Beijing's South China Sea Gamble

Beijing seems to be doubling down in the South China Sea. Why? In large part it’s to secure access to potential deep sea hydrocarbons like oil and natural gas – many describe the South China Sea as the next Persian Gulf, given the possible richness of resources that supposedly lay beneath the seabed. And while there are significant differences between the two regions that complicate such a comparison – including the ease of access to fossil fuel resources and the cost of developing them – it’s a useful analogue for understanding why China views the region as critical to its core interests.

But Beijing may in fact be overestimating the strategic significance of the region’s oil and natural gas – and taking unnecessary risks that could undermine its peaceful rise.       

China’s voracious appetite for energy to feed its continued economic development will become increasingly important as the state continues its transition into an industrial powerhouse. In 2009, China just barely overtook the United States as the largest consumer of energy in the world; by 2025, its energy consumption is projected to eclipse the United States by nearly 50 percent. In order to secure access to the energy resources it needs to fuel its economy, Beijing is developing a broad range of energy sources, including investments in solar technology and hydroelectric development. Yet conventional fossil fuels, China is betting, are likely to remain dominant.  

As a result, Beijing is developing a robust portfolio of fossil fuel resources from a variety of locations, including the Middle East, Central Asia and the South China Sea, in an effort to reduce its vulnerability from any one source. Middle East oil must transit through the Strait of Malacca, which, as Beijing is acutely aware, poses a strategic vulnerability should any state choose to compromise the sea lines of communications by blocking the strait. Beijing’s investment in a vast infrastructure of overland energy pipelines from Central Asia means oil must cross volatile transit states like Burma and Pakistan and is delivered to western China where Beijing’s influence waxes and wanes. Consequently, Beijing is eying the South China Sea as a safer way to ensure access to the energy its needs to thrive.

Yet Beijing’s plan may be flawed. Estimates vary widely as to the size of the hydrocarbon reserves beneath the sea floor. The U.S. Geological Survey calculates that there may be roughly 28 billion barrels of oil – enough to feed global oil consumption for about 11 months according to 2009 statistics. The Chinese government, meanwhile, estimates that the South China Sea region contains nearly 200 billion barrels of oil, or enough to meet global oil consumption for more than 6.5 years. Analysts tend to agree that China’s estimates are wildly optimistic. These disparate estimates need to be resolved, yet recent efforts to survey fossil fuels reserves by states like Vietnam have been stalled by the China Maritime Safety Administration, which has taken to cutting survey cables of vessels chartered to provide better information. 

Moreover, Beijing’s bet that fossil fuels will remain the dominant energy source seems to ignore developments in energy technology and the broader energy market. Indeed, the once-single energy source transportation
sector – which accounts for about 60 percent of oil consumption in OECD
countries – is now being diversified by electric vehicles as well as serious
research and development of second-generation liquid biofuels derived from
feedstock like algae that can displace the demand for oil. Indeed, the scaling up of alternative fuels will alter the strategic value of whatever resources lie beneath the South China Sea floor as they reach price parity with conventional fossil fuels. Experts contend that if production continues apace, these alternative fuels may be commercially available and at price parity with petroleum in a decade.

What is more, not all oil is created equal, at least as far as cost is concerned. Some analysts project that the price of a barrel of oil from deep water wells could be as much as four times that of a barrel produced from conventional reserves like those in the Middle East. Thus the cost of extracting South China Sea oil could be much more expensive than fuels derived from algae, other biomass or even dirtier sources like coal and natural gas, making deep-seabed oil less strategically important than those other sources.

Whether those hydrocarbon resources in the South China Sea are strategically important or not, the perception in Beijing seems to be that they are vital. It’s no surprise, then, that China has taken an increasingly zero-sum approach to securing access to those resources, becoming more aggressive with neighbors that it suspects are trying to exploit oil and natural gas on their own. In that light, even Beijing’s push for joint development could be taken as an effort to slow roll other countries’ efforts while its own Chinese National Offshore Oil Company gets the edge in developing those resources first.

But Beijing’s efforts could all be for naught if energy trends continue to develop as projected, and especially if the South China Sea turns up dry (so to speak). As a result, China’s continued assertiveness in the South China Sea could compromise its claim to a peaceful rise and reinforce the call from countries like Vietnam and the Philippines for the United States to step up its military presence in the region.

Perhaps the most important step the United States can take in the near term to diffuse tensions in the region is to promote the message that those energy resources aren’t as valuable as Beijing believes. At the same time, the United States should encourage Southeast Asian countries to lead a multilateral effort through partnerships like the Asia-Pacific Economic Cooperation to survey fossil fuel resources, putting to bed once and for all the uncertainty around how much oil and natural gas really lies beneath the ocean floor. Maybe then Beijing will realize that its bet in the South China Sea is one it can’t afford to make.