Military

South China Sea Oil and Natural Gas

The search for oil and natural gas is seen by some as a driving factor in rival claims to the South China Sea, but really it isn't. The US Energy Information Agency estimates 11 billion barrels’ worth of oil under the sea and 190 trillion cubic feet of natural gas. Much of that lies under the continental shelves of Southeast Asian claimants, which are not disputed. Much of that potential energy has not been tapped yet. Saudi Arabia has an estimated 268 billion barrels of proven oil reserves and Iraq has 144 billion, the U.S. Energy Information Agency says. Russia leads the world in natural gas reserves with 5,085 trillion cubic feet.

The primary purpose of the claimants is not because they want to access the oil and gas resources. Developing hydrocarbon resources in the South China Sea would be way to mark their territory. The act of exploring for oil or gas sends a signal of control over the tract of sea being drilled. One frequently suggested solution is joint resource exploration with rival claimants.

The focus of most attention regarding the South China Sea resources has been on hydrocarbons in general, and 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 7.5 billion barrels, and oil production in the region is currently over 1.3 million barrels per day. Malaysian production accounts for about 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 came online. Statoil's Lufeng Field in China (southeast of Hong Kong) came onstream in 1997, and oil was discovered in 1997 in Vietnam's Block 46 (southwest of Vietnam).

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. Such speculation has given the Spratly Islands with great strategic value, and has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the speculation 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.

Optimistic Chinese estimates of the South China Sea region's oil potential, however, have helped encourage interest in the area. The most optimistic estimate suggests that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and 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 Sea is that perhaps 10% of the potential resources can be economically recovered. Even using this rule, Chinese estimates imply potential production levels for the Spratly Islands of 1.9 million barrels/day.

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 (USGS), 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 1-2 billion barrels. If all of this were proven to be economically recoverable, this hypothetically could yield a peak oil production level for the Spratly Islands of 180,000 - 370,000 barrels per day - the same order of magnitude as current production levels in Brunei or Vietnam. However, the rule-of-thumb for frontier areas suggests that the total could be significantly less.

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 USGS and others indicate that about 60% -70% of the region's hydrocarbon resources are gas. Meanwhile, natural gas usage in the region is projected to grow by 5% per year over the next two decades, faster than any other fuel, reaching as much as 20 trillion cubic feet (Tcf) per year. 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 had been increasing until the ongoing East Asian economic crisis. Much of this new activity had occurred in the Gulf of Thailand in waters claimed by Cambodia, where five companies signed conditional exploration agreements, and in Thailand. In addition, China had accelerated development of its offshore fields such as Yacheng, Indonesia had discovered the giant Natuna gas field, the Malaysian Lawit field had come onstream in June 1997, and Vietnam had made a series of discoveries in the Nam Con Son basin southeast of Vietnam that were expected to significantly increase its reserves.

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% of these hydrocarbons are gas, 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 Tcf annually.

Another Chinese report estimates that the entire South China Sea contains more than 2,000 Tcf of natural gas resources. By contrast, the most optimistic non-Chinese report has estimated total gas resources in the Spratly Islands at 24 Tcf. If all of this were proven to be economically recoverable, this hypothetically could yield a peak natural gas production level for the Spratly Islands of 0.5 Tcf annually - the same order of magnitude as current production levels in Thailand. As was the case with oil, the rule-of-thumb for frontier areas suggests that the total could be significantly less. The USGS has placed the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 266 Tcf.

Oil and Gas in the South China Sea Region

*Only the regions near the South China Sea are included
Proved reserves as of 1/1/98; 1997 production (except Indonesia, where data is as of 1996)
Note: There are no proved reserves for the Spratly and Paracel Islands

Oil and Gas in the South China Sea
Comparison with other Regions