Background
East and Southeast Asia have played a crucial global economic role in the recent years; posting annual growth at rates exceeding the global average and contributing to over a third of the global economic growth. 1 However, despite its economic vitality, East and Southeast Asia are plagued by ongoing maritime territorial disputes among pivotal states in the region. These disputes not only threaten the economic and political stability of the contending parties, they directly affect global trade networks and regional stability. The most critical of the ongoing rows in East and Southeast Asia is the South China Sea (SCS) territorial disputes . This is the result of a number of factors: (1) the SCSâs geopolitical position as maritime superhighway, (2) its potential as an energy source, and (3) and its abundant marine resources. In other words, the SCSs pivotal role means that even minor local clashes over the disputes can have serious spillover effects in the region and beyond.
Maritime Superhighway
Stretching from the Strait of Malacca in the southwest to the Luzon Straits in the northeast, the SCS serves as one of the main arteries for global shipping. Over â50% of the worldâs merchant fleet tonnage crosses through the Malacca, Sunda and Lombok Straits, with the majority continuing on into the South China Sea .â 2 The tanker traffic that passes through the Malacca Straits âis more than three times greater than the Suez Canal traffic, and well over five times more than the traffic of the Panama Canal.â 3 The Energy Information Administration (EIA), an agency of the US Department of Energy, estimates that 30% of the worldâs global maritime crude oil trade, amounting to 15 million barrels per day (BPD), traverses the SCS . 4 This means that one-third of global crude moves through the SCS , making this the second most important chokepoint for oil trade after the Strait of Hormuz. 5 The EIA also estimates that 40% of the global liquefied natural gas (LNG), or 4.7 trillion cubic feet (Tcf), traverses the SCS on to major regional importers like China, Japan, South Korea, and Taiwan. 6 Lastly, significant quantities of coal from Australia and Indonesia, which are the worldâs two largest coal exporters, are transported through the SCS to markets around the world, particularly China and Japan. 7
The SCS serves as a crucial maritime highway through which the sea lanes of communications (SLOCs) of most countries traverse. In other words, the national security of many countries rests on the amicable resolution to the SCS territorial disputes and the continued adherence to the international norm of freedom of navigation . This is particularly important for countries that rely heavily on energy imports and whose economies are primarily driven by exports of manufactured goods like China, which has laid claims to all land features in the SCS and their surrounding waters, and Japan which is not a claimant in the SCS disputes but sees Chinaâs increasing assertiveness in the region as detrimental to the freedom of navigation , and consequently, its national security. In essence, Japan relies on its South China Sea SLOC for 80% of its oil supply and 70% of its exports. Therefore, âany disruption of the maritime traffic due to frictions between claimant states or undue control by a single dominant power would have a catastrophic impact on Japan. For this reason, the SCS is seen as a ânational security concernâ by âdiplomatic authorities.â 8
Energy Deposits
The second factor that makes the SCS increasingly important is its estimated energy deposits. The robust economic growth in the region is expected to increase the demand for fossil fuels. The EIA projects that Asian countries outside of the Organization for Economic Cooperation Development (OECD) will have a 2.6% annual increase in demand for liquid fuels. This will result in an increased share of global consumption from 20% in 2008 to 30% by 2035. 9 Non-OECD Asian countriesâ natural gas consumption is also expected to grow at an annual rate of 3.9%; increasing their share of global consumption from 10% in 2008 to 19% by 2035. The âEIA expects China to account for 43 percent of that growth.â 10 Additionally, âwith Southeast Asian domestic oil production projected to remain flat or decline as consumption rises, the regionâs countries will look to new sources of energy to meet domestic demand.â 11 As a result, these countries are increasingly looking to the SCS as a potential source of energy to meet national demands in order to continue promoting economic growth. This has created an imperative for securing parts of the SCS as a way to acquire additional sources of hydrocarbons. However, the territorial disputes in the region have hindered efforts to conduct proper exploration of energy reserves in the area.
The lack of adequate oil and gas exploration in the SCS has resulted in a number of conflicting claims regarding the deposit amounts in the seabed. The Chinese have been the most optimistic in their estimates. Zhang Dawei, an official at Chinaâs Ministry of Land Resources, has optimistically claimed that the âSouth China Sea might hold 23-40 billion tons of oil reserves.â 12 That figure is larger than Chinaâs current onshore resources. The Chinese have also estimated that the area may contain more than 2000 tcf of natural gas reserves. 13 A different study conducted by the state-owned Chinese National Offshore Oil Company (CNOOC) estimates that the SCS holds around 125 billion barrels of oil and 500 tcf of natural gas. However, no independent studies have been able to confirm any of the optimistic estimates provided by Chinese agencies or state-owned corporations. 14 A 1995 study conducted by Russiaâs Research Institute of Geology of Foreign Countries concluded that deposits were closer to 6 billion barrels of oil in the Spratly Islands, of which 70% would be natural gas. 15
Two American agencies have also conducted surveys of the area, providing yet another set of conflicting figures. The EIA estimates that the oil and natural gas reserves in the SCS are 11 billion barrels and 190 tcf respectively. The report indicates that these figures represent proven and probable reserves and are much closer to the high-end estimate.
16 In the next survey:
The U.S. Geological Survey (USGS) analyzed the potential for undiscovered conventional oil and gas fields within several geologic provinces of Southeast Asia in 2010 as part of its World Petroleum Resources Assessment Project. The study included a significant area of the South China Sea , which the USGS estimates may contain anywhere between 5 and 22 billion barrels of oil and between 70 and 29...