Part 4: China’s Economic Motivations for Hegemony in the South China Sea
This article is the last of four articles, on China’s Economic Motivations for Hegemony in the South China Sea. It focuses on understanding the untapped potential of natural resources in the South China Sea as one factor driving Chinese aggression in this maritime theatre.
Introduction
The South China Sea (SCS) is a crucial region for multiple reasons, one of them being the economic aspects, especially the volume of trade flowing through. $3 trillion worth of annual trade is carried by ships in the SCS. In 2023, the SCS witnessed 10 billion barrels of petroleum and petroleum product and 6.7 trillion cubic feet (Tcf) of liquefied natural gas (LNG) passing through. In 2020, the United States (US) Geological Survey (GS) estimated the SCS’ undiscovered reserves to be as follows – 10.5 billion barrels of oil, 271.5 trillion cubic feet of gas and 4.3 billion barrels of natural gas liquids.
In 2023, Rystad Energy analyst Lin Chen had noted that Beijing faces two key challenges with respect to its oil fields – declining natural oil production and a lack of significant new discoveries. The China National Offshore Oil Company (CNOOC) – China’s third-largest state oil and gas company – announced that its aim is to increase its oil production target from 675 million barrels in 2023 to between 700 million and 720 million barrels in 2024. The oil fields being in the EEZs of other states is another challenge, outlined in the following section.
Chinese Drilling in Southeast Asia: Country-wise Overview
Oil and natural gas basins in the South China Sea | U.S. Geological Survey, World Bank, ESRI, and U.S. Energy Information Administration
Vietnam
China has been conducting extensive drilling operations in the Paracel and Spratly Islands, both of which are rich in oil and gas reserves. Despite Vietnam’s claims and control over parts of the Spratly Islands, China’s militarization and drilling activities continue unabated. The Paracel Islands, under Chinese control since 1974, serve as a strategic base for further mineral exploration. These activities contribute to ongoing disputes and heightened tensions in the South China Sea, as Vietnam vehemently opposes China’s unilateral exploitation of these resources.
Analysts believe that Hanoi’s efforts to double its maximum power generation to 150 gigawatts (GW) is likely face a major hurdle due to Beijing’s actions within Vietnamese territorial waters.
Block 06-01: Block 06-01 is about 200 nautical miles from southern Vietnam with an area of 955 square kilometres. First production from the field was achieved in 2002, and in 2011, approximately 445 million cubic feet per day of natural gas was produced. Between June-2019 and December 2019, Chinese Coast Guard ships 35111, 45111, 4203, 3308, 5303 and 2305 deployed on rotation very close to the oil rigs to maintain an aggressive posture against Vietnam. June 2020 witnessed the Haiyang Dizhi 4 – a dual-use ‘research vessel’– close to Vietnam’s EEZ – to dissuade Hanoi from pursuing its offshore exploratory activities. Due to pressure from Beijing, Hanoi cancelled two contracts for exploration in July 2020, one each with the British oil rig Noble Clyde Boudreaux and Russian energy company Rosneft.
Block B: The Block B Oil and Gas Project is approximately 180 nautical miles off Southeast Vietnam, which includes a gas field and an associated pipeline. The Vietnamese Government is the majority stakeholder in both the oil field and the pipeline, through the Vietnam Oil and Gas Group (PVN) and PetroVietnam Gas (PV Gas). Currently in the construction stage, commercial production is expected to begin in 2026 and reach completion by 2027, Block B is at a capacity of 6.4 billion cubic metres per year. In 2023, the gas field held approximately 110 billion cubic metres of recoverable reserves. It seems as if China has not interfered in the Block B Oil and Gas Project. Perhaps it is waiting for more opportune moment, gradually initiating patrols and building up to just before commercial oil production begins in 2026.
Malaysia
China’s drilling operations extend to the Luconia Shoals within Malaysia’s EEZ, particularly in the North and South Luconia Shoals. These regions are known for their significant natural gas and oil reserves. Despite Malaysia’s continental shelf claims, China asserts its control by citing historical claims under the nine-dash line. This aggressive pursuit of energy resources is part of Beijing’s broader strategy to secure long-term energy security and economic growth.
In April 2023, Malaysian Prime Minister Anwar Ibrahim stated that energy group PETRONAS Global had conducted a major activity in an area seen by Kuala Lumpur as its territory but also claimed by China. He also emphasised that PETRONAS would continue this exploration as Malaysia considers it as Malaysian territory, although Kuala Lumpur is open to negotiation if Beijing believes it is its right. In 2023, Malaysia gained one billion barrels of oil as new resources from 25 PETRONAS wells alone.
These discoveries have prompted Beijing to interfere in exploratory efforts utilising various ways. One such tactic is to be in proximity of these exploratory efforts and maintain a threatening presence. China has implemented this ploy near the SK410B, SK316 and NC3 gas fields within Malaysia’s EEZ. Two major Malaysian blocks – SK410B and SK308 – have faced Chinese interference in 2019.
SK410B: In 2019, the Kuwait Foreign Petroleum Exploration Company (KUFPEC) discovered the SK410B block that covered approximately 1870 square kilometres while the Thai firm PTT Exploration and Production Public Company Limited (PTTEP) completed its appraisal of the Sarawak 410B Project. SK410B is approximately 56 nautical miles off the Sarawak coast in Malaysia. PTTEP had announced that this was its largest-ever gas discovery, with the well test indicating a flow rate of 50 million cubic feet of gas per day (MMSCFD). In the winter of 2020, Chinese Coast Guard (CCG) ship 5402 initiated a standoff with the Royal Malaysian Navy (RMN) regarding the SK410B off-shore activities. Ever since, the CCG has regularly shadowed the RMN, even approaching as close as two nautical miles at times.
SK308: In 2019, Dutch energy giant Shell’s Malaysian arm – Sarawak Shell Berhad (SSB) –
produced oil from SK308, 107 nautical miles off Sarawak. As of 2023, there was nearly 40 million barrels of crude oil and condensate remaining as recoverable reserves and nearly 3.5 billion cubic metres of remaining recoverable reserves of gas. Despite the area being well-within Kuala Lumpur’s EEZ as well as being nearly 900 nautical miles from the Chinese mainland – CCG ship Hainan 35111 patrolled off the Sarawak coast – obstructing Malaysian exploratory and drilling activities.
Conclusion
The Philippines, Indonesia, Brunei and Taiwan are also impacted by China, whether Beijing is drilling for itself or interfering in the offshore exploratory and extraction activities of other countries.
China has been aggressively pursuing underwater drilling operations for various minerals within Filipino territorial waters, around the Scarborough Shoal and Ayungin Shoal. These areas are part of the West Philippine Sea, where Beijing’s activities have intensified despite opposition from the Philippines. The region is believed to contain rich deposits of hydrocarbons and other valuable minerals, making it a focal point for Chinese exploration efforts. China’s assertive stance and drilling activities not only exacerbate tensions but also undermine the Philippines’ sovereign rights over its EEZ.
In the waters around the Natuna Islands, China has intensified its drilling activities, targeting Indonesia’s East Natuna gas reserves. This region is critical for Jakarta’s energy strategy, especially after the auction of the East Natuna block to Pertamina Hulu Indonesia in 2023. Beijing’s assertive claims and drilling operations in these waters are a source of constant friction, leading to frequent confrontations between Chinese and Indonesian forces. Chinese actions are driven by a desire to secure additional energy resources to support its economic growth and military modernisation.
Despite Chinese drilling efforts within Brunei’s territorial waters, it does not actively contest Beijing. Even the waters around Brunei are resource-rich, and therefore of value to China. Beijing’s maritime activities within Brunei’s EEZ are facilitated by the Belt and Road Initiative and close trade relations, enabling China to survey and extract valuable resources with ease. The power imbalance between the two states makes it easier for Brunei to let Beijing continue in this manner. Other contributing factors to Beijing’s free-hand within Brunei’s EEZ include trade relations, Brunei’s economic dependence on China and the strategic importance of maintaining favourable relations with Beijing.
China’s drilling activities in the South China Sea, particularly around Taiwan, are part of a broader strategy to enhance its strategic positioning. While Taiwan is not directly involved in the territorial disputes, China’s military drills and incursions around the island highlight the strategic significance of controlling these waters. By securing mineral resources and asserting control over the surrounding areas, China aims to isolate Taiwan and project power, further complicating the geopolitical landscape of the region.
Beijing is essentially establishing a new narrative by changing the narrative. It is making the EEZ, and doing so repeatedly to ensure it becomes Chinese territorial waters. In a manner of speaking, it is Chinese salami-slicing on the high seas.
