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Energy competition in South China Sea: A front-burner issue?

Recent events have refocused attention on resources as a potential driver of maritime territory disputes.

The recent clashes between Vietnam and China over the latter's deployment of a deep-water drilling rig in disputed waters have refocused the spotlight on energy in the South China Sea. How important is it as a driver in China's South China Sea policy? To what extent is competition over seabed hydrocarbons compounding tensions between China and Southeast Asian territorial claimants?

In fact, political and strategic motivations almost certainly took precedence over energy considerations in the decision to deploy China National Offshore Oil Corporation's (CNOOC's) deep-water platform west of the Paracels, in early May. Nevertheless, the imperative to exploit seabed energy resources has received greater attention within China's overall South China Sea policy in recent years.

China's pursuit of sea power

China is now the world's largest oil importer, a simple fact that has increased its exposure to political risk in the Middle East and Africa, to potential disruption in transit, as well as growing competition to secure new upstream resources. China is thought to be topographically disadvantaged when it comes to exploiting its shale deposits. Exploiting offshore energy within China's "near seas" is therefore seen as an attractive option from a supply-security perspective against projections for future demand growth.

A heightened focus on energy exploration and securing a greater share of oil and gas resources in the South China Sea, unilaterally if necessary, has emerged in internal Chinese policy debates over the past five years. This has fed into a major capability upgrade for China's state-owned energy conglomerates, including acquisitions of deep-water rigs, seismic survey vessels and support craft that are now becoming operational.

Alongside expansion of the merchant fleet, ports infrastructure and naval modernisation, the development of the offshore energy sector can be considered as another key pillar in the Chinese leadership's pursuit of comprehensive "maritime power".

CNOOC first announced plans to invest $30 billion on deep-water projects, over two decades, in 2009. A second deep-water drilling platform is scheduled for completion in 2016 and is specifically designed to operate in the South China Sea. For CNOOC and China's other state-owned energy firms this brings a step-change for exploration and production (E&P) activity in the South China Sea at large. In this context, the stand-off with Vietnam is more likely to be a rehearsal than an isolated incident.

As the number of China's deep-water rigs increases, their deployment further afield is likely to become more common, although the logistical and security challenges for long-distance E&P operations in the southern portions of the South China Sea are significant. This helps to explain the choice of the Paracels for the first deployment, being relatively close to Hainan.

For the complete article, please see The Nation.