Peak Oil

Exxon Has an Oil Shortage

WSJ,

28 November, 2012

On a forested plain in Alberta next month, massive mechanical shovels will start scooping tons of oil-rich sands and loading them into three-story-tall dump trucks.

The trucks will haul the sands to the $11 billion Kearl oil-sands-processing facility, which will sift out the prized Canadian crude and provide Exxon Mobil Corp. XOM +0.02% with up to 170,000 barrels of oil a day for decades to come.

The world's largest publicly traded oil company by market capitalization is counting on Kearl and 20 other new projects to jump-start its slumping oil and gas output, which plummeted to three-year lows in its most recent quarter.

Exxon shares have gained 3.9% so far this year, though they are little changed from where they stood five years ago. The shares closed at $88.10 on Wednesday on the New York Stock Exchange.

Some analysts are skeptical the spate of projects—from Indonesia and Papua New Guinea to the deep waters off West Africa—will begin by 2014 as Exxon predicts and deliver the infusion of oil and gas it anticipates. Exxon estimates the projects could increase its daily oil production by up to 880,000 barrels, or about 22% of its current daily output.

"Delays are the rule, not the exception, in this industry," said Fadel Gheit, an analyst with Oppenheimer & Co.

Analysts with UBS expect Exxon's 2012 production to be down 5.7% for the year, compared with an expected 2.9% drop for Chevron Corp., CVX +0.20% a 2.7% decline for BP BP.LN 0.00% PLC and a 2.2% increase for Royal Dutch-Shell.

Increasing oil output has become daunting for energy companies such as Exxon, because big oil fields in easy to reach locations have gotten scarce, and government-controlled oil companies from countries such as Russia and China have become more aggressive, spending freely to outbid Western firms for the rights to the best projects.

There are other obstacles to production growth, including depletion of existing oil fields, which generally lose 5% to 7% of their output per year, according to analysts.

Lysle Brinker, director of energy-equity research for IHS-CERA, said Exxon has a good record for completing major projects close to budget and schedule. "They'd be the first to admit it doesn't always go smoothly, but Exxon has a better reputation than most for hitting its deadlines," Mr. Brinker said.

Exxon declined to discuss the start-up risks associated with specific projects. In discussions with analysts and investors, its executives have stressed they aren't looking to increase production overnight or at the expense of profitability, but bet on big projects that will provide significant profits for the long haul.

Exxon's annual spending on exploration and production projects has increased sharply: It now plans to spend around $37 billion per year through 2016, up from less than $20 billion in 2009.

Off the coast of Angola, Exxon is expecting additional production from an expansion of its Kizomba project, a series of deep-water oil wells that were among the first for that West African nation. With a 40% stake, Exxon will get 40,000 barrels per day of the targeted output.

In Indonesia, an offshore project known as Banyu Urip is expected to produce about 165,000 barrels per day by the end of 2014, with roughly 75,000 barrels for Exxon, a 45% owner.

In Papua New Guinea, meanwhile, a liquefied-natural-gas project is expected to export up to 940,000 cubic feet of gas—equivalent to 166,000 barrels of oil—to China and other Asian markets by 2014.

But the venture is proving more costly than anticipated: Exxon increased the price tag on the project by 21% to $19 billion this month, citing changes in foreign-exchange rates and delays from work stoppages.

The brunt of its projected production growth through 2014, 37%, comes from Canadian oil-sands projects such as Kearl, which has been in the works since 2009.

But the oil-sands projects are in remote locations that require many workers and billions of dollars in capital. They are also hamstrung in reaching customers outside of Canada due to limited pipeline capacity.

The 700,000-barrel-per-day Keystone XL pipeline, which will carry Canadian crude to Gulf coast refiners, is seen as one way around those limitations, but the project has faced stiff opposition from environmentalists.

Final approval of the project was delayed by President Barack Obama because of environmental concerns, but with the election over he is expected by many observers to give final approval. That approval may come with additional environmental requirements, however, which could add costs to and slow development of future oil-sands pipelines.

Even if all of the new projects come to pass, they wouldn't make up for Exxon's possible exit from a burgeoning project in southern Iraq that was expected to produce up to 1.6 million barrels a day for the company by 2016.

Iraqi officials said Exxon recently notified them that it plans to sell its 60% operating stake in the West Qurna project to another firm. The Iraqi government has said Exxon must choose between operating in southern Iraq or in semiautonomous Kurdistan in the north, where Exxon last year signed an agreement to explore for oil in defiance of Baghdad. Exxon has declined to comment on its plans in southern Iraq.

Still, despite the company's challenges, some analysts are loath to bet against Exxon. They estimate that investments such as the Kearl project, and the company's recent $1.6 billion purchase of Denbury Resources Inc.'s DNR +0.46% holdings in the Bakken Shale oil field in and around North Dakota, will help the company rebound.

Next year "should look better," for Exxon, said Raymond James & Assoc. analyst Pavel Molchanov, who expects the company's output will grow 3%.

China's water resources

Shale development threatens China's water

As China readies for the water-intensive process of hydraulic fracturing, or fracking, to tap into massive reserves of shale natural gas, concerns are rising regarding the country's already limited water supply.

UPI,

28 November, 2012

China has 25.08 trillion cubic meters of exploitable onshore shale-gas reserves, China's Ministry of Land Resources has said. But most of that gas lies in areas plagued by water shortages, says a report in China's Caixin newspaper.

To extract natural gas from underground formations, 10 times more water is needed compared to pumping equivalent amounts of oil and gas from conventional wells, said Bao Shujing, deputy director of Sinopec Petroleum Exploration and Development Research Institute's Department of Non-Conventional Energy Technology Support.

As part of its current five-year economic plan, China aims to produce 6.5 billion cubic meters of shale gas a year by the end of 2015.

To reach that production goal, 1,380 wells need to be drilled, requiring up to 13.8 million cubic meters of water, an industry expert told Caixin. By contrast, China's entire industrial sector uses about 35 million cubic meters of water annually.

The World Bank says China's per capita water availability is only one-quarter of the world average.

This water deficit is a key issue for the development of China's shale reserves says Lin Boqiang, an energy expert at Xiamen University.

"I think the reserves estimates aren't realistic, because without water how can you develop them?" he recently told the Financial Times.

Contamination of underground aquifers is also a risk with fracking.

Caixin reported an unnamed source at China's Geological Exploration Department as saying that as shale development increases, the Chinese government will likely introduce specific, shale gas drilling policies designed to protect the environment, particularly groundwater.

Yet an industry source said those policies are unlikely to be legally binding.

Even ahead of China's shale development, the Ministry of Environmental Protection says that groundwater in 57 percent of the country's 660 cities is significantly polluted.

Environmentalists have urged the Chinese government to put in place environmental standards for the country's shale gas sector.

Yang Fuqiang, a Beijing adviser on environment and climate change affairs for the Natural Resources Defense Council, warns that such rules to protect the environment are needed now before drilling accelerates.

 

In the meantime, Beijing is trying to jump-start shale development.

In its second auction for shale gas licenses last month, Beijing secured 152 bids from 83 companies. And earlier this month, the Chinese Ministry of Finance announced it was encouraging shale development by offering subsidies of $2.10 per cubic feet of production through 2015.

The US drought

As Mississippi water levels decrease, Obama asked to declare emergency

Bizjournals,

29 November, 2012

If barge flow is lessened along the nation's busiest waterway on the Mississippi River, it could spell economic disaster and that's why shippers and legislators are pushing President Obama to declare a federal emergency.

Bloomberg reports the U.S. Chamber of Commerce and the National Association of Manufacturers are among those asking the president to speed up rock removal in Cairo, Ill., that could affect barge traffic with low water levels. The group is also asking the U.S. Army Corps of Engineersto halt its annual restriction of the Missouri River's flow.

Mississippi River barge traffic has slowed due to the worst drought in fifty years and a seasonal dry period that has left levels at a near all-time low, according to the report.

Barges contain nearly 60 percent of the country's grain exports in addition to 22 percent of its petroleum and 20 percent of its coal on the Mississippi.

Drought-Parched Mississippi River Is Halting Barges

Mississippi River barge traffic is slowing as the worst drought in five decades combines with a seasonal dry period to push water levels to a near-record low, prompting shippers to seek alternatives.

Bloomberg,

28 November, 2012

River vessels are cutting loads on the nation’s busiest waterway while railroads sign up new business and the U.S. Army Corps of Engineers draws criticism from lawmakers over its management of the river, which could be shut to cargo from companies including Archer-Daniels-Midland Co. (ADM) next month.

“Our shippers are looking at alternate modes of transportation,” said Marty Hettel, senior manager of bulk sales for AEP River Operations, the barge unit of American Electric Power Co. (AEP), a utility owner based in Columbus, Ohio. “If you’re shipping raw materials to a steel mill in Chicago, you’re trying to figure out if you can go to Cincinnati or Louisville, Kentucky, unload it out of the barge and rail it up to the steel mill.”

The worst U.S. drought since 1956, which dried farmland from Ohio to Nebraska, will last at least through February in most areas, according to the U.S. Climate Prediction Center in College Park, Maryland. Barges on the Mississippi handle about 60 percent of the nation’s grain exports entering the Gulf of Mexico through New Orleans, as well as 22 percent of its petroleum and 20 percent of its coal.

‘Economic Catastrophe’’

Barge, shipping and business organizations including the National Association of Manufacturers, the U.S. Chamber of Commerce and the American Petroleum Institute in a letter today urged President Barack Obama to declare an emergency in the region, calling for “immediate assistance in averting an economic catastrophe in the heartland” of the U.S.

Jay Carney, the White House spokesman, said the administration has sought drought relief for farmers, and today referred questions about the request to the Corps of Engineers

Senator Tom Harkin, an Iowa Democrat, also said Obama must act. “We need action to increase water flow from the Missouri River into the Mississippi,” Harkin said in an e-mail. “We also need to take immediate steps to enable the destruction of rock formations under the Mississippi River, which will allow navigation with less water.”

Mississippi water levels may drop to an historic low next month. The waterway is falling in part because of the U.S. Army Corps of Engineers, which last week started reducing outflows from the Missouri River as part of an annual operating plan to ensure regions further north have adequate water.

Shallow Water

That may help make the Mississippi too shallow to navigate by Dec. 10 from St. Louis south about 180 miles (290 kilometers) to Cairo, Illinois, where the Mississippi meets the Ohio River, according to the American Waterways Operators and Waterways Council Inc., a trade group based in Arlington, Virginia. About $7 billion worth of commodities usually travel on the Mississippi in December and January, according to the organization.

“It is imperative that the Corps review their actions to ensure they address this problem so it doesn’t impact waterborne commerce,” said Angela Graves, a spokeswoman for Marathon Petroleum Corp. (MPC), which operates a fleet of 180 barges and 15 tugboats to ship crude oil, transportation fuels and petroleum products on waterways, in a telephone interview.

December and January are historically the lowest times of year for the rivers because the fall season is usually dry and tributaries freeze, said Steve Buan, service coordination hydrologist at the U.S. North Central River Forecast Center in Chanhassen, Minnesota.

‘Ice Bite’

“That’s called the ice bite, the water gets made into ice and it can’t flow downstream,” Buan said.

The record low in St. Louis was minus-6.1 feet in January 1940, according to the National Weather Service. The river was at minus-1.49 feet at 1:30 p.m. on Nov. 26, and may drop to minus-5 or even minus-6 feet as measured by the river gauge in about two weeks if the weather doesn’t change and the Army Corps of Engineers drawdown of the Missouri River takes place as planned, Buan said.

About 8 million tons of grain, coal, steel, petroleum and other goods travel each month between St. Louis and Cairo, said Hettel, with AEP River Operations.

Shutting the river will increase transportation costs for shippers, he said. They’ll continue to pay full price for barges lightened to meet narrower depth restrictions. Only a few tugs are capable of operating with depth restrictions expected in December, he said.

Transport Options

Decatur, Illinois-based ADM, the largest U.S. grain processor, is “monitoring the situation closely and making arrangements for alternative transportation methods, in case they’re necessary,” said spokeswoman Jackie Anderson in an e- mail.

Enterprise Products Partners (EPD) LP is running Mississippi barges partly empty to cope with shallow water, spokesman Rick Rainey of the Houston-based pipeline company said yesterday in a telephone interview. Of its 200-vessel fleet, two barges that when fully loaded carry about 60,000 barrels, are operating on the Mississippi, Rainey said.

Rail shipments to export terminals in the week ending Nov. 14 were up 16 percent from the same period in 2011, according to the U.S. Department of Agriculture. Meanwhile, Mississippi River barge traffic south was down 29 percent and northbound shipping declined 8.9 percent from a year ago in the week that ended Nov. 17, according to the Army Corps of Engineers.

Trains Gain

Low water on the Mississippi means that Canadian National Railway Co., (CNR) based in Montreal, is “currently handling more business as a result of the situation while remaining focused on protecting its existing rail traffic base,” said company spokesman Mark Hallman.

Kansas City Southern (KSU) is “working with our customers to ensure that we are in a position to meet any increase in rail demand due to the reduction in river capacity,” said Bill Galligan, vice president for investor relations of the Kansas City, Missouri-based company, in an email.

“It will definitely be a positive for the rails,” said Lee Klaskow, a Skillman, New Jersey-based analyst for Bloomberg Industries research. Still, the changes in shipping costs may cause delays, he said. “It gets to the question, ‘Is the freight competitive with railroad?’” he said. “If it’s too expensive to ship, sometimes it makes sense for whoever’s shipping to wait it out.”

Disaster Request

Fifteen U.S. senators, 62 members of the House and the governors Illinois, Iowa and Missouri wrote the Corps asking it to delay water-reducing actions and and remove rocks that impede traffic. The Mississippi “is vital to commerce for agriculture and many other goods,” the lawmakers, including Senator Dick Durbin of Illinois, that chamber’s second-ranking Democrat, wrote.

The Army Corps is following the instructions of Congress that directed management of the Missouri River, which flows into the Mississippi at St. Louis, said Bob Anderson, a spokesman for the Army Corps in Vicksburg, Mississippi.

The federal Missouri River water-management plan can worsen the Mississippi’s situation as a result, Anderson said. The organization is “following the manual,” he said. The letter- writing lawmakers argue against that, saying their reading of law provides for more flexibility.

To mitigate its reduction of Missouri River flow, which started Nov. 23, the Corps started releasing water from Minnesota and Iowa on the upper Mississippi on Nov. 20. Still, the Mississippi may reach record lows, a disruption of traffic that may be unavoidable, he said.

“It’s not so much river management now as it is the extended drought,” he said. “We have nothing to work with. It’s gotten to the point where it’s going to become a problem with navigation.”

Fracking

The NZ Commissioner for the environment contends that fracking is safe

Livestock falling ill in fracking regions

In the midst of the domestic energy boom, livestock on farms near oil- and gas-drilling operations nationwide have been quietly falling sick and dying. While scientists have yet to isolate cause and effect, many suspect chemicals used in drilling and hydrofracking (or “fracking”) operations are poisoning animals through the air, water or soil.

Earlier this year, Michelle Bamberger, an Ithaca, N.Y., veterinarian, and Robert Oswald, a professor of molecular medicine at Cornell’s College of Veterinary Medicine, published the first and only peer-reviewed report to suggest a link between fracking and illness in food animals.

The authors compiled 24 case studies of farmers in six shale-gas states whose livestock experienced neurological, reproductive and acute gastrointestinal problems after being exposed — either accidentally or incidentally — to fracking chemicals in the water or air. The article, published in “New Solutions: A Journal of Environmental and Occupational Health,” describes how scores of animals died over the course of several years. Fracking industry proponents challenged the study, since the authors neither identified the farmers nor ran controlled experiments to determine how specific fracking compounds might affect livestock.

The death toll is insignificant when measured against the nation’s livestock population (some 97 million beef cattle go to market each year), but environmental advocates believe these animals constitute an early warning.

Exposed livestock “are making their way into the food system, and it’s very worrisome to us,” Bamberger said. “They live in areas that have tested positive for air, water and soil contamination. Some of these chemicals could appear in milk and meat products made from these animals.”

In Louisiana, 17 cows died after an hour’s exposure to spilled fracking fluid, which is injected miles underground to crack open and release pockets of natural gas. The most likely cause of death: respiratory failure.

In New Mexico, hair testing of sick cattle that grazed near well pads found petroleum residues in 54 of 56 animals.

In northern central Pennsylvania, 140 cattle were exposed to fracking wastewater when an impoundment was breached. Approximately 70 cows died, and the remainder produced only 11 calves, of which three survived.

In western Pennsylvania, an overflowing wastewater pit sent fracking chemicals into a pond and a pasture where pregnant cows grazed: Half their calves were born dead. Dairy operators in shale-gas areas of Colorado, Pennsylvania, West Virginia, and Texas have also reported the death of goats exposed to fracking chemicals.

Drilling and fracking a single well requires up to 7 million gallons of water, plus an additional 400,000 gallons of additives, including lubricants, biocides, scale- and rust-inhibitors, solvents, foaming and defoaming agents, emulsifiers and de-emulsifiers, stabilizers and breakers. At almost every stage of developing and operating an oil or gas well, chemicals and compounds can be introduced into the environment.

Cows lose weight, die

After drilling began just over the property line of Jacki Schilke’s ranch in the northwestern corner of North Dakota in 2009, in the heart of the state’s booming Bakken Shale, cattle began limping, with swollen legs and infections. Cows quit producing milk for their calves, they lost from 60 to 80 pounds in a week and their tails mysteriously dropped off. Eventually, five animals died, according to Schilke.

Ambient air testing by a certified environmental consultant detected elevated levels of benzene, methane, chloroform, butane, propane, toluene and xylene -- and well testing revealed high levels of sulfates, chromium, chloride and strontium. Schilke says she moved her herd upwind and upstream from the nearest drill pad.

Although her steers currently look healthy, she said, “I won’t sell them because I don’t know if they’re OK.”

Nor does anyone else. Energy companies are exempt from key provisions of environmental laws, which makes it difficult for scientists and citizens to learn precisely what is in drilling and fracking fluids or airborne emissions. And without information on the interactions between these chemicals and pre-existing environmental chemicals, veterinarians can’t hope to pinpoint an animal’s cause of death.

The risks to food safety may be even more difficult to parse, since different plants and animals take up different chemicals through different pathways.

“There are a variety of organic compounds, metals and radioactive material (released in the fracking process) that are of human health concern when livestock meat or milk is ingested,” said Motoko Mukai, a veterinary toxicologist at Cornell’s College of Veterinary Medicine. These “compounds accumulate in the fat and are excreted into milk. Some compounds are persistent and do not get metabolized easily.”

Veterinarians don’t know how long chemicals may remain in animals, farmers aren’t required to prove their livestock are free of contamination before middlemen purchase them and the Food Safety Inspection Service of the U.S. Department of Agriculture isn’t looking for these compounds in carcasses at slaughterhouses. 

 

Documenting the scope of the problem is difficult: Scientists lack funding to study the matter, and rural vets remain silent for fear of retaliation. Farmers who receive royalty checks from energy companies are reluctant to complain, and those who have settled with gas companies following a spill or other accident are forbidden to disclose information to investigators. Some food producers would rather not know what’s going on, say ranchers and veterinarians.

“It takes a long time to build up a herd’s reputation,” said rancher Dennis Bauste of Trenton Lake, N.D. “I’m gonna sell my calves and I don’t want them to be labeled as tainted. Besides, I wouldn’t know what to test for. Until there’s a big wipeout, a major problem, we’re not gonna hear much about this.”

Fracking proponents criticize Bamberger and Oswald’s paper as a political, not a scientific, document. “They used anonymous sources, so no one can verify what they said,” said Steve Everley, of the industry lobby group Energy In Depth. The authors didn’t provide a scientific assessment of impacts -- testing what specific chemicals might do to cows that ingest them, for example -- so treating their findings as scientific, he continues, “is laughable at best, and dangerous for public debate at worst.” Bamberger and Oswald acknowledge this lack of scientific assessment and blame it on the dearth of funding for fracking research and on the industry’s use of nondisclosure agreements.

The National Cattlemen’s Beef Association, the main lobbying group for ranchers, takes no position on fracking, but some ranchers are beginning to speak out. “These are industry-supporting conservatives, not radicals,” said Amy Mall, a senior policy analyst with the environmental group, Natural Resources Defense Council. “They are the experts in their animals’ health, and they are very concerned.”

Last March, Christopher Portier, director of the National Center for Environmental Health at the U.S. Centers for Disease Control and Prevention, called for studies of oil and gas production’s impact on food plants and animals. None is currently planned by the federal government.

As local food booms, consumers wary

But consumers intensely interested in where and how their food is grown aren’t waiting for hard data to tell them their meat or milk is safe. For them, the perception of pollution is just as bad as the real thing.

“My beef sells itself. My farm is pristine. But a restaurant doesn’t want to visit and see a drill pad on the horizon,” said Ken Jaffe, who raises grass-fed cattle in upstate New York.

Only recently has the local foods movement, in regions across the country, reached a critical mass. But the movement’s lofty ideals could turn out to be, in shale gas areas, a double-edged sword.

Should the moratorium on hydrofracking in New York State be lifted, the 16,200-member Park Slope Food Co-op, in Brooklyn, will no longer buy food from farms anywhere near drilling operations -- a $4 million loss for upstate producers. The livelihood of organic goat farmer Steven Cleghorn, who’s surrounded by active wells in Pennsylvania, is already in jeopardy.

“People at the farmers market are starting to ask exactly where this food comes from,” he said.

This report was produced by the Food & Environment Reporting Network, an independent investigative journalism non-profit focusing on food, agriculture, and environmental health. A longer version of this story appears on TheNation.com.

Site 911

Why Is The US Building A Secret $100 Million Underground Facility Outside Tel Aviv?

Business Insider,

29 November, 2012

Leave it to legendary Walter Pincus from the Washington Post to flesh out a Request for Proposal construction project planned for Israel called Site 911.

The oddly named project will cost up to $100 million, take more than two years to complete, and can only be built by workers from specific countries with proper security clearances. Palestinians need not apply.

When complete the well-guarded compound will have five levels buried underground and six additional outbuildings on the above grounds, within the perimeter. At about 127,000 square feet, the first three floors will house classrooms, an auditorium, and a laboratory — all wedged behind shock resistant doors — with radiation protection and massive security.

Only one gate will allow workers entrance and exit during the project and that will be guarded by only Israelis.

The bottom two floors are smaller, according to the full line of schematics uploaded to the Army's Acquisition Business Web Site, and possibly used for equipment and storage.

As impressive as the American design features already are, Ada Karmi-Melamede Architects will decorate the entire site with rocks it chooses, but are paid for by the contractor, and provide three outdoor picnic tables.

Pincus also found this detailed description of the mezuzahs that will adorn every door in the facility:

These mezuzas, notes the [US Army] Corps, “shall be written in inerasable ink, on . . . uncoated leather parchment” and be handwritten by a scribe “holding a written authorization according to Jewish law.” The writing may be “Ashkenazik or Sepharadik” but “not a mixture” and “must be uniform.”

Also, “The Mezuzahs shall be proof-read by a computer at an authorized institution for Mezuzah inspection, as well as manually proof-read for the form of the letters by a proof-reader authorized by the Chief Rabbinate.” The mezuza shall be supplied with an aluminum housing with holes so it can be connected to the door frame or opening. Finally, “All Mezuzahs for the facility shall be affixed by the Base’s Rabbi or his appointed representative and not by the contractor staff.”

Along with this request is another called 911 Phase 2.

Also in the $100 million range, Pincus finds the “complex facility with site development challenges” requiring services that include “electrical, communication, mechanical/ HVAC [heating, ventilation, air conditioning] and plumbing” requirements telling; and along with the fact that the contractor must posses a U.S. or Israeli Secret Security Clearance, he believes this phase to be a secure command center.

Pulitzer Prize winning, Yale grad, born in 1932 whose worked intelligence and media in D.C. since 1955 closes his piece with these shadowy words.

"The purpose of Site 911 is [un] clear."

China's flexing its muscles

China's Taking The Gloves Off In The South China Sea By Boarding Ships Any Place It Likes

Business Insider,

26 April, 2012

Starting January 1 police in the southern Chinese island province of Hainan will board ships which enter what China considers its territory in the South China Sea, Ben Blanchard and Manuel Mogato of Reuters report.

"Activities such as entering the island province's waters without permission ... and engaging in publicity that threatens national security are illegal," the China Daily said. "If foreign ships or crew members violate regulations, Hainan police have the right to take over the ships or their communication systems."

The aggressive move raises the stakes in Asia's biggest trouble spot, which includes some of the world's busiest shipping lanes through which more than half the globe's oil tanker traffic passes. 

"That cannot be," Marine Lt.-Gen. Juancho Sabban, commander of Filipino military forces in the contested area, told Reuters. "That's a violation of the international passage (rights)." 

Several Asian countries claim sovereignty over small islands in the area that are significant as strategic territorial waters and potentially exclusive economic zones rich in natural resources and fish.

Dr. Ely Ratner, a Fellow at the Center for a New American Security, told BI that the move is the latest manifestation of China using diplomatic, economic or military coercion to advance territorial claims in the South China Sea and the East China Sea.

However, what's new here is that in other conflicts – such as the Scarborough Shoal, Sansha City or the Senkaku islands – China has said it is reacting to provocations from other nations, whereas in this case there is no claim that it is a reaction.

"It's unquestionably escalatory and destabilizing," Ratner said. "This is a unilateral action by China, and is the type of [proactive maneuver] that people have been worrying a lot about and keeping an eye out for."

Ratner said "there's no doubt that in the medium term the diplomatic pushback both within the regional and [from] outside powers is going to be pretty strong" given the fact that the world economy is largely dependent on freedom of navigation and freedom of passage through the South China Sea.

The U.S. – which has repeatedly emphasized that it has a national interest in free navigation in the region – has shifted military resources back to Asia.

U.S. Energy Information Administration

What makes China's decree difficult to counter is that Beijing is using non-military and law enforcement agencies (which makes it appear less threatening than if they used naval ships) and have not expressed an interest in developing a code of conduct that would provide nations with a protocol for how to behave around disputed waters or even an interest in discussing what islands are disputed.

But that doesn't mean China will get away with it in the long run. 

"This is not a long-term winning strategy for the Chinese," Ratner said. "Every time they do something like this, what we see is both enhanced cooperation among the regional states – and we're starting to see some of that already – and increased demand for U.S. presence and diplomatic participation in the region."

The enhanced U.S. attention has emboldened countries such as the Philippines and Vietnam to take a tougher stance against Beijing. Ratner said that the regional nations and the U.S. can speak with one voice on these issues, "they can provide a diplomatic counterweight to some of these activities."

Ratner noted that the U.S. will likely continue to place these types of incidents in the broader perspective of U.S.-China relations to communicate the seriousness of the stakes.

"It's really a questions of how far China is willing to go—they pass laws like [this] but are they actually willing to get out on the high seas and start arresting fisherman or whomever thinks they are in international waters or disputed territory where they have been fishing or doing their business for centuries?" Ratner said. 

"China is the elephant in the room here and they are the ones that will ultimately decide if this gets resolved peacefully or not."