Folly and the South China Sea

By David Brown

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.

Note
1. Fight or flight in the South China Sea, Asia Times Online, June 9, 2011.

David Brown is a retired American diplomat who writes on contemporary Vietnam. He may be reached at nworbd@gmail.com.

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