May 09, 2012

China’s Foray into Deep-Water Drilling Could Raise Stakes in South China Sea

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.”

The importance of this technological leap should not go unnoticed by policymakers charged with helping diffuse tensions in the region. China’s foray into deep-water drilling will raise the stakes in the South China Sea. Countries like Vietnam and the Philippine that also seek to exploit the region’s deep sea fossil fuel resources could become increasingly worried about their ability to exploit resources if China gets there first – potentially increasingly the number of incidents to obstruct offshore oil and natural gas drilling activities. More worrying perhaps is the potential for China’s untested deep-water oil drilling industry to experience a catastrophic disaster akin to the 2010 Deepwater Horizon oil spill that could damage important maritime resources like the region’s fisheries. As one report correctly notes, “If the record of the BP rig was any indication, ultra-deep-water drilling must deal with unforeseen difficulties that may become tremendously hard to contain, even for experienced Western companies.”

This technological development – and how other countries in the region react to it – is worth watching closely.

To learn more about resource challenges in the South China Sea, including competition for energy, checkout my chapter in our January 2012 South China Sea study on “The Role of Natural Resources in the South China Sea.”