Monday, August 11, 2014

Sovereignty Not Resources at Stake


It's Not About the Oil -- It's About the Tiny Rocks

What everyone gets wrong about Beijing's bullying in the South China Sea.

As China jousts with Japan, Vietnam, the Philippines, and other neighbors over contested maritime territory, the conventional wisdom is that energy concerns are a motivating force. China claims virtually the entire South China Sea -- a claim disputed by its neighbors (most notably Vietnam and the Philippines) -- and there have been an increasing number of conflicts in recent years over who has the right to exploit the energy resources under the seabed in disputed waters. China's introduction of a deep-water drilling rig into contested watersaround the Paracel Islands in the South China Sea -- an unprecedented effort by China to unilaterally move forward with energy development in these areas -- has reinforced the notion that energy is at the core of these disputes.
In reality, however, the pursuit of oil and gas in the East and South China seas is simply one manifestation of the more fundamental conflict over sovereignty in the region. China has a multipronged strategy to assert its dominance over the disputed maritime areas, including enhancing its military capability, research to show the historic basis for China's claims, and diplomacy to ensure that the Southeast Asian claimants do not unite against China. A tactic that China has been utilizing more recently has been to act as if China is the unquestioned sovereign in the contested areas, by doing what a country does in its own territory -- exploring for energy and building infrastructure. This is clear in the Aug. 4 comments by Yi Xianliang, deputy head of the Chinese Foreign Ministry's Boundary and Ocean Affairs departments regarding building activities in the South China Sea: "The Spratly Islands are China's intrinsic territory, and what China does or doesn't do is up to the Chinese government." In other words, China has sovereign control over the disputed territory -- and intends to exercise it.
Why isn't energy the key to the disputes? One regularly sees the words "vast" or "huge" applied to the hydrocarbon endowment of the South China Sea, and "resource-rich" has become a ubiquitous adjective when describing these waters. But the truth is, nobody knows: The contested areas around the Paracel and Spratly islands in the South China Sea have seen little exploration -- and without seismic soundings and experimental drilling, there is really no way of knowing how much oil and gas lies below the seafloor. That said, there's probably not all that much of it there. One of the most definitive sources of information on these topics is the U.S. Energy Information Agency's (EIA) 2013report, entitled "Contested areas of the South China Sea likely have few conventional oil and gas resources." The EIA estimates that in disputed areas around the Spratly and Paracel islands, there is likely no oil and less than 100 billion cubic feet of gas -- a miniscule amount roughly equivalent to one week of China's gas consumption. The East China Sea -- where China and Japan spar over the Senkaku/Diaoyu islands -- is even more negligible in terms of hydrocarbons. The EIA estimates it contains 60 million to 100 million barrels of oil -- roughly two weeks of oil for China -- and between one and two TCF (trillion cubic feet) of natural gas, or about three to six months' worth of gas consumption in China.
As the world's largest energy importer, China should want the greatest possible development of global energy resources -- without worrying greatly about ownership. Because of the liquid nature of global energy markets, any additional molecule developed contributes to greater global supply and to lower prices, both of which directly benefit China as the world's largest energy consumer -- even if none of those molecules go to China.
In other words, if energy were truly Beijing's concern, its obstruction of other states' development of their oil and gas resources -- which prevents new supplies from coming online -- is self-defeating. Not to mention that it comes at the cost of alienating a number of Southeast Asian nations, which would otherwise be much more accommodating of China's rise in the region. Simply put, there are far easier ways to procure energy in the 21st century than occupying territory or starting conflicts with one's neighbors.
Beijing's territorial plays are not about energy security, either. One often reads -- in both Chinese and Western sources -- that China has unique energy security vulnerabilities that must shape its strategic thinking. This may come from mistaken analogies with other Asian "tigers" like Japan, Taiwan, or Singapore that instituted export-dependent industrialization in part because of their resource scarcity. Or it may come from reading too much into ex-president Hu Jintao'spronouncements in the mid-2000s that China faces a "Malacca dilemma." Because the majority of China's energy imports flow through the Malacca Strait, a narrow waterway between Indonesia and Malaysia, China is vulnerable to a crippling energy blockade -- or so the thinking goes.
But both of these are misleading. China is far from resource-poor: It has the world's fourth-largest oil production, the largest oil reserves in Asia, and probably the world's largest shale gas reserves. China's status as the world's largest oil importer stems not from a paucity of domestic resources but from the enormity of its domestic demand. Even so, China is still able to supply 90 percent of its overall energy needs.
Moreover, while nearly 80 percent of China's imported oil passes through the Malacca Strait, that amount represents only about half of its total oil consumption. And while the U.S. Navy could execute a blockade, that would have enormous consequences for U.S. allies in the Pacific, which are even more dependent on the Malacca Strait for energy. Further, because most oil is shipped by private fleets, which would refuse to go through the Pacific in the face of a U.S. blockade, this glancing blow to the Chinese economy would devastate the economies of Japan, South Korea, and Taiwan. In other words, if the United States were to attempt to blockade China's oil, it too would face its own "Malacca dilemma."
Any country that is a net importer of energy has some inherent energy security vulnerabilities, because it relies on global markets and sea-lanes it doesn't control. But China is in some ways much better off than other net importers -- both because it has a large domestic energy endowment and because it has methodically diversified its energy supply routes. Since 2006, China has signed major supply deals for overland pipeline oil and gas imports from Central AsiaMyanmar, and most recently, Russia, minimizing the disruption that can be caused by any one chokepoint.
Developing the resources of the South Sea or East China Sea would do virtually nothing to alter China's energy situation, particularly because China has been the main engine of energy demand growth and thus any new energy resource -- what the industry calls "incremental barrels" -- developed can be considered destined for China. In other words, China doesn't need to fight wars to secure its energy; it can simply purchase it from willing suppliers on the global market.
Maintaining that China's territorial disputes are about sovereignty rather than energy is a pessimistic view. If energy were the primary issue in China's territorial disputes, it would be easier for the claimant states to find win-win solutions. But China's energy exploration efforts are about demonstrating sovereignty and control, and not vice versa.
Energy resources are dividable and shareable; sovereignty is not. Viewing the South and East China Seas through the lens of sovereignty rather than energy makes these issues zero-sum and much more intractable; it also makes clear why efforts at joint development are likely to fail.

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