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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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How Oil Drives The South China Sea Conflict

While it’s no secret that China has been intensifying its building frenzy, including military installations on islands, reefs and inlets in the heavily disputed South China Sea, it is also becoming increasingly clear that Beijing is not afraid to draw a line in the sand over these mostly dubious claims.

Late last week, while downplaying his country’s geopolitical ambitions, China's foreign minister Wang Yi still couldn’t resist plugging the party line.

“Beijing's resolve to protect the peace and the stability of the South China Sea cannot be shaken," Wang said, adding that the problems in the region are due to "foreign forces" which "have sent fully armed warships and fighters to the South China Sea to flaunt their military might.”

His reference to so-called foreign forces include increased freedom of navigation voyages by the U.S. Navy in the South China Sea, which is for all intent and purposes, an U.N.-mandated international waterway. Lately, Australia and even the U.K. have started to challenge Beijing’s claims in the troubled water way. China, which has over-lapping territorial claims in the South China Sea with the Philippines, Vietnam, Taiwan, Malaysia and Brunei, claims nearly 90 percent of the sea in what is commonly referred to as its nine-dash line.

(Click to enlarge)

Figure 1: China's Nine Dash Line in South China Sea, Source: US Central Intelligence Agency Related: UK Gas Crisis: Out Of The Frying Pan Into The Fire

Taking a step back from the constant rhetoric and even at times sabre rattling over the matter, it’s fair to ask why would the world’s newest super power and second largest economy be willing to jeopardize its reputation and standing with not only its neighbors in the Asia-Pacific region, but also its image before an increasingly alarmed and watching international community? The answer, as is often the case in geopolitical power plays, is oil, and likely, plenty of it.

How much oil?

One older Chinese estimate places potential oil resources in the South China Sea as high as 213 billion barrels, though many Western analysts have repeatedly claimed that this estimate seems extremely high. A conservative 1993/1994 US Geological Survey (USGS) report estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels – yet, this estimate, for its part, seems particularly low.

Moreover, the 1993/1994 USGS estimate states that natural gas is actually more abundant in the area than oil. According to the USGS, about 60 percent-70 percent of the area’s hydrocarbon resources are gas while the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea is estimated at 266 trillion cubic feet (tcf).

State-owned oil major China National Offshore Oil Company (CNOOC), responsible for most of China’s offshore oil and gas production, claims that the area holds around 125 billion barrels of oil and 500 tcf of gas in undiscovered areas, although the figures have not been confirmed by independent studies.

Perhaps that’s why CNOOC spent over a billion dollars to build its Hai Yang Shi You 981 (HYSY 981) deep sea drilling rig. When it was launched in 2014, Chinese authorities claimed that the rig was actually considered Chinese “sovereign territory.”

Since then the rig has been used for various purposes, including a controversial deployment in mid-2014 off Vietnam’s coast in the country’s U.N. mandated Exclusive Economic Zone (EEZ). Related: China Now Produces More Oil Abroad Than At Home

The Vietnamese responded in turn, protesting and burning Chinese owned-factories in the country, eventually forcing Beijing to evacuate Chinese nationals and also forcing the early withdrawal of rig HYSY 981. The standoff was regarded by analysts as the most serious development in the territorial disputes between China and Vietnam since the Johnson South Reef Skirmish in 1988, which saw 64 Vietnamese soldiers killed.

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According to a newer USGS study in 2010, there is a 95 percent chance that there is at least 750 million barrels of oil in the South China Sea Platform, a median chance of around 2,000 million barrels, and a low probability (5 percent) of over 5,000 million barrels. Geologists have recently stated that the South China Sea Platform is an area rich with source carbon and has the perfect geological conditions necessary for hydrocarbon development, particularly oil.

While Western geologists seem to only recently appreciate the area’s oil and gas potential, the Chinese have known it for years. Perhaps, that’s why they even refer to the South China Sea as a Second Persian Gulf and will undoubtedly continue to not only build there but defend it with rhetoric and if push comes to shove, by force.

By Tim Daiss for Oilprice.com

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  • John Brown on March 14 2018 said:
    So basically the Chinese want to seize international waters, and steal the resources that by international law belong to other countries, and they are willing to do so by force. It seems to me that if they can get away with either blockading international waters that control a huge amount of Global Shipping, or seize territory and billions in resources that belongs to others they will push everywhere. They clearly want hegemony in the region and to dominate and dictate to Japan, Korea, Taiwan, Philippines, and Vietnam as well as others. Probably eventually Australia and New Zealand, and all of Asia that is not Russia.
    Countries have always gone to war for much less, and if China is willing to behave that way then war is inevitable anyway. They cannot be allowed to seize control of international waterways, nor steal the resources of other nations. Its time for the USA and those other nation to come together and say NO, and back it up by a level of force that China cannot match. Japan had better start think about getting nukes, and if I were Taiwan I'd already have a secret cache of nuclear armed ballistic missiles.
    The only way to avoid war is to show China that they will not be appeased the way Hitler was or allowed to seize waterways or land the way Hitler was, and the USA and those other countries must prepare for war to avoid war. China's domestic energy production is falling, and it has to import massive amounts to keep its economy and all those jobs humming. The USA on the other hand is meeting more and more of its needs all the time, and has access to supplies that would be nearly impossible for China to interdict or blockade. It would be much much easier for the USA and its allies to cut the flow of energy of all types to China than for China to do the same to the USA. China actually couldn't do that.
    So China should realize that its future and prosperity more than most nation's lies in joining the international order and playing by the rules. As the largest economic power in the region an possibly the world its going to play a dominant role in its region as long as it doesn't force everyone to ally together and arm to the teeth against it. In that case China will lose.
  • Godfree Roberts on March 14 2018 said:
    "China has been intensifying its building frenzy"?

    Building frenzy? China?

    China has not built "artificial islands" but has made land reclamation on reefs under its control. It's no different from what other claimants have done (except at least two decades earlier) including Malaysia which had reclaimed Swallow Reef (Layang Layang Reef) from an original land area of 6.2 hectares (15 acres) to 35 hectares (86 acres). (BTW Layang Layang Reef is also claimed by China and Vietnam.) Actually China has already built three airstrips on the Spratly Islands, and again it was the last claimant to do so - the Philippines built its airstrip in 1975, Vietnam did it in 1976, Malaysia in 1995, and Taiwan in 2007.?

    China waited a decade to respond to multiple seizures of disputed islands and reefs in the South China Sea by other claimants.  The Philippines began the process of creating facts in the sea in 1978, Vietnam followed in 1982, and Malaysia did the same in 1983.  In 1988, China intervened to halt the further expansion of Vietnamese holdings.  Since then China has established an unejectable presence of its own on seven artificially enlarged land features in the South China Sea.  It has not attempted to dislodge other claimants from any of the four dozen outposts they have planted in Chinese-claimed territories.  China has been careful not to provoke military confrontations with them or with the U.S. Navy, despite the latter’s swaggering assertiveness.

    A similar pattern of restraint has been evident in the Senkaku Islands (???), which China considers to be part of Taiwan and Japan asserts are part of Okinawa.  There, China seeks to present an active challenge to Japanese efforts to foreclose discussion of the two sides’ dispute over sovereignty.  It has done so with lightly armed Coast Guard vessels rather than with the PLA’s naval warfare arm.  Japan has been equally cautious.

    Okinawa has 32 military installations, from which Korea, Vietnam, Cambodia, Afghanistan and Iraq have been attacked by the United States. Today, the principal target is China, with whom Okinawans have close cultural and trade ties.

    Beijing's rationale is fundamentally different from the US's: The People's Republic is the successor to the Chinese imperial Qing dynasty. For a long time, China was weak, and the British seized Hong Kong, forced the Treaty Ports system on China, and sold opium to the Chinese. Because the central government was weak, it was unable to protect the interests of the Chinese people for nearly 200 years.

    Following the founding of the People's Republic in 1949, then China's reforms in 1979, China now has the second largest economy in the world. In order to help China's rejuvenation, the central government exercised control over Hong Kong in 1997 and over Macau in 1999.

    The exercise of these claims in the South China Sea is simply the central government in Beijing re-exercising control over islands which Beijing was previously too weak to control. Following WWII, the US Navy patrolled the South China Sea because China was too weak.

    In imperial times, what are now Vietnam and the Philippines were all Chinese tributary states. They would all offer gifts to the Chinese emperor every year, and the Chinese emperor would let them run their countries as they saw fit. The Chinese always allowed free trade and transport in the region.

    China is now saying that since it is back and is powerful again, it is natural that it will make moves to restore its control over lands and seas it considers to be its own territory. What appears to Americans as a suddenly aggressive move really should not be considered as such. The US should have expected this to happen ever since China's economy started to take off. It was only a question of when it would happen.
  • Steve Jiau on March 14 2018 said:
    No mention about the historical records of Chinese activities in South China Sea. Just use the western country’s standards, China issued a map to the world claiming that Spratly Islands are Chinese territory in 1935. After WWII, China issued the ‘U-shaped’ map to claim those islands, rocks, reefs and their surrounding waters again in 1947. No matter you recognize the ‘U-shaped’ map or not, few complaints or disputes occurred. Until late 1960’s, research reports said that there might be huge oil reserves in South China Sea, and then surrounding countries started to make movement. The Philippines used the opportunities that China are divided into two political entities (ROC & PRC, they are fighting each other in a variety of field especially in the diplomatic field) and sent forces to occupy some of the islands in Spratly Islands in 1971. Vietnam followed and sent forces to occupy some of the islands in 1973, and Malaysia did the same thing in 1983.
    China only wants to get her territory back, but other countries are greedy for the oil reserves. This is what happened right now in South China Sea.
  • chris thomas on March 15 2018 said:
    Well written John Brown, you are on the money.

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