In South China Sea, an Energy Battle
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The Washington Post
September 18, 2011

PUERTO PRINCESA, PHILIPPINES — When China’s largest offshore petroleum producer launched a $1 billion oil rig this summer from Shanghai, Lt. Gen. Juancho Sabban, the commander of Philippine military forces 1,500 miles away in the South China Sea, began preparing for trouble.

The drilling platform, said China, would soon be heading in the general’s direction — southward into waters rich in oil and natural gas, and also in volatile fuel for potential conflict.

“We started war-gaming what we could do,” said Sabban, a barrel-chested, American-trained marine who, as chief of the Philippines’ Western Command, is responsible for keeping out intruders from a wide swath of sea that Manila views as its own but that is also claimed by Beijing.

Arguments over who owns what in the South China Sea have rumbled on for decades, ever since the doomed Chinese government of Chiang Kai-shek in 1947 issued a crude map with 11 dashes marking as Chinese almost the entire 1.3 million-square-mile waterway. The Communist Party toppled Chiang but kept his map and his expansive claims, though it trimmed a couple of dashes.

Today, China’s insatiable thirst for energy has injected a highly combustible new element into long-running quarrels over cartography, arcane issues of international law and ancient shards of pottery that Beijing says testify to its “indisputable sovereignty” over the South China Sea.

China, which imports more than half its oil, will nearly double its demand for the stuff over the next quarter-century, according to the International Energy Agency in Paris. Its demand for natural gas — which is believed to be particularly abundant beneath an archipelago of contested islands and reefs, known as the Spratlys, just west of here — is projected to more than quadruple.

With consumption soaring and the price of imports rising, China is desperate for new sources to boost its proven energy reserves, which for oil now account for just 1.1 percent of the world total — a paltry share for a country that last year consumed 10.4 percent of total world oil production and 20.1 percent of all the energy consumed on the planet, according to the BP Statistical Review of World Energy.

As a result, Beijing views disputed waters as not merely an arena for nationalist flag-waving but as indispensable to its future economic well-being.

“The potential for what lies beneath the sea is clearly a big motivator” in a recent shift by China to a more pugnacious posture in the South China Sea, said William J. Fallon, a retired four-star admiral who headed the U.S. Pacific Command from 2005 until 2007. China is wary of pushing its claims to the point of serious armed conflict, which would torpedo the economic growth on which the party has staked its survival. But, Fallon said, such a thick fog of secrecy surrounds China’s thinking that “we have little insight into what really makes them tick.”

A big factor in this uncertainty is a meshing of Chinese commercial, strategic and military calculations. Like other giant energy companies in China, the China National Offshore Oil Corp., or CNOOC, the owner of the new Chinese rig, pursues profit but is ultimately answerable to the party, whose secretive Organization Department appoints its boss.

The oil corporation is listed on the Hong Kong stock exchange, but a state-owned parent company in Beijing holds a majority of its shares — and makes all key decisions. This adds a layer of hidden calculation to what, in companies driven only by the bottom line, would be a straightforward and relatively predictable business agenda.

When CNOOC took delivery of the new high-tech rig in May, Sabban took fright at Chinese reports that it would start work at an unspecified location in the South China Sea. With only a handful of aging vessels under his command but determined to block any drilling in Philippine-claimed waters, he came up with an unorthodox battle plan: He asked Filipino fishermen to be ready to use their boats to block the mammoth rig should it show up off the coast of Palawan, a Philippine island from whose capital, Puerto Princesa, the lieutenant general runs Western Command.

“We can’t stand up to the military power of China, but we can still resist,” said Sabban, who trained with the U.S. Marine Corps at Quantico, got a master’s degree at the Naval War College in Rhode Island and, with help from U.S. troops, battled Islamic rebels in the Philippines’ unruly south. “We have to send a message that we will defend our territory,” said Sabban, noting that parts of the Spratly Islands — which the Philippines calls Kalayaan, or freedom — lie just over 100 miles from here, and more than 1,000 miles from China.

Negotiating a settlement

CNOOC declined to comment on the whereabouts of its drilling platform — which allows China to drill in much deeper waters than before — and reconnaissance flights by the Philippines military have not yet picked up any sign of it. On a recent visit to Beijing, Philippine President Benigno Aquino and Chinese Communist Party leader Hu Jintao pledged to settle their nations’ rival claims peacefully through negotiation, though they remained far apart on who exactly should negotiate: Beijing wants to talk separately with each claimant; Manila and other smaller nations favor a regional settlement.

And nobody yet really knows the true extent of the hydrocarbon wealth they would be negotiating over. In the absence of detailed surveys, estimates vary widely, though even a low-ball figure by the U.S. Geological Survey estimates that the South China Sea could contain nearly twice China’s known reserves of oil and plenty of gas, too.

China’s own estimates are many times higher. In January, the Ministry of Land and Resources in Beijing told the People’s Daily, the Party’s official organ, that Chinese geologists had found 38 oil and gas fields under the South China Sea and would start exploiting them this year. The ministry declined to elaborate or make officials available for interviews.

During the past year, China has grown increasingly assertive in its maritime claims, which collide with those of not only the Philippines but also Vietnam, Malaysia, Taiwan and Brunei, and in a dispute with Japan over islands in the East China Sea, which also lie near oil and gas deposits.

Early this year, Chinese vessels, including craft from the People’s Liberation Army Navy, erected posts and unloaded construction materials on and near a reef near the coast of Palawan. Sabban had the Chinese markers dismantled.