2007/08 . 16

Revised Forecasts ...... 16

Table: Oil Price Forecasts ...... 17

Regional Energy Market Overview 18

Oil Supply And Demand ...... 18

Table: Asia Pacific Oil Consumption (000b/d) .. 19

Table: Asia Pacific Oil Production (000b/d) ..... 20

Oil: Downstream 21

Table: Asia Pacific Oil Refining Capacity (000b/d) .... 21

Gas Supply And Demand .... 22

Table: Asia Pacific Gas Consumption (bcm) ..... 22

Table: Asia Pacific Gas Production (bcm) . 23

Liquefied Natural Gas 24

Table: Asia Pacific LNG Exports/(Imports) (bcm) ...... 24

Business Environment Ranking 25

Asia Pacific Region 25

Composite Scores .. 25

Regional Upstream Business Environment Rating ...... 26

Regional Downstream Business Environment Rating . 27

Upstream Scores ... 27

Downstream Scores 28

Taiwan Upstream Rating – Overview 28

Taiwan Upstream Rating – Potential Returns .... 28

Taiwan Upstream Rating – Risks to Potential Returns . 28

Taiwan Downstream Rating – Overview ... 29

Taiwan Downstream Rating – Potential Returns . 29

Taiwan Downstream Rating – Risks to Potential Returns.... 29

Business Environment 30

Legal Framework 30

Infrastructure.. 31

Labour Force.. 32

Foreign Investment Policy .. 33

Tax Regime . 34

Industry Forecast Scenario .36

Oil and Gas Reserves . 36

Oil Supply and Demand ...... 36
Gas Supply and Demand ..... 36
LNG 36
Refining and Oil Products Trade . 37
Revenues/Import Costs . 37
Table: Taiwan Oil & Gas – Historical Data & Forecasts ... 38
Other Energy . 38
Table: Taiwan Other Energy – Historical Data & Forecasts .... 40
Key Risks to Forecast Scenario .... 40
Macroeconomic Outlook .....41
Table: Economic Activity 43
Regional Case Study ..44
Gazprom In The Asia-Pacific Region . 44
Competitive Landscape ......47
Executive Summary 47
Table: Key Players Taiwan Oil & Gas Sector ... 48
Overview/State Role ... 48
Table: Key Upstream Player ... 49
Table: Key Downstream Players ..... 49
Company Monitor ..50
Chinese Petroleum Corporation (CPC) 50
Formosa Plastics Corporation ..... 55
NPC – Summary ... 57
Tung Ting Gas – Summary ..... 57
Shell – Summary ... 57
ExxonMobil – Summary . 57
Glossary of Terms .58
Oil & Gas Ratings: Revised Methodology 59
Introduction 59
Ratings Overview 59
Table: BMI Oil & Gas Business Environment Ratings: Structure 60
Indicators . 61
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology 61
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology .. 62
Oil & Gas Outlook: Long-term forecasts ..64
Global Oil Demand 64
Global Oil Demand (000b/d) .. 64
Global Oil Production (000b/d) 65
Global Oil Supply ...... 65
Global Gas Demand .. 66
Global Gas Demand (bcm) ..... 66
Global Gas Supply ..... 66
Global Gas Production (bcm) . 67
Regional Oil Demand 68
Asia Pacific Oil Consumption (000b/d) .... 68
Regional Oil Supply ... 68
Asia Pacific Oil Production (000b/d) . 69
Regional Refining Capacity 69
Asia Pacific Oil Refining Capacity (000b/d) ...... 70
Regional Gas Demand . 70
Asia Pacific Gas Consumption (bcm) 71 Regional Gas Supply .. 71 Asia Pacific Gas Production (bcm) .. 72 Taiwan Country Overview .. 72 BMI Forecast Modelling ......73 How We Generate Our Industry Forecasts .... 73 Energy Industry 74 Cross checks ... 74 Sources .... 74