East and South China Sea disputes need creative diplomacy

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CHINA and the US appear headed for a damaging confrontation over the extent of China’s territorial claims in the South and East China Seas.

Now that China has become the world’s largest importer of oil, and energy more generally, the country’s need to develop more indigenous energy supplies has become urgent.

Expecting China to put the South and East China Seas off limits to exploration and production until disputes over sovereignty can be resolved through some undefined legal or diplomatic process is unrealistic.

Part of the problem is that western analysts and policymakers still fail to appreciate the strategic importance of these areas. It is common to hear maritime disputes between China and its neighbours characterised in terms of uninhabited islands, submerged reefs, historic fishing grounds and unfinished business from World War Two.

In reality, the disputes centre on control over areas which are thought to contain substantial quantities of oil and gas, which could be vital to the economic development of all states in the area.

US diplomats were reportedly dismayed when China started to claim the South China Sea was among the country’s “core national interests” along with Tibet and Taiwan.

But given the potential for developing substantial oil and gas fields in both the South and East China Seas it should have been obvious that they could not be treated as unimportant claims that could be deferred indefinitely.

US diplomats sometimes appear to want to freeze the disputes, a position which is both unhelpful and dangerous.

According to US Defense Secretary Chuck Hagel, the US takes “no position on competing territorial claims” in both seas, but wants disputes peacefully resolved “in accordance with international law.”

The US has also refused to recognise China’s self-declared Air Defence Indentification Zone in the East China Sea and insisted the disputed Senkaku-Diaoyu islands are covered by its mutual defence pact with Japan, even while US officials insist they do not take a view on the underlying issue of sovereignty.

This strategy (expressing no view on sovereignty while trying to freeze the status quo pending an unlikely diplomatic resolution of the disputes) is dangerous and threatens to worsen the standoff because the status quo is not remotely stable.

Western analysts and policymakers tend to downplay the potential oil and gas resources of the disputed areas, but this probably understates the amount of energy which could be recovered if the areas were thoroughly developed.

In 2010, the United States Geological Survey (USGS) estimated the South China Sea contains about 11 billion barrels of oil and 145 trillion cubic feet of natural gas that have yet to be discovered (“Assessment of undiscovered oil and gas resources of Southeast Asia” March 2010).

In global terms, these are relatively modest amounts. For China, however, they are much more significant.

The assessment focused exclusively on coastal areas and did not include potential resources in the deeper waters in the centre of the sea around the islands and reefs which are at the heart of the dispute.

The South China Sea remains comparatively unexplored and there is the potential for substantial additional discoveries. China’s oil companies believe the area has strong hydrocarbon potential and they have published resource estimates which are an order of magnitude higher than western analysts.

The hydrocarbon potential of the East China Sea is even less well- known. But there are good reasons to believe that it could hold significant quantities of recoverable oil and gas. Several oil and gas fields have already been found in sea areas claimed by both China and Japan.

The sea borders on the Songliao and Bohaiwan basins have been in production for decades and account for most of China’s current oil and gas output.

There is therefore a high probability more oil and gas could be found further offshore in the East China Sea itself.

With advances in ultra-deepwater drilling the potential for far offshore exploration and production has never been greater and the dispute over sovereignty in the East and South China Seas is unlikely to remain frozen.

US diplomats have suggested the disputes could be resolved through international law, norms and diplomacy, without outlining how that might actually be achieved.

In its maritime boundary dispute, the Philippines has filed a claim against China under the United Nations Convention on the Law of the Sea (Unclos) with the Permanent Court of Arbitration.

But Unclos is not really relevant to the dispute because the core of the disagreement concerns ownership and sovereignty over the islands and other outcrops.

Once sovereignty has been established, Unclos can help assign rights and responsibilities to all the parties, including control of shipping, fishing and oil and gas drilling.

The only real solution is diplomatic. The coastal states around the South and East China Seas will have to agree to divide, share or pool their sovereignty in the interests of security and to permit the peaceful exploitation of the resources.

There are plenty of examples of such shared resource development, ranging from the Spitsbergen Archipelago in the Arctic to the Neutral Zone between Saudi Arabia and Kuwait.

The challenge for diplomats, especially from the US, is to help the parties discover creative solutions that benefit all the coastal states. — by John Kemp, Reuters

The opinions expressed here are those of the author, a columnist for Reuters.

This article first appeared in The Edge Financial Daily, on August 28, 2014.