O&G reserves in the South China Sea: Tempers Flaring

New Wave Media

November 28, 2013

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Geopolitical location, an abundance of fish and huge O&G reservoirs make the South China Sea (SCS) particularly attractive to the countries that all lay claim to parts of it, such as China, Taiwan, the Philippines, Malaysia, Brunei, Vietnam, Indonesia, Singapore, Thailand and Cambodia. While the Chinese National Offshore Oil Company (CNOOC) estimates the SCS holds around 125 billion barrels of oil and 500 trillion cubic feet of natural gas in uncorked reserves, the U.S. Energy Information Administration (EIA) estimates the SCS contains only approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proven and probable reserves, although the EIA admits this figure could increase pending geological surveys of peripheral locations. The USGS estimates undiscovered reserves in the area could amount to anywhere between 5 and 22 billion barrels of oil and between 70 and 290 trillion cubic feet of gas. CNOOC’s figures for SCS reserves are higher than earlier forecasts from the USGS, yet are close of previously released estimates from China’s Ministry of Land and Resources. How much O&G is there in the South China Sea? It may still take some time, probably a few years at least, for a consensus to be reached on in-place and recoverable volumes, but it is safe to say that these reserves are significantly large and that this is directly reflecting on the offshore territorial claims being made by the countries bordering the SCS.

With energy consumption rising rapidly in several of these countries, these potential reserves are being considered strategic be the some if not all of the aforementioned countries. China, which has claimed the biggest share of offshore real-estate in the SCS, is flexing its muscles both militarily and diplomatically in order to secure as much as possible of its claims and the ASEAN community, made up of Vietnam, Malaysia, Taiwan, the Philippines, Indonesia and Brunei, are actively negotiating with China on a diplomatic level to resolve the dispute, although with no solution as yet. At the same time China is working on increasing economic cooperation with Vietnam as it has already done with Malaysia in an agreement worth $5 billion and with Indonesia worth $28 billion.

Even while all the saber rattling is going on between military forces of some of the disputing countries, it is hoped that China and the other countries will realize that diplomatic agreements regarding the territorial disputes and/or joint development of contested resources is a far better option than military confrontation, which would most probably lead to no development at all. From an industry perspective, the Spratly and Paracel islands are interesting because of shallow water plays in the area, which could reduces exploration costs compared to deepwater plays. The islands would likely receive substantial attention from O&G companies worldwide were it not for political constraints.

While the EIA estimates the South China Sea to be more viable as a source of natural gas than as a source of oil, operators would still have to built many subsea pipelines to carry the uncorked gas to land-based processing facilities. Deep submarine valleys and strong currents present major operational challenges to install deepwater gas infrastructure, however, technology is available to mitigate these problems and it is definitely viable, if not cost effective. The region is also historically affected by both typhoons and large tropical storms, almost certainly demanding drill ships and FPSOs instead of much cheaper fixed drilling and production rigs. The increased development of subsea equipment that can emulate the work of deck systems, such as subsea separators, will probably be extensively used in the area, as will FPSOs that can quickly and safely disconnect from production wells in order to escape major storms.

 

 

 

 

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Paschoa, Claudio
Claudio Paschoa is Marine Technology Reporter's correspondent in Brazil.
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