Back
About RSIS
Introduction
Building the Foundations
Welcome Message
Board of Governors
Staff Profiles
Executive Deputy Chairman’s Office
Dean’s Office
Management
Distinguished Fellows
Faculty and Research
Associate Research Fellows, Senior Analysts and Research Analysts
Visiting Fellows
Adjunct Fellows
Administrative Staff
Honours and Awards for RSIS Staff and Students
RSIS Endowment Fund
Endowed Professorships
Career Opportunities
Getting to RSIS
Research
Research Centres
Centre for Multilateralism Studies (CMS)
Centre for Non-Traditional Security Studies (NTS Centre)
Centre of Excellence for National Security (CENS)
Institute of Defence and Strategic Studies (IDSS)
International Centre for Political Violence and Terrorism Research (ICPVTR)
Research Programmes
National Security Studies Programme (NSSP)
Social Cohesion Research Programme (SCRP)
Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
Other Research
Future Issues and Technology Cluster
Research@RSIS
Science and Technology Studies Programme (STSP) (2017-2020)
Graduate Education
Graduate Programmes Office
Exchange Partners and Programmes
How to Apply
Financial Assistance
Meet the Admissions Team: Information Sessions and other events
RSIS Alumni
Outreach
Global Networks
About Global Networks
RSIS Alumni
International Programmes
About International Programmes
Asia-Pacific Programme for Senior Military Officers (APPSMO)
Asia-Pacific Programme for Senior National Security Officers (APPSNO)
International Conference on Cohesive Societies (ICCS)
International Strategy Forum-Asia (ISF-Asia)
Executive Education
About Executive Education
SRP Executive Programme
Terrorism Analyst Training Course (TATC)
Public Education
About Public Education
Publications
RSIS Publications
Annual Reviews
Books
Bulletins and Newsletters
RSIS Commentary Series
Counter Terrorist Trends and Analyses
Commemorative / Event Reports
Future Issues
IDSS Papers
Interreligious Relations
Monographs
NTS Insight
Policy Reports
Working Papers
External Publications
Authored Books
Journal Articles
Edited Books
Chapters in Edited Books
Policy Reports
Working Papers
Op-Eds
Glossary of Abbreviations
Policy-relevant Articles Given RSIS Award
RSIS Publications for the Year
External Publications for the Year
Media
News Releases
Speeches
Video/Audio Channel
Events
Contact Us
S. Rajaratnam School of International Studies Think Tank and Graduate School Ponder The Improbable Since 1966
Nanyang Technological University Nanyang Technological University
  • About RSIS
      IntroductionBuilding the FoundationsWelcome MessageBoard of GovernorsHonours and Awards for RSIS Staff and StudentsRSIS Endowment FundEndowed ProfessorshipsCareer OpportunitiesGetting to RSIS
      Staff ProfilesExecutive Deputy Chairman’s OfficeDean’s OfficeManagementDistinguished FellowsFaculty and ResearchAssociate Research Fellows, Senior Analysts and Research AnalystsVisiting FellowsAdjunct FellowsAdministrative Staff
  • Research
      Research CentresCentre for Multilateralism Studies (CMS)Centre for Non-Traditional Security Studies (NTS Centre)Centre of Excellence for National Security (CENS)Institute of Defence and Strategic Studies (IDSS)International Centre for Political Violence and Terrorism Research (ICPVTR)
      Research ProgrammesNational Security Studies Programme (NSSP)Social Cohesion Research Programme (SCRP)Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
      Other ResearchFuture Issues and Technology ClusterResearch@RSISScience and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
      Graduate Programmes OfficeExchange Partners and ProgrammesHow to ApplyFinancial AssistanceMeet the Admissions Team: Information Sessions and other eventsRSIS Alumni
  • Outreach
      Global NetworksAbout Global NetworksRSIS Alumni
      International ProgrammesAbout International ProgrammesAsia-Pacific Programme for Senior Military Officers (APPSMO)Asia-Pacific Programme for Senior National Security Officers (APPSNO)International Conference on Cohesive Societies (ICCS)International Strategy Forum-Asia (ISF-Asia)
      Executive EducationAbout Executive EducationSRP Executive ProgrammeTerrorism Analyst Training Course (TATC)
      Public EducationAbout Public Education
  • Publications
      RSIS PublicationsAnnual ReviewsBooksBulletins and NewslettersRSIS Commentary SeriesCounter Terrorist Trends and AnalysesCommemorative / Event ReportsFuture IssuesIDSS PapersInterreligious RelationsMonographsNTS InsightPolicy ReportsWorking Papers
      External PublicationsAuthored BooksJournal ArticlesEdited BooksChapters in Edited BooksPolicy ReportsWorking PapersOp-Eds
      Glossary of AbbreviationsPolicy-relevant Articles Given RSIS AwardRSIS Publications for the YearExternal Publications for the Year
  • Media
      News ReleasesSpeechesVideo/Audio Channel
  • Events
  • Contact Us
    • Connect with Us

      rsis.ntu
      rsis_ntu
      rsisntu
      rsisvideocast
      school/rsis-ntu
      rsis.sg
      rsissg
      RSIS
      RSS
      Subscribe to RSIS Publications
      Subscribe to RSIS Events

      Getting to RSIS

      Nanyang Technological University
      Block S4, Level B3,
      50 Nanyang Avenue,
      Singapore 639798

      Click here for direction to RSIS
Connect
Search
  • RSIS
  • Publication
  • RSIS Publications
  • CO17085 | The South China Sea Disputes: The Energy Dimensions
  • Annual Reviews
  • Books
  • Bulletins and Newsletters
  • RSIS Commentary Series
  • Counter Terrorist Trends and Analyses
  • Commemorative / Event Reports
  • Future Issues
  • IDSS Papers
  • Interreligious Relations
  • Monographs
  • NTS Insight
  • Policy Reports
  • Working Papers

CO17085 | The South China Sea Disputes: The Energy Dimensions
Frank Umbach

04 May 2017

download pdf

Synopsis

The regional oil and gas reserves in the South China Sea have become economically and geopolitically less important due to oversupply in the global oil and gas markets, new diversification options and low oil and gas prices. Beijing’s deepwater projects in the South China Sea are not exclusively or primarily driven by commercial factors.

Commentary

IN LIGHT of previous forecasts of “peak-oil” assumptions and the resulting worldwide increase in resource competition, the presumed large offshore oil and gas fields in the South China Sea had sometimes been labelled as the “new Persian Gulf”. But according to the US Energy Information Administration (EIA) and its estimate for 2013, the presumed 11 billion barrels of oil (comparable with Mexico’s) and 190 trillion cubic feet (tcf) of gas (comparable with Europe’s without Russia) under the South China Sea appear much more marginal.

However, many Chinese estimates, such as the one by the state-owned oil company China National Offshore Oil Corporation (CNOOC), assume that the South China Sea deposits are much larger (at 125 bn barrels of oil and 500 tcf) – up to one third of China’s total oil and gas resources. As perceptions often matter more than facts, the situation is complicated by other factors.

Other Drivers at Play

There are three other factors that come into play.

Firstly, the South China Sea may indeed hold much more additional (up to now undiscovered) oil resources in underexplored areas. The US Geological Survey (USGS) has estimated additional resources between 5-22 bn barrels of oil and 70-290 tcf of natural gas.

Secondly, only exploration and drilling projects can ultimately answer the question how much of those resources can be exploited in a commercially profitable way.Thirdly, this question is dependent on available technologies, and the political as well as industrial interest to implement those drilling projects. This depends on worldwide oil and gas prices, which determine the commercial viability of those projects.

Joint Development Projects?

The ruling of the Permanent Court of Arbitration (PCA) in The Hague on 12 July 2016 rejected China’s “historical” maritime claims in the South China Sea. What this implies is that the territorial and resource disputes in the South China Sea might offer new hopes of the long-discussed perspective of joint development of oil and gas reserves in the South China Sea.

It can build upon the example of Malaysia and Thailand, which signed an agreement for hydrocarbon projects in disputed waters in 1979 for joint exploration projects in an overlapping area designated as the “Joint Development Area (JDA)”. In principle, Beijing has expressed its willingness to support joint oil and gas projects with its neighbours. But it has often linked its support with the precondition that its partners and neighbouring countries need to first recognise China’s sovereignty and territorial claims in the disputed areas.

But as long as Beijing does not recognise the international law for the South China Sea and become much more pragmatic in regard to its territorial claims, the prospect for joint development projects will remain unclear.

Ignoring Economic Fundamentals for Commercial Projects

Over the last decade, given the technological capabilities of their national oil and gas companies, all claimant parties in the South China have become more interested not only to expand their oil and gas projects in shallow waters (<200m under the sea), but increasingly also those in deepwater (>200-300m). But “ultra-deepwater” (>1,500m) oil and gas drilling projects are, at present, commercially hardly profitable given the low global oil prices.

As a result, international energy companies had reduced worldwide their maritime exploration projects. In June 2016, CNOOC announced that it could postpone the development of its first independent deepwater gas discovery until after 2020 due to “current market conditions” and lower gas demand in the government’s 13th Five-Year Plan (2016-2020). It had already shelved plans to develop its offshore gas field Lingshui 17-2 using a floating LNG-terminal (FLNG) project near Hainan Island with certified reserves of more than 100 billion cubic metres (bcm) of gas — one of China’s largest offshore gas fields.

But while these projects have been postponed for some years, China has not changed its energy resource strategy by really giving up its deepwater energy projects in the South China Sea. From 2014-2030, CNOOC has still earmarked around 70% of new offshore equipment for deepwater projects.

In December 2015, China had 57 deepwater production facilities and support vessels — including seven platforms that can operate waters deeper than 3,000 metres. The newly developed seventh-generation rigs of deep-water semi-submersible drilling platforms can operate at a water depth of 3,600m and drill wells 15,000m in deepwater.

Creeping Occupation

Many observers of China’s South China Sea policies have assumed that the energy dimensions have fuelled the regional maritime disputes due to China’s strategy of pursuing energy independence by reducing the rise of vulnerable maritime oil and LNG imports. While this is so, they have often overlooked that China’s oil and gas exploration projects are also supported as another instrument to bolster its “creeping occupation” of reefs in the South China Sea to bolster its maritime territorial claims.

The CNOOC Chairman Wang Yilin, for instance, has justified the “mission” of its first deepwater oil rig 981 on 8 August 2012 not just on commercial reasons. The commissioning of the oil rig was described as a “mobile national territory” to help “ensure our country’s energy security, advance maritime-power strategy and safeguard our nation’s maritime sovereignty”.

In July 2016, Chinese state media reported the launch of a series of offshore nuclear power platforms to promote the development of heavy oil reserves in the Bohai Bay and to support development in remote deepwater zones of the South China Sea, such as deepsea production bases with control centres and living space for workers.

In February 2017, China announced it would build its first long-term national under-water-observation platform in key waters of the South China Sea, but refused to give the exact location and offered no further details. A month later, China launched its “largest and deepest-operating” offshore oil exploration platform “Bluewhale” for drilling >3,600m underwater, designed specifically for the deepwater oil reserves in the South China Sea.

About the Author

Frank Umbach PhD is Research Director at the European Centre for Energy and Resource Security (EUCERS), King’s College, London (www.eucers.eu) and Senior Associate at the Centre for European Security Strategies (CESS GmbH), Munich (www.cess-net.eu). He was previously also a Co-Chair of CSCAP-Europe. He contributed this to RSIS Commentary.

Categories: RSIS Commentary Series / Non-Traditional Security / Country and Region Studies / International Politics and Security / Maritime Security / East Asia and Asia Pacific / Southeast Asia and ASEAN / Global

Synopsis

The regional oil and gas reserves in the South China Sea have become economically and geopolitically less important due to oversupply in the global oil and gas markets, new diversification options and low oil and gas prices. Beijing’s deepwater projects in the South China Sea are not exclusively or primarily driven by commercial factors.

Commentary

IN LIGHT of previous forecasts of “peak-oil” assumptions and the resulting worldwide increase in resource competition, the presumed large offshore oil and gas fields in the South China Sea had sometimes been labelled as the “new Persian Gulf”. But according to the US Energy Information Administration (EIA) and its estimate for 2013, the presumed 11 billion barrels of oil (comparable with Mexico’s) and 190 trillion cubic feet (tcf) of gas (comparable with Europe’s without Russia) under the South China Sea appear much more marginal.

However, many Chinese estimates, such as the one by the state-owned oil company China National Offshore Oil Corporation (CNOOC), assume that the South China Sea deposits are much larger (at 125 bn barrels of oil and 500 tcf) – up to one third of China’s total oil and gas resources. As perceptions often matter more than facts, the situation is complicated by other factors.

Other Drivers at Play

There are three other factors that come into play.

Firstly, the South China Sea may indeed hold much more additional (up to now undiscovered) oil resources in underexplored areas. The US Geological Survey (USGS) has estimated additional resources between 5-22 bn barrels of oil and 70-290 tcf of natural gas.

Secondly, only exploration and drilling projects can ultimately answer the question how much of those resources can be exploited in a commercially profitable way.Thirdly, this question is dependent on available technologies, and the political as well as industrial interest to implement those drilling projects. This depends on worldwide oil and gas prices, which determine the commercial viability of those projects.

Joint Development Projects?

The ruling of the Permanent Court of Arbitration (PCA) in The Hague on 12 July 2016 rejected China’s “historical” maritime claims in the South China Sea. What this implies is that the territorial and resource disputes in the South China Sea might offer new hopes of the long-discussed perspective of joint development of oil and gas reserves in the South China Sea.

It can build upon the example of Malaysia and Thailand, which signed an agreement for hydrocarbon projects in disputed waters in 1979 for joint exploration projects in an overlapping area designated as the “Joint Development Area (JDA)”. In principle, Beijing has expressed its willingness to support joint oil and gas projects with its neighbours. But it has often linked its support with the precondition that its partners and neighbouring countries need to first recognise China’s sovereignty and territorial claims in the disputed areas.

But as long as Beijing does not recognise the international law for the South China Sea and become much more pragmatic in regard to its territorial claims, the prospect for joint development projects will remain unclear.

Ignoring Economic Fundamentals for Commercial Projects

Over the last decade, given the technological capabilities of their national oil and gas companies, all claimant parties in the South China have become more interested not only to expand their oil and gas projects in shallow waters (<200m under the sea), but increasingly also those in deepwater (>200-300m). But “ultra-deepwater” (>1,500m) oil and gas drilling projects are, at present, commercially hardly profitable given the low global oil prices.

As a result, international energy companies had reduced worldwide their maritime exploration projects. In June 2016, CNOOC announced that it could postpone the development of its first independent deepwater gas discovery until after 2020 due to “current market conditions” and lower gas demand in the government’s 13th Five-Year Plan (2016-2020). It had already shelved plans to develop its offshore gas field Lingshui 17-2 using a floating LNG-terminal (FLNG) project near Hainan Island with certified reserves of more than 100 billion cubic metres (bcm) of gas — one of China’s largest offshore gas fields.

But while these projects have been postponed for some years, China has not changed its energy resource strategy by really giving up its deepwater energy projects in the South China Sea. From 2014-2030, CNOOC has still earmarked around 70% of new offshore equipment for deepwater projects.

In December 2015, China had 57 deepwater production facilities and support vessels — including seven platforms that can operate waters deeper than 3,000 metres. The newly developed seventh-generation rigs of deep-water semi-submersible drilling platforms can operate at a water depth of 3,600m and drill wells 15,000m in deepwater.

Creeping Occupation

Many observers of China’s South China Sea policies have assumed that the energy dimensions have fuelled the regional maritime disputes due to China’s strategy of pursuing energy independence by reducing the rise of vulnerable maritime oil and LNG imports. While this is so, they have often overlooked that China’s oil and gas exploration projects are also supported as another instrument to bolster its “creeping occupation” of reefs in the South China Sea to bolster its maritime territorial claims.

The CNOOC Chairman Wang Yilin, for instance, has justified the “mission” of its first deepwater oil rig 981 on 8 August 2012 not just on commercial reasons. The commissioning of the oil rig was described as a “mobile national territory” to help “ensure our country’s energy security, advance maritime-power strategy and safeguard our nation’s maritime sovereignty”.

In July 2016, Chinese state media reported the launch of a series of offshore nuclear power platforms to promote the development of heavy oil reserves in the Bohai Bay and to support development in remote deepwater zones of the South China Sea, such as deepsea production bases with control centres and living space for workers.

In February 2017, China announced it would build its first long-term national under-water-observation platform in key waters of the South China Sea, but refused to give the exact location and offered no further details. A month later, China launched its “largest and deepest-operating” offshore oil exploration platform “Bluewhale” for drilling >3,600m underwater, designed specifically for the deepwater oil reserves in the South China Sea.

About the Author

Frank Umbach PhD is Research Director at the European Centre for Energy and Resource Security (EUCERS), King’s College, London (www.eucers.eu) and Senior Associate at the Centre for European Security Strategies (CESS GmbH), Munich (www.cess-net.eu). He was previously also a Co-Chair of CSCAP-Europe. He contributed this to RSIS Commentary.

Categories: RSIS Commentary Series / Non-Traditional Security / Country and Region Studies / International Politics and Security / Maritime Security

Popular Links

About RSISResearch ProgrammesGraduate EducationPublicationsEventsAdmissionsCareersVideo/Audio ChannelRSIS Intranet

Connect with Us

rsis.ntu
rsis_ntu
rsisntu
rsisvideocast
school/rsis-ntu
rsis.sg
rsissg
RSIS
RSS
Subscribe to RSIS Publications
Subscribe to RSIS Events

Getting to RSIS

Nanyang Technological University
Block S4, Level B3,
50 Nanyang Avenue,
Singapore 639798

Click here for direction to RSIS

Get in Touch

    Copyright © S. Rajaratnam School of International Studies. All rights reserved.
    Privacy Statement / Terms of Use
    Help us improve

      Rate your experience with this website
      123456
      Not satisfiedVery satisfied
      What did you like?
      0/255 characters
      What can be improved?
      0/255 characters
      Your email
      Please enter a valid email.
      Thank you for your feedback.
      This site uses cookies to offer you a better browsing experience. By continuing, you are agreeing to the use of cookies on your device as described in our privacy policy. Learn more
      OK
      Latest Book
      more info