Energy Cooperation in the South China Sea

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Jonas Grätz: Resource estimates differ widely as the contested status of many areas in the South China Sea inhibits exploration. Based on known fields, proven and probable reserves have been estimated by the US Energy Information Administration at 11.2 billion barrels of oil and 5.3 trillion cubic meters of natural gas. About half of it is located off Malaysia’s coast, which probably reflects less exploration activity by other countries. Speculative figures for potential reserves – based on some known discoveries near the coast and geological projections – are substantially higher. The Chinese Land and Resources Ministry is the most bullish, putting the figure at 400 billion barrels of oil and 20 trillion cubic meters of gas, although without citing sources. That would equal half of the oil reserves of the entire Middle East and a quarter of its natural gas reserves. China National Offshore Oil Corporation (CNOOC) is a bit more conservative, estimating potential reserves at 124 billion barrels of oil and 14 trillion cubic meters of natural gas. With so much uncertainty attached to resource estimates, high Chinese forecasts may be intended to underscore the symbolic value of the South China Sea. This is further emphasized by the fact that Chinese media and oil companies refer to the South China Sea as a “second Persian Gulf” or, more humbly, the “maritime Daqing”, referring to China’s largest onshore oilfield. Based on the currently known fields and geological knowledge, however, the South China Sea looks set to be rich in natural gas rather than oil. Also, the gas often comes with a high CO2 content. As gas incurs considerably more transport costs than oil, a relatively high gas price and regional cooperation are in order to render gas development profitable.

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