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A contest for oil in the SCS?

February 22, 2017

US Secretary of State Tillerson's former role as ExxonMobil CEO has fueled speculation that US assertiveness in the South China Sea is connected with oil interests - but experts remain skeptical of these claims.

Ölbohrinsel China Südchinesisches Meer
Image: picture-alliance/dpa

During his confirmation hearings in the US Senate, Tillerson made statements indicating the new administration in Washington would prevent China from accessing its artificially-built island outposts in the South China Sea (SCS).

The remarks, coupled with ExxonMobil's longstanding energy interests in the region, have raised questions about Tillerson's ability to ensure US foreign policy interests without being clouded by his former oil-driven global outlook.

Concern over conflicts of interest has become a major point of criticism facing President Donald Trump's administration.

Many in the US Senate were opposed to Tillerson's appointment, resulting in his confirmation in January by a thin 56-43 margin.

One of the most vocal critics opposing his nomination was Massachusetts Senator Ed Markey, who said in a statement that Tillerson's role as CEO of ExxonMobil "disqualified" him for the position of top US diplomat.

"Oil and other energy sources are at the heart of major conflicts around the world, but Mr. Tillerson refused to support American energy independence or even to recognize the strategic vulnerability that comes with importing oil from overseas," read Markey's statement.

It never hurts to look

According to the United States Geological Survey (USGS), underneath the waters of the SCS are a potential 11 billion barrels of oil and 190 trillion cubic feet of natural gas. The Chinese National Offshore Oil Company (CNOOC) gives a far higher estimate, at 125 billion barrels of oil and 500 trillion cubic feet of natural gas.

ExxonMobil has one of the largest international oil interests in the region and also one of the few concerns that have not been deterred by China. In 2009, when Tillerson was CEO, ExxonMobil and Vietnamese state-owned PetroVietnam signed a production sharing contract for two sets of blocks amounting to 14 million square acres in the SCS.

According to an US diplomatic cable released by Wikileaks, the deal was signed quietly given "sensitivities" with China and due to concern that part of the blocks was "within China's line of demarcation." The deal made ExxonMobil the largest offshore acreage holder in Vietnam.

Infografik Karte Südchinesisches Meer Öl und Gasvorkommen Englisch

It's not about the oil

Despite potential on paper and a lot of estimation, there hasn't been a major amount of hydrocarbons extracted from the SCS, as a combination of political conflict, geology, and poor infrastructure have held back development. And according to USGS estimates, most of the hydrocarbon resources in the SCS consist of natural gas.

Edward Chow, an energy analyst at the Center for Security and International Studies (CSIS), told DW that disputed areas in the SCS were not of major interest to international oil companies. "There is a lot of popular misunderstanding of the South China Sea dispute, fanned by politicians who sensationalize the issue," said Chow.

Mikkal E. Herberg, Research Director of the Energy Security Program at the National Bureau of Asian Research (NBR), wrote in a 2016 report that the energy resources in the SCS were overestimated.

"Despite journalistic hyperbole about the petroleum riches of the South China Sea, the reality is that most Western estimates of the region's oil and gas resource potential suggest relatively modest resources," said Herberg in the report, adding that the amount wasn't large enough to alter Asia's "deep dependence on oil and gas imported from outside the region."

No need for conflict

In 2014, to the east of ExxonMobil's blocks, the CNOOC moved an oil rig called the Hai Duong 981 into contested waters near the Paracel Islands. The move sparked a diplomatic row with Vietnam that escalated to small conflicts with fishing boats.

Since then, the issue has been a constant source of irritation between the two nations.

China Vietnam Schiffe Zusammenstoß vom 02.05.2014
A Vietnamese ship collides with a Chinese coast guard boat during a 2014 spat over an oil rigImage: Reuters/Ministry of Foreign Affairs

But despite these isolated incidents, experts estimate that most of the hydrocarbons found in the SCS are outside of disputed territory and therefore would not be a factor in international conflict over resources.

However, the contest is not about who gets to extract the oil and gas found under the surface of SCS, but rather who controls the sea lanes traversing the region, say observers. 

According to the US Department of Energy, a third of total global crude oil trade and half of liquid natural gas (LNG) passes through the SCS.

"From my point of view as an international energy expert, the dispute has little to do with oil and gas and a lot more to do with sovereignty, sea lanes of communication, even fisheries than with energy," said Chow.

Against this backdrop, the SCS doesn't seem fit for the title of a "second Persian Gulf" with regard to energy resources, as some Chinese media have referred to it.

Even if US foreign policy in the SCS grows more assertive under Secretary Tillerson, it is most likely to be based on creating a defensive posture regarding trade routes and affirming alliances than expanding on energy interests. 

"The US government generally seeks to promote the business interests of American companies, but again the disputed areas have attracted very little exploration interest," said Chow.

Wesley Rahn Editor and reporter focusing on geopolitics and Asia