As some Asia energy experts have noted, the South China Sea (SCS) is like a thin donut with a very large hole: all of the hydrocarbons in oil and gas form are located along the periphery, while the large hole in the center, which includes the bulk of islands contested by many countries, has few resources itself. The geopolitical context of the South China Sea can thus be seen as a situation in which Taiwan, the Philippines, Brunei, Malaysia, Indonesia, and Vietnam are claiming part of the hole in order to guarantee the continued ownership of their part of the donut; the United States is trying to guarantee everybody should have free use of the hole; and China is trying to establish control of both the donut and its hole. The real mystery of the South China Sea dispute is understanding why the hole is actually more important to both the U.S. and China than the donut.
That Thin Hydrocarbon Donut
Best geological estimates of the recoverable oil and gas resources in the SCS, by the U.S. Geological Service and the Energy Information Administration, indicate that they are quite substantial. But even if China were to succeed in the impossible task of colonizing its six neighbors along the SCS coasts, it could at most buy itself a few years of oil imports and a decade or more of gas imports. Baker Institute global gas trade models reveal that even if China were to slow down its economic growth, or to rapidly develop substantial shale gas and other unconventional gas resources (coalbed methane), in 2040 it would still require many times more liquefied natural gas (LNG) imports from Malaysia, Indonesia, Australia, Qatar, and other major producers. This outcome likely holds even with the 2014 China-Russia gas pipeline deals, which are mainly designed to correct North China’s disastrous economic development strategy of relying on coal power generation, and which have little impact on South China’s energy security. Given China’s long-term energy needs, and the relative inadequacy of oil and gas resources in the SCS to meet them, China has very strong incentives to work with its neighbors to cooperate in the joint development of SCS resources. And so we must wonder, why is China building up islands to hold airstrips in the center of the South China Sea when it should be working on a binding treaty that guarantees free use of the donut hole?
The Energy Security Importance of the SCS Donut Hole
The South China Sea plays a critical role in the transportation of oil and gas imports to China’s economically vibrant localities along the Southern and Eastern China coasts. These localities have small supplies of coal, and China’s development strategy has been to guarantee power for their economies from very expensive sources: pipeline gas from Western China and Central Asia; LNG from Southeast Asia, Australia and the Persian Gulf; and nuclear power. As China no doubt sees it, if the U.S. Navy can block the passage of LNG ships going to South and East China through the hole of the donut, these ships would be forced to go through waters partially controlled by Vietnam, Malaysia, Philippines, and Taiwan, which would be equally disastrous for South China’s energy security. To China, in the long-term, the hole is actually more important than the donut it claims to want to own with the declaration of its “Nine-Segment Line of the South China Sea.”
Why the United States Is So Concerned About a Donut Hole on the Other Side of the World
U.S. policy makers are trying to maintain the role of the American Navy as guarantor of free passage of the South China Sea and other critical hydrocarbon transportation chokepoints, such as the Straits of Malacca and the Straits of Hormuz. But more than commanding a prominent symbol of Pax Americana, the U.S. Navy is also insuring the delivery of stable and relatively low-cost LNG supplies to its military partners in Asia, including Taiwan, South Korea, and especially a post-Fukushima Japan. Japan is likely to incrementally reopen many of the 50-some shuttered nuclear reactors, but until it does so, its economy is critically dependent on power generation from the LNG passing through the SCS. In the long-term, Japan may yet develop a bigger LNG fleet that can simply sail around a China-dominated SCS donut hole, or a navy to counter China’s, but until that time comes, the United States Fifth and Pacific Fleets play an irreplaceable role in Japan’s energy security.
Therefore, right now, the donut hole is very important to American security strategies because it is critical to the energy security of its allies in Asia. Optimists will see China’s island-building in the SCS as a strategy much like that of its 2007 use of a missile to destroy its own space satellite: a ploy to force American strategists to the bargaining table to discuss the potential militarization of a critical shared space. Pessimists, however, need look no further than China’s recent extremely costly placement of a China National Offshore Oil Corporation, or CNOOC Group, exploration rig in waters within Vietnam’s 200-mile economic exclusion zone that most energy experts agree are not even likely to contain any useful supplies of oil and gas. China appears to be flexing its muscles to show that it can grab both the hole and the donut.
Jackson Neagli contributed to this article.
