Many
observers, including the writer [1], have
speculated that China's drive for sole sovereignty
over the South China Sea is driven mainly by
belief that the sea bottom is rich in hydrocarbon
resources.
Tensions between rival
claimants to all or part of the 1.5 million
square-kilometer sea that is enclosed by the
Philippines, Malaysia, Brunei, Vietnam and China
have eased in recent weeks after peaking in early
June, but very likely only for a while. While,
perhaps, diplomats labor behind the scenes for an
accommodation, it's useful to look at the evidence
for what might be called the energy-centric
explanation of Chinese behavior in the South China
Sea.
Before global markets took over the
job of distributing resources, states vied for
control of territory in order to control
resources. For
the first seven decades of
the 20th century, the world powers of the time
scrambled to lock up unilateral rights to exploit
lands rich in oil and gas. Forty years ago, when
analysts ran out of other reasons to explain the
American embrace of a corrupt and crumbling South
Vietnamese regime, some guessed that it must be
because Washington knew oilfields lay just
offshore.
By the 1970s, the colonial
empires had crumbled and Third World oil-producing
nations formed the Organization of Petroleum
Exporting Countries (OPEC) cartel, aiming to
establish countervailing market power. The "oil
shocks" of the 1970s resulted; their legacy was de
facto agreement among big producers and consumers
on "increased oil investment generally and a more
flexible and integrated global oil market as the
basis for energy security, rather than continued
national competition to control supplies.''
Now let's cut to East Asia. China, though
Asia's rising superpower, is relatively oil-poor.
The authoritative BP statistical energy review
says that its territory holds only 1.1% of the
world's known reserves, about 11 years' domestic
supply at current rates of production.
Because until the 1980s China adhered to
Mao Zedong's doctrine of self-reliance, it is a
relative newcomer to international energy markets.
It wasn't until 1993 that China became a net
importer of oil, or 2007 that it became a net
importer of natural gas. Now, however, it is daily
more dependent on imported energy to fuel its
rapid economic growth. China's consumption of oil
doubled from 1990 to 1999, and doubled again from
2000 to 2009. The International Energy Agency
(IEA) projects China's oil consumption will double
yet again by 2035 and imports will triple.
Five-sixths of its oil will be imported.
Even if China shared other states' vision
of collective, market-based energy security, its
thirst for oil and gas would still be roiling
world markets. Analyst Mikkal Herberg says:
Beijing's political leaders seem to
have their own distinct vision, one that sees
energy security in distinctly national terms of
establishing national control over energy
resources and transportation routes.
It
is a decidedly "19th Century", mercantilist
agenda. Maintaining adequate, reliable, and
growing supplies of energy is viewed as
indispensable for ensuring rapid economic
growth, job creation and social and political
stability, ie the continued claim to legitimacy
to rule by the Communist Party. Beijing's
political leaders have little faith in global
energy markets to ensure adequate, reliable and
affordable energy to China: energy is simply too
important to be left to the
markets.
The past two decades have
seen China's national oil companies planting their
flags in dozens of countries, including pariah
states like Iran, Myanmar, Syria and Sudan, and
leading a trend back toward a more statist,
politicized and balkanized global oil market. Even
so, Herberg notes, China's oil import needs are
rising three times faster than its national oil
companies can acquire or develop new overseas
producing assets.
All this considered,
Beijing's quest for mastery of the South China Sea
is not surprising.
It's anyone's guess how
much oil and gas is actually locked up in the
buried carbonate reefs beneath the 1.5 million
square-kilometer expanse of sea between Hong Kong
to Singapore. Nearly all the drilling so far has
been on the periphery - in the Gulf of Thailand by
Malaysia, off the mouths of the Mekong River by
Vietnam, off the north coast of Borneo by Brunei
and off the Pearl River Delta by China. Few
seismic surveys, let along test drilling, have
been attempted in the vast contested middle of the
South China Sea.
Chinese petroleum
geologists are thinking big, however. Luo
Donghong, a senior manager of the China National
Offshore Oil Corporation (CNOOC), predicts that
China will confirm reserves of 22 billion barrels
of oil in South China Sea deepwater fields by
2020, according to Bloomberg. That's half again
the size of Daqing, China's largest onshore
oilfield - which is now nearly depleted. CNOOC's
Zhang Gongcheng says upwards of 200 trillion cubic
meters of natural gas are in the South China Sea
seabed as well, the Economist reports.
Talk of a "second Daqing" is just an
understatement according to other Chinese
geologists. Chinese estimates cited by US
Government analysts put the potential hydrocarbon
bounty of the South China Sea area at 14 times
China's current oil reserves and 10 times its gas
reserves.
Whatever oil and gas turns out
to be beneath the waves, hard evidence is mounting
that China aims to find and secure by far the
lion's share.
Deputy director Zhong Ziran
of the national Geological Survey told reporters
in January that his agency's annual spending for
oil and gas exploration will rise tenfold, to 500
million yuan ($60 million). Sixty percent of that
amount will support offshore projects, he adds.
That's money to deploy platoons of scientists or
defray the cost of dives by China's Jiaolong, a
submersible capable of exploring to 5,000 meters'
depth. A year ago the Jiaolong planted a Chinese
flag in a South China Sea canyon 3,759 meters
below sea level.
Another 30 billion yuan
annually for "domestic" exploration is reportedly
funneled through the national oil companies -
CNOOC, Sinopec and PetroChina.
In November
2010, CNOOC told reporters that it has budgeted
200 billion yuan for development in the South
China Sea. Leveraging the skills of foreign
partners Devon Energy, Husky Energy and Anadarko
Petroleum, CNOOC explained, it aimed to build up
its capacity to drill in ever deeper water.
Up until now, China's offshore drilling
has been limited to relatively shallow waters near
its coast, employing 'jack-up rigs' that are
planted on the seabed. In May, however, CNOOC
announced plans to deploy its first floating
drilling platform to waters within the exclusive
economic zone (EEZ) claimed by the Philippines.
Xinhua said that the $30 billion behemoth, Marine
Oil 981, is designed to drill 800 deepwater wells
that will produce $50 billion worth of oil
annually by 2020. A similar floating rig is being
built for PetroChina.
Meanwhile, Beijing
has warned Exxon-Mobil and BP to give up any
thought of drilling in concessions granted by
Vietnam close to the Spratly or Paracel
archipelagos - though well within Vietnam's EEZ.
BP chose not to drill; Exxon says it is going
ahead.
Not content with verbal admonition,
Beijing in May and June deployed Maritime Security
Agency (CMS) patrol boats to harass survey ships
working for Vietnam's national oil company and the
Philippine-owned firm Forum Energy. The Chinese
vessels, some ostensibly fishing boats, attempted
to cut cables of sonar rigs under tow by the
survey ships. Though justified by Beijing as
"normal law enforcement" in defense of its own
"indisputable sovereignty", China's provocative
moves brought tensions over South China Sea
territorial claims near to the flash point.
Another very public event, the deployment
of the CMS's new flagship on a goodwill visit to
Singapore, underscored the rapid buildup of
China's coast guard and naval strength in the
area. According to People's Daily, the helicopter
toting, 3000-ton Haixun 31 carried out checks on
"oil rigs, stationary ships' operations in
constructions and surveys ... and foreign ships
navigating, anchored and operating in Chinese
waters'' while en route to and from Singapore.
Having ostentatiously flexed its muscles
vis-a-vis Hanoi and Manila again this year, is
there still reason to believe that China is
interested in sharing out the rights to the South
China Sea sea bottom according to the UN Law of
the Sea Convention (UNCLOS) or any other rules
grounded in international law? China's foreign
ministry spokesmen insist that Beijing wants to
negotiate bilateral settlements. Don't bet that
Beijing can be induced to negotiate its sweeping
territorial claim, however. The most the Chinese
will admit to considering is joint development of
resources in contested sectors.
Yang Fang,
a researcher at Singapore's S Rajaratnam School of
International Studies, says that the hydrocarbons
extracted by Vietnam, the Philippines or Malaysia
from waters off their coasts - some 20 million
tons annually - are "perceived by China as a loss
of oil and gas to foreign countries".
Then
there's the lure of methane hydrates, the
so-called "ice that burns", what the US Department
of Energy calls "the gas resource of the future".
Since the 1970s there's been excitement in
scientific circles about deposits that have been
found plentifully so far under Arctic permafrost
and frozen beneath the ocean floor in dozens of
locations. Heated, they release methane, ie,
natural gas.
No one pretends that it will
be easy to produce commercial quantities of gas
from the methane hydrate deposits without causing
an environmental catastrophe. Many technical
hurdles remain to be overcome. Still, with
estimates of potentially exploitable deposits of
methane hydrates now equal to all the known
reserves of coal, oil and gas, it's a good bet
that those hurdles will be overcome in the next
couple of decades.
Vigorous prospecting by
Chinese scientists since 1999 has confirmed that
the northern sector of the South China Sea - the
part closest to the Chinese mainland - is rich in
methane hydrates. Areas further south are
described as promising but have not yet been
tested. A 2007 Chinese report estimated that the
methane hydrate deposits found so far in the South
China Sea may hold as much exploitable energy as
10 billion tons of oil.
China can hardly
be faulted for wanting to see the hydrocarbon
resources of the South China Sea exploited as soon
as possible. Where it errs - or at least a
substantial section of the nation's leadership and
population errs - is in thinking that it has
natural ownership rights to virtually all of the
oil, gas and methane hydrates that may be found
and developed there.
Beijing seems charmed
by the notion that it can secure and develop these
resources without having to compete with larger
and/or more experienced foreign firms by virtue of
asserting ownership of virtually the entire South
China Sea. China's ambitions in this regard not
only run counter to other states' vision of
collective, global market-based energy security
but also to customary international law, eg,
UNCLOS, and to the cooperative relationships it
has labored to build with the Association of
Southeast Asian Nations (ASEAN) on one hand, and
with the US and its allies on the other.
Legal scholars who have examined the
tangle of overlapping claims to the sea area of
the South China Sea have tended to conclude that
the only feasible course is to set the claims
aside and focus instead on working out mechanisms
for joint development of seabed resources. That
seductive thought could be the height of folly.
Walden Bello, a Filipino thinker who's no fan of
globalization per se, regards "joint development
without clear delineation of borders as a recipe
for future conflicts". Where claims intersect, he
adds, "multilateral negotiations are the only
viable solution".
It seems possible that
the four ASEAN nations that claim parts of the
South China Sea could sort things out amongst
themselves. All have said that the UNCLOS
principles should be the basis of such a
negotiation. Under those principles, moreover,
China has no valid claim to the southern
two-thirds of the South China Sea.
Predictably Beijing would throw a tantrum
if, for once, ASEAN were to do more than kick the
can further down the road. That's why, at the same
time, particular care should be taken to reassure
China that it will not be excluded from
participation in oil and gas development
activities anywhere in the South China Sea area.
It might even make sense to accord Chinese
companies some priority access, just as long as
they play by the world's rules instead of the ones
that they've made up.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road,
Hua Hin, Prachuab Kirikhan, Thailand 77110
