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.

From food production to electricity generation, the recent spate of extreme weather is taking a toll on U.S. infrastructure, affecting communities on the home front and countries abroad.

The United States is in the midst of the worst drought since 1956, according to the National Climatic Data Center. According to the center, 55 percent of the United States is experiencing some form of moderate to extreme drought, which is expected to continue for much of the year and is already affecting corn, soybean and other agricultural harvests. On Wednesday, the U.S. Department of Agriculture reported that U.S. consumers could expect to pay 3 to 4 percent more for groceries next year as a result of agricultural decline.

The U.S. agricultural forecast could be particularly damming for global food prices and countries that rely heavily on agricultural imports. America is still considered the world’s breadbasket, and agricultural decline in the United States may lead to price spikes in countries abroad, particularly in developing countries that rely increasingly on agricultural imports, according to the UN’s Food and Agriculture Organization. This could worsen food trends (e.g. famine and malnutrition) in these countries as families are forced to spend a higher percentage of their income on groceries, and may, in some places, exacerbate existing social grievances and provoke violence.

On Wednesday, the U.S. Navy began a demonstration of the “Great Green Fleet,” with three warships and 71 aircraft running on a 50-50 blend of biofuel and conventional petroleum fuel. According to a Reuters report, 90 percent of the biofuel used in the demonstration was refined from cooking oil waste, while the remaining 10 percent was synthesized from algae.

The Navy purchased 450,000 gallons of biofuel last year – the largest purchase to date – to use for the demonstration, at a cost to the Navy of about $26 a gallon (down from $424 gallon for a 20,055 gallon purchase in 2009). When mixed with conventional petroleum for the 50-50 blend, the combined cost to the Navy is approximately $15 a gallon, according to U.S. Navy officials.  

The 2012 demonstration is a milestone of the Navy’s broader goal to deploy a “Great Green Fleet” in 2016, a taskforce that will be made up of nuclear-powered vessels, hybrid electric ships and aircraft run on a 50-50 blend of biofuel and petroleum-based fuel.

Photo: The Military Sealift Command fleet replenishment oiler USNS Henry J. Kaiser delivers a 50-50 blend of fuel to the guided-missile cruiser USS Princeton during the "Great Green Fleet" demonstration portion of the international exercise, Rim of the Pacific 2012. Courtesy of Chief Mass Communication Specialist Sam Shavers and the U.S. Navy.

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.  

There is a good debate underway at the National Journal’s Energy Experts blog this week on economic sanctions against Iranian oil. In particular, there’s an ongoing discussion about the Obama administration’s recent sanctions exemptions to China, Singapore and others and what message it sends to the regime in Tehran and the rest of the world. Tune into the full debate here.

Here’s my take on the issue: “The Art of Sanctions”

Applying economic sanctions to coerce Iran to suspend its nuclear program requires a delicate balancing act. On the one hand, the United States needs to apply enough pressure to compel Iran to come back to the negotiating table (as it has done). On the other hand, the United States needs to avoid applying too much pressure, which might convince officials in Tehran to do something drastic out of the belief that it is the least bad option, like attempt to close the Strait of Hormuz to energy exports from other Persian Gulf petroleum producers.

Granting waivers to China, Singapore and others so that these countries can keep purchasing Iranian oil helps strike this balance. As the pressure on Iran ramps up with the European Union’s sanctions going into full force yesterday, Tehran’s ability to continue to export petroleum to some consumers helps keep Iranian officials from perceiving themselves to be locked in a losing status quo, which could be dangerously counterproductive. Generally speaking, states that frame the status quo as a losing one are more prone to belligerent actions in the hope that they can renegotiate the status quo in their favor.

Continue reading here.

This morning, the Senate Foreign Relations Committee will hold its third hearing on the Law of the Sea Convention that will focus exclusively on the economic benefits of ratifying the treaty. The hearing will include testimony from business representatives from the U.S. Chamber of Commerce, the American Petroleum Institute, the National Association of Manufacturers and Verizon Communications. (Watch the hearing live here beginning at 9 AM).

Although the hearing will focus mostly on the economic benefits of ratifying the treaty, including securing rights to offshore energy and mineral resources, it is important to remember that securing rights to these resources has attendant benefits for U.S. national security as well. Increased production of domestic energy resources bolsters U.S. assured access to energy, which helps reduce the vulnerability from energy choke points in the Middle East and elsewhere. Meanwhile, ratifying the convention and putting U.S. companies in a position to secure recognized claims to offshore mineral resources such as rare earth metals that are used in a variety of high-tech applications, including defense platforms, helps reduce the U.S. vulnerability to relying heavily on Chinese exports of rare earths. (China produces 95 percent of the global supply of rare earths but only has 50 percent of the global reserves.)

On a related note, the American Security Project has published a short primer on the Law of the Sea that separates fact from fiction. (Check it out here.) And the Department of Defense has launched a new webpage on the Law of the Sea Convention akin to the State Department’s website. The DOD page includes speeches and testimony from the Secretary of Defense and senior military officials on the national security benefits of ratifying the Law of the Sea Convention. 

Some have suggested recently that renewed Iraqi crude oil production could be a boon to the country’s future, but a closer look shows that oil alone will not rejuvenate the Persian Gulf state.

Iraq has returned to oil production levels it has not experienced since the 1980s, producing 3 million barrels per day in 2012, up from 2 million barrels per day in 2006. Moreover, Baghdad announced a goal of expanding production by 400,000 barrels of oil per day by 2013 and eventually increasing production to a whopping 10 million barrels per day by 2017.  (By comparison, the top three producers, Russia, Saudi Arabia and the United States each produce 9.7, 8.9 and 5.5 million barrels of oil per day, respectively.)  This all sounds positive at face value, but the situation in Iraq is more complicated than observers let on, and the country faces four looming challenges that illustrate why oil may not be its saving grace.

This post originally appeared on the Choke Points blog at ConsumerEnergyReport.com.

America’s relationship with Middle East energy resources is changing. Technological breakthroughs in hydraulic fracturing (or “fracking”), renewed drilling in ultra-deep waters in the Gulf of Mexico and, soon, drilling in the Arctic Circle are re-energizing U.S. domestic petroleum production and shrinking the demand for foreign petroleum imports. Meanwhile, oil and natural gas production in the Americas — from Canada in the North, to Brazil and Colombia in the South — are beginning to displace U.S. reliance on Middle East oil. These emerging energy trends will affect America’s relationship with the Middle East in important ways. But do not expect a fundamental shift in U.S. foreign policy in the region any time soon.

The Carter Doctrine and U.S. Energy Interests in the Middle East

The United States has had historical concerns about assured access to Middle East petroleum resources that have shaped U.S. involvement in the region. President Jimmy Carter famously declared in his 1980 State of the Union address that the United States reserved the right to use force to protect the flow of petroleum from the Middle East to the United States: “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

Although U.S. interests in the Middle East have become more complex since the Carter administration – to include concerns about violent extremism, human rights abuse and nuclear proliferation – it has become almost axiomatic to say that U.S. involvement in the Middle East has been tied solely to concerns about securing access to the region’s petroleum resources. Whether or not one buys that, the perception that U.S. interests in the Middle East are tied solely to concerns about energy supplies raises some questions about whether the United States will lose interest in the Middle East as it becomes less reliant on energy imports from the region.

Continue reading the post at ConsumerEnergyReport.com.

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.

Countries are increasingly investing in new energy projects to boost domestic energy production and shrink the demand for foreign energy imports. However, climate change may undermine efforts by countries to promote assured access to energy, including with nuclear power, hydroelectric dams and other energy projects that are tied to water resources.

A new study by the journal Nature Climate Change cautions that energy production from thermoelectric power plants could become increasingly constrained as a result of climate change. On the one hand, climate change is expected to warm river and other water resources generally used by thermoelectric power stations (such as nuclear and fossil-fuelled plants) for cooling. According to the study, the United States relies on thermoelectric power stations for about 91 percent of total energy generation (compared to 78 percent in Europe). “During recent warm, dry summers in 2003, 2006 and 2009 several thermoelectric power plants in Europe were forced to reduce production, because of restricted availability of cooling water,” the study found. “In the US a similar event in 2007–2008 caused several power plants to reduce production, or shut down for several days owing to a lack of surface water for cooling and environmental restrictions on thermal discharges.”