Spratly Islands

The South China Sea region is the world's second busiest international sea lane. More than half of the world's supertanker traffic passes through the region's waters. In addition, the South China Sea region contains oil and gas resources strategically located near large energy-consuming countries.

 The South China Sea encompasses a portion of the Pacific Ocean stretching roughly from Singapore and the Strait of Malacca in the southwest, to the Strait of Taiwan (between Taiwan and China) in the northeast. The area includes more than 200 small islands, rocks, and reefs, with the majority located in the Paracel and Spratly Island chains. Many of these islands are partially submerged islets, rocks, and reefs that are little more than shipping hazards not suitable for habitation; the total land area of the Spratly Islands is less than 3 square miles. The islands are important, however, for strategic and political reasons, because ownership claims to them are used to bolster claims to the surrounding sea and its resources.

 

Military skirmishes have occurred numerous times in the past two decades. The most serious occurred in 1976, when China invaded and captured the Paracel Islands from Vietnam, and in 1988, when Chinese and Vietnamese navies clashed at Johnson Reef in the Spratly Islands, sinking several Vietnamese boats and killing over 70 sailors.

 

Indonesia has taken the leading role in diplomatic initiatives and cooperative agreements to resolve South China Sea issues, particularly through the ASEAN (Association of Southeast Asian Nations) forum, which has called for the peaceful arbitration of territorial claims. ASEAN includes all South China Sea nations except for China and Taiwan, and has held a number of working groups with China and Taiwan on related issues that have the potential to foster the cooperation and friendship needed to resolve the more contentious issues in the region. Indonesia hosted the first of these workshops in 1990. The ASEAN foreign ministers have reiterated the invitations to all parties directly concerned to subscribe to the principles of the ASEAN Declaration on the South China Sea.

 

In late November 1999 officials of ASEAN agreed to draft regional code of conduct to prevent conflicts over the Spratly Islands in advance of the ASEAN summit in Manila. The Philippines, which drafted much of the proposed code, sought to align ASEAN's members in a common stance against what it sees as Chinese expansionism in the Spratlys. China agreed to hold talks with ASEAN member nations on the newly formulated draft code of conduct. But China, which claims the entire South China Sea, signalled it was not ready to agree to the ASEAN draft. Vietnam wanted the code to cover the Paracels while Malaysia did not want the code to refer to all of the South China Sea. China, which is not an ASEAN member and claims all of the islands, opposes inclusion of the Paracels in the code. Australia has pressed for the proposed code to include a moratorium on the occupation of reefs and atolls or building on them.

The South China Sea is rich in natural resources such as oil and natural gas. These resources have garnered attention throughout the Asia-Pacific region. Until recently, East Asia's economic growth rates had been among the highest in the world, and despite the current economic crisis, economic growth prospects in the long-term remain among the best in the world. This economic growth will be accompanied by an increasing demand for energy. Over the next 20 years, oil consumption among developing Asian countries is expected to rise by 4% annually on average, with about half of this increase coming from China. If this growth rate is maintained, oil demand for these nations will reach 25 million barrels per day - more than double current consumption levels -- by 2020.

Almost of all of this additional Asian oil demand, as well as Japan's oil needs, will need to be imported from the Middle East and Africa, and to pass through the strategic Strait of Malacca into the South China Sea . Countries in the Asia-Pacific region depend on seaborne trade to fuel their economic growth, and this has led to the sea's transformation into one of the world's busiest shipping lanes. Over half of the world's merchant fleet (by tonnage) sails through the South China Sea every year. The economic potential and geopolitical importance of the South China Sea region has resulted in jockeying between the surrounding nations to claim this sea and its resources for themselves.

SOUTH CHINA SEA TERRITORIAL ISSUES
 Competing territorial claims over the South China Sea and its resources are numerous, with the most contentious revolving around the Spratly Islands and Paracel Islands (the Xisha and the Nansha in Chinese; the Hoang Sa and Truong Sa in Vietnamese). The Spratlys are claimed in toto by China, Vietnam, and Taiwan, whereas Malaysia laid claim to parts of the continental shelf underlying the southernmost islands in the chain. Indeed, ownership of virtually all of the South China Sea is contested. The disputed islands in the South China Sea assumed importance only after it was disclosed that they were near the potential sites of substantial offshore oil deposits.

The the Kalayaan Islands, as Filipinos call some of the Spratlys, lie in a shallow section of the South China Sea west of the Philippine archipelago. Kalayaan is a rich fishing area that had been identified as a potential source of petroleum deposits. Tomas Clomas, a Manila lawyer, visited the islands in 1956, claimed them for himself, named them Kalayaan (Freedomland), then asked the Philippine government to make them a protectorate. Philippine troops were sent to the Kalayaans in 1968. Manila regularly tried to extract from the United States a declaration that it would defend the Philippines' claim to the Kalayaans as part of the Mutual Defense Treaty between the Republic of the Philippines and the United States of America, but the United States just as regularly refused so to interpret that treaty. The Philippine government first put forth informal claims to Kalayaan in the mid-1950s. In 1978 Marcos made formal claims by declaring that fifty-seven of the islands were part of Palawan Province by virtue of their presence on the continental margin of the archipelago. The Philippine military, which first occupied three of the islands in 1968, continued to garrison marines on several islands. China, Vietnam, and Taiwan also occupied several islands.

 

In January 1974, Chinese military units seized islands in the Paracels occupied by South Vietnamese armed forces, and Beijing claimed sovereignty over the Spratlys. Following their conquest of South Vietnam in the spring of 1975, units of the People's Army of Vietnam (PAVN) nevertheless moved to occupy the Spratly Islands previously held by the Saigon regime. In 1978 Vietnam and the Philippines agreed to negotiate but failed to settle their conflicting claims to the Spratly Islands. Foreign Minister Thach, during a late-1982 visit to Indonesia, took a conciliatory position in discussing Vietnam's and Indonesia's competing claims to the Natuna Islands, and in 1984 Hanoi made a similar gesture to Malaysia in order to help resolve their conflicting claims over Amboyna Cay.

In a 1988 incident, possibly related to Cambodia because it potentially strengthened China's position at a future bargaining table, the ongoing dispute between China and Vietnam over sovereignty to the Spratly Islands erupted into an unprecedented exchange of hostilities. The situation was reduced to an exchange of accusations following the armed encounter. Vietnam's repeated calls for China to settle the dispute diplomatically won rare support for Vietnam from the international community, but elicited little response from Beijing. A conciliatory mood developed on both sides of the Sino- Vietnamese border in 1989, partly because Vietnam's proposal to withdraw completely from Cambodia responded to a basic Chinese condition for improved relations.

In mid-1991, fresh from diplomatic success in helping to end the Cambodian civil war, Indonesia took the initiative in seeking to open multilateral negotiations on competitive South China Sea claims, especially those claims involving jurisdictional disputes over the Spratly Islands.

The disputed areas often involve oil and gas resources:

Most of these claims are historical, but they are also based upon internationally accepted principles extending territorial claims offshore onto a country's continental shelf, as well as the 1982 United Nations Convention on the Law of the Sea.

UN LAW OF THE SEA
The 1982 convention created a number of guidelines concerning the status of islands, the continental shelf, enclosed seas, and territorial limits. Three of the most relevant to the South China Sea are:

  1. Article 3, which establishes that "every state has the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles";
  2. Articles 55 - 75 define the concept of an Exclusive Economic Zone (EEZ), which is an area up to 200 nautical miles beyond and adjacent to the territorial sea. The EEZ gives coastal states "sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to" (above) "the seabed and of the seabed and its subsoil..."
  3. Article 121, which states that rocks that cannot sustain human habitation or economic life of their own shall have no exclusive economic zone or continental shelf.

The establishment of the EEZ created the potential for overlapping claims in semi-enclosed seas such as the South China Sea. These claims could be extended by any nation which could establish a settlement on the islands in the region. South China Sea claimants have clashed as they tried to establish outposts on the islands (mostly military) in order to be in conformity with Article 121 in pressing their claims.

 

OIL
The focus of most attention regarding the South China Sea resources has been on hydrocarbons in general, and oil in particular. Oil deposits have been found in most of the littoral (adjacent) countries of the South China Sea. The South China Sea region has proven oil reserves estimated at about 7.5 billion barrels, and oil production in the region is currently over 1.3 million barrels per day. Malaysian production accounts for about one-half of the region's total. Total South China Sea production has increased gradually over the past few years, primarily as additional production from China, Malaysia and Vietnam came online. Statoil's Lufeng Field in China (southeast of Hong Kong) came onstream in 1997, and oil was discovered in 1997 in Vietnam's Block 46 (southwest of Vietnam).

The fact that surrounding areas are rich in oil deposits has led to speculation that the Spratly Islands could be an untapped oil-bearing province located near some of the world's largest future energy consuming countries. Such speculation has given the Spratly Islands with great strategic value, and has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the speculation that the region contains extensive oil resources. Because of a lack of exploratory drilling, there are no proven oil reserve estimates for the Spratly or Paracel Islands, and no commercial oil or gas has been discovered there.

Optimistic Chinese estimates of the South China Sea region's oil potential, however, have helped encourage interest in the area. The most optimistic estimate suggests that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and that the total for the South China Sea could be as high as 213 billion barrels. A common rule-of-thumb for such frontier areas as the Spratly Islands Sea is that perhaps 10% of the potential resources can be economically recovered. Even using this rule, Chinese estimates imply potential production levels for the Spratly Islands of 1.9 million barrels/day.

China's optimistic view of the South China Sea's hydrocarbon potential is not shared by most non-Chinese analysts. A 1993/1994 estimate by the U.S. Geological Survey (USGS), for example, estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels. The most optimistic western estimates place total oil resources (not proved reserves) in the Spratly Islands at 1-2 billion barrels. If all of this were proven to be economically recoverable, this hypothetically could yield a peak oil production level for the Spratly Islands of 180,000 - 370,000 barrels per day - the same order of magnitude as current production levels in Brunei or Vietnam. However, the rule-of-thumb for frontier areas suggests that the total could be significantly less.

NATURAL GAS
Though sometimes overlooked, natural gas might be the most abundant hydrocarbon resource in the South China Sea. Most of the hydrocarbon fields explored in the South China Sea regions of Brunei, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines contain natural gas, not oil. Estimates by the USGS and others indicate that about 60% -70% of the region's hydrocarbon resources are gas. Meanwhile, natural gas usage in the region is projected to grow by 5% per year over the next two decades, faster than any other fuel, reaching as much as 20 trillion cubic feet (Tcf) per year. Gas consumption could increase even faster if additional infrastructure is built. Proposals have been made to link the gas producing and consuming regions of the Pacific Rim region of Asia by pipeline, with the South China Sea geographically central to these regions.

Malaysia is not only the biggest oil producer in the region, it is also the dominant natural gas producer as well, and until recently has been the primary source of growth in regional gas production. The development of natural gas resources outside of Malaysia has been hampered by the lack of infrastructure. Despite this constraint, natural gas exploration activity elsewhere in the region had been increasing until the ongoing East Asian economic crisis. Much of this new activity had occurred in the Gulf of Thailand in waters claimed by Cambodia, where five companies signed conditional exploration agreements, and in Thailand. In addition, China had accelerated development of its offshore fields such as Yacheng, Indonesia had discovered the giant Natuna gas field, the Malaysian Lawit field had come onstream in June 1997, and Vietnam had made a series of discoveries in the Nam Con Son basin southeast of Vietnam that were expected to significantly increase its reserves.

As with oil, estimates of the South China Sea's natural gas resources vary widely. One Chinese report estimates that there are 225 billion barrels oil equivalent of hydrocarbons in the Spratly Islands alone. If 70% of these hydrocarbons are gas, total gas resources (as opposed to proved reserves) would be almost 900 Tcf. If the rule-of-thumb for frontier areas were applied to these resource levels, the Chinese estimates would imply potential production levels for the Spratly Islands of almost 1.8 Tcf annually.

Another Chinese report estimates that the entire South China Sea contains more than 2,000 Tcf of natural gas resources. By contrast, the most optimistic non-Chinese report has estimated total gas resources in the Spratly Islands at 24 Tcf. If all of this were proven to be economically recoverable, this hypothetically could yield a peak natural gas production level for the Spratly Islands of 0.5 Tcf annually - the same order of magnitude as current production levels in Thailand. As was the case with oil, the rule-of-thumb for frontier areas suggests that the total could be significantly less. The USGS has placed the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 266 Tcf.

SHIPPING
More than half of the world's annual merchant fleet tonnage passes through the Straits of Malacca, Sunda, and Lombok, with the majority continuing on into the South China Sea. Tanker traffic through the Strait of Malacca leading into the South China Sea is more than three times greater than Suez Canal traffic, and well over five times more than the Panama Canal. Virtually all shipping that passes through the Malacca and Sunda Straits must pass near the Spratly Islands. The large volume of shipping in the South China Sea/Strait of Malacca littoral has created opportunities for attacks on merchant shipping; in 1995, almost half of the world's reported cases of piracy occurred in this area.

Shipping (by tonnage) in the South China Sea is dominated by raw materials en route to East Asian countries. Tonnage via Malacca and the Spratly Islands is dominated by liquid bulk such as crude oil and liquefied natural gas (LNG), with dry bulk (mostly coal and iron ore) in second place. Nearly two-thirds of the tonnage passing through the Strait of Malacca, and half of the volume passing the Spratly Islands, is crude oil from the Persian Gulf. Oil flows through the Strait of Malacca rose to 8.2 million barrels/day in 1996, and rising Asian oil demand could result in a doubling of these flows over the next two decades.

LNG shipments through the South China Sea constitute two-thirds of the world's overall LNG trade. Japan is the recipient of the bulk of these shipments; in 1996 Japan was dependent upon LNG for over 11% of its total energy supplies. South Korea (over 7% of energy consumption) and Taiwan (over 4% of energy consumption) also import large amounts of LNG via the South China Sea.

The other major shipping lane in the region uses the Lombok and Makassar Straits, and continues into the Philippine Sea. Except for north-south traffic from Australia, it is not used as extensively as the Strait of Malacca and the South China Sea, since for most voyages it represents a longer voyage by several hundred miles.

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