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Page added on January 21, 2015
What Do Weak Oil Prices Mean for the South China Sea?
When it comes to territorial tensions in the South China Sea, it’s more about what goes through it than what lies beneath it.
Oil last week dropped below $46 a barrel to more than five-year lows. The biggest collapse in energy prices since the 2008 global recession has prompted companies from Royal Dutch Shell Plc to Norway’s Statoil ASA to scrap projects not considered viable at current prices and drawn attention to the future of costly deep-sea exploration.
Yet in the South China Sea, where Chinese and Vietnamese boats clashed last May after China parked an oil rig in disputed waters, political and security considerations will keep territorial tensions simmering, fueling military spending by countries that border the area. The South China Sea contains some of the world’s busiest shipping lanes and is a vital artery for China’s energy supplies from the Middle East.
“The South China Sea dispute is not some struggle for energy,” said Shi Yinhong, director of the Center for American Studies at Renmin University in Beijing and an adviser to China’s State Council. “This is a dispute for maritime territory and there is no compromise over claims.”
China says it is entitled to about four-fifths of the South China Sea, based on a nine-dash line drawn on a 1940s map that loops down like a cow’s tongue to a point about 1,800 kilometers (1,119 miles) south from China’s Hainan island. The area overlaps claims from Vietnam, Malaysia, the Philippines, Brunei and Taiwan.
Protestors shout anti-China slogans as they march toward Chinese embassy in downtown… Read More
The HS 981 oil rig episode last year illustrates the tensions. When it was first deployed for exploration work in 2012, Cnooc Ltd. (883) Chairman Wang Yilin described deep-water rigs as “our mobile national territory and strategic weapon for prompting the development of the country’s offshore oil industry.”
Vietnam Riots
When it was sent into waters disputed with Vietnam in May last year, deadly anti-Chinese riots erupted in Vietnam and the U.S. called the action “provocative.” The rig was removed in July, a month before schedule. Project manager China National Petroleum Corp. claimed to have detected oil and gas, but gave no further details.
“You have to ask: what was the rationale by the Chinese last year?,” said Philip Andrews-Speed, a fellow at Singapore’s Energy Studies Institute. “If you believe it was a one-off political gesture, to say ‘hey, we can do this,’ then the oil price isn’t going to make a difference.”
The slow trickle of production from the area gives credence to the view that China is mostly interested in being able to freely deploy its navy to protect its trade routes, and seeks sovereignty in order to act as it wishes. Vice Foreign Minister Liu Zhenmin last May described the sea as ‘‘a maritime lifeline.’’
A China Coast Guard ship, top, and a Philippine supply boat engage in a stand off as… Read More
Justifying Claims
“The South China Sea is far more important for the hydrocarbons that sail through it than those that lie beneath it,” said Bill Hayton, author of The South China Sea: The Struggle for Power in Asia, published last year. China uses “oil as a pretext to stage a national territorial claim and justify it because they argue that it is rich in oil.”
Almost a third of global crude passes through the South China Sea, or 14 million barrels of oil a day, according to the U.S. Energy Information Administration.
The countries bordering the South China Sea produced about 1.26 million barrels of oil a day in 2011, according to the EIA — just 1.4 percent of the 89 million barrels a day the International Energy Agency says is consumed globally.
Estimates of the potential for discoveries in the South China Sea vary wildly. The EIA says the area has proved and probable reserves of about 11 billion barrels of oil and 190 trillion cubic feet of natural gas.
Coastal Areas
Most of the undiscovered oil lies in coastal regions that aren’t disputed, according to the EIA. In addition to the geopolitical tensions, the EIA notes, the contested areas face geological and technological challenges, not least the depth of the waters and frequency of typhoons.
China’s estimates dwarf those of the U.S. organization. In 2012, Cnooc’s chairman estimated the area holds around 125 billion barrels of oil and 500 trillion cubic feet of natural gas, according to a report in the Financial Times. When asked to confirm this estimate, Cnooc said Wednesday in an e-mail that it only discloses its own proved reserves in the South China Sea.
These numbers have been dismissed by some western observers, including Hayton, who argue they are based on estimates from the 1990s when China’s oil self sufficiency was ending just as its economy was beginning to take off.
“Once these official sources declared these numbers to be true, it was very hard for any other official to declare them nonsense.” Hayton wrote in his book. Cnooc became “a powerful voice within the system amplifying the sea’s potential. The bigger the reserves appeared to be, the stronger the case for winning more funding from the state.”
Deep-Water Projects
Others say China may not be exaggerating.
“I don’t think there is any reason to dump money into the ocean if they don’t believe that,” said Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc.
While Kwan doesn’t expect China’s oil explorers to dramatically reduce work in the South China Sea, he equally doesn’t expect them to boost investment after oil dropped almost 50 percent last year.
“Certainly restrained cash flow will lower their capex and they have to rationalize whether deep-water exploration is still worthwhile,” he said. “If they believe the oil price will rebound by the time the deep-water projects start producing, they make take a different view.”
Frontier Area
In the meantime the world’s major oil companies are staying away.
“There has been limited exploration in the disputed areas and it will need resolution between China and the other claimants before we see any ramp-up,” said Andrew Harwood, a senior researcher at energy consultant Wood Mackenzie in Singapore. “The majority of the South China Sea is considered a frontier area, which means high risk and high cost, but potentially high reward.”
There are other potential flash points in the seas, which host enough fish to comprise about 10 percent of the globe’s total catch, according to the Southeast Asian Fisheries Development Center.
The Malaysian Maritime Enforcement Agency said Jan. 7 it detained an Indonesian fishing boat and four crew for suspected fishing in Malaysian waters. Days later, Malaysia’s Ministry of Foreign Affairs said it was ready to discuss the sinking by Indonesia of a Malaysian vessel for illegal fishing.
Fishing Boats
Further north, Vietnamese newspaper Tuoi Tre reported Chinese boats chased and damaged three Vietnamese fishing boats near the Paracel islands on Jan. 7 in separate incidents.
Claimants regularly argue over reclamation projects, the most recent Vietnam’s complaint over China’s expansion of an airport on an island in the Spratly area. In August, China rebuffed efforts by U.S. Secretary of State John Kerry to secure a freeze on any actions that might provoke tensions in the waters.
“Although the perception that the South China Sea is rich in energy resources remains a key driver of the dispute, there are many other factors at work,” said Ian Storey, senior fellow at the Institute of Southeast Asian Studies in Singapore. “Nationalism, attempts by the various parties to enforce their historical and jurisdictional claims and geostrategic rivalry will keep this issue at or near the top of the regional security agenda.”
17 Comments on "What Do Weak Oil Prices Mean for the South China Sea?"
Davy on Wed, 21st Jan 2015 6:35 am
All major powers must stop their expansionist policies with China included. It is a waste of resources and global political fabric. The energy effort in the South China Sea is too late to make a difference. The highly capital intensive efforts of obtaining oil in this region are too late for the production price needed per the ETP curve Short’s Hill group discusses. Not only is the production process too expensive for the new realities of depletion the political conflict will raise the price of the undertaking more.
China is going to be forced to look inwards soon with a collapse of their carrying capacity which will initiate social tensions never seen before in the history of man. What the hell is 1.3BIL people in a small area to do? There is no migration possible except with their nuclear armed neighbor to the north. China is surrounded by another smallish region of 4BIL people we call Asia? We are talking a ticking time bomb of disaster.
The global world is in trouble but facing different degrees of trouble. Asia is in the worst possible position with severe overpopulation combined with growing development and consumption. Population, development, and consumption have to fall for Asia to find stability. With so many people I fear Asia has no hope. It is plain and simple mathematics and ecological science of overshoot. How can someone argue with that? Asians are remarkable people but not more remarkable than the laws of nature.
Makati1 on Wed, 21st Jan 2015 7:27 am
Hahaha…more Davy style flag waving about how Asia is in worse shape than the Us. China will do what China wants to do and no one can stop her. No one.
Pull the US and it’s NGOs out of the 150 countries they are in today and THEN point the finger of resource theft at China. Those who live is thin glass houses should not throw stones.
As for China looking inwards, they have all the other high cards that Russia is not holding in this game. What is going to happen in the US when it’s Charmin Mountain collapses? Lets see. Last time I checked, more than half of it’s citizens were getting government support. The real employment percentage keeps declining and will soon accelerate as the oil patch dries up. Not to mention the millions of guns in the hands of the drugged up zombies just back from multiple “tours” in hell holes owned and run by the USSA called Afghanistan, and Iraq. “Tours” makes a year in hell sound like a vacation at the beach. But that is the psychology used to run the Police States of America.
“The number of privately owned guns in the U.S. is at an all-time high, upwards of 300 million, and now rises by about 10 million per year,” said the NRA’s Institute for Legislative Action in a firearms safety fact sheet released Jan. 17, 2013.”
Tell me again about stones and glass houses…
Davy on Wed, 21st Jan 2015 7:45 am
Mak, practice the scientific method in regards to overpopulation and carrying capacity. I agree the US needs to disengage at least militarily from Asia. Not completely but significantly. So Mak, tell me now about stones and glass houses. You have only one way to respond and that is throwing stones. Try balance, fairness, an objectivity. Also Mak, this is an article about Asia not the US so stay on queue please. I know it is hard with your inability to escape your agenda.
forbin on Wed, 21st Jan 2015 8:14 am
Haha I don’t read this web site for Mak to try “balance, fairness, and objectivity”
Its for the slagging off everyone does 😉
Might as well ask Plant to stop blaming Old Obama for everything….
/sarc off
Forbin
PS: I actually come here to find “objectivity and factual data” , sometimes I do ……..
Davy on Wed, 21st Jan 2015 8:47 am
Yea, Forb, some of the arguments here are fun but eventually we have to get down to some real business.
Mak, is just a dick. I get tired of him putting down my country when he lives in shit hole part of the world that is no better. People that cut down and talk up a place are phony.
Plantagenet on Wed, 21st Jan 2015 9:19 am
China is going to continue their territorial land grabs from weaker countries no matter what the price of oil is
Kenz300 on Wed, 21st Jan 2015 12:03 pm
China like Russia wants to expand its territory and lock in the resources……………
Rodster on Wed, 21st Jan 2015 1:01 pm
“China like Russia wants to expand its territory and lock in the resources……”
The same can be said for every major economy. 😉
In the future wars will be fought over basic resources. Infinite economic growth vs finite resources always collide. Its happened every time throughout history.
Makati1 on Wed, 21st Jan 2015 8:24 pm
Ah Davy, don’t you see the hypocrisy in your comment? Typical of Americans. No mirrors…
GregT on Thu, 22nd Jan 2015 12:55 am
“China is going to continue their territorial land grabs from weaker countries no matter what the price of oil is”
“China like Russia wants to expand its territory and lock in the resources……………”
Wow, there certainly is a whole ton of denial going on here. There is only one country that has military bases circumventing the globe, and there is only one country that spends more money on military adventurism than the next ten countries combined. That country is not China or Russia.
Davy on Thu, 22nd Jan 2015 5:06 am
Yea Greg, agreed, but China and Russia together are plenty foul. Both are gangster countries engaged in dubious foreign policy. Both are expanding their military and both have miserable internal rights issues. China for one has a population overshoot combined with a massive consumption growth that will end the world as we know it. Much of the consumption growth was wasted investment, IMA, worse than the American suburban and strip mall sprawl.
So we could say if given the opportunity China and Russia show no indication or being anything better than the US. In fact given their history there is every indication they could be similar to Stalin and Mao again if given a chance at world domination. At least the US must follow a constitution, adhere to a bill of rights, and respect separation of powers. That requirement is being corrupted but I feel there is a limit to this corruption that we are nearing. The situation is fluid I have optimism when a crisis comes the better nature in Americans will persevere.
The Putin cabal’s corruption is near total economically and he is pushing the internal rights issues strongly. China is a highly organize oligarchy of corruption economic and political with horrible internal rights. Tibet comes to mind and the Muslim regions for terribleness. China is buying off this nasty social fabric situation with growth that is now stalling. Bad things await China. So in conclusion the US is the worst and greatest threat to global peace but at their heals are shit bums like China and Russia. BAU’s end will clean house so at least this 20th century scourge of these great power will end within the next 2 decades surely.
Davy on Thu, 22nd Jan 2015 5:09 am
Mak, please elaborate, you spout off about my hypocrisy but then offer no particulars. Give a good documented example for the others to review. I do not claim I am above hypocrisy. I try to avoid it because it smells like you Mak and that cat piss smell that follows you around.
Mak, why don’t you read and learn more from Greg. Greg has a strong distaste for North American leadership and for the over consumption of the west in general. Greg is fair and balanced. People respect his posting. The people that read your posts and like them like cat piss. Other people find them amusing and ignore the pathetic old man from the P’s with a screw lose. Others like me are tired of the constant unfair, unbalance subjective message that is nothing more than a personal agenda. Face it Mak you attack everything American because much of your life in America was a failure.
I offered friendship and compromise and what did you do? You spit in my face and laughed under your breath. Screw you Mak and the horse you rode in on.
R1verat on Thu, 22nd Jan 2015 9:15 am
Yes, there was a time Mak would occasionally say something of interest. Now I just jump over his comments, for the repeated US bashing gets old & there isn’t any point. We all know he hates the US but probably still continues to cash his social security check.
Makati1 on Thu, 22nd Jan 2015 7:43 pm
Davy, I give sources, but you ignore them anyway. You use 2,000+ words to say what I say in <200. So be it. If you cannot see your hypocrisy, all I can say is … typical American.
I keep telling you to not read my comments but you are addicted … lol.
Obamination is a prime example of American hypocrisy and is America's number one flag waver, but he is also the laughing stock of most of the non-Western world. (You didn't know that?)
You admit to some of the US' weaknesses and problems, but still make it the "exceptional" country and the rest are "trash". The "other country" is always worse than the US. THAT is where your hypocrisy comes in.
Did you lose a buddy or family member in the Asian wars? Something that made you anti-Asian, or is the US propaganda system that effective? Being from a 1% family, maybe you lost big money there?
Doesn't matter. We both live on the same planet and being human, are bound to the same fate eventually. Death. It is how and where we decide to meet it that makes a difference. I decided to meet it here in the Ps. ^_^
Davy on Thu, 22nd Jan 2015 7:51 pm
Poor response Mak, not worth the trouble of a retort. When you come up with some mojo we can talk.
Makati1 on Fri, 23rd Jan 2015 7:57 am
Davy, you assume I want to talk to you. And I keep telling you to ignore my comments if you find them distasteful. Others agree with me and many are open to outside opinions, not closed doors.
I’ll stop pointing out the US shit when it stops having any to point out. But hell will freeze over first so I will always have a negative to counter it’s lies and hypocrisy.
Davy on Fri, 23rd Jan 2015 8:15 am
Mak, ignoring an idiot that insults you, your family, and country in the name of a warped agenda of distortions, selective facts, lacking balance, with no fairness would be enablement. You can insult me all you like but I will show others how your agenda stinks of cat piss.