Oil bonanza in South China Sea

At a press conference Thursday, Hong Lei, spokesman of the Ministry of Foreign Affairs, reiterated that China has indisputable sovereignty over the South China Sea islands and adjacent waters.

The region has abundant resources of oil and natural gas, and some surrounding countries have been exploring resources there for years.

As part of the strategy to deepen the exploitation of deep-water resources, China has stepped up efforts in oil and natural gas mining in the areas, but overall levels of investment and production are considerably smaller than those of nearby countries such as Vietnam and the Philippines.

South China Sea

Although the government has expanded exploration in the area in the hopes of easing China’s dependence on imported oil, technological limitations and continued explorations from surrounding countries that disregard Chinese claims over the areas are hindering the ambitious plan.

Next Daqing?

The South China Sea, dubbed the “second Persian Gulf,” is rich in natural resources of oil and gas. It is estimated that the area contains over 50 billion tons of crude oil and more than 20 trillion cubic meters of natural gas.

The importance of deep-water resources is also acknowledged in the government’s 12th Five-Year Plan (2011-15), which called for “enhancing the ability of marine development and utilizing and actively developing offshore oil and gas.”

China’s deep-water resources exploration is led by the State-owned China National Offshore Oil Corp (CNOOC), which is expected to begin deep-water operations on oil and gas fields at 2,000 meters under the sea in the next five years, generating an annual production capacity of 25 million tons of oil and natural gas.

Prior to this, CNOOC said last year that it was planning to invest 200 billion yuan ($30 billion) over the next 20 years in oil and natural gas mining in a grand scheme to transform the South China Sea into a new Daqing – China’s largest oil field whose production currently accounts for 21 percent of domestically produced oil.

In addition, two other giant oil companies, PetroChina and Sinopec, are also expected to conduct operations in the area, the Beijing-based China Times reported.

“The exploration of offshore oil and natural gas is the key to solving the crude oil predicament China is facing,” Zhang Dawei, deputy director of the Oil and Gas Resources Strategy Research Center under the Ministry of Land and Resources, told the Global Times.

Rapid economic growth in the past decade has forced China to expand its imports of oil, observers say.

Statistics provided by the General Administration of Customs showed that China imported 239 million tons of oil last year, up 17.5 percent compared with the year before. In the meantime, China’s dependence on imported oil increased from 52 percent in 2009 to 55 percent last year, exceeding the globally recognized energy security alert level of 50 percent.

Despite enhanced efforts, the exploration of oil and natural gas in South China Sea is still dominated by some southeastern Asian countries including Vietnam, the Philippines, Malaysia, Indonesia and Brunei.

China’s overall production and the level of exploration in the South China Sea is smaller than the individual output of any of these countries, according to a report by the China Times.

Fierce challenges

Although the government has outlined an ambitious plan to explore the natural resources in the area, experts warned that hitting this target remains a big challenge.

The South China Sea covers an area of 700,000 square kilometers, and some 200,000 square kilometers of waters are settled, according to Wu Shicong, president of the Hainan-based National Institute for South China Sea Studies, the Singapore-based Lianhe Zaobao newspaper reported.

Wu said that as some surrounding countries, including Vietnam, Philippines, Malaysia and Brunei, also have claims to the areas, it will complicate the issue and therefore hinder China from exploiting the areas.

Technological disadvantages also constrain China from pushing ahead.

“Compared with the world’s top oil companies, CNOOC’s technology is still outdated when it comes to deep-water gas and oil exploration. The stakes are very high in offshore oil exploration, as it requires huge investment and the operational environment is much more complicated,” Dong Xiucheng, director of the Oil and Gas Industry Development Research Center of the China University of Petroleum, commented on his blog on sina.com.

– Source: Global Times

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