The South China Sea, stretching from Singapore to the Strait of Taiwan, includes hundreds of small islands and reefs. Although the islands are largely uninhabited, multiple nations have claimed them — historically, because of their strategic importance, but more recently, because of the potentially vast wealth of oil and gas on the seafloor surrounding them. But territorial disputes, technological risks and unsafe waters are making exploration of those resources less attractive to foreign investors than might be expected with global oil prices hovering near $100 per barrel.
As Asia’s rapidly growing economies call for increasing energy, exploring the region’s natural resources seems increasingly important. Oil consumption in developing countries in Asia will rise by 3 percent per year, on average, between now and 2025, with much of that increase coming from China, according to the U.S. Energy Information Administration.
“The overall potential of the region has been known for some time,” says Don Juckett, former director of the American Association of Petroleum Geologists (AAPG) Geoscience and Energy Office. However, he says, “some geophysical work has been done, but not much in terms of raw exploration.”
Technology has not been the issue: The geology of the region is relatively simple, consisting largely of buried carbonate reef complexes, and there’s very little of the South China Sea that could be considered ultra-deep, Juckett says. Instead, the delay in developing the South China Sea’s potential resources is caused largely by the territorial squabbles. Few companies will risk the capital when they don’t have a clear idea of what’s down there, he says — and they won’t bring the technology required to explore the area until there is a resolution of the territorial boundaries. In particular, the disputed Spratly Islands, a group of islands and reefs between the Philippines and Vietnam surrounded by potentially rich oil and gas deposits, are claimed by China, Taiwan, Vietnam, Malaysia and the Philippines.
Furthermore, Juckett says, the region is also notoriously unsafe: Modern pirates roam the well-traveled sea lanes in Southeast Asia and the Far East, armed with GPS and automatic weapons. “It’s considered a fairly high risk factor,” he says. Given the costs and risks, large oil and gas companies are likely to rank the region much lower on their portfolios, he says. As a result, it may be at least 10 years before production would begin, even if exploration began today with no barriers.
China, however, may see the situation differently. The South China Sea’s ocean floor is thought to have more natural gas than oil, and could potentially help supply China’s burgeoning natural gas market. Therefore, if anyone is likely to push forward on exploration in the region, it will be China, Juckett says. “The market is there, and it may be in its strategic interest to bring it online sooner,” he says. China’s imports of foreign oil and gas are at 4 million barrels a day, and rapidly growing. “Like the West-East pipeline, if they decide it’s in the interest of national security, they’ll get it done,” he says.
Uncertainty about where to find the resources is also holding international companies back, but one big discovery would likely bring the companies rushing forward, Juckett says. With that in mind, some countries have agreed to temporarily table their differences and begin exploration cooperatively — agreeing to sort out their territorial claims, and how to parcel whatever they find, at a later date.
One such cooperative project is a seismic survey that was recently conducted by China’s National Offshore Oil Corporation (CNOOC) with PetroVietnam and the Philippine National Oil Co.–Exploration Group. Results of that survey were “encouraging,” according to a spokesman for the Philippine corporation, as reported in Business World Online on Dec. 4. The survey was part of a 2005 agreement by the three nations to gather two- and three-dimensional seismic data over three years for a region west of the Philippines island of Palawan. A second phase of the survey, conducted aboard the Chinese vessel M/V Nan Hai 502, began in January 2008.
Meanwhile, some Western oil companies are at least dipping a toe in the region. In 2006, British Gas agreed to partner with CNOOC to conduct seismic surveys of two deepwater oil blocks in the western part of the South China Sea, and to drill one exploration well in each block.
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