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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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The Next Big Energy Standoff Will Happen Here

South China Sea

The Association of Southeast Asian Nations (ASEAN) and China have agreed on a so-called single  working text to continue negotiations for a Code of Conduct (COC) in the disputed South China Sea.

“I am pleased to announce yet another milestone in the COC process,” said Vivian Balakrishnan on Thursday, Singapore’s foreign minister, who is hosting the meeting of regional leaders.

They have also agreed on the "key modalities" for future rounds of negotiations, he said in opening remarks at the ASEAN-China Ministerial Meeting, one of several related meetings held alongside the ASEAN Foreign Ministers' Meeting in Singapore this week.

Balakrishnan said that the single draft negotiating text will be the basis for future COC negotiations and a living document, which means it will be continually edited and updated as needed. He added that ASEAN and China settled on the negotiating text in June when both sides held talks in Changsha in China's Hunan province

Both sides hailed the development and said that COC negotiations will accelerate.

Premature celebration

However, any celebrations that this is a major breakthrough should be carefully examined. ASEAN members have been trying to persuade China for several years to agree to a COC, which merely sets force non-enforceable rules on how each party should conduct itself in the South China Sea.

Related: Russia’s High Risk Global Oil Strategy

As far back as July 2012, China said it was open to launching negotiators over the COC. However, the same year China seized and took possession of Scarborough Shoal, which clearly lies within the Philippines’ (an ASEAN member) UN-mandated 200-nautical mile exclusive economic zone (EEZ).

Since 2012, China has mostly waffled at agreeing to a COC, as it continued to develop installations on reefs and islets in the South China Sea, including putting in place military assets, in an obvious attempt to militarize and control the area. The South China Sea includes shipping lanes that send vital crude oil, liquefied natural gas (LNG) and other goods to Japan, South Korea and Taiwan.

The fact that China, the master at delaying tactics, has agreed to a working text on a COC after several years of artificial island building is disingenuous at best. Moreover, a formal and completed COC is still likely many years away, allowing China even more time to continue its building in the area.

China’s South China Sea actions has also set Beijing and Washington on a potential collision course as the US navy continues to send what it calls “freedom of navigation voyages” near China’s disputed claims. Angst over China’s moves have also caused the US, Japan, India and Australia to work together to find ways to challenge Beijing’s South China Sea assertions. However, at the end of the day, occasional naval voyages pale in comparison to actual infrastructure and military assets already in place.

Going forward, it appears that China will remain unchecked in its claim to 90 percent of the South China Sea, referred to as its nine-dash line, at the dismay of rival claimants in the body of water: Vietnam, the Philippines, Taiwan, Brunei and Malaysia.

Pushing back

Despite diplomatic efforts by ASEAN over Beijing’s South China Sea buildup, several ASEAN members seem to be taking a different approach by strengthening their coastguards as a way to maintain a presence in the region without risking direct military engagement.

The Australian Strategic Policy Institute (ASPI) said in a report published on Wednesday that in an effort to stop maritime encounters, with China or each other, escalating into military conflicts, countries with claims to the disputed waterway have been transferring security forces from their navies to their coastguards. “The coastguards have become important strategic cushions between navies in ASEAN,” it said.

The primary reason for nations increasing their coastal forces has been “China’s aggressive maritime strategy,” including the construction of military outposts and distant fishing activities in other countries’ exclusive economic zones, the report said.

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The use of civilian and coast guard maritime vessels however is already used to great effect by China. Often instead of sending its regular navy, officially called the People’s Liberation Army Navy, China sends its maritime defense vessels or coast guard to do its bidding.

Of the 45 major incidents reported in the South China Sea between 2010 and 2016, 32 involved at least one China Coast Guard or other Chinese maritime law enforcement vessel, the ASPI report added.

Concurrently, China is continually building up its so-called Blue Ocean navy. Peter Jennings, the ASPI director, and a former head of strategy for the Australian Defense Department, said in mid_July that China’s navy could challenge the supremacy of the U.S. Navy in the region within a year.

Oil and gas lurks in background

Oil and gas reserves set the backdrop for this ongoing and potentially explosive geopolitical quagmire. One 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 G Salameh on August 05 2018 said:
    In 1995, Survival, the Quarterly Journal of the International Institute for Strategic Studies published a research paper of mine titled: ”China, Oil & the Risk of Regional Conflict” in which I said that the South China Sea holds a special place in China’s strategic and economic thinking because of the prospect of discovering and exploiting valuable crude oil and natural gas resources. I also said that 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 up to China in the absence of a credible American counterweight. Either way, the South China Sea could well become a Chinese lake by the end of the century.

    China claims sovereignty on 90% of the South China Sea on the basis of documents and maps it says it has had since the former Chinese empires. The prospect of the existence of vast crude oil and natural gas reserves strengthens China’s resolve to maintain its sovereignty over the South China Sea.

    The South China Sea could be a flashpoint between the United States and China. China’s South China Sea actions have also set Beijing and Washington on a potential collision course as the US navy continues to send what it calls “freedom of navigation voyages” near China’s disputed claims. However, at the end of the day, occasional naval voyages pale in comparison to actual infrastructure and military assets already in place.

    China is continuing to develop installations on reefs and islets in the South China Sea, including putting in place military assets, in an obvious attempt to militarize and control the area. It is also continuing to beef up its navy in case it needed to challenge the supremacy of the US Navy in the region.

    In May 1989 the Chinese Ministry of geology and Mineral Resources’ survey indicated the presence of an estimated 130 billion of barrels (bb) of oil reserves. Since then, the Chinese estimate has gone up to 213 bb. However, the State-owned oil major China National Offshore Oil Company (CNOOC) claims that the area holds around 125 bb of oil and 500 trillion cubic feet (tcf) of gas in undiscovered areas. On the other hand, a 1993/94 US Geological Survey (USGS) estimated oil and gas potential reserves at 28 bb and 266 tcf respectively. Whatever, the figures, the South China Sea is of great economic and strategic importance to China. Not even the threat of war is going to force China to relinquish its claim of sovereignty over the South China Sea.

    Still, if the world community is refusing to accept China's claim on the South China Sea despite documents and maps supporting its claim, how come the same community has accepted without a whimper Israels’ religious claim on Palestine over hundreds of years of Palestinians geographical reality in their country.

    Fairness, evenhandedness and the rule of law in international relations are indivisible. History will eventually rectify the wrong committed against the Palestinian people even after hundred years.

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

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