DIRECTORY
ONLINE: analysis // readbook
BULLETIN: about // accolades // current issue // schedule
RESOURCES: archives // collections // headlines


ISSN 2052-3122 (PRINT)
ISSN 2044-3811 (ONLINE)

SPONSORED SECTION

Hurst is an independently owned non-fiction publisher, specialising in books on global affairs, particularly religion, conflict, international relations and area studies in Europe, Africa and South Asia. Its sponsorship of this page makes it possible for Current Intelligence to provide readers with original analysis of current affairs from some of the sharpest minds in journalism, academia, and business.

FROM THE HURST BLOG:

HURST LINKS: website // facebook // twitter // blog

Wednesday
Dec122012

Island Disputes and the "Oil Factor" in the South China Sea

by Clive Schofield

Between a rock and a hard place: Heated “diplomatic” exchanges, protests and counter-protests, the issuing of competitive and overlapping oil concessions, military sabre-rattling and confrontations at sea. All of these have been featured in recent debates over conflicting territorial and maritime claims in the South China Sea – one of the principal potential flashpoints for conflict in the Asia-Pacific region. Clive Schofield provides maritime geographical and legal context to the disputes while teasing out some of the key drivers behind them. He argues that a reason for the apparently extreme nature of some of the claims advanced, notably China’s, is a strong desire on the part of claimants to access the region’s perceived seabed energy resources. Expectations that the South China Sea is likely to offer a silver bullet for regional energy security concerns are misplaced, and further friction appears highly likely.

--

The South China Sea has long been regarded as one of the key potential flashpoints for conflict in the Asia-Pacific, alongside North Korea and Taiwan. Recently tensions have been on the rise and relations between China and the other South China Sea littoral states have become more fraught – characterised not only by diplomatic claim and counter-claim (though frequently framed in less than diplomatic language) but also, more worryingly, by confrontations at sea.

Context, as they say, is everything. This article briefly outlines geopolitical drivers that sustain these complex and seemingly intractable disputes, and seeks to shed light on their international legal dimensions. It suggests that China in particular has been driven to adopt extreme positions in order to secure access to what Beijing tends to regard as its proper share of the resources, especially seabed energy reserves, of the South China Sea. However, such resources may not, in fact, prove to be the kind of panacea for regional energy security concerns that they are sometimes perceived to represent. Nonetheless, if present trends are sustained, further incidents are highly likely. Before proceeding to assessment of those issues, a brief consideration of the disputed South China Sea islands is in order.

 

Dangerous Ground

The South China Sea disputes tend to focus on possession of several groups of islands, sovereignty over which is contested among multiple claimants. Remarkably, for all of the attention devoted to the disputed South China Sea islands over the years, some uncertainty remains over their geographical characteristics.

Looking at a map of the region, the key island groups in the South China Sea are, clockwise from the northwest: the Paracel Islands (disputed between China and Vietnam), the Pratas Islands (administered by Taiwan but, inevitably, claimed by China also), Scarborough Reef (or Shoal) together with Macclesfield Bank (contested between China and the Philippines) and the Spratly Islands group (see Figure 1). The Spratly Islands are claimed in whole or in part by no few than six states or entities (in the case of Taiwan) – Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam. With the exception of Brunei, all of these claimant states occupy and garrison at least one of the disputed features.

Accordingly, the Spratlys Islands represent the primary point of contention among the South China Sea littoral states. The Spratlys group comprises around 150-170 islands, islets, rocks, reefs, shoals and low-tide elevations. That different authors offer different figures regarding precisely how many Spratly Islands there in fact are, is testament to the bewilderingly varied character and types of insular features in question. This complexity has tended to lead to disagreement over which features to count, resulting in different figures. The Spratlys also have different names in multiple languages, including Chinese, English, French, Malay, Filipino and Vietnamese as well as variants within these languages, adding a further problematic dimension to the equation. For convenience this essay refers to the most commonly used English names of local features.

The Spratly Islands are uniformly small, isolated and uninhabited save for garrisons of occupying troops and government personnel. The tiny dimensions of the Spratly Islands is underscored by the fact that the largest, Itu Aba (Taiping Island), occupied by Taiwan,  is a mere 1.4km long and 370m wide, with an area of approximately 50 hectares. Indeed, a review of hydrographic records suggests that as few as 36 of the Spratly “Islands” are actually above water at high tide. Collectively these features have an estimated total area of less than 8km2 (3 sq. miles) scattered over approximately 240,000km2 of the southern South China Sea (Figure 1; map to appear in the Fall 2012 issue of this bulletin).

The Spratly Islands are therefore almost vanishingly small specks of territory, in a broad swath of ocean space semi-enclosed by the surrounding mainland and main island coastlines of the littoral states. Indeed, for most of their history the Spratlys have been known as places to avoid because of the dire threat to the safety of navigation that they pose, rather than as the highly desirable real estate that they have become. This is well illustrated by the fact that on British Admiralty charting, the area now commonly known as the Spratly Islands group has traditionally, and aptly, been labelled “Dangerous Ground”.

All the more remarkable, then, that these seemingly insignificant and intrinsically worthless features are the cause of such angst in regional relations.

 

What's at stake?

As at least some of the Spratly Islands are indeed above water at high tide, they constitute land territory, no matter how small, that can be subject to sovereignty claims on the part of surrounding coastal states. Such territorial claims are notoriously hard to reach compromise on as they instantly engage with a core state interest: safeguarding territorial integrity. Such disputes are readily hijacked by nationalists, leaving extremely limited leeway for dispute resolution – a situation that, arguably, works to the advantage of governments keen to bolster legitimacy and popularity and prepared to do so by appearing firm on territorial and border issues.

The Spratly Islands are located in close proximity to sea lanes which are vital to the generally resource-poor and thus import-dependent major economies of East and Northeast Asia. In particular the South China Sea forms an important part of the sea lane of communication (SLOC) carrying seaborne energy supplies from the Middle East, Africa and Australia. The military significance of the installations on the Spratlys has also been touted in this context. That said, shipping tends to avoid rather than sail through the disputed islands, which remain hazards for navigation. The military worth of small bands of troops garrisoned on the disputed islands is also militarily questionable save perhaps for their role as listening posts.

It is noticeable, however, that many sovereignty disputes over small, sparsely inhabited and far-flung islands, including those of the South China Sea, have only manifested themselves in the post-World War II period, as extended claims to maritime jurisdiction became more prevalent. That such tiny features may have the potential to provide the basis for broad maritime claims offers a seductive additional dimension to the sovereignty disputes over them. This is particularly the case given strong, though not necessarily well-founded, presumptions that the ocean spaces associated with these disputed features contain valuable marine resources, especially seabed energy resources.

Two factors suggest that the ‘oil factor’ in the South China Sea disputes tend to be overplayed. The first of these relates to the international legal status of the disputed islands –and thus their capacity to generate extensive maritime claims or significantly influence the course of future maritime boundaries in the South China Sea. The second concerns the existence (or non-existence) of South China Sea hydrocarbon resources themselves, and their likely impact on the regional energy security picture.

 

When is an Island a Rock?

The islands are often regarded as the key to the South China Sea disputes, not only because the disagreements represent the primary source of contention among the littoral states but also because they are viewed as having the potential to generate extensive claims to maritime jurisdiction and thus offer access to a significant prize in terms of marine resources. Such broad maritime claims would, however, only result if the disputed features were actually capable of generating such extensive maritime claims and, crucially, were awarded full weight in the delimitation of future maritime boundaries in the South China Sea. Both of these propositions are open to question.

All of the South China Sea states with the exception of non-UN member Taiwan are parties to the United Nations Convention on the Law of the Sea (UNCLOS). Article 121 of the Convention articulates the “regime of islands” in international oceans law. In accordance with UNCLOS an island is defined as “a naturally formed area of land, surrounded by water, which is above water at high tide”. In principle the maritime claims made from islands should be determined in the same manner as for “other land territory”. Islands can therefore be used as the basis for advancing claims to a 12 nautical mile broad territorial sea as well as continental shelf and exclusive economic zone (EEZ) rights out to 200 nautical miles.

There is an exception to the rule, however. Article 121, paragraph 3 provides for a disadvantaged sub-category of islands, formally termed “rocks”, that are incapable of supporting human habitation or an economic life of their own. Such features “shall have no exclusive economic zone or continental shelf”. This represents an enormous disadvantage in terms of capacity to generate claims to maritime jurisdiction. Thus, if an island had no maritime neighbours within 400nm, it could generate 125,664 sq.nm [431,014km2] of territorial sea, EEZ and continental shelf rights as compared to the capacity of a “rock” to generate a territorial sea claim of 452 sq. nautical miles (1,550km2).

Great volumes of academic ink have been expended in the quest for clear distinctions between islands, capable of generating continental shelf and EEZ rights, and mere rocks, which cannot. To little avail. Such efforts have proved futile, as Article 121, paragraph 3 was drafted in a deliberately ambiguous manner in order to satisfy competing, indeed diametrically opposed, positions and interests among the drafters of UNCLOS. This provision of the Convention is, as a result, open to radically differing interpretations in order to enable consensus on a particularly controversial issue.

Clearly at least some of the disputed features of the Spratly Islands remain above water at high tide. At first glance many of these would, however, seem to most readily fit the description of rocks. There is, though, no way to be conclusive on this point because Article 121 of UNCLOS lacks an objective test. Some of the claimant states, notably Malaysia and Vietnam, have indicated that they are of the view that the disputed islands should be treated as rocks and therefore generate territorial seas of no more than 12 nautical miles. If all the claimant states were to accept this position, the maritime area in dispute would shrink significantly. It is clear, however, that China does not agree. It has stated in explicit terms that it not only possesses “indisputable” sovereignty over the disputed islands (despite the palpable reality that such disputes do indeed exist), but also that the islands are capable of generating the full suite of maritime zones, including EEZ and continental shelf rights.

Even if at least some of the Spratly Islands are, in fact, capable of generating EEZ and continental shelf claims, there is little reason to anticipate that they would necessarily give rise to jurisdiction over broad maritime spaces on behalf of whichever coastal state is ultimately deemed to hold sovereignty over them. The putative delimitation of maritime boundaries is between small, isolated features among the Spratly Islands, on the one hand, and the long mainland and main island coasts surrounding them, on the other.

There is significant disparity in the length of relevant coasts under such a scenario. It is highly unlikely that the disputed islands would be accorded full effect in the delimitation of a maritime boundary. Indeed, there is a growing trend internationally of small islands, especially those that are remote, sparsely inhabited or completely uninhabited, and which possess restricted coastal fronts, being awarded only limited impact on their respective maritime boundaries. Instead, they have often been awarded only territorial sea rights as though they were indeed mere rocks.

 

Temptations and Illusions: The “oil factor” in the South China Sea

There is a strong, long-standing perception of the South China Sea as a major potential repository of seabed oil and gas resources. It is a view not well supported by evidence. The South China Sea’s reputation as an oil rich region arises in part from a fervent desire on the part of interested parties for this to be the case, and tends to be perpetuated through misinterpretation of oil reporting terminology and a general lack of reliable data.

All of the South China Sea states face increasing energy security concerns. The rapid industrialisation of East and Southeast Asian economies has led to sharp, and ongoing, increases in demand for natural gas and petroleum-derived products. At the same time many of the countries concerned are facing stagnating or declining domestic oil and gas production leading to growing reliance on imported energy resources to meet the gap between supply and demand. Of the six direct parties to the South China Sea islands disputes, China, the Philippines and Taiwan are already strong net importers of oil while Malaysia and Vietnam are on the cusp of becoming net importers. While Brunei Darussalam remains a net exporter of oil, on a global or even regional scale it is not a major player. Enhanced energy security concerns have created a compelling incentive for these states to seek sources of supply ‘close to home’. This has made claimants extremely reluctant to concede any potential source of supply falling within the scope of their  own potential jurisdiction, such as may underlie disputed parts of the South China Sea.

Estimates of the hydrocarbons resource potential of the South China Sea vary wildly. As a direct consequence of the existence of the island disputes and overlapping maritime claims, very little exploration work, such as 3D seismic surveys or exploratory drilling, has been undertaken. As a result, estimates tend to be restricted to geology-based assessment methodologies, and are necessarily highly speculative – something that helps to explain why such estimates vary so much. Geology-based assessments have their limitations, but can offer useful guidance. In particular, they can indicate areas where it is highly unlikely that oil and gas will be found, such as the broad swath of the central South China Sea to the north of the Spratly Islands, which is underlain with oceanic crust. There are key geological ‘play elements’ necessary for the formation of oil reservoirs: the presence of a highly porous and permeable sedimentary reservoir, organic rich source rock, and a low permeability seal or capping rock. While these geological conditions are required for oil to be present, they offer no guarantee that oil will, in fact, be found. There are several areas of the southern South China Sea which are geologically most attractive and apparently prospective. These include the peripheral parts of the South China Sea where sediment thicknesses are generally greater, localised areas of favourably thick tertiary sediments to the East of the Spratly Islands group (e.g. the Reed Tablemount), and some relatively thick sediments distributed over areas to the Southeast and West.

Crucially, estimates also tend to be loosely defined, often as a consequence of poor understandings of proper oil reporting terminology. In particular there is frequently a lack of distinction between estimates of resources versus estimates of reserves. Resource estimates, are estimates of the volume of oil in situ in the ground. Reserve estimates are the proportion of the resource that can be recovered in light of technical feasibility and market price. For example, for a frontier field a reserve estimate may equate to only around 10 per cent of the overall resource estimate. Many estimates also fail to distinguish between the hydrocarbon resource types (conventional oil, unconventional oil, natural gas, gas hydrates) under discussion. All of these factors lead to confusion and tend to inflate the potential significance of South China Sea seabed energy resources.

In this context it is worth noting that the South China Sea is generally considered to be predominantly gas-prone. While the region’s oil resources remain a speculative quantity, East and Southeast Asian states are, in fact, comparatively rich in gas resources.. But there are considerable limitations on the potential for gas to be used as a substitute for oil, and there are significant transportation challenges associated with recovery and movement of gas deposits. In combination these factors undermine the business case for the development of South China Sea hydrocarbons resources. This is especially so for gas resources in light of declining gas prices globally, at least in part as a consequence of the ongoing rise of shale gas. Finally, the considerable time lag between discovery and delivery of “first oil” has to be factored in, This is yet another complicating element that has to be balanced against the realities of seabed energy resources and a political context governed by seemingly intractable multilateral disputes over ownership, and escalating regional energy security concerns. Governments and investors alike should therefore treat with a healthy degree of caution any suggestion that the South China Sea is “oil rich” or that it may even represent “the next Middle East".

 

A Hard Place...

In recent times Chinese maritime surveillance and enforcement agencies have undertaken a number of troubling activities in waters close to the coasts of Indonesia, Malaysia, the Philippines and Vietnam. These have included enforcement activities related to fisheries jurisdiction, as has been done with respect to waters that Indonesia considers part of its EEZ, as well as interventions to disrupt Malaysian, Philippine and Vietnamese oil and gas survey and exploration activities in those states’ respective coastal waters. Further, in June 2012 the China National Offshore Oil Corporation (CNOOC) issued tenders for oil concessions in close proximity to the Vietnamese coastline.

All of these interventions and incidents have taken place in waters closer to the mainlands (or main islands) of the surrounding coastal states than to the disputed South China Sea Islands.

Even the provision of “maximum effect” – the claim to maritime zones based on the construction of a strict, equidistant line between the surrounding mainland coasts and the disputed islands – would be inadequate (and dubious) justification for Chinese enforcement activities. Instead, for all of its repeated assertions that its claims are “clear” and “indisputable”, China’s actions appear to be sustained only by questionable historical claims. The most notable example of this is its infamous nine-dashed line claim, the exact meaning of which has never been officially explained and remains opaque; it is now depicted graphically as a map embedded in Chinese passports, much to the chagrin of neighbouring South China Sea states.

Arguably China has been driven to adopt these positions, the “hard place” alluded to in the opening lines of this article, in order to sustain claims to the more prospective parts of the South China Sea: areas in the vicinity of the islands themselves, and peripheral parts of the Sea in close proximity to the shorelines of other South China Sea states, where substantial depths of sediment (and therefore oil) exist.  China’s increasingly pressing energy security concerns provide a backdrop and strong incentive in this regard. Further drivers underlying China’s position are its long held sense that it has been poorly served by predominantly Western-inspired international law and treaty relations, as well as frustration that despite its own long coastline, China’s maritime claims are constrained and hemmed in by its regional neighbours and their competing claims. In contrast, the other South China Sea claimants fundamentally reject any Chinese claim to what they regard as their rightful offshore, coastal maritime spaces. These states appear intent on exploiting the resources that their adjacent waters may offer, not least because they face their own energy security imperatives. In light of China’s increasing propensity to flex its new-found maritime muscles in precisely these same areas, the scene appears set for further frictions and confrontations in the Sea, especially over access to marine resources.

--

About the author: Clive Schofield is Professor and Director of Research, Australian National Centre for Ocean Resources and Security (ANCORS), University of Wollongong, Australia. E-mail: clives@uow.edu.au. He is the recipient of an Australian Research Council Future Fellowship (FT100100990).

--

About Thesigers: Thesiger & Company (‘Thesigers’) is a London-based research and advisory firm, providing a wide range of services to clients whose interests and activities demand in-depth knowledge of emerging and frontier markets. Current Intelligence is Thesigers’ quarterly bulletin of current affairs.

Company registered in England and Wales. Company registration number: 7234402.

VAT number: 135658985

Email: enquiries@thesigers.com | Web: thesigers.com

© THESIGER & COMPANY LIMITED (‘THESIGERS’) 2010-2012. All rights reserved. No reproduction of this essay is authorized without prior permission of the publisher. Permission to republish in whole or in part will be considered on a case-by-case basis, and may require payment of a licensing fee.