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Beijing Looks to S. China Sea for Much-Needed Offshore Resources

China National Offshore Oil Corporation's (CNOOC) oil rig in Bohai Sea (file photo)
China National Offshore Oil Corporation's (CNOOC) oil rig in Bohai Sea (file photo)

The South China Sea has been engulfed in territorial disputes for decades. Its rich oil and natural gas resources is one of the biggest reasons the area is so hotly disputed. China claims the entire South China Sea as its own and recently stepped up its efforts to harness and exploit resources there, deploying its first deep sea oil rig to the area.

In late May, China announced the launch of a massive, advanced deep sea oil rig, the CNOOC 981. The rig, which is as big as a football field, was built by China's State Shipbuilding Corporation for the country's flagship offshore oil and gas producer, China National Offshore Oil Corporation. It is capable of working at depths of 3,000 meters and extracting oil as deep as 12,000 meters.

According to state media reports the rig is expected to begin drilling in the South China Sea some time this month.

Lin Boqiang, director of the Center for Energy Economics Research at China's Xiamen University, says media reports indicate the rig will reach the South China Sea in July. He says there has been no further report on this, So he doesn't believe it has arrived there yet.

Growing demand

Regardless of when it arrives and begins drilling, analysts say Beijing's deployment of an advanced deep sea oil rig to the South China Sea is a statement about both China's growing demand for oil and gas and its limited domestic inland supply of resources.

China has been a net importer of oil for nearly two decades and of natural gas since 2007. As the world's second largest economy, the Asian giant's surging demand for energy has led to a four-fold increase in its consumption of oil over the past two decades. The International Energy Agency estimates that China will be importing five-sixths of its oil by 2035.

According to a recent report by the London-based energy company British Petroleum, China's territory holds only 1.1 percent of the world's oil reserves.

Essential resource

Put simply, says Lin Boqiang, China's inland resources are not enough.

Lin says the resources that can be found inland are nearly depleted, so offshore to China is very important to decrease import of resources. He says offshore exploitation is extremely important.

Lin says he does not know where the rig might be going, but that it will most likely stick to deeper waters in the South China Sea.


The rig's deployment to the South China Sea has already triggered protests from other claimants in the region.

Gabe Collins, the co-founder of ChinaSignPost, a website that focuses on China research and analysis, says he would be very surprised if China took the rig to a disputed part of the South China Sea right away.

“They have a lot of areas, when you start to get south of Hong Kong, you know, some of the areas you start to get 250-300 kilometers offshore where they have been making some decent natural gas finds, and to me at least, I think it would make a lot more sense to put the rig in some of those deep waters and explore the areas that are clearly undisputed,” Collins said.

He says that over the past year CNOOC has been talking about the deep waters of the South China Sea and how they are underexplored and have huge potential.

New investment

Late last year, CNOOC announced plans to invest 200 billion yuan in oil and gas exploration in the South China Sea and to drill 800 deepwater wells.

Estimates for natural gas in the South China Sea are in the hundreds of trillions of cubic meters. Chinese geologists believe there are more than 200 billion barrels of oil. The U.S. Geological Survey and others say 60 to 70 percent of the region's hydrocarbon resources are natural gas.

Collins says he is skeptical of claims of vast reserves of gas in the region. He says a CNOOC official quoted by the Economist earlier this year estimated there are 200 trillion cubic meters of natural gas in the South China Sea.

“The proven gas reserves of Russia for example are somewhere closer to 44-45 trillion cubic meters, and Russia is basically the Saudi Arabia of natural gas. I am a little skeptical of the high end estimates. That being said, there hasn't been much in the way of oil finds yet, at least from some of the exploration especially in the deep waters of the South China Sea, but there has been lots of natural gas finds,” Collins asserted.

What is clear, analysts say, is that as more resources are proven to exist, the territorial disputes are likely to increase as well.