The South China Sea (26 page)

How successful was the strategy? Off Vietnam it failed: the cable cuttings didn't prevent continued exploration and Talisman is expected
to drill in Block 136–03 in late 2014. However, off the Philippines it was much more effective. Forum has been unable to begin drilling on the Reed Bank and, given the Philippines’ inability to physically defend its claims with its ageing warships, China has now, in effect, established a veto over development there. Forum's management has been involved in lengthy discussions with CNOOC but, at the time of writing, there is no sign of a breakthrough. Filipino politicians have a choice: will they back down on sovereignty in order to improve energy security? Is it better to defend the territorial claim in the hope of gaining 100 per cent of the resources in the future, but in the meantime getting nothing, or is it wiser to compromise now in the hope of gaining a partial share of something more rapidly?

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CNOOC and Beijing's other agencies have gone to extraordinary lengths to try and win access to the hydrocarbon resources around the South China Sea. But what are they likely to receive in return for all their efforts? One of the best places for a genuinely unbiased assessment of the oil and gas potential of the Sea is the Penny Black pub on the old waterfront in Singapore. It's a noisy, beer-guzzling place dominated by discussions of all kinds of sport. But the rumbustiousness overlaps with a deep knowledge of geological structures. The Penny Black is a watering hole for the small group of geological and geophysical consultants who've spent decades surveying Southeast Asian waters. Most of them are Brits in their forties and fifties, members of the Southeast Asia Petroleum Exploration Society (SEAPEX), and between them they have probably worked for everyone who has ever tried to find hydrocarbons in the region. They've seen dozens of companies jump into the region and most of them limp out again. They've helped some to make money and others to realise there was none to be made. Their livelihoods depend upon keeping commercial confidences and with many billions of dollars at stake they can't be too specific but hints can be dropped and eyebrows raised.

The collective wisdom is surprising. These experts are convinced that the disputed areas of the South China Sea actually contain relatively little oil and gas. The vast majority of the Sea's resources lie outside the ‘U-shaped line’. There are some good fields and interesting prospects
within the Chinese claim, but the geoscientists of the Penny Black believe the possibilities aren't worth the fuss the area generates. A proper understanding would require a degree in geology but the over-a-pint explanation is that seismic surveys are looking for three things: source rock for hydrocarbons, a reservoir where they can accumulate and a seal to make sure they don't disappear. There are only a few places in the Spratly Islands where these three exist. During the Miocene era, 30 million years ago, large reefs formed in the sea and, as the earth's crust moved and sea level changed, these reefs have grown steadily taller, forming thick banks of carbonate rocks. These carbonate rocks are porous and the oil and gas that might have formed in earlier eras has probably evaporated or slipped away. With the carbonate layer up to 3,000 metres thick, it's very hard to get accurate surveys of what lies beneath. Without an accurate survey, who would risk the millions of dollars required to drill a well?

There is even worse news in the centre of the disputed area. At the end of the continental shelf the seabed drops sharply from 200 metres to 2,000 metres and to as deep as 6,000 metres in places. Jon Savage knows the South China Sea almost as well as the Penny Black, having worked on dozens of projects over the years, including Forum's 2011 interrupted survey. His verdict on the deep water? It's mostly oceanic crust, there's no source rock for oil and gas, no reservoirs in which it might accumulate and no seal to prevent it leaking away. In short, there's ‘no hydrocarbon potential’, he told a conference in Ho Chi Minh City in November 2013.
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That opinion is shared by almost everyone in the industry. So why do Chinese sources continue to trumpet the opposite?

The answer seems to lie in a combination of dogma and opportunism. After the fanfare that greeted the original Chinese surveys in the 1980s and the tasking of key state agencies to secure new energy supplies for the country, too many people have had an interest in promoting the Sea as an energy panacea. In September 1994, for example, the Minister of Natural Resources, Song Ruixang, declared that the Spratlys ‘promise an oil potential of 30 billion tons’ (about 220 billion barrels).
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Once these official sources had declared the numbers to be true – and the solution to a national crisis – it was very hard for any other official to declare them nonsense. The China National Offshore Oil Corporation was given the task of developing these vast reserves and became another powerful voice within the system
amplifying the Sea's potential. The bigger the reserves appeared to be, the stronger its case for winning more funding from the state.

But there is a huge difference between ‘resources’ – what lies underground – and ‘reserves’ – the proportion that can be extracted. Usually around a third of the ‘resources’ can be brought to the surface technically whereas only around a tenth can be brought to the surface commercially. The most authoritative and transparent recent estimates of the hydrocarbon potential of the Sea have come from the US Geological Survey (USGS) in June 2010 and the US Energy Information Administration in February 2013. The Energy Information Administration estimated the Sea contained just 11 billion barrels of oil and 190 trillion cubic feet of gas as commercially viable reserves. That's about the same amount of oil as in Mexico and the same amount of gas as in Europe (excluding Russia).
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Based on what is known about the region's geology, the USGS estimated yet-to-be-discovered resources at around 11 billion barrels of oil (with low and high estimates of 5 and 22 billion barrels) and 4 billion barrels of ‘natural gas liquids’ – making a combined total of 15 billion barrels. The USGS estimated that undiscovered gas resources could be more significant – somewhere between 70 and 290 trillion cubic feet. So, undiscovered resources could be about the same as the current level of reserves.
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These figures, however, refer to the whole Sea region, including areas firmly within the different countries’ Exclusive Economic Zones. Only a fraction of the headline figures lies in the disputed territory and only one-tenth of that fraction would be commercially recoverable. These prospects could make a sizeable impact in the economies of smaller, poorer economies such as the Philippines or Vietnam. But given that China consumes about 3 billion barrels of oil and about 5 trillion cubic feet of natural gas each year, the reserves and resources of the South China Sea are hardly worth all the
Sturm und Drang
expended on them. Even if every drop and bubble were sent to China, they would power the country's economy for a few years at best. The geology is difficult, the region is prone to typhoons and the supporting infrastructure poorly developed. Tony Regan, a former Shell executive, now a Singapore-based energy consultant, is blunt about the commercial prospects for the South China Sea. ‘The region has never been of significance to the oil majors and they don't believe it's the next big thing now. There are far more attractive areas out there – Western Australia and East Africa for
example and of course unconventional gas from coal seams and shale.’
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In other words, there are cheaper and more reliable ways for China to ease its fears about energy security than stirring up the South China Sea.

All countries in the region are concerned about their energy security. Demand is surging while production is falling. Offshore development is being delayed by the territorial disputes and not enough new Southeast Asian fields are being discovered to replace those that are declining. The result is ballooning imports from outside the region. The South China Sea is now far more important for the hydrocarbons that sail through it than for those that lie beneath it. In 2013 the Energy Information Administration calculated that a third of the world's oil and half the world's liquefied natural gas passed through the Straits of Malacca heading for China, Taiwan, Korea and Japan. On average two very large crude carriers, each carrying 2 million barrels of oil, and two large liquefied natural gas carriers, each carrying 200,000 cubic metres, must arrive in Japan every day, just to keep the lights on.
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All of the countries in East and Southeast Asia are vulnerable to disruptions in supply. In 2008 oil made up 22 per cent of China's total energy consumption, half of that oil was imported and 85 per cent of those imports came through the Straits of Malacca. In other words, almost 10 per cent of China's energy supplies crossed the South China Sea. All these numbers have risen since 2008 and look set to rise further still.
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In the quarter-century since Li Peng's made his remarks in Singapore, the Chinese leadership's approach to its energy problem has assumed that the country must physically control the resources in order to rely on them. This has been the pattern from the Crestone concession to the JMSU to the battles inside the ‘U-shaped line’. There are alternatives. Reducing the tension over maritime claims could give governments greater confidence that freedom of navigation would be protected. A more cooperative regional approach to energy supplies might allow all countries to develop the resources in their own EEZs and companies to sell to wherever demand is greatest. Governments would then be more willing to trust others to guarantee the safe arrival of their energy supplies rather than trying to monopolise them through force of arms. But passions about the South China Sea have been rising in the countries around its shores and compromise is appearing less and less likely.

CHAPTER 6

Drums and Symbols

Nationalism

T
HE CROWD GATHERED
near the Hanoi Opera House was small but angry. It was remarkable that it had gathered at all. In the days beforehand, Facebook had been buzzing with outrage but the Vietnamese authorities had been busy too. It had been just over a week since Chinese vessels had, for a second time, cut the seismic cables of the
Binh Minh 02
and a month since Beijing had unveiled new passports bearing a map of its ‘U-shaped line’ claim in the South China Sea. But there are many constraints upon public expressions of anger in Vietnam. Neighbourhood wardens keep eyes on the back streets, editors-in-chief keep eyes on their newspapers and ‘supervisory bodies’ watch over all civic organisations. People chat, people grumble, but people, generally, don't challenge the rule of the Communist Party in the street.
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Online is a different world. Facebook, in particular, allows grievances to multiply. The Party watches this world too but it draws a clear distinction between talk and action. On 9 December 2012, that line was crossed. The bloggers and chatters agreed that something public needed to be done. Almost exactly five years after Vietnam's first ever public protests about the South China Sea, they decided to take to the streets again. They had wanted to hold their protest on the steps of the old French-built opera house but a Communist Party Youth League event had been organised, at remarkably
short notice, for the same location. With a stage being constructed in the square, they were forced to gather around the corner, along the old colonial boulevard now called Trang Tien Street. In the cooler temperatures of December, it's a pleasant walk past the little shops and cafes, the shore of Hoan Kiem Lake and the big old mansions of Dien Bien Phu Street – all the way to the Chinese embassy.

As a crew, they were motley but well organised. Two hundred people is a good turnout for any kind of protest in Vietnam. They carried large professionally made banners bearing slogans in Vietnamese and English, many wore T-shirts displaying a large X over a map of the ‘U-shaped line’ and they were in good voice. Some were supporters of ‘No U FC’, a group of anti-China activists who, weary of harassment by the authorities, had formed a football club so they could meet legitimately. The club's name is an attack on the ‘U-shaped line’ with ‘FC’ an acronym for both ‘Football Club’ and ‘Fuck China’. While some banged drums, one supporter, 74-year-old violinist Ta Tri Hai, entertained his compadres with patriotic protest songs. Some well-known faces weren't able to make it, however. The anti-corruption activist Le Hien Duc, for example, had received an early-morning house call from officers of the Ministry of Public Security and been obliged to stay and entertain them.

More officers were on hand along Trang Tien Street to prevent any outbreaks of anti-social activity. Many wore their bright green uniforms but others were in plain clothes. A police car tried to push through the crowd but the marchers held firm. They chanted against Chinese aggression, declared that ‘the Paracel and Spratly islands belong to Vietnam’ and insisted their government do more to protect the country's territorial rights. A small crowd of foreign journalists was on hand to amplify their voices to the world but it became clear that the protestors weren't going to be allowed to complete their Sunday stroll.

The police insisted the marchers disperse. The marchers insisted the police disperse but the police were stronger. While the men in uniform stood aside, the men in plain clothes forced around 20 marchers onto a commandeered city bus and drove them off to the Loc Ha detention centre 15 kilometres outside the capital. The rest of the marchers got the message. The Chinese embassy would remain untroubled by nationalistic noise. News and images of the protest, and a similar one in Ho Chi Minh
City in the south, were carried around the world. It was, as an editor might say, a good ‘picture story’.

The following Tuesday morning, at their regular weekly meeting with the Ministry of Information and Communications, Vietnam's editors-in-chief were berated for their coverage of the country's relations with China. They were told they had injected ‘anti-China sentiment’ into their reports about the
Binh Minh
incident – ignoring earlier instructions to ‘stick to the facts’. It was entirely their fault that the country was getting stirred up. The problem for the Vietnamese authorities is that regardless of how many newspapers they muzzle or dissidents they detain, anti-China sentiment appears to be growing. It's impossible to openly or accurately measure such things in Vietnam but the South China Sea has brought small crowds onto the streets of Hanoi and Ho Chi Minh City at least a dozen times since 2007. If a few people are willing to risk arrest and punishment, it's certain that many more share the sentiment but lack the courage to join an organised protest. The fate of the ‘East Sea’, as the Vietnamese call it, and allegations of Chinese plots to undermine the country frequently provoke online outbursts of nationalist fury.