The Spratlys, co-claimed by Vietnam, China, Brunei, Malaysia, the Philippines, and Taiwan appeared again in the news this week as China warned Vietnam and Exxon Mobil to not go ahead with planned exploration. Previously, in 2007 China discouraged BP from co-developing a natural gas field with Vietnam.
Chinese assertion of sovereignty in this case, when compared to its June 2008 deal with Japan to co-develop Chunxiao oil field in the East China Sea, is interesting. With the Chunxiao deal, China asserted supremacy, still claiming sovereignty, but it still agreed to co-develop the field, splitting investment and revenues 50-50% (“Sun Bin” has a description of that deal).
With Vietnam’s claim to the Spratly oil, China will reach no such consensus. PetroVietnam seems intent on not splitting investments with China, and Vietnam definitely has a legal case for not splitting. The Spratlys are beyond China’s Exclusive Economic Zone of 200 miles from its shores (in which it can exploit resources), however China still lays claim to them since the Spratlys are on China’s Continental Shelf.
And China has been enforcing its claims. In June 2007, “China arrested 41 Vietnamese fishermen near the Spratlys for straying into contested waters. They were released after paying fines. Vietnamese fishermen in another incident on July 9th were not as lucky. One fisherman was killed and several others were injured when Chinese navy vessels opened fire on their fishing boats near the islands.” In November 2007, “large military exercises by China in the South China Sea close to the Paracels sparked protest from Vietnam.” And “on December 4… Vietnamese state media criticized China for ratifying in the People’s Congress a plan to create the Sansha administrative zone to manage the Paracels, Spratlys and the Macclesfield Banks. The zone has been given the status of a “county-level city” within Hainan Province with its administrative headquarters on Woody Island in the Paracels… Chinese Foreign Ministry spokesman Qin Gang claimed China has “indisputable sovereignty” over the islands.”
As described by Bernard Cole in The Great Wall at Sea (2001), China signed the 1996 UN Convention on the Law of the Sea, but only after including several reservations. It claimed a sovereign right over an Exclusive Economic Zone (which would allow full naval intervention within more than 200 miles), and over its Continental Shelf (350 miles).
China also wanted boundary disputes to be settled bilaterally rather than internationally and would not allow foreign warships to transit through waters without approval. China’s naval claims extend from its coast nearly to the coasts of Indonesia, Vietnam, and the Philippines, and if accepted, would basically make the South China sea an exclusively Chinese lake, denying Vietnam easy naval access to the Pacific Ocean.
China’s historic claims to the Spratlys/Paracels are based on exploration by the Han from 200BC-220AD, and administration by the Tang Dynasty from 618-906, but Cole argues this does not really establish current-sovereignty according to modern usage.
China currently occupies around seven islands militarily, and vietnam has military garrisons on 20 Spratlys. Vietnam traces its legitimacy to 1933 French claims on the area.
The Philippines base their claim on an alleged discovery by a businessman in 1947. In 1974, he deeded the islands to government. The Brunei claim is based on proximity.
China is upset about Vietnam exploiting the natural resources because strategic costs and energy supplies are hanging in the balance. Although most estimates place reserves under the Spratlys at 7-20 billion barrels of oil; China believes there may be as many as 200 billion barrels beneath the waves. Strategically, if Vietnam starts developing the fields, then its claim to the islands would strengthen since the country would be utilizing the area.
Could this situation escalate? If the June 2007 collapse of the PetroVietnam/BP deal is any guide– then no, the status quo of undeveloped Spratlys could prevail. However, Vietnam and ExxonMobil may attempt to take advantage of the Olympics in order to push hard to shame Beijing into refraining from harsh rhetoric and threats. This would allow PetroVietnam and ExxonMobil to push ahead with developing the oil field and might lead to diplomatic consequences after the Olympics are finished.
ExxonMobil must have known the political consequences after seeing BP’s failure to join Vietnam in investing. Later, I hope to uncover some research on ExxonMobil’s oil interests and investments in China. To what degree would acquiring new sources with PetroVietnam hurt ExxonMobil’s bottom line? Now, ExxonMobil might still pull out of the deal if China exerts enough pressure, but I find it difficult to believe that ExxonMobil didn’t expect China to push back– they must have a good reason for pursuing talks with PetroVietnam.
What’s certain, though, is that Vietnam seems ready to go ahead with the deal and exploration despite Beijing objections.
Beijing continues its quest to fill its increasingly high energy needs since demand is up 8.6% in 2006, which is a staggering amount compared to global growth rates of under 2%. To mitigate the problem, Beijing plans to ambitiously expand natural gas supplies.
China’s natural gas industry is growing at a rapid pace. 2007 saw 23.1% growth and this year, Natural Gas output will “likely hit 76 billion cubic meters,” on around 15% a year growth!).
International agreements signed from 2003-2005 are finally coming on-line, and new agreements are being made. Below, I examine what this can this mean for China’s energy security and future geopolitical purposes.
First, for orientation purposes; 1,200 cubic meters of gas equals about one ton of oil (People’s Daily); or a conversion rate of 8.3×10-4. (Conversions will vary between sources depending on how oil companies rate the density of materials, but for simplification purposes, all numbers below are approximations.)
In 2006, China received 69.6% of its energy from Coal (1.19B tons of oil equivalent in 2006, but 2.5B “natural” tons of coal are expected to be consumed in 2007)^, 21.1% from Oil (350M tons; 183.7M produced domestically, around 47% imported), 5.8% from Hydroelectric, 2.7% Natural Gas (55.6B cubic meters- in 2007 this rose to 69.8B cubic meters), and 0.8% from Nuclear Energy [data from: Rosen (17), and China Daily (2006)]
To make the data easier to compare, cubic meters have been approximately converted into tons:
* Roughly converted into tons, thus is estimated down from the 69.8B cubic meters as per the formula explained above. Also, Natural gas data is for 2007.
^ 1 m.ton of coal = 4.879 barrels of crude oil equivalent (Source)
(Chart Data from Rosen and China Daily; 2005 and 2006 numbers except as stated.)
(2009-2010) – New Sources of Imports Coming on line
The Chinese government hopes to double use of Liquid Natural Gas from 2.5% of the energy mix (as of 2005) to 5.5% of the energy mix by 2010, and expects to utilize 200B cubic tons a year (166M tons, or roughly half of current oil consumption) of LNG by 2020 (IHT).
China is fast approaching its goals. In order to facilitate foreign imports, pipelines are being built, and China National Offshore plans to build an additional 10 LNG (Liquid Natural Gas)-capable ports (CER).
In August 2007, PetroChina and Chevron agreed to develop the Luojiazhai natural gas fields in Sichuan. The fields are believed to hold 2.03 trillion cubic feet of natural gas reserves (57,483,144 cubic meters or roughly 48M tons.) (CER).
In July 2008, PetroChina proclaimed “Sulige Gas Field in China’s Inner Mongolia Autonomous Region” can now produce 4.5 billion cubic meters (steres) a year (3.8M tons). By the end of the year, Petrochina hopes to increase output to over 7 billion cubic meters (steres) annually (5.9M tons) (China Institute).
Turkmenistan will be able to export Natural Gas to China, starting in 2009. Under an August 2006 deal, China plans to purchase 30 billion cubic meters in 30 years; averaging to 1 billion cubic meters, or around 833,000 tons a year.
In June 2008, China signed a deal with Qatargas Operating Co. for delivery, starting in 2009, of 2 million metric tons of LNG annually (CER).
TOTAL: (2009) 8.9M tons yearly
Sulige Gas Field (5.9M yearly)  (Inner Mongolia)
Qatar (2M yearly) 
Turkmenistan (833,000 yearly) 
Luojiazhai Fields (43M reserves) [~2010] (Sichuan)
Long Run Forecast
In July 2008, Kazakhstan started a natural gas pipeline (IHT) that should be “completed by June 2010.” When finished, it will carry 30 billion cubic meters of natural gas each year, or around 38M tons.
Sinopec also has high expectations for the Dayi Gas Field in Sichuan. They claim possible natural gas reserves of 100 billion cubic meters (85M tons) (China Institute).
China also, in June 2008, signed a cooperation agreement on natural gas extraction and transportation with Myanmar, which has over 5.7 to 10 trillion cubic feet of natural gas (283,168,199,078 cubic meters; or 238M tons) (China Institute).
In a July 10, 2008 statement, “Russia plans to export 68 billion cubic meters of natural gas to China annually by 2020 [58M tons], the president of the Russian Gas Union said. Valery Yazev, who is also deputy chairman of the State Duma, the lower house of Russia’s parliament, said that Russia planned to supply up to 30 million metric tons (220 million barrels) of crude oil to China via a branch line of the East Siberia – Pacific Ocean pipeline (ESPO)” (China Institute).
TOTAL: (2020) 96M tons yearly
Kazakhstan (38M yearly) [2010-2015]
Russia (58M yearly) [2015-2020]
Dayi Field (85M reserves) [2010-2012] (Sichuan)
Future pipelines from Kazakhstan will carry imports that equal half the amount of LNG consumed by China this year. As a result, Central Asian security will become more integral to Beijing’s foreign policy. The pipeline from Kazakhstan crosses Uzbekistan and goes through China’s sometimes-volatile Xinjiang province. New pipelines originating from Central Asian countries will require more People’s Armed Police patrols to guarantee safety, which will tie down a modest amount of troops since the lines present an energy security vulnerability. Anti-terror crackdowns will increase in Xinjiang, and possibly Islamic Mosque worship will be more restricted. (Children under a certain age are not allowed in Mosques; although when I visited, it appeared this practice was not entirely enforced.)
Also, Beijing will strengthen ties with the SCO (Shanghai Cooperative Organization) economic and defense grouping of Central Asian states, perhaps attempting to marginalize the United States’ regional influence. Beijing already surpasses the US in trade partner significance to several Central Asian States, trading $12 billion in 2006 (CRS, 71) with the region, compared to 2006 US trade of slightly over $2.3 billion with the region. (Data from HERE, HERE, HERE, HERE, and HERE for exports; HERE for imports)
With a future pipeline to Myanmar, Beijing might increasingly coddle that regime, like France and Russia at times did to Baghdad in the leadup to the Iraq War. However, given Myanmar’s undeveloped economy, it may be years before they practically exploit their natural gas. An Indian and a South Korean company are also involved in the explotation. The Myanmar issue will prove to be a complicated one, geopolitically.
Ultimately, Natural Gas is but one of several sources for China’s energy, and it will only account for 5.3% of Beijing’s energy mix by 2010. Coal is currently, and will remain the most important piece of Beijing’s energy plan for the next twenty years. And oil will remain the most vulnerable part of Beijing’s energy plan, since over 47% of China’s oil demand is imported.
Still, the importance of LNG will cause Beijing to bring in foreign experts (such as Shell, and Chevron), and will increase its influence in the Central Asian states. It will be interesting to see how relations and rights negotiations develop over the next two to ten years, given energy prices’ recent fluctuations.
Also of Note: Daniel Rosen and the Center for Strategic and International Studies’ AMAZING analysis of China’s Energy Future – http://www.iie.com/publications/papers/rosen0507.pdf