US On Red Alert over Events in South China Sea

Another failure of the Clinton State Department has resulted in yet another disaster for the Obama Administration and the country as a whole. Pending a new agreement between a former major ally of the United States for over a century, the Philippines and China could begin exploiting long-untapped energy reserves in the South China Sea. That is the word coming out of this week’s meeting between Filipino President Rodrigo Duterte and high-ranking Chinese officials. In addition, to the preliminary meeting, on Thursday there will be sit-down for President Duterte with Chinese President Xi Jinping, in Beijing. How soon any such agreement may happen remains unclear, Duterte cautioned reporters that he has not been empowered by his Congress to finalize any energy exploration deal with his Chinese counterparts.

The Philippine newspaper “Inquirer” reports that Beijing and Duterte were set to enter into an agreement to explore for energy sources in a part of the South China Sea close to the Philippine coastline. China has long sought to exploit what it believes could be more than 100 billion barrels of oil and hundreds of trillions of cubic feet of natural gas lurking beneath the South China Sea. However, a litany of overlapping territorial claims in the region by the more than half-dozen nations rimming the South China Sea has rendered broad energy development there a nonstarter.

china and philipineans

Earlier this summer, the International Court at The Hague ruled against China in its attempts to annex vast areas of the South China Sea. But the fact that potential joint development of offshore energy deposits in the region is even being discussed underscores the tectonic shift in regional foreign policy undertaken by Duterte since winning the Filipino presidency in May and a total failure of the Clinton-Obama diplomatic policy in Southeast Asia.

The Philippines, has long been a U.S. ally in the region, but has slowly been drifting away from Washington over the last eight years because of what it sees as a lack of interest in the area by the Clinton-Obama government. Over that time it has moved away from its bilateral ties and military entanglements with the United States. Instead the government there has started to embrace a budding new friendship with its longtime regional rival, China. A joint energy-exploration deal between China and the Philippines could serve as a way to dodge thorny questions of national sovereignty and begin extracting energy wealth from the South China Sea, potentially setting a precedent for future energy development deals.

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The U.S. Geological Survey estimates the South China Sea region holds reserves of some 11 billion barrels of oil and 190 trillion cubic feet of natural gas. China National Offshore Oil — the state-owned energy company responsible for offshore energy exploitation — provides a much rosier estimate, predicting the region holds some 125 billion barrels of oil and 500 trillion cubic feet of natural gas. Neither estimate is insignificant for a region woefully dependent on imported oil and natural gas. China is the second-largest consumer of oil after the United States and critically dependent on imports to feed its energy demands. Japan and South Korea are likewise dependent on foreign oil to keep their economies humming. Booming growth in Southeast Asia has pushed the region to emerge as a net oil and gas importer as well.

The Philippines, too, faces a looming energy shortage. The nation’s main island of Luzon depends heavily on the Malampaya gas field, an energy deposit estimated to hold only about another 10 years’ worth of energy at current levels before running out. That brings us the issue that it can take about 5 years or more to bring a major new energy project online, the clock is running down for the Philippines. Shortages could result in rolling brownouts on Luzon, home to the capital, Manila, if new energy sources are not found.

One new source of potential energy is the Reed Bank, an underwater mountain off the Philippine coast believed to hold significant oil and gas deposits. The Reed Bank falls exclusively in the Philippines’ exclusive economic zone, which according to the UN Convention on the Law of the Seas (UNCLOS), places it firmly in the Philippines’ possession. But China, has not seen it that way. As a result, developing the South China Sea’s energy reserves has proved problematic for decades, in part due to China’s sweeping territorial claims. China’s so-called “nine-dash line” encompasses much of the strategic waterway, conflicting with the various territorial claims of other Asian states, including the Philippines, Vietnam, Malaysia, Brunei and Taiwan. Reed Bank, like many other contested areas, falls within the nine-dash line. Under Duterte’s predecessor, the Philippines challenged China’s claim at the Permanent Court of Arbitration at The Hague, which ruled in July under UNCLOS that China’s claims are invalid. But China has refused to accept the decision.

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This new agreement between the two countries could provide a way for both nations to save face and still get access to large amounts of much needed fossil fuel. These types of conflicting claims and the political risk associated with them have made exploration and development of even nearby uncontested areas difficult, as energy companies and foreign investors seek to steer clear of international entanglements.

“I have not seen anyone go into these developments in any meaningful, substantial way,” said Clara Gillispie, senior director of trade, economic, and energy affairs at the National Bureau of Asian Research. “There’s been a number of starts and stops. But in terms of breakthroughs in collaborative, joint efforts or in terms of pure Chinese development, I think we’re still talking about what could happen rather than what is happening.”

Disagreements over who owns what in the South China Sea have long stoked tensions there, exacerbated in recent years by China’s building of artificial islands in areas like the contested Spratly Islands, a cluster of 14 islands and more than 100 submerged reefs (and claimed in part by Malaysia, Taiwan, China, the Philippines and Vietnam). These islands, complete with military installations and runways that can accommodate combat aircraft, lie far from China’s continental shores. Nonetheless, China has claimed in many cases that these manufactured islands confer rights to 12 nautical miles of territorial waters surrounding each island and in some cases exclusive economic zones extending up to 200 nautical miles away from these disputed island outposts.

If honored, these claims would give China de facto territorial control over much of the South China Sea. July’s ruling by the court of arbitration at The Hague offers some degree of international backing to those disputing Chinese claims and its nine-dash line. A warming relationship between China and the Philippines — and particularly a successful joint-development deal allowing both countries to begin extraction of the South China Seas energy wealth — could prove a first step in changing the entrenched political reality in the region. It might also help China validate its territorial claims elsewhere in the region.

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Any way the ball ends up bouncing, the result is not going to be good for Washington, Countries in the region have felt more and more abandoned by the Obama administration and most see no improvement under the direction of a President Hillary Clinton. The days of close friendship and cooperation between most of the Southeast Asian nations and Washington seem to be headed straight for the trash heap of history.


CNBC News contributed to this report.

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About the Author

Richard is a freelance Journalist, who served in the Air Force during the Vietnam War. After his discharge he worked in Law Enforcement and Corrections for several years and was a member of SWAT before earning a degree in Computer Science. He was a consultant to government agencies including DEA, FBI, NRC, DOD and NASA. In the 90's he received a Business Management Degree and became a Consulting Analyst to several Fortune 100 companies. Later he taught G.E.D at Florida State Prison. He is married and has several grandchildren and great grandchildren. You can follow Richard on