In South China Sea, an Energy Battle
Business + Economy

In South China Sea, an Energy Battle

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.

China has been particularly keen to thwart efforts by the Philippines and others to exploit resources it wants for itself. This spring, Sabban said, Chinese naval vessels harassed a seismic survey ship working for Forum Energy, a British firm looking for oil under contract with the Philippines. After two days of near-collisions, Sabban sent out a small military plane to fly over the area.

“Fortunately, the Chinese withdrew,” he said. A new round of surveys is due to start early next year, setting up another potential confrontation.

China has not objected to a big existing natural gas field off Palawan developed by a state-owned Philippine company, Shell and Chevron but has demanded that Manila stay away from potential energy wealth in the nearby Spratlys. The Department of Energy in Manila is nonetheless now taking bids for 15 new offshore exploration blocks, three of them in or near contested waters.

Ismael Ocampo, the department’s director of energy resource development, said he’d like CNOOC to make a bid as that would mean Beijing acknowledges Philippine jurisdiction. But, with that unlikely to happen, he’d prefer a big American firm as “they have an armada of battleships” behind them.

Across the region, militaries are bulking up, most notably China’s, which in August launched its first aircraft carrier, built on a Soviet-made hull. Beijing, which has boosted defense spending by annual average of more than 12 percent over the past decade, has poured money into its navy. It completed a huge new naval base last year on Hainan Island to accommodate attack and ballistic-missile submarines for its South Sea Fleet and has made far more rapid progress than expected in developing anti-ship missiles that could one day sink U.S. aircraft carriers. According to a recent Pentagon report, China will likely build “multiple” carriers of its own over the next decade.

Vietnam, which in May accused China of slicing cables from an oil survey ship, is meanwhile buying Russian submarines and hosting visits by the U.S. Navy. The Philippines has just bought what is now its navy’s biggest vessel: a 40-year-old former U.S. Coast Guard ship. Washington — which has a 20-year-old mutual-defense treaty with Manila — threw in a new weapons system for free.

The new vessel’s main job will be helping Sabban’s Western Command boost patrols off the coast of Palawan, a narrow, 265-mile-long island that juts into the South China Sea.

Fueling deep unease

In some areas, China’s desire to maintain a steady supply of energy matches the interests of the United States and other nations: All want to ensure that sea lanes remain open and that oil tankers can pass undisturbed through the Malacca Strait on their way to China, Japan and elsewhere.

But China’s insistence that it owns virtually the whole sea — and the resources beneath it — has fueled deep unease, undoing much of the goodwill China previously worked hard to develop.

“Maybe they need energy more than they need their image,” said Abraham Mitra, the governor of Palawan. Along with Sabban, the governor this summer took a military plane to a Pagasa, a Philippine-controlled island in the Spratlys with a population of 50 and a small garrison, and waved their country’s flag. China accused them of trespassing on Chinese turf.

The mission was organized by a left-wing legislator, Walden Bello, who, after years of criticizing the United States, now worries more about China. “Just look at their maps and you say: ‘My God, how do they come up with these claims?’ ” Bello said. He sponsored a motion in parliament for the South China Sea to be called the West Philippine Sea.

Some politicians, though not Bello, even want the United States to reestablish military bases in the Philippines — 20 years after Manila, in a burst of nationalist ardor at a time when few here paid much attention to China, booted out the U.S. Navy and Air Force.

“We need the U.S. to come back. The U.S. needs to come back, too,” said James “Bongo” Gordon, the mayor of Olongopo, the town adjoining Subic Bay, which until 2001 housed a sprawling U.S. naval base. Lt. Gen. Sabban and Mitra, Palawan’s governor, scoff at the idea of the United States setting up again in Subic Bay but say it should take a look at Palawan, much closer to possible flash points in the Spratlys.

At his seafront headquarters, Sabban showed off a modest trophy of his efforts to assert Philippine sovereignty: a small fiberglass boat and three Yamaha outboard motors. His men seized the vessel and its Chinese crew of six in March off the southern coast of Palawan.

Interviewed in a Puerto Princesa jail, the Chinese crewmen said they’d set out from the Chinese island of Hainan to hunt for fish and got lost after their navigation equipment failed. They declined to identify their boat’s owner. Sabban doubts this story and thinks they were part of a bigger Chinese flotilla as their tiny craft could not have sailed so far on its own. What they were up to, though, isn’t clear.

After years of public indifference, the South China Sea — where the Philippines controls five tiny islands, two reefs and two sandbars — is now front-page news here. Alarm over China’s intentions even seeped into a recent beauty pageant.

The winner of this year’s “Miss Palawan” contest was 18-year-old Sarah Sopio Osorio, an accounting student who entered as the representative for Kalayaan, as the Philippines calls the Spratlys. She won after a spirited speech in favor of Philippine claims.

Osorio doesn’t live in Kalayaan but does visit for a month each year with her parents, who work in the local government of Pagasa island. The trip takes three days by boat from Puerto Princesa: “I vomit all the way,” the beauty queen said. Nonetheless, she says, the Philippines must hang on to its territory against “greedy” Chinese demands. She’s in no doubt about what’s fueling China’s appetites: “Oil is the only reason. That is it.”