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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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South China Sea Energy Politics Heat Up

Not that the Philippines’ current President Rodrigo Duterte necessarily wanted to hear it give his recent Beijing pivot - but U.S. Secretary of State Mike Pompeo offered it anyway, saying on Friday that the U.S. would come to the defense of the Philippines if it was attacked in the South China Sea.

Pompeo made his remarks during a stopover in Manila after the Trump-Kim summit in Hanoi the day before. He said that a 1951 Philippine-U.S. Mutual Defense Treaty would be adhered to if its ally was a victim of aggression and called out China as a threat to stability. “China’s island-building and military activities in the South China Sea threaten your sovereignty, security and therefore economic livelihood as well as that of the United States,” the secretary told a news conference in Manila. “Any armed attack on Philippine forces, aircraft or public vessels in the South China Sea will trigger mutual defense obligations.”

He said those countries (the Philippines, Vietnam, Taiwan, Brunei and Malaysia) that have overlapping claims with China in the South China Sea were responsible for ensuring “these incredibly vital sea lanes are open, and China does not pose a threat to closing them down.” An estimated $3.4 trillion worth of goods traverse the South China Sea each year, including crude oil and LNG shipments to Japan, South Korea and Taiwan - all heavily dependent on hydrocarbon imports to keep their economies thriving.

Falling on deaf ears

However, Pompeo’s assurances may be falling on deaf ears. Since becoming president of the Philippines nearly three years ago, Rodrigo Duterte has all be eschewed U.S. support, including the mutual defense treaty, in his pivot toward Beijing. At the end of the day, that pivot can arguably be called squandering the Philippines’ UN-mandated claims to areas that Beijing also claims in exchange for economic pledges and support - a point of contention for many Filipinos that see the president selling out to Beijing.

China claims over 90 percent of the South China Sea, in what is now known as its nine-dash line, based on what Beijing calls historic rights. Yet, Beijing has yet to offer concrete evidence to support its claims to the body of water. In fact, three years ago Vietnam offered newly discovered historical maps that allow Hanoi to also claim part of the South China Sea.

At stake however, isn’t just control of one of the most important maritime choke points in the world, but China’s regional hegemony aspirations as well as it continues to build artificial islands on reefs and islands, including military infrastructure and equipment though Chinese President Xi Jinping shortly after taking office in 2012 pledged to not militarize the South China Sea.

Plenty of gas at stake

Also at stake are hydrocarbons, and depending on whose date you use, likely plenty of gas. 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.

By Tim Daiss for Oilprice.com

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  • Mamdouh Salameh on March 03 2019 said:
    In his dealings with China, the Philippines’ President seems to adhere to the principle that if you can’t fight them, join them. There is some pragmatism there. While the United States offers words of encouragement, China offers economic aid.

    Now the US Secretary of State Mike Pompeo is offering to come to the defence of the Philippines if it was attacked in the South China Sea. He is invoking a 1951 Philippine-US Mutual Defence Treaty that would be adhered to if the Philippines was a victim of aggression. However, Pompeo’s assurances may be falling on deaf ears.

    This confirms what I have always maintained that the US imposition of tariffs on billions of dollars of Chinese exports to the United States were far less motivated by the huge trade surplus between the two countries and China’s trade practices and far more by the launching of the petro-yuan and the challenge that China poses to the US. It is a truth universally acknowledged that a great power will never voluntarily surrender pride of place to a challenger. The United States is the pre-eminent great power. China is now its challenger.

    China’s policy of financing infrastructure projects in developing countries is helping countries grow economically by enabling them to secure cheap finance which they wouldn’t otherwise have secured from most western sources.

    This policy is part and parcel of China’s One Belt One Road initiative (BRI) seeking to bolster existing trade routes through Southeast, South and Central Asia, right through to Europe through infrastructure projects. The Chinese say that if you want to get rich, build roads first.

    And while the Philippines, Vietnam, Taiwan, Brunei and Malaysia have overlapping claims with China in the South China Sea, China has no intention of closing vital sea lanes through which an estimated $3.4 trillion worth of goods traverse the South China Sea each year, including crude oil and LNG shipments to Japan, South Korea and Taiwan - all heavily dependent on hydrocarbon imports to keep their economies thriving. China itself is dependent on these lanes for its growing crude oil and LNG imports and also for its international trade.

    Other than the vital sea lanes, the waters around the disputed islands in the South China Sea may have sizeable hydrocarbon reserves. Estimates vary from the US Geological Survey’s (USGS) 28 billion barrels (bb) of oil and 266 trillion cubic feet (tcf) of natural gas to China National Offshore Oil Company’s (CNOOC) of around 125 bb of oil and 500 tcf of gas.

    In a way, China’s aspirations as a superpower are no different from the aspirations of the indispensable superpower. The US brandishes its authority around the world through its sanctions and tariffs and military interventions in other countries and waging wars for oil as with 2003 invasion of Iraq. China may be tempted to emulate the US in its own area of influence.

    In the final analysis, China will probably prevail either by its willingness to exercise force or by the realization of the South-east Asian nations that they can’t stand against China in the absence of a credible American counterweight. Either way, the South China Sea could well become a Chinese lake.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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