China
Decides that South China Sea Oil is a National Asset
17
February, 2013
While
the Western press is fixated on both recent North Korean nuclear
tests and Beijing’s recent skirmishes with Japan over the Senkaku
(“Diaoyu” in Chinese) islands, other maritime issues have
developed further south, where China is involved in sovereignty
disputes over the Spratly islands’ 750 islands, islets, atolls,
cays and outcroppings with the Philippines, Taiwan, Vietnam, Malaysia
and Brunei.
Beijing
is bolstering its claims with ancient Chinese maps, despite the 2002
"Declaration on the Conduct of Parties in the South China Sea,"
designed to ease tensions over the archipelago.
Now,
no less an authority than the U.S. government’s Energy Information
Agency has waded into the dispute over the potential riches at stake.
The
EIA’s updated “South China Sea” brief, issued on 7 February,
after noting, “The South China Sea is a critical world trade route
and a potential source of hydrocarbons, particularly natural gas,
with competing claims of ownership over the sea and its resources,”
goes on to add, “EIA estimates the South China Sea contains
approximately 11 billion barrels of oil and 190 trillion cubic feet
of natural gas in proved and probable reserves.”
The
silver lining here?
“Conventional
hydrocarbons mostly reside in undisputed territory.”
Searching
for yet more optimism, the EIA estimates are far below those of the
U.S. Geological Survey, which calculates that the South China Sea may
contain roughly 28 billion barrels of oil, even as the Chinese
government calculates that the South China Sea region contains nearly
200 billion barrels of oil.
No
one knows for sure, especially as the Chinese Navy harasses and
chases off foreign survey vessels.
What
is certain is that the EIA’s modest observations will only
strengthen the multinational South China Sea disputes, as even a
modest 11 billion barrels of oil, as opposed to 28 or even 200
billion barrels, is still hard to walk away from.
Throwing
yet more oil on troubled waters, the EIA reported that three months
ago the Chinese National Offshore Oil Company (CNOOC) estimated the
area holds around 125 billion barrels of oil and 500 trillion cubic
feet of natural gas in undiscovered resources, although independent
studies have not confirmed this figure.”
Will
negotiations save the day? The EIA reported, “Rather than
attempting unilateral exploration and production (E&P) activities
in disputed territory, several countries have opted to cooperate in
the South China Sea. Malaysia and Brunei settled territorial disputes
in 2009 and have partnered to explore offshore Brunei waters.
Thailand and Vietnam have jointly developed areas of the Gulf of
Thailand, despite ongoing territorial disputes. These success cases
contrast with the parts of the South China Sea contested by multiple
parties, which have seen little energy development.”
Down
the road, besides the Spratlys, China occupies some of the South
China Sea’s Paracel Islands, which it seized in 1974 but are still
claimed by Vietnam and Taiwan, along with a territorial dispute with
Indonesia over the South China Sea’s 272-island Natuna archipelago,
150 miles northwest of Borneo.
The
future?
The
EIA, hardly alarmist, concludes, “The South China Sea historically
has been a source of conflict among its states.”
On
11 February the Filipino Department of Foreign Affairs Assistant
Secretary Raul Hernandez, told reporters that Manila hoped that China
would make an official response to the arbitration case it filed
before a tribunal under the 1982 United Nations Convention on the Law
of the Sea, before maintaining that the case would move forward
should China refuse to do so, remarking, “We are hoping that by the
deadline, they would be able to officially notify us and reply to our
notification that we have submitted to them earlier.” By invoking
UNCLOS, the Philippines hauled China to the UN arbitral tribunal in
the hope of compelling Beijing to respect Manila’s 200-mile UNCLOS
guaranteed maritime exclusive economic zone (EEZ) and adjacent
continental shelf.
Bolstering
Manila’s determination is the fact that the U.S. is negotiating to
return to its former military bases in the Philippines at Clark
airfield and Subic Bay.
With
billions of barrels of oil at stake, gentlemen - place your bets.
China
Wants More Oil
18
February, 2013
Think
gasoline prices are coming down this year? Think again. Between
supply constraints, the usual suspects in the Middle East, and China,
oil demand is seen hefty enough to keep prices stable to high for the
foreseeable future. In fact, China’s oil demand is seen rising by
5% this year on the backs of an economic recovery.
Faster-than-expected
economic growth could raise fuel demand even higher than market
estimates, if car sales and property sales continue on their positive
trend lines. A government stimulus program on infrastructure also
remains a possibility when the new leadership formally assumes power
at the March legislative meetings, Barclays Capital noted recently.
Upside
Surprise Possible In China Oil
China’s
oil demand staged a sharp rebound in the fourth quarter of last year,
reaching a historical high of 10.6 million barrels a day in December,
after languishing near the 9 million per day mark during the summer.
Strength into the year-end propelled fiscal year 2012 oil demand to
9.6 million a day, 360,000 higher than the same period a year ago.
Barclays
pointed out in a report on China energy demand back in October that
improving industrial activities and new refining capacity in China
are fueling the pick up in demand. Since then, China’s headline
data have confirmed a revival of manufacturing activities, and now
Barclays analysts in London and Singapore expect China’s oil demand
to grow by 480,000 barrels daily in 2013, or roughly 5% from 2012
levels.
Fourth
quarter data could be skewed by seasonality. Stock building, the
concentration of new capacity additions to fourth quarter 2012 and an
unusually cold winter likely helped push up refinery runs. While real
demand by companies and residences was softer, evidenced by increased
exports. As industrial activities are likely to stay muted in the
first quarter, real oil demand may hit a soft patch before picking up
again in the second, Barclays analysts led by Sijin Cheng in
Singapore wrote in an 11 page report dated Feb. 6.
Nevertheless,
there is more upside than downside to China oil watchers.
Oil
demand is recovering along with industrial activities growth, most
accurately reflected in power generation. The PMI index has risen
from 49.2 in August 2012 to 50.6 in December 2012, confirming that
manufacturing has been expanding and driving a modest recovery.
Property sales are rising and housing construction began to gain
momentum from a low base by the second half of the year.
“We
expect an improvement in industrial activities and continued
additions of new refining capacity to lift Chinese oil demand,”
says Chen. ”A faster-than-expected rebound could of course present
an upside risk to that forecast. A slew of new and potential
government policies, on the other hand,
could also affect oil demand, with an upside surprise more likely on
balance.”
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