Back in the Spotlight: New Energy Demands and the Spratly Islands

Michael Richardson | 14 Jun 2020

In the 1990s, the South China Sea was a cockpit of contending territorial claims involving China and its Southeast Asian neighbours. Today, thanks to a measure of mutual restraint, the largest body of water after the world's five oceans is relatively calm.

In the interim, a few of the maritime boundary disputes in the South China Sea have been settled by negotiation. But many of the underlying sources of potential conflict remain. Vietnam still claims the Paracel Islands in the northern part of the South China Sea, although they have been occupied by China since 1974. China, Taiwan, Vietnam, the Philippines, Malaysia and Brunei still claim all or some of the widely scattered Spratly Islands in the southern part of the sea, as well as adjacent waters and any resources they may contain. The armed garrisons that all the claimants, except Brunei, station on the tiny dots of land they say are theirs are still in place and, in some cases, have been reinforced.

A code of conduct for the South China Sea, signed by Beijing and ASEAN in 2002, is voluntary while a joint seismic survey of hydrocarbon resources, agreed by the national oil companies of China, Vietnam and the Philippines two years ago, does not include other Spratly Island claimants and covers only a small part of the contested sea area.

What could upset this piecemeal equilibrium and resurrect emotive issues of national sovereignty, prestige and pride? The biggest risk is that rapidly rising demand for energy in Asia will again put China and its Southeast Asian neighbours in contention. This demand and the high price for oil and natural gas are driving Asian countries to intensify their search for energy offshore. At the same time, advances in technology, skills and equipment are enabling them to explore and exploit what they find further and further from land in ever deeper waters.

They are also seeking new sources of energy. China announced recently that it had for the first time managed to tap into seabed sediment containing gas hydrates in the northern part of the South China Sea. Zhang Hongtao, deputy director-general of the China Geological Survey, a government agency, said that by collecting the gas hydrate samples last month, China had become the fourth country after the United States, Japan and India to achieve this technological breakthrough.

Some scientists have said that the huge quantities of methane-rich hydrates kept stable by low temperature and high pressure on the seafloor or below the Arctic could become an important fuel for the future. Methane is the main component of natural gas. Every cubic metre of gas hydrate, which is a solid crystalline structure in its natural state, releases as much as 160 cubic metres of gas.

Mr Zhang was quoted as saying that initial estimates indicated that the potential volume of gas hydrates on the continential shelf in the area tapped by China last month was equivalent to more than 100 million metric tons of oil – about one third of China's annual oil consumption. However, he added that because it was difficult to produce a continuous gas flow from hydrates, China might not be in position to develop the resource for many more years.

Meanwhile, China and the Southeast Asian states bordering the South China Sea are going further offshore in their search for more oil and conventional gas deposits. In June 2006, China's top offshore oil and gas producer, state-owned CNOOC Ltd, and Canada's Husky Energy announced that they had found a giant gas field in the northern sector of the South China Sea. Husky, controlled by Hong Kong tycoon Li Ka-shing, said the field could contain up to 6 trillion cubic feet of recoverable resources, adding around 7% to China's total gas reserves.

Significantly, it was China's first deep-water petroleum discovery. The exploration well was drilled 250 kilometres (155 miles) south of Hong Kong at a depth of 1,500 metres (4,920 feet). Husky plans to drill more wells to delineate its gas reservoir, starting later this year. Among hydrocarbon explorers, deep-water drilling is usually considered to mean working in depths of 750 metres or more. While most of the South China Sea covers the Sunda Shelf and has a depth of less than 200 metres, the northern part includes a basin that in some areas is over 5,000 metres deep.

China, the world's second-largest energy consumer after the US, wants to increase its gas consumption to reduce heavy reliance on coal, which causes serious air pollution. Southeast Asian countries are also turning to clean-burning gas in a big way to generate electricity and for industrial and home use. Natural gas use among Asian countries is forecast to rise by about 4.5% annually on average until 2025 – faster than any other fuel – with almost half of the increase coming from China. If this growth rate is maintained, Asian demand will exceed 21 trillion cubic feet, nearly triple current consumption, by 2025.

The South China Sea, which covers an area of over one million square miles (2,590,000 square kilometres), is considered to have greater gas than oil potential. Most of the hydrocarbon fields explored in the South China Sea areas of Brunei, Indonesia, Malaysia, the Philippines, Thailand and Vietnam, as well as China, contain gas, not oil. Estimates by the US Geological Survey indicate that between 60% and 70% of the region's hydrocarbon resources are gas. Even so, the South China Sea has proven reserves of around seven billion barrels of oil and a production rate of about 2.5 million barrels per day.

Chinese estimates of the overall oil and gas potential of the South China Sea tend to be much higher than those of non-Chinese analysts. The most bullish of the Chinese estimates imply a potential oil production level of up to 3.8 million barrels per day, significantly above the 3.3 million barrels per day that China imported in 2006. For gas, the potential production level is put at over 2,000 trillion cubic feet, although only about half of this might be recoverable even if fields on this scale were found. China's proven gas reserves at the end of 2005 were 83 trillion cubic feet. However, they would be bigger now as a result of onshore and offshore finds since then.

From being a net exporter of oil in 1993, China today relies on foreign supplies for about half the oil it uses. It is also becoming a major gas importer. For reasons of energy security, China has placed a high priority on getting as much of its future oil and gas as possible from within its land territory, from offshore zones, or as close to home as possible, including Russia and Central Asia.

This priority may help explain why China rates the energy potential of the South China Sea so highly, although its estimates have yet to be tested. Much of the area is unexplored because it is remote and contested. But China seems intent on expanding its offshore energy search. Until a few years ago, state-owned Chinese energy giants were discouraged from competing and CNOOC, the China National Offshore Oil Corp, had a virtual monopoly on offshore work. This has changed and now all the Chinese oil and gas majors can bid for onshore and offshore projects, both local and foreign.

PetroChina, an arm of China's biggest oil producer, announced in March 2006 that it would be turning its attention to the southern sector of the South China Sea in the next few years. "We are now doing the preliminary work to develop fields in the southern part of the South China Sea area, and major breakthroughs will be expected during the following five years", Hu Wenrui, PetroChina's vice president, told an oil and gas summit in Beijing. He declined to elaborate. But as Southeast Asian governments and the energy companies working for them push deeper into the South China Sea in their hunt for more gas and oil, they can only hope that China's southward push will lead to better cooperation, not confrontation.

Michael Richardson, former Asia editor of the International Herald Tribune, is Visiting Senior Research Fellow at the Institute of Southeast Asian Studies.

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