Chinese Energy Security and the South China Sea

     Oil has been a critical national resource since the early 20th century, when the British Empire began using oil to power its ships, and Parliament voted to acquire a majority stake in a Persian oil firm in order to ensure that it would be able to maintain access to oil for the Royal Navy.^[1] With the development of the oil-powered airplane and tank, oil became even more important to strategic planning, and many nations created their own state-owned oil companies to ensure continued access to foreign oil. After the close of the Second World War, it was discovered that the Middle East had large reserves of easily-tapped oil. Not coincidentally, this was when the United States first established a foothold in the region, promising “U.S. military aid to any state in the region that came under attack from Soviet or Soviet-backed forces.”^[2]

The West’s dependence on Middle Eastern oil was revealed in 1973, when the Organization of Petroleum-Exporting Countries (OPEC) cut off all petroleum exports to the United States and decreased its exports to other countries in response to American support for Israel in the 1973 Yom Kippur War.^[3] Defense correspondent Michael T. Klare writes that from that point on “oil was seen not only as an essential military commodity but also as a prerequisite for global economic stability.”^[4] In order to decrease vulnerability to future oil shocks, oil-importing countries such as the United States began searching for more secure petroleum deposits and established safeguards such as the Strategic Petroleum Reserve. When the Iranian Revolution of 1979 replaced the pro-American Shah with a virulently anti-American government, the world experienced a second oil shock, which prompted President Jimmy Carter to declare that any attempts to restrict the flow of oil in the Persian Gulf “will be repelled by any means necessary, including military force,” a stance known as the Carter Doctrine.^[5] The forcefulness of the Carter Doctrine’s language indicates that the United States has viewed continued access to oil as a matter of national security (Operation Desert Storm being a notable example of the Carter Doctrine in action), and it is not unreasonable to assume that other major states have similar concerns.

Why does the South China Sea matter to regional energy security?

The dispute over the South China Sea is a reflection of increased nationalist sentiment throughout the region, but by virtue of the resources in the disputed area, it also has an important role to play with regards to regional energy security. First, there are not-insignificant hydrocarbon deposits buried beneath the seabed. The U.S. Energy Information Administration estimates that there are “11 billion barrels (bbl) of oil reserves and 190 trillion cubic feet (Tcf) of natural gas reserves in the South China Sea. These numbers represent both proved and probable reserves…”^[6] On top of these known and accessible deposits, the U.S. Geological Survey (USGS) estimates that there may be between “5 and 22 billion barrels and between 70 and 290 trillion cubic feet of gas in as-yet undiscovered resources,” while independent estimates from the Chinese National Offshore Oil Company (CNOOC) place the figures at “around 125 billion barrels of oil and 500 trillion cubic feet of natural gas in undiscovered resources.”^[7]

These hydrocarbon reserves are not distributed equally across the South China Sea, and there is some uncertainty about how they are distributed. According to the Energy Information Administration, part of the U.S. Department of Energy, “[t]he Paracel island territory does not have significant discovered conventional oil and gas fields and thus has no proved or probable reserves.”^[8] The EIA draws a similar conclusion about the Spratly Islands, but admits that the area “may contain significant deposits of undiscovered hydrocarbons…anywhere between 0.8 and 5.4 (mean 2.5) billion barrels of oil and between 7.6 and 55.1 (mean 25.5) Tcf of natural gas in undiscovered resources.”^[9] On the other hand, Chinese state media announced in July 2014 that it had found signs of oil and gas near the Paracels, but like their claims about the total size of deposits under the South China Sea, these claims have not been corroborated by independent sources.^[10]

The second way in which the South China Sea is important to regional energy security is as a point of transit. In 2013, China and Japan imported 4.5 and 3.2 million barrels of crude oil per day (MMbbl/d); more than half of the roughly 14 million barrels of crude oil from the Middle East that passed through the South China Sea daily, with much of the remainder going to South Korea.^[11] Of the 6 trillion cubic feet of liquefied natural gas (LNG) that passed through the South China Sea in 2011, roughly 56% went to Japan, 24% went to South Korea, and 19% went to China.^[12] Speaking more generally, roughly 33% of the world’s seaborne oil travels through the Strait of Malacca, making it a chokepoint for energy imports, trade, and other shipping headed towards East Asia.^[13] Benjamin Sovacool writes that in the Asia-Pacific region between 2005 and 2030, energy demand is expected to grow at a rate of 2.4% (as compared to a world average of 1.5%), net imports of fossil fuels are expected to double, and “[t]he region’s oil dependency will increase from 57.5% to 66.4%.”^[14] This means that countries in East/Southeast Asia will only become more dependent on the sea lines of communication (SLOC) that are responsible for bringing in their energy imports. Japan, for example, already buys “nearly 90% of its oil from the Middle East, making it vulnerable to disruptions of even a few days in the Strait of Hormuz or in shipping routes from the Middle East,” as well as the Strait of Malacca and the South China Sea.^[15]

Why is energy security important to China?

While by some metrics the Chinese economy has eclipsed the American economy in sheer size, it remains a developing, export-driven economy that is heavily dependent on imported energy. China began importing more oil than it exported in 1993, and the gap between the two has only grown in recent years. In 2005, China was able to produce 3.52 million barrels of crude oil per day, but consumed approximately 6.75 million barrels per day, meaning that it had to import 3.23 million barrels per day to make up the difference.^[16] By 2013, that figure had grown to 4.5 million barrels per day.[17] China also became a net importer of natural gas in 2006 and a net importer of coal in 2007.[18] In 2012, it became the world’s largest energy consumer, “accounting for 11 percent of oil, 3.5 percent of natural gas, and nearly half of all coal consumption worldwide.”[19]

Massive energy consumption has allowed for China’s sustained economic growth, which in turn has ensured some measure of social stability. Although the Chinese economy has in many ways liberalized, energy is still very much controlled by the central government. It has long been clear to Chinese leaders that economic growth cannot be sustained solely by domestic production, but they are also worried about the fickleness of markets. The Chinese solution has been to control energy sources abroad through state-run oil companies, which they believe, “should provide more secure and lower-priced supplies than the world market.”^[20]

In what ways is the SCS important to China’s energy security?

China scholar Minxin Pei explains that “economic growth and a pragmatic foreign policy are now central to the [Chinese Communist] Party’s grand strategy.”^[21] The previous section explained why energy security is critical to China’s economic growth, but it would seem that the ways in which China seeks to guarantee energy security in the South China Sea goes is at odds with what might be considered “pragmatic foreign policy.” What is pragmatic about antagonizing both neighbors with whom China has a history of armed conflict, and a superpower with a global presence? If China is willing to risk confrontations in the South China Sea, then it is not unreasonable to assume that China must view this area as being significant for its continued security.

China has devoted significant amounts of attention to expanding its presence within the Spratly and Paracel island groups, reclaiming large tracts of land and placing weapons systems atop the islands that it occupies.^[22] However, since estimates suggest that waters around these islands have comparatively meager hydrocarbon deposits, this raises the question of why China would take such risks for so little reward. Given that there is still very little oil-extracting infrastructure in the South China Sea, it would certainly not be economical for China to bear the entire cost of creating that infrastructure when there are so many other parties that would be willing to share that burden. Some oil is preferable to no oil, and as long as China remains unwilling to cooperate with its neighbors, there will be no oil coming out of the South China Sea.

The true importance of the South China Sea with regards to China’s energy security comes down to its role as a sea line of communication. China is disproportionately dependent on the South China Sea; it is “the only major power with a vital strategic interest in Freedom of Navigation in the South China Sea.”^[23] By some calculations, South Korea and Japan would only be mildly inconvenienced if oil shipments had to be diverted around the South China Sea, to the order of $270 million and $600 million respectively per year.^[24] China has sought to reduce its dependency on sea-borne imports via pipeline projects across Eurasia as part of its “One Belt, One Road” initiative, but these projects have met with significant delays.^[25] Even if these pipelines were to be completed in a timely manner, they would still not be able to match the sheer volume of imports that travel through the Strait of Malacca.

Traditionally, freedom of navigation has been guaranteed by the United States, because only the United States Navy has had a large enough navy to maintain freedom of the seas. However, analysts within China worry that as a potential adversary, “the United States and its allies could disrupt the flow of oil [to] China during a Sino-American conflict.”^[26] Now that China’s local rivals are undertaking major military modernization projects, they too could potentially pose a threat to China’s sea lines of communication. The Spratlys and Paracels sit astride the most direct route between the Strait of Malacca and the port cities on China’s eastern coast. If the Philippines, Vietnam, or the United States were to take commanding positions atop this sea line, it would be a Sword of Damocles hanging over China’s maritime trade routes. This is not to say that any of these countries has an interest in doing so, but from the perspective of Chinese strategic planners, the potential risks are very high.

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[26]Erica S. Downs, “The Chinese Energy Security Debate,” The China Quartey 17 (2004), accessed June 25, 2016,32.