Upping the stakes in the South China Sea

In South China Sea, China Makes First Big Gas Discovery While Other Countries Look On

Think Progress,

17 September, 2014

The South China Sea is a body of water that gets a lot of attention. The roughly 1.4-million-square-mile sea in the Pacific Ocean is claimed, in parts, by China, Japan, Taiwan, Vietnam, Philippines, Malaysia, and Brunei. These claims matter for more than just bragging rights. On top of being a major shipping thoroughfare — as much as 50 percent of global oil tanker shipments pass through the sea — and fishing hub, the World Bank estimates that the South China Sea holds proven oil reserves of at least seven billion barrels and an estimated 900 trillion cubic feet of natural gas. For comparison, the United States has just over 300 trillion cubic feet of proven natural gas reserves according to the EIA. China has about half that, at just over 150 trillion cubic feet.

It’s not hard to comprehend why this buried energy treasure could drastically elevate the stakes over who controls this jumbled part of the world. With economies across Southeast Asia rapidly urbanizing and economically growing, powering this change is at the forefront of leaders’ concerns. This is especially the case in China — and an announcement this week from the country’s offshore drilling enterprise could be a turning point in the South China Sea’s role.

This week, China National Offshore Oil Corp. (CNOOC) announced its first deepwater gas field discovery in the South China Sea. The discovery was made in an area of the sea that is indisputably China’s, however the rig the made it, rig 981, had been subject to a major diplomatic row earlier this year when it was positioned within water claimed by Vietnam. It is the first major discovery by the controversial rig since it moved in July from its spot near the Paracel Islands claimed by both Beijing and Hanoi. That deployment had led to a series of anti-China riots in Vietnam in which at least four people were killed. China recalled over 7,000 of its workers over safety concerns.

While the true significance of the discovery still requires testing, CNOOC officials said it could be quite substantial and that it nonetheless proves that China “is now technologically capable of drilling in any place in the entire South China Sea.”

If the discovery of new significant retrievable gas reserves isn’t worrisome enough for the diplomatic future of the South China Sea, on Monday Vietnam and India agreed to expand cooperation in oil and gas exploration and production in the sea — including in contested waters. China has previously objected to this and reacted to the announcement negatively.

“We hold no objection to legitimate and lawful agreement between Vietnam and a third country,” said Chinese foreign ministry spokesman Hong Lei. “But one thing is to be clear. If such agreement concerns waters administered by China or if such cooperation project is not approved by the Chinese government, then we will be concerned about such an agreement and we will not support it.”

China’s President Xi Jinping is making his first visit to India this week and the response was likely toned down in anticipation of outreach during his trip.

Felix Tan, a Beijing-based analyst for energy and resources consultant Wood MacKenzie, told the Associated Press that the find was China’s first without the participation of foreign partners that in the past have included companies such as Chevron and BP. While the discovery indicates the possibility for China to find another way to limit reliance on imported energy and lay claim to contested regions, it doesn’t mean they still won’t need international expertise to reach the gas about a mile under the sea. More than a mile undersea is considered ultra-deep by industry standards, and the building of facilities is extremely difficult and costly.

These new findings appear to be at a depth that verges on tricky to impossible for the Chinese to develop on their own.

“These new findings appear to be at a depth that verges on tricky to impossible for the Chinese to develop on their own,” Jennifer M. Harris, a senior fellow at the Council on Foreign relations with expertise in China and energy issues, told ThinkProgress. Harris said this is partly political, and that the presence of non-Chinese partners in China’s South China Sea endeavors lends “at least some external validation to China’s contested maritime claims,” but as the findings grow deeper and more complicated for CNOOC to exploit, this is also a technological necessity.

Earlier this month CNOOC invited foreign firms to bid on an unprecedented number of oil and gas blocks off the Chinese coast.

“Until more is known about the cost curve for developing these new deposits, its difficult to say much about how it might influence East Asia’s overall regional energy picture, or other variables, like China’s climate commitments,” she said. Harris warned that simply because China is not a democracy doesn’t mean that their leaders aren’t subject to similar levels of political pressure and lobbying prowess from energy firms like CNOOC.

“If China is to get more serious about specifying and enacting climate goals, Beijing will need to prosecute its energy needs in a way that begins to build up a set of domestic interests for clean energy, similar to what CNOOC and China’s other major energy firms already represent on the oil and gas side,” she said.

In the meantime, China will likely continue to rapidly construct artificial islands on reefs in disputed areas of the South China Sea in an effort to solidify their territorial claims. This is an undertaking that U.S. Assistant Secretary of State Daniel Russel, the senior U.S. diplomat for East Asia, recently said is destabilizing the situation and making it “harder, not easier, for the claimants to resolve their claims peacefully.”