South China Sea tensions deter oil exploration

An energy analyst said exploring for oil and gas near disputed islands in the South China Sea is too much of a gamble for international energy companies because of the tensions in the region and unconfirmed estimates of the size of the oil and gas deposits.

China has been reclaiming land and building port and military facilities on disputed islands and reefs in the South China Sea, which stretches from Singapore to Taiwan.

Last year, there were skirmishes between China and Vietnam after a Chinese oil rig started drilling in waters claimed by both countries.

The South China Sea is claimed by countries including China, Vietnam, Malaysia, Taiwan and the Philippines.

The seabed beneath the disputed islands and reefs is often described as rich in oil and gas.

However, Christopher Len from the Energy Studies Institute at the National University of Singapore said studies forecasting the size of the resources were not accurate.

"What we have are essentially what I would describe as guesstimates," he said in an interview with the ABC in Singapore.

"The problem is that no party can conduct proper exploration of the region because of the ongoing tensions.

"It's not worth the gamble in my opinion."

Several international energy companies, including US giant Exxon Mobil, have exploration rights in disputed areas of the South China Sea.

But the fight over oil and gas resources could all be for nothing according to the US Energy Information Administration (EIA), the US energy agency.

Far from being a new Saudi Arabia, the EIA estimates there is about 11 billion barrels of oil and 190 trillion cubic feet of natural gas in the South China Sea, less than 5 per cent of the world's proven oil and gas reserves.

Currently, 100 trillion cubic feet of gas is approximately one year's global gas supply.

EIA economist Alexander Metelitsa, said there does not seem to be much oil and gas near the disputed Spratly and Paracel islands.

"When we are talking about in the next decade, in the next couple of decades, maybe even fifty years, we are talking about conventional oil and natural gas in this region," Mr Metelitsa said in a conference call from the US.

"And where is it? It's not in the Paracels or the Spratly Island chains."

He also said the possible resources in the Paracel and Spratly islands would cost too much to develop, especially with weak oil prices.

The EIA said that industry sources suggest there is less than 100 trillion cubic feet of natural gas near the Spratly Islands and almost no oil. The Paracels had even less natural gas and no oil.

Another US agency, the US Geological Survey estimates there could be about 12 billion barrels of oil and 160 trillion cubic feet of natural gas in underexplored areas in the South China Sea.

It said about one fifth of these undiscovered resources may be in contested areas.

Chinese estimates are far higher

The state-owned Chinese National Offshore Oil Company estimates the area holds around 125 billion barrels of oil and 500 trillion cubic feet of gas in undiscovered areas, although the figures have not been confirmed by independent studies.

Christopher Len said it was hard to verify the Chinese estimates.

"If we look at the Chinese media they seem to think there is a lot of resources in the South China Sea," he said.

"The Chinese have described the South China Sea as a second Persian Gulf.

"The problem with such information is we do not know for sure where the Chinese media got their information from, that is a source of ambiguity."

One issue with the Chinese estimates is that Chinese geologists do not distinguish between resources, the total amount of the deposit and reserves, the commercially viable part of the deposit.

The risk of tensions spilling into conflict is high in the South China Sea.

A Chinese oil rig in waters claimed by China and Vietnam sparked skirmishes in disputed waters last year.

It turned deadly when anti-China riots in Vietnam left several Chinese workers dead.

China moved the rig and the tensions subsided.

But a month ago, the oil rig was moved closer to Vietnam's coast.

China wants to put aside the territorial disputes and jointly develop the sea with its neighbours.

It also wants the United States to stay out of the equation and accuses Washington of trying to contain China in the South China Sea.

Dr Wu Shicun runs a Beijing-funded think tank, the National Institute for South China Studies, on China's Hainan Island.

"The South China Sea serves as a potential resources base for China and the surrounding nations," he said at a forum in Hainan earlier this year organised by the institute for visiting international journalists from the US East-West Center.

Even if the South China Sea is not the next Persian Gulf, it is a major global trade route.

A third of the world's oil and more than half of the world's LNG shipments pass through the waterway.