Indonesias ownership of the natural gas-rich fields offshore of the Natuna Islands was undisputed until China released an official map with unclear maritime boundaries indicating that Chinese-claimed waters in the South China Sea may extend into the waters around the Natuna Islands. Indonesia responded, in 1996, by holding large military exercises in the Natuna Islands region. Since then, Indonesia has done major natural gas production in the Natuna area and China has not voiced any objection. The three blocks in the Natuna area are estimated to contain about 5 Tcf of recoverable gas. Indonesia has been exporting Natuna gas to Singapores Jurong island via a 400-mile undersea pipeline since 2001.

The Philippines Malampaya and Camago natural gas and condensate fields are in Chinese-claimed waters. The fields are estimated to contain 2.6 Tcf of natural gas. The Philippines has proceeded with development of the fields and linked the gas output to three power plants via a 312-mile pipeline. There have been no objections from China to this development.
Malaysia
Many of Malaysias natural gas fields located offshore Sarawak also fall under the Chinese claim, but as with the Philippine gas fields, China has not specifically objected to their development. In July 2002, a new oil discovery by Murphy Oil (working under a contruct with state-owned Petronas) about 100 miles offshore from Sabah on island of Borneo rekindled interest in a latent dispute between Malaysia and Brunei over offshore rights. Murphy plans to begin commercial production in the area in 2007. Shell Malaysia reported a deep water oil discovery off the Sabah coast in 2004. Brunei had asserted a 200-mile exclusive economic zone (EEZ) off its coastline in 2000. Negotiations between the two governments to resolve the issue are continuing.

Vietnam and China have resolved their dispute over areas in the Gulf of Tonkin to the south of Chinas Guangdong province. An agreement signed in December 2000 delineated the boundary between their EEZs, opening the way for oil and gas exploration.
Maritime boundaries in the natural gas-rich Gulf of Thailand portion of the South China Sea have not all been clearly defined. Several companies have signed exploration agreements but have been unable to drill in a disputed zone between Cambodia and Thailand. Overlapping claims between Thailand and Vietnam were settled on August 8, 1997, and cooperative agreements for exploration and development were signed for the Malaysia-Thai and Malaysia-Vietnam Joint Development Areas (the latter effective June 4, 1993).
Most of these claims are historical, but they are also based upon internationally accepted principles extending territorial claims offshore onto a countrys continental shelf, as well as the 1982 United Nations Convention on the Law of the Sea.

The 1982 convention created a number of guidelines concerning the status of islands, the continental shelf, enclosed seas, and territorial limits. Among the most relevant to the South China Sea are:
1.Article 3, which establishes that "every state has the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles";
2.Articles 55 - 75 define the concept of an Exclusive Economic Zone (EEZ), which is an area up to 200 nautical miles beyond and adjacent to the territorial sea. The EEZ gives coastal states "sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to" (above) "the seabed and of the seabed and its subsoil...".
3.Articles 76 defines the continental shelf of a nation, which "comprises the seabed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles...". This is important because Article 77 allows every nation to exercise "over the continental shelf sovereign rights for the purpose of exploring it and exploiting its natural resources".
4.Article 121, which states that rocks that cannot sustain human habitation or economic life of their own shall have no exclusive economic zone or continental shelf.
The establishment of the EEZ created the potential for overlapping claims in semi-enclosed seas such as the South China Sea. These claims could be extended by any nation which could establish a settlement on the islands in the region. South China Sea claimants have established outposts on the islands (mostly military) in order to conform with Article 121 in pressing their claims. The Law of the Sea Convention states that countries with overlapping claims must resolve them by good faith negotiation. The use of the Joint Development Area principle, followed in the Gulf of Thailand, is one model that has been successfully used by South China Sea claimants.

All of the Spratly Islands claimants have occupied some of the islands, and/or stationed troops and built fortified structures on the reefs. Brunei, which does not claim any of the Spratly Islands, has not occupied any of them, but has declared an Exclusive Economic Zone that includes Louisa Reef.
Military skirmishes have occurred numerous times over the past two decades. The most serious occurred in 1974, when China invaded and captured the Paracel Islands from Vietnam, and in 1988, when the Chinese and Vietnamese navies clashed at Johnson Reef in the Spratly Islands, sinking several Vietnamese boats and killing over 70 sailors.
Indonesia has taken the leading role in diplomatic initiatives and cooperative agreements to resolve South China Sea issues, particularly through the ASEAN (Association of Southeast Asian Nations) forum, which has called for the peaceful arbitration of territorial claims. ASEAN includes all South China Sea nations except for China and Taiwan, and has held a number of working groups with China and Taiwan on related issues that have the potential to foster the cooperation and friendship needed to resolve the more contentious issues in the region. Indonesia hosted the first of these workshops in 1990. These issues have also been discussed at the larger ASEAN Regional Forum (ARF), held in conjunction with the ASEAN Post Ministerial Conference, which draws together 22 countries which are involved in the security of the Asia Pacific region, including all ASEAN members.
ASEAN ministers agreed in 1996 that there should be a regional code of conduct for the South China Sea to permit activities such as scientific research and efforts to combat piracy and drug trafficking without invoking the contentious issue of sovereignty. At the ASEAN Summit in November 1999, ASEAN members put forth a general code of conduct for resolving disputes which had been drafted by the Philippines and Vietnam.
Any such agreements would need to involve non-ASEAN members such as China and Taiwan in order to be comprehensive. China, which is a member of the ARF, has argued in the past that the resolution of territorial disputes should be a bilateral issue. However, other ARF members, such as the United States, have argued that all ARF members had an interest in issues affecting the peace and stability of the region, and that the ARF forum was appropriate for discussing these issues. Views on this issue are varied:
China has begun a dialogue with ASEAN on the idea of a "code of conduct" governing actions by claimants, but progress has been slow. In general, ASEAN members have pushed for specific committments to refrain from additional occupation of reefs or new construction, which China has favored a more vague committment to refrain from actions which would "complicate the situation." In November 2002, China and the 10 members of ASEAN signed a Joint Declaration on the Conduct of the Parties, which pledged to "undertake to resolve their territorial and jurisdictional disputes by peaceful means" without "resorting to the threat or use of force."
Malaysian Foreign Minister Syed Hamid bin Syed Jaafar Albar stated that it was his belief that ASEAN nations had agreed that the territorial disputes were an ASEAN issue, and should not be resolved in other international forums.
Vietnam has held bilateral group mettings with China to resolve disputed boundaries in the Gulf of Tonkin (referred to as the Beibu Wan by China, the Vinh Bac Bo by Vietnam) and the Spratlys, as well as land boundaries. The Gulf of Tonkin dispute was resolved in an agreement concluded in December 2000. Vietnam has wanted to include the dispute over the Paracel Islands in any "code of conduct," but the idea is not supported by other ASEAN members because the Paracels are disputed only between Vietnam and China.
Malaysia and Brunei have held talks in 2003 on their conflicting EEZ claims, but have not yet reached an agreement. There have been incidents in 2003 in which naval vessels from Malaysia and Brunei have acted (without the actual use of force) to prevent exploration vessels from working in the disputed area.