Taiwan's energy sector is in trouble. And that means the global tech sector could soon be in trouble, too. According to data from the United States International Trade Commission, the island nation is home to only 0.3 percent of the world's population, but about 18 percent of global semiconductor manufacturing capacity and 92 percent of the world's most advanced computer chip manufacturing capacity. is the percentage.
The data comes from a recent report on the country's high level of vulnerability to any shock to Taiwan's superconductor supply chain, which found that “any disruption to Taiwan's semiconductor manufacturing — whether Epidemics, natural disasters such as typhoons or earthquakes, power or water shortages, factory shutdowns, or international conflicts – will likely have major impacts on global semiconductor supply.”
And it looks like we're about to test that hypothesis. Taiwan's energy sector has been in crisis for some time, with three major power outages in the past seven years, and a number of smaller outages more recently, causing a lot of jitters in the global tech sector. “Concerns over potential power shortages and deterioration in power quality and reliability could pose operational risks for the semiconductor industry,” says Chen Jongshun of the Qinghua Institution for Economic Research.
Taiwan's power woes are twofold: “Taiwan has an energy crisis and, more importantly, a power crisis,” Joseph Webster, a senior fellow at the Atlantic Council's Global Energy Center, recently quoted CNBC as saying. Oh, and then there's also the threat of a maritime blockade by neighboring China.
The energy crisis is caused by Taiwan's over-reliance on energy imports to keep the lights on. Taiwan imports almost 100% of its energy supply, mainly in the form of oil and gas. This means that minor disruptions in global energy supply chains could be a devastating blow to Taiwan's grid, which has virtually zero domestic fallback. And discontent between Beijing and Taipei is a constant threat to such supply chains, meaning that depending on which way the political winds blow, Taiwan's energy security could hang by a thread.
The power crisis is largely a symptom of years of low electricity bills, which have crippled Taiwan Power Company, commonly known as Tai Power. In fact, Taiwan's electricity bills are currently lower than they were 20 years ago, a stark contrast given the rise in energy prices over the same period. As a result, Taipower reported a pre-tax loss of $6.3 billion last year, which was – surprisingly – better than their catastrophic 2022 losses.
This expansionary trend means that it is frighteningly likely that Taiwan will have to increase energy rationing in the future, a move that will have far-reaching consequences for semiconductor markets around the world. It's hard to overstate the impact of such a market shock — superconductors provide computing power to every electronic device out there. We can no longer imagine any kind of life – or any kind of economic development – without them.
A disruption in Taiwan's energy supply would not only increase the price of computer chips, but also make fewer of them available. And to make it all the more dire, this is happening at a time when demand is through the roof and projected to continue growing exponentially, thanks in large part to the expansion of artificial intelligence gangbusters. .
Modeling by the US International Trade Commission shows that, in the United States, disruptions to Taiwan's superconductor manufacturing capacity would have the largest impact on the logic chip segment of the market, resulting in lower prices for end-users. There will be an increase of up to 59%. . They also find that the country will be largely helpless to fill the supply gap, as the country can only increase its logic chip production capacity by a maximum of 5 percent.
By Haley Zaremba for Oilprice.com
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