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United States
Energy Information Administration

TERRITORIAL ISSUES        REGIONAL CONFLICT       OIL      NATURAL GAS      SHIPPING       TABLES      MAPS

August 1998

South China Sea Region

The South China Sea region is the world's second busiest international sea lane. More than half of the world's supertanker traffic passes through the region's waters. In addition, the South China Sea region contains oil and gas resources strategically located near large energy-consuming countries.

The South China Sea encompasses a portion of the Pacific Ocean stretching roughly from Singapore and the Strait of Malacca in the southwest, to the Strait of Taiwan (between Taiwan and China) in the northeast (see the footnote for a more precise definition). The area includes more than 200 small islands, rocks, and reefs, with the majority located in the Paracel and Spratly Island chains. Many of these islands are partially submerged islets, rocks, and reefs that are little more than shipping hazards not suitable for habitation; the total land area of the Spratly Islands is less than 3 square miles. The islands are important, however, for strategic and political reasons, because ownership claims to them are used to bolster claims to the surrounding sea and its resources.

The South China Sea is rich in natural resources such as oil and natural gas. These resources have garnered attention throughout the Asia-Pacific region. Until recently, East Asia's economic growth rates had been among the highest in the world, and despite the current economic crisis, economic growth prospects in the long-term remain among the best in the world. This economic growth will be accompanied by an increasing demand for energy. Over the next 20 years, oil consumption among developing Asian countries is expected to rise by 4% annually on average, with about half of this increase coming from China. If this growth rate is maintained, oil demand for these nations will reach 25 million barrels per day - more than double current consumption levels -- by 2020.

Almost of all of this additional Asian oil demand, as well as Japan's oil needs, will need to be imported from the Middle East and Africa, and to pass through the strategic Strait of Malacca into the South China Sea (Figure 1). Countries in the Asia-Pacific region depend on seaborne trade to fuel their economic growth, and this has led to the sea's transformation into one of the world's busiest shipping lanes. Over half of the world's merchant fleet (by tonnage) sails through the South China Sea every year. The economic potential and geopolitical importance of the South China Sea region has resulted in jockeying between the surrounding nations to claim this sea and its resources for themselves.

SOUTH CHINA SEA TERRITORIAL ISSUES
Competing territorial claims over the South China Sea and its resources are numerous, with the most contentious revolving around the Spratly Islands and Paracel Islands (Table 1). However, ownership of virtually all of the South China Sea is contested (Figure 2). The disputed areas often involve oil and gas resources:

  • Indonesia's ownership of the gas-rich Natuna Island group was undisputed until China released an official map indicating that the Natunas were in Chinese-claimed waters.
  • The Philippines' Malampaya and Camago natural gas and condensate fields are in Chinese-claimed waters.
  • Many of Malaysia's natural gas fields located offshore Sarawak also fall under the Chinese claim.
  • Vietnam and China have overlapping claims to undeveloped blocks off the Vietnamese coast. A block referred to by the Chinese as Wan' Bei-21 (WAB-21) west of the Spratly Islands is claimed by the Vietnamese in their blocks 133, 134, and 135. In addition, Vietnam's Dai Hung (Big Bear) oil field is at the boundary of waters claimed by the Chinese.
  • Maritime boundaries in the gas-rich Gulf of Thailand portion of the South China Sea have not been clearly defined. Several companies have been signed exploration agreements but have been unable to drill in a disputed zone between Cambodia and Thailand.

Most of these claims are historical, but they are also based upon internationally accepted principles extending territorial claims offshore onto a country's continental shelf, as well as the 1982 United Nations Convention on the Law of the Sea.

UN 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. Three of 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. 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 clashed as they tried to establish outposts on the islands (mostly military) in order to be in conformity with Article 121 in pressing their claims.

REGIONAL CONFLICT
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.

Military skirmishes have occurred numerous times in the past two decades (Tables 2 and 3). The most serious occurred in 1976, when China invaded and captured the Paracel Islands from Vietnam, and in 1988, when Chinese and Vietnamese navies clashed at Johnson Reef in the Spratly Islands, sinking several Vietnamese boats and killing over 70 sailors.

OIL
The focus of most attention regarding the South China Sea resources has been on hydrocarbons in general, and 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 7.5 billion barrels (Table 4), and oil production in the region is currently over 1.3 million barrels per day (see Table 5 for comparison to other offshore oil and gas regions). Malaysian production accounts for about one-half of the region's total. Total South China Sea production has increased gradually over the past few years, primarily as additional production from China, Malaysia and Vietnam came online. Statoil's Lufeng Field in China (southeast of Hong Kong) came onstream in 1997, and oil was discovered in 1997 in Vietnam's Block 46 (southwest of Vietnam).

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 world's largest future energy consuming countries. Such speculation has given the Spratly Islands with great strategic value, and has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the speculation 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.

Optimistic Chinese estimates of the South China Sea region's oil potential, however, have helped encourage interest in the area. The most optimistic estimate suggests that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and 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 Sea is that perhaps 10% of the potential resources can be economically recovered. Even using this rule, Chinese estimates imply potential production levels for the Spratly Islands of 1.9 million barrels/day.

China's optimistic view of the South China Sea's hydrocarbon potential is not shared by most non-Chinese analysts. A 1993/1994 estimate by the U.S. Geological Survey (USGS), 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. The most optimistic western estimates place total oil resources (not proved reserves) in the Spratly Islands at 1-2 billion barrels. If all of this were proven to be economically recoverable, this hypothetically could yield a peak oil production level for the Spratly Islands of 180,000 - 370,000 barrels per day - the same order of magnitude as current production levels in Brunei or Vietnam. However, the rule-of-thumb for frontier areas suggests that the total could be significantly less.

 

NATURAL GAS
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 USGS and others indicate that about 60% -70% of the region's hydrocarbon resources are gas. Meanwhile, natural gas usage in the region is projected to grow by 5% per year over the next two decades, faster than any other fuel, reaching as much as 20 trillion cubic feet (Tcf) per year. 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 had been increasing until the ongoing East Asian economic crisis. Much of this new activity had occurred in the Gulf of Thailand in waters claimed by Cambodia, where five companies signed conditional exploration agreements, and in Thailand. In addition, China had accelerated development of its offshore fields such as Yacheng, Indonesia had discovered the giant Natuna gas field, the Malaysian Lawit field had come onstream in June 1997, and Vietnam had made a series of discoveries in the Nam Con Son basin southeast of Vietnam that were expected to significantly increase its reserves.

As with oil, estimates of the South China Sea's 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% of these hydrocarbons are gas, 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 Tcf annually.

Another Chinese report estimates that the entire South China Sea contains more than 2,000 Tcf of natural gas resources. By contrast, the most optimistic non-Chinese report has estimated total gas resources in the Spratly Islands at 24 Tcf. If all of this were proven to be economically recoverable, this hypothetically could yield a peak natural gas production level for the Spratly Islands of 0.5 Tcf annually - the same order of magnitude as current production levels in Thailand. As was the case with oil, the rule-of-thumb for frontier areas suggests that the total could be significantly less. The USGS has placed the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 266 Tcf.

SHIPPING
More than half of the world's annual merchant fleet tonnage passes through the Straits of Malacca, Sunda, and Lombok, with the majority continuing on into the South China Sea (Figure 1). Tanker traffic through the Strait of Malacca leading into the South China Sea is more than three times greater than Suez Canal traffic, and well over five times more than the Panama Canal. Virtually all shipping that passes through the Malacca and Sunda Straits must pass near the Spratly Islands. The large volume of shipping in the South China Sea/Strait of Malacca littoral has created opportunities for attacks on merchant shipping; in 1995, almost half of the world's reported cases of piracy occurred in this area.

Shipping (by tonnage) in the South China Sea is dominated by raw materials en route to East Asian countries. Tonnage via Malacca and the Spratly Islands is dominated by liquid bulk such as crude oil and liquefied natural gas (LNG), with dry bulk (mostly coal and iron ore) in second place. Nearly two-thirds of the tonnage passing through the Strait of Malacca, and half of the volume passing the Spratly Islands, is crude oil from the Persian Gulf. Oil flows through the Strait of Malacca rose to 8.2 million barrels/day in 1996, and rising Asian oil demand could result in a doubling of these flows over the next two decades.

LNG shipments through the South China Sea constitute two-thirds of the world's overall LNG trade. Japan is the recipient of the bulk of these shipments; in 1996 Japan was dependent upon LNG for over 11% of its total energy supplies. South Korea (over 7% of energy consumption) and Taiwan (over 4% of energy consumption) also import large amounts of LNG via the South China Sea.

The other major shipping lane in the region uses the Lombok and Makassar Straits, and continues into the Philippine Sea. Except for north-south traffic from Australia, it is not used as extensively as the Strait of Malacca and the South China Sea, since for most voyages it represents a longer voyage by several hundred miles.

 

Table 1

Territorial claims in the Spratly and Paracel Islands

 

Country

Claim

Brunei

Does not claim any of the islands, but claims part of the South China Seas nearest to it as part of its continental shelf and Exclusive Economic Zone (EEZ). In 1984, Brunei declared an EEZ that includes Louisa Reef.

China

Refers to the Spratly Islands as the Nansha islands, and claims all of the islands and most of the South China Sea for historical reasons. These claims are not marked by coordinates or otherwise clearly defined.

Chinese claims are based on a number of historical events, including the naval expeditions to the Spratly Islands by the Han Dynasty in 110 AD and the Ming Dynasty from 1403-1433 AD. Chinese fishermen and merchants have worked the region over time, and China is using archaeological evidence to bolster its claims of sovereignty.

In the 19th and early 20th century, China asserted claims to the Spratly and Paracel islands. During World War II, the islands were claimed by the Japanese. In 1947, China produced a map with 9 undefined dotted lines, and claimed all of the islands within those lines. A 1992 Chinese law restated its claims in the region.

China has occupied some of those islands. In 1976, China enforced its claim upon the Paracel Islands by seizing them from Vietnam. China refers to the Paracel Islands as the Xisha Islands, and includes them as part of its Hainan Island province.

Indonesia

Not a claimant to any of the Spratly Islands. However, Chinese and Taiwanese claims in the South China Sea extend into Indonesia's EEZ and continental shelf, including Indonesia's Natuna gas field.

Malaysia

Claims are based upon the continental shelf principle, and have clearly defined coordinates. Malaysia has occupied three islands that it considers to be within its continental shelf. Malaysia has tried to build up one atoll by bringing soil from the mainland and has built a hotel.

Philippines

Its Spratly claims have clearly defined coordinates, based both upon the proximity principle as well as on the explorations of a Philippine explorer in 1956. In 1971, the Philippines officially claimed 8 islands that it refers to as the Kalayaan, partly on the basis of this exploration, arguing that the islands: 1) were not part of the Spratly Islands; and 2) had not belonged to anybody and were open to being claimed. In 1972, they were designated as part of Palawan Province.

Taiwan

Taiwan's claims are similar to those of China, and are based upon the same principles. As with China, Taiwan's claims are also not clearly defined.

Vietnam

Vietnamese claims are based on history and the continental shelf principle. Vietnam claims the entire Spratly Islands as an offshore district of the province of Khanh Hoa. Vietnamese claims also cover an extensive area of the South China Sea, although they are not clearly defined. The Vietnamese have followed the Chinese example of using archaeological evidence to bolster sovereignty claims. In the 1930's, France claimed the Spratly and Paracel Islands on behalf of its then-colony Vietnam.

Vietnam has occupied a number of the Spratly Islands. In addition, Vietnam claims the Paracel Islands, although they were seized by the Chinese in 1974.

 

EEZ = Exclusive Economic Zone

* The South China Sea is defined by the International Hydrographic Bureau as the body of water stretching in a Southwest to Northeast direction, whose southern border is 3 degrees South latitude between South Sumatra and Kalimantan (Karimata Straits), and whose northern border is the Strait of Taiwan from the northern tip of Taiwan to the Fukien coast of China.

 

Table 2

Military Clashes in the South China Sea over the Past Two Decades

 

Date

Countries

Military Action

1976

China, Vietnam

Chinese seize Paracel Islands from Vietnam

1988

China, Vietnam

Chinese and Vietnamese navies clash at Johnson Reef in the Spratly Islands. Several Vietnamese boats are sunk and over 70 sailors killed.

1992

China, Vietnam

Vietnam accuses China of drilling for oil in Vietnamese waters in the Gulf of Tonkin, and accuses China of landing troops on Da Luc Reef. China seizes almost 20 Vietnamese cargo ships transporting goods from Hong Kong from June - September.

1994

China, Vietnam

China and Vietnam have naval confrontations within Vietnam's internationally recognized territorial waters over oil exploration blocks 133, 134, and 135. Chinese claim area as part of their Wan' Bei-21 (WAB-21) block.

1995

China, Philippines

China occupies Philippine-claimed Mischief Reef. Philippine military evicts the Chinese in March and destroys Chinese markers.

1995

Taiwan, Vietnam

Taiwanese artillery fire on Vietnamese supply ship.

1996

China, Philippines

In January, three Chinese vessels engage in a 90-minute gun battle with a Philippine navy gunboat near Campones Island.

1997

China, Philippines

The Philippine navy orders a Chinese speedboat and two fishing boats to leave Scarborough Shoal in April; Philippine fishermen remove Chinese markers and raise their flag. China sends three warships to survey Philippine-occupied Panata and Kota Islands

1998

China, Philippines

In January, the Philippine navy arrests Chinese fishermen off Scarborough Shoal.

1998

Philippines, Vietnam

In January, Vietnamese soldiers fire on a Philippine fishing boat near Tennent (Pigeon) Reef.

 

 Table 3

Disputes over Drilling and Exploration in the South China Sea

 

Date

Countries

Disputes

1992

China, Vietnam

China signs a contract with U.S. firm Crestone in May to explore for oil near the Spratly Islands in an area that Vietnam says is located on its continental shelf, over 600 miles south of China's Hainan Island. In September, Vietnam accuses China of drilling for oil in Vietnamese waters in the Gulf of Tonkin.

1994

China, Vietnam

Crestone joins with a Chinese partner to explore China's Wan' Bei-21 (WAB-21 block. Vietnam protests that the exploration is in Vietnamese waters in their blocks 133, 134, and 135.

1996

China, Vietnam

Vietnam leases exploration blocks to U.S. firm Conoco in April. Vietnamese blocks 133 and 134 cover half the zone leased to Crestone by China. In May, China reaffirms a national law claiming the South China Sea as its own.

1997

China, Vietnam

Vietnamese protest after Chinese Kantan-3 oil rig drills near Spratly Islands in March. The drilling occurrs offshore Da Nang, in an area Vietnam calls Block 113. The block is located 64 nautical miles off Chan May cape in Vietnam, and 71 nautical miles off China's Hainan Island.

 

Table 4. Oil and Gas in the South China Sea Region

 

 

Proven Oil Reserves (Billion Barrels)

Proven Gas Reserves (Trillion Cubic Feet)

Oil Production (Barrels/Day)

Gas Production (Billion Cubic Feet)

Brunei

1.35

14.1

145,000

340

Cambodia

0

0

0

0

China*

1 (est.)

3.5

290,000

141

Indonesia*

0.2

29.7

46,000

0

Malaysia

3.9

79.8

645,000

1,300

Philippines

0.2

2.7

<1,000

0

Singapore

0

0

0

0

Taiwan

<0.01

2.7

<1,000

30

Thailand

0.3

7.0

59,000

482

Vietnam

0.6

6.0

180,000

30

Total

7.5 (est.)

145.5

1,367,000

2323

 

 

*Only the regions near the South China Sea are included
Proved reserves as of 1/1/98; 1997 production (except Indonesia, where data is as of 1996)
Note: There are no proved reserves for the Spratly and Paracel Islands

Table 5. Oil and Gas in the South China Sea - Comparison with other Regions

 

 

Proven Oil Reserves (Billion Barrels)

Proven Gas Reserves (Trillion Cubic Feet)

Oil Production (Barrels/Day)

Gas Production (Billion Cubic Feet)

Caspian Sea Region

15.4-29.0

236- 337

1,000,000

2846

Gulf of Mexico (U.S.)

2.7

29.4

1,014,000

5100

North Sea Region

16.8

156.6

6,200,000

7981

Persian Gulf

674.5

1718

19,226,000

5887

South China Sea

7.5

145.5

1,367,000

2323

West Africa/Gulf of Guinea *

21.5

126.3

3,137,000

200 (est.)

 

 

*Region stretching from Côte d'Ivoire (Ivory Coast) to Angola
Proved reserves as of 1/1/98; 1997 production (Gulf of Mexico reserves 1/1/97; production 1996)

 

 

 

 

Figure 1. Supertanker Movements


Source: Center for Naval Analyses and the Institute for National Strategic Studies

 

Figure 2. Competing Claims in the South China Sea Region


 

For more information on energy security issues or the South China Sea region, see these other sources on the EIA web site:
Country Analysis Briefs - East Asia and South Asia
World Oil Transit Chokepoints
EIA - Energy Supply Security - The latest information on events that could affect energy security
 

Links to other U.S. government sites:
 - Asia-Pacific Economic Update
The South China Sea
- Piracy and Attacks on Merchant Shipping in FY 1995
 - Paracel Islands
 - Spratly Islands

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.
The Association of Southeast Asian Nations (ASEAN)
ASEAN Regional Forum (ARF) - from the Australian Ministry of Foreign Affairs and Trade
Center for Strategic and International Studies (CSIS) - Security Implications of Conflict in the South China Sea