Oil Reserves in South China Sea
The focus of most attention regarding the South China Seas resources has been on hydrocarbons in general, and on oil in particular. Oil deposits have been found in most of the littoral (adjacent) countries of the South China Sea. The South China Sea region has proven oil reserves estimated at about 7.0 billion barrels, and estimated oil production of around 2.5 million barrels per day. Malaysian production accounts for almost one-half of the regions total. South China Sea production has increased gradually over the past few years, primarily as additional production from China, Malaysia and Vietnam has come online.
The fact that surrounding areas are rich in oil deposits has led to speculation that the Spratly Islands could be an untapped oil-bearing province located near some of the worlds largest future energy consuming countries. Speculation that the Spratly Islands could have great strategic value has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the view that the region contains extensive oil resources. Because of a lack of exploratory drilling, there are no proven oil reserve estimates for the Spratly or Paracel Islands, and no commercial oil or gas has been discovered there.
Resource estimates for the South China Sea region that have been reported in the Chinese press or attributed to Chinese officials vary greatly. Optimistic Chinese estimates of the South China Sea regions oil potential, however, have helped encourage interest in the area, with one report suggesting that the Spratly Islands region could become another Persian Gulf. One of the more moderate Chinese estimates suggested that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and another suggested that the total for the South China Sea could be as high as 213 billion barrels. A common rule-of-thumb for such frontier areas as the Spratly Islands is that perhaps 10 percent of the potential resources can be economically recovered. Using this rule, these Chinese estimates imply potential production levels for the Spratly Islands of 1.4-1.9 million barrels per day (at reserve/production ratios of 15 and 20). The highest Chinese reserves estimate implies production levels that are twice as high as this.
Chinas optimistic view of the South China Seas hydrocarbon potential is not shared by most non-Chinese analysts. A 1993/1994 estimate by the U.S. Geological Survey, for example, estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels. Using the same rule-of-thumb, these reserves could yield a peak oil production level for the Spratly Islands of 137,000-183,000 barrels per day, the same order of magnitude as current production levels in Brunei or Vietnam.
Natural Gas Reserves in South China Sea
Though sometimes overlooked, natural gas might be the most abundant hydrocarbon resource in the South China Sea. Most of the hydrocarbon fields explored in the South China Sea regions of Brunei, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines contain natural gas, not oil. Estimates by the U.S. Geological Survey and others indicate that about 60 to 70 percent of the regions hydrocarbon resources are natural gas.
At the same time, natural gas usage among developing Asian countries is expected to rise by about 4.5 percent annually on average through 2025 -- faster than any other fuel -- with almost half of this increase coming from China. If this growth rate is maintained, demand will exceed 21 trillion cubic feet (Tcf) per year - nearly triple current consumption levels -- by 2025. Natural gas consumption could increase even faster if additional infrastructure is built. Proposals have been made to link the gas producing and consuming regions of the Pacific Rim region of Asia by pipeline, with the South China Sea geographically central to these regions.
Malaysia is not only the biggest oil producer in the region, it is also the dominant natural gas producer as well, and until recently has been the primary source of growth in regional gas production. The development of natural gas resources outside of Malaysia has been hampered by the lack of infrastructure. Despite this constraint, natural gas exploration activity elsewhere in the region has been increasing. Much of this new activity had occurred in the Gulf of Thailand, offshore China, in Indonesia around the Natuna Islands, and in Vietnam in the Nam Con Son basin southeast of Vietnam.
As with oil, estimates of the South China Seas natural gas resources vary widely. One Chinese report estimates that there are 225 billion barrels oil equivalent of hydrocarbons in the Spratly Islands alone. If 70 percent of these hydrocarbons are gas as some studies suggest, total gas resources (as opposed to proved reserves) would be almost 900 Tcf. If the rule of thumb for frontier areas were applied to these resource levels, the Chinese estimates would imply potential production levels for the Spratly Islands of almost 1.8-2.2 Tcf annually (at common natural gas reserve/production ratios in the region of 40-50). The entire South China Sea has been estimated by the Chinese to contain more than 2,000 Tcf of natural gas resources. As with oil, Chinas optimistic view of the South China Seas natural gas potential is not shared by most non-Chinese analysts.
The bulk of the worlds LNG trade passes through the South China Sea, and LNG shipments through the Sea to Northeast Asian Markets constituted well over half of the worlds LNG trade in 2001. Japan is by far the worlds largest consumer of LNG, with shipments to South Korea (the worlds second largest consumer of LNG) and Taiwan (the worlds fifth largest consumer of LNG) accounting for most of the remaining shipments through the Sea.