South China Sea Region – part two

Published February 25th, 2001 - 02:00 GMT

Regional conflict and resolution:All of the Spratly Island claimants have occupied some of the Spratly Islands, and/or stationed troops and built fortified structures on the reefs.  


Brunei, which does not claim any of the Spratly Islands, has not occupied any of them, but has declared an Exclusive Economic Zone that includes Louisa Reef.  


Military skirmishes have occurred numerous times over the past two decades. The most serious occurred in 1974, when China invaded and captured the Paracel Islands from Vietnam, and in 1988, when Chinese and Vietnamese navies clashed at Johnson Reef in the Spratly Islands, sinking several Vietnamese boats and killing over 70 sailors.  


Indonesia has taken the leading role in diplomatic initiatives and cooperative agreements to resolve South China Sea issues, particularly through the ASEAN (Association of Southeast Asian Nations) forum, which has called for the peaceful arbitration of territorial claims.  


ASEAN includes all South China Sea nations except for China and Taiwan, and has held a number of working groups with China and Taiwan on related issues that have the potential to foster the cooperation and friendship needed to resolve the more contentious issues in the region.  


Indonesia hosted the first of these workshops in 1990. These issues have also been discussed at the larger ASEAN Regional Forum (ARF), held in conjunction with the ASEAN Post Ministerial Conference, which draws together 22 countries which are involved in the security of the Asia Pacific region, including all ASEAN members.  


ASEAN ministers agreed in 1996 that there should be a regional code of conduct for the South China Sea to permit activities such as scientific research and efforts to combat piracy and drug trafficking without invoking the contentious issue of sovereignty.  


At the ASEAN Summit in November 1999, ASEAN members put forth a general code of conduct for resolving disputes which had been drafted by the Philippines and Vietnam.  

Any such agreements would need to involve non-ASEAN members such as China and Taiwan in order to be comprehensive.  


China, which is a member of the ARF, has argued in the past that the resolution of territorial disputes should be a bilateral issue. However, other ARF members, such as the United States, have argued that all ARF members had an interest in issues affecting the peace and stability of the region, and that the ARF forum was appropriate for discussing these issues.  


Views on this issue are varied: China has begun a dialogue with ASEAN on the idea of a "code of conduct" governing actions by claimants, but progress has been slow. In general, ASEAN members have pushed for specific committments to refrain from additional occupation of reefs or new construction, which China has favored a more vague committment to refrain from actions which would "complicate the situation."  


Malaysian Foreign Minister Syed Hamid bin Syed Jaafar Albar stated that it was his belief that ASEAN nations had agreed that the territorial disputes were an ASEAN issue, and should not be resolved in other international forums. 


Vietnam has bilateral working groups with China to resolve disputed boundaries in the Gulf of Tonkin (referred to as the Beibu Wan by China, the Vinh Bac Bo by Vietnam) and the Spratlys, as well as land boundaries.  


Vietnam also has wanted to include the dispute over the Paracel Islands in any "code of conduct," but the idea is not supported by other ASEAN members because the Paracels are disputed only between Vietnam and China.  


Oil: The focus of most attention regarding the South China Sea's resources has been on hydrocarbons in general, and on oil in particular. Oil deposits have been found in most of the littoral (adjacent) countries of the South China Sea.  


The South China Sea region has proven oil reserves estimated at about 7.7 billion barrels , and oil production in the region is currently over 1.8 million barrels per day . Malaysian production accounts for almost one-half of the region's total.  


Total South China Sea production has increased gradually over the past few years, primarily as additional production from China, Malaysia and Vietnam has come online.  


The fact that surrounding areas are rich in oil deposits has led to speculation that the Spratly Islands could be an untapped oil-bearing province located near some of the world's largest future energy consuming countries.  


Speculation that the Spratly Islands could have great strategic value has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the view that the region contains extensive oil resources.  


Because of a lack of exploratory drilling, there are no proven oil reserve estimates for the Spratly or Paracel Islands, and no commercial oil or gas has been discovered there.  


Resource estimates for this region that have been reported in the Chinese press or attributed to Chinese officials vary greatly.  


Optimistic Chinese estimates of the South China Sea region's oil potential, however, have helped encourage interest in the area, with one report suggesting that the Spratly Islands region could become another Persian Gulf.  


One of the more moderate Chinese estimates suggested that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and another suggested that the total for the South China Sea could be as high as 213 billion barrels.  


A common rule-of-thumb for such frontier areas as the Spratly Islands is that perhaps 10 percent of the potential resources can be economically recovered.  


Using this rule, these Chinese estimates imply potential production levels for the Spratly Islands of 1.4 - 1.9 million barrels/day (at reserve/production ratios of 15 and 20) - comparable to 1999 oil production for the entire South China Sea region.  


The highest Chinese reserves estimate implies production levels that are twice as high as this.  


China's optimistic view of the South China Sea's hydrocarbon potential is not shared by most non-Chinese analysts.  


A 1993/1994 estimate by the U.S. Geological Survey, for example, estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels.  


The most optimistic Western estimates place total oil resources (not proved reserves) in the Spratly Islands at 10 billion barrels.  


Using the same rule-of-thumb, these reserves could yield a peak oil production level for the Spratly Islands of 137,000 - 183,000 barrels per day - the same order of magnitude as current production levels in Brunei or Vietnam.  


Natural gas: Though sometimes overlooked, natural gas might be the most abundant hydrocarbon resource in the South China Sea. Most of the hydrocarbon fields explored in the South China Sea regions of Brunei, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines contain natural gas, not oil.  


Estimates by the U.S. Geological Survey and others indicate that about 60 percent -70 percent of the region's hydrocarbon resources are gas.  


At the same time, natural gas usage among developing East Asian countries (excluding India) is expected to rise by over 7 percent annually on average over the next two decades -- faster than any other fuel -- with almost half of this increase coming from China.  


If this growth rate is maintained, demand will exceed 20 trillion cubic feet (Tcf) per year - quadruple current consumption levels -- by 2020. Gas consumption could increase even faster if additional infrastructure is built. 


Proposals have been made to link the gas producing and consuming regions of the Pacific Rim region of Asia by pipeline, with the South China Sea geographically central to these regions.  


Malaysia is not only the biggest oil producer in the region, it is also the dominant natural gas producer as well, and until recently has been the primary source of growth in regional gas production. 


The development of natural gas resources outside of Malaysia has been hampered by the lack of infrastructure. Despite this constraint, natural gas exploration activity elsewhere in the region has been increasing.  


Much of this new activity had occurred in the Gulf of Thailand, offshore China, in Indonesia around the Natuna Islands, and in Vietnam in the Nam Con Son basin southeast of Vietnam.  


As with oil, estimates of the South China Sea's natural gas resources vary widely. One Chinese report estimates that there are 225 billion barrels oil equivalent of hydrocarbons in the Spratly Islands alone.  


If 70 percent of these hydrocarbons are gas as some studies suggest, total gas resources (as opposed to proved reserves) would be almost 900 Tcf.  


If the rule of thumb for frontier areas were applied to these resource levels, the Chinese estimates would imply potential production levels for the Spratly Islands of almost 1.8 -2.2 Tcf annually (at common natural gas reserve/production ratios in the region of 40 - 50).  


The entire South China Sea has been estimated by the Chinese to contain more than 2,000 Tcf of natural gas resources.  


As with oil, China's optimistic view of the South China Sea's natural gas potential is not shared by most non-Chinese analysts. The U.S. Geological Survey has estimated that the sum total of discovered natural gas reserves and undiscovered natural gas resources in the offshore basins of the South China Sea is about 266 Tcf.  


The most optimistic Western estimates place total natural gas resources (not proved reserves) in the Spratly Islands at 35 Tcf.  


Using the same rules of thumb, these reserves could yield peak natural gas production levels for the Spratly Islands of 70 - 88 billion cubic feet per year - a little less than current production levels in offshore China. These totals are far less than current Malaysian production of over 1,400 billion cubic feet per year.  


Liquefied Natural Gas (LNG): The bulk of the world's LNG trade passes through the South China Sea, and LNG shipments through the Sea to Northeast Asian Markets constituted two-thirds of the world's LNG trade in 1998.  


Japan is by far the world's largest consumer of LNG, and shipments to Japan accounted for about three quarters of the trade through the Sea in 1998, with Japan dependent upon LNG for over 12 percent of its total energy supplies.  


Shipments to South Korea (the world's second largest consumer of LNG) and Taiwan (the world's fifth largest consumer of LNG) accounted for the remaining shipments through the Sea.  


Most of this is supplied by Indonesia and South China Sea producers, with Middle Eastern shipments from the UAE, Oman, and Qatar also passing through the Sea. The South China Sea region is an important supplier of LNG, with Brunei and Malaysia accounting for about a quarter of total world LNG production in 1998.  

Source: United States Energy Information Adminisstration 

© 2001 Mena Report (

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