Center for a New American Security

The state-run China National Offshore Oil Corporation (CNOOC) is becoming an increasingly important element in Beijing’s South China Sea energy strategy.

According to The Times of India, CNOOC recently made a $15 billion bid to acquire Canada’s Nexen Inc., a company with deep expertise in offshore drilling that Beijing would like to tap into in order to exploit potential oil and natural gas resources in the South China Sea.

Beijing’s drive to develop advanced offshore drilling capability is seen in many ways as a cornerstone of its strategy to exploit the potential energy reserves beneath the South China Sea. According to some Chinese media reports, an estimated 70 percent of oil and natural gas reserves lie in deep-water reserves, at depths of over 300 meters. To date, however, China’s energy companies have lacked the technical capability to exploit these reserves, often drilling in shallower waters. In particular, CNOOC’s expertise in advanced offshore drilling has fallen behind other privately-held international oil companies that can drill to depths beyond 10,000 meters.

But that could all be changing. In May, CNOOC began operating China’s first-ever deep-water drilling rig that some observers say could prepare China to begin drilling to depths of between 10,000 and 12,000 meters, possibly eclipsing the record set in 2009 by the Deepwater Horizon rig that drilled to 10,683 meters. And CNOOC’s bid for Nexen Inc. may help the state-run company acquire additional technological expertise that it needs to successfully exploit the South China Sea’s deep sea resources.

Note: This post originally appeared on the Choke Points blog at ConsumerEnergyReport.com on July 2, 2012.

Beijing is flexing some more muscle to protect its energy interests in the South China Sea.

Last week, China began combat-ready patrols in the waters around the potentially resource rich Spratly Islands that both China and Vietnam have disputed claims to. And on Friday, China Daily reported that Beijing may develop a military presence in Sansha – a newly incorporated city located on one of the disputed Paracel Islands that was stood up to administer Chinese authority over the country’s South China Sea territories. (The city was established in response to a recent Vietnamese law that claimed sovereignty over the Paracel and Spratly Islands.)

The deployment of combat-ready patrols and discussions of developing forces at Sansha comes on the heels of an announcement from the China National Offshore Oil Company (CNOOC) that it will accept bits from foreign energy companies to explore and develop nine new blocs of the South China Sea that fall within Vietnam’s 200-nautcial mile Exclusive Economic Zone. (See the map here.) It is unlikely, though, that foreign energy companies will cooperate with CNOOC in these disputed blocs given the amount of risk the companies would have to assume in operating there. Regardless, Beijing is putting itself in a better position to protect its energy interests: “the announcement of these blocks reflects another step in China’s effort to strengthen its jurisdiction over these waters,” according to MIT Professor M. Taylor Fravel.

Making a Play for Resources

This recent activity joins a string of other incidents by China to protect its claims to the region’s potential hydrocarbon resources. Estimates of oil and natural gas in the South China Sea vary widely, from U.S. estimates of 28 billion barrels of oil to Chinese estimates of 213 billion barrels of oil. Yet no country knows what really lies beneath the seabed. Officials in Beijing appear to be placing bets that the South China Sea could turn out to be a “second Persian Gulf,” driving up strategic competition over potentially energy rich territory. But for years, efforts to conduct surveys to produce better measurements of the region’s resources have been impeded by Chinese vessels obstructing survey ships and others conducting seismic measurements.

Continue reading at ConsumerEnergyReport.com.  

As we in the United States are struggling with massive heat waves, others are moving to cooler temperatures – including the Chinese.  Last week, the Chinese icebreaker, Xue Long, (“Snow Dragon”) departed on a three month Arctic expedition (its fifth Arctic expedition).  Along the way, the Xue Long will conduct scientific experiments and study the effects of changes in the Arctic ecosystem on climate. The fifth voyage of the Snow Dragon will be its longest and farthest to date and its first attempt through the Northern Sea shipping route. According to the Chinese National Antarctic Research Expedition (CHINARE), scientists will be studying sea ice in and around the Bering, Chukchi and Beaufort Seas, the Bering Strait, Canada Basin, and the Mendeleev Ridge.  After traversing through the Arctic Ocean, Xue Long will sail to Iceland for a research visit which underscores the growing cooperation between Iceland and China. (During Premier Wen Jiabao’s April visit to Iceland, the two countries signed a geothermal energy accord.)

Burma’s Shwe Pipeline project could begin delivering oil and natural gas to China as early as 2013, providing China some relief from its so-called Malacca Dilemma and potentially changing its strategic calculus with respect to energy resources in the South China Sea.

The Strait of Malacca has long posed a strategic vulnerability to China. Up to 80 percent of China’s Persian Gulf and African oil imports pass through this energy chokepoint nestled between Indonesia and Malaysia, fomenting anxiety in Beijing that any obstruction of the strait or neighboring sea lanes could have an immediate impact on the Chinese economy and stability.  “[I]f the Malacca Strait were closed for just one day, the disruption in energy supplies might cause social unrest in China, according to a well-placed officer of the People’s Liberation Army,” wrote Patrick M. Cronin and Robert D. Kaplan in a January 2012 CNAS study on the South China Sea.

China’s Malacca Dilemma has exacerbated fears over assured access to energy resources and could be influencing Beijing’s assertive behavior in the South China Sea. Despite the uncertainty over how much oil and natural gas actually lays beneath the South China Sea, policymakers in Beijing appear to be making a bet that those energy resources could provide some strategic relief from its energy problems elsewhere, particularly the Strait of Malacca. Moreover, China’s vast infrastructure of overland energy pipelines from Central Asia carries strategic risk as well. Those energy resources must cross through vulnerable transit states like Pakistan and are delivered to western China, where Beijing’s influence waxes and wanes.

From The Hill’s Energy and Environment blog @E2Wire: “Obama administration hits Chinese wind energy tower exports with new tariffs bit.ly/M8RPxh.”

The Hill’s Energy and Environment blog reports that the Department of Commerce has made a decision to impose new tariffs on imports of Chinese wind energy towers. The report comes at a time when the United States is stepping up pressure on China’s unfair trading practices, especially government subsidies for green technologies, such as solar panels.

From Samuel Avro, editor of Consumer Energy Report @ConEnergyReport: “Cheap #NaturalGas Prompts #EnergyDepartment to Soften Its Line on Fuel Cells bit.ly/LIKLVF.”

Samuel Avro of Consumer Energy Report links to a report in The New York Times’ Wheels blog that says the abundance of cheap natural gas – largely as a result of shale rock exploitation – could make hydrogen fuel-cell vehicles more affordable. However, infrastructure challenges remain a significant hurdle to scaling up the technology, according to the report.

Reuters Iran bureau @ReutersIran: “Iran talks with world powers hit snag over sanctions reut.rs/Jt8ztA.”

Reuters reports on the international negotiations in Baghdad between Western and Iranian officials over Iran’s nuclear program. According to the report, negotiations appeared to be hindered by Western sanctions against Iranian oil exports. “Iran had served notice that it wanted immediate relief from economic sanctions as part of any deal to stop higher-grade uranium enrichment, a pathway to nuclear arms, whereas Western powers insisted Tehran must first shut it down,” the report says.

Sara Sorcher of the National Journal @SaraSorcherNJ: “Law of the Sea Treaty (#LOST) likely subject of another lame-duck fight: nationaljournal.com/member/congres…”

The National Journal reports on Wednesday’s Senate Foreign Relations Committee hearing on the national security case for ratifying the Law of the Sea Convention. Senator John Kerry, chairman of the Senate Foreign Relations Committee, said that he would hold off on a vote until after the November elections, suggesting that Congress could have a heated debate on the treaty during the lame-duck session. 

Andrew North of the BBC @NorthAndrew: “Another step towards trans-Afghan pipeline, India+Pakistan to sign gas deal w/Turkmenistan online.wsj.com/article/SB1000…”

The Wall Street Journal reports that on Wednesday Turkmenistan agreed to supply natural gas to both Pakistan and India, a necessary step toward realizing the trans-Afghan pipeline that has been twenty years in the making. Instability in Afghanistan and billions of dollars in investments are the two major roadblocks facing pipeline construction through Afghanistan.

The Philippines announced on Sunday (Monday in Manila) that it will ignore China’s fishing ban near the disputed Scarborough Shoal that is set to begin on May 16 and run through August 1. “DFA [Department of Foreign Affairs] Secretary Albert del Rosario explained the Philippines will not follow the ban because it has sovereign rights over a portion of the waters where China plans to impose the ban,” according to ABS-CBSNews.com. “However, del Rosario said the Philippines may also impose a similar ban given the depletion of marine resources in its territorial waters.”

China’s announced fishing ban comes as Filipino and Chinese vessels remain in a standoff near the Scarborough Shoal, approximately 120-natutical miles off the Philippine island Luzon. “The stand-off erupted last month after Philippine authorities detected Chinese ships fishing near the Scarborough Shoal,” the Bangkok Post reported. “The two nations have stationed non-military vessels at the shoal since April 8 in an effort to assert their sovereignty over the area.” The standoff has elicited emotional protests in Manila as well as in Beijing.  

Although the Philippines announced it would not abide by China’s fishing ban, Manila expressed a desire to find a peaceful resolution to the ongoing dispute, according to reports. “Despite the pronouncement of resistance against the ban, DFA spokesperson Raul Fernandez said the Philippines is still willing to hold diplomatic talks with the Chinese government to settle the dispute, which has been running for over a month.” Moreover, according to one expert writing in the Asia Times Online, “Even as the rhetoric escalates, moves are being made for economic integration and mutual-benefit.”

Nevertheless, U.S. policymakers charged with managing tensions in the region will remain watchful of developments as they unfold. The recent spat between China and the Philippines also comes on the heels of China’s announcement last week of a technological breakthrough in deep-sea drilling, which may help put China in a position to exploit deep-sea hydrocarbons in contested areas of the South China Sea.

Defense News @Defense_news: “DoD Officials Urge U.S. to Join Sea Treaty bit.ly/LhUsZr.”

Defense News reports on a forum on the Law of the Sea Convention hosted by the Pew Charitable Trusts and the Atlantic Council that featured keynote addresses by Secretary of Defense Leon Panetta and General Martine Dempsey, the Chairman of the Joint Chiefs of Staff, who both urged the U.S. Senate to ratify the Law of the Sea Convention in order to safeguard American interests and U.S. Armed Forces.

MIT Professor M. Taylor Fravel @fravel: “Chinese boats barring Pinoys from fishing in shoal | Philippine Starj.mp/J0qbyu.”

Dr. Fravel links to a story in the Philippine Star that reports that Chinese maritime vessels have imposed fishing restrictions on Filipino fisherman in an area approximately 120-nautical miles off the coast of the Philippine island Luzon, an area that would be considered within the Philippines’ 200-nautical mile Exclusive Economic Zone.

On Monday, Chinese media reported that China’s first deep-water drilling rig (developed domestically by the state-run China National Offshore Oil Corporation) will begin operations today in the South China Sea.

To date, China’s offshore oil drilling activities have been restricted to shallow waters (less than 300 meters deep) largely due to the country’s lack of technological capability to drill in deep- and ultra-deep waters. According to one report, China State Shipbuilding Corporation – the company that developed the new rig – says that China will now be able to drill to depths of between 10,000 and 12,000 meters, possibly eclipsing the record set in 2009 by the Deepwater Horizon rig that could drill to 10,683 meters.

The technological milestone is an important development in the South China Sea dispute, where competition over potentially lucrative deep-water oil and natural gas reserves has raised tensions among countries with overlapping claims in the region. China, for example, claims the entire South China Sea as its own. The deep- and ultra-deep water drilling capability will unlock reserves in deep waters, according to reports. Chinese media reports that “About 70 percent of oil and gas reserves in the resource-rich South China Sea is [sic] contained in 1.54 million square km of deep-water regions, or sea areas with depths of over 300 meters.”

This is a new feature to highlight the top tweets of the week to hit my Twitter feed (@wmrogers).

From The Hill’s Energy and Environment Blog @E2Wire: “News bites: White House to promote ‘bioeconomy’ bit.ly/JXftuf.”

The Hill’s Energy and Environment Blog discusses the White House’s announced release of a new National Bioeconomy Blueprint on Thursday that is expected to make a broad push for investments in biotechnology, including renewable biofuels.

From Circle of Blue @circleofblue: “Soon, water may be more important that oil to #China @Forbessu.pr/1mAIOg #water

Circle of Blue links to a report in Forbes that discusses the growing strategic importance of water in China, driven in part by increasing demand as well as mismanagement of existing resources. According to the report, “The country’s water supply is smaller than that of the U.S., yet it must meet the needs of a population nearly five times as large. Industrialization has taken its toll on this already limited resource. Industrial and biological pollution has contaminated almost 90 percent of the underground water in Chinese cities.”