Climate change, ironically,reduces the heat in the South China Sea

That’s the headline for a piece I published in the Lowy Interpreter. The shorter version

  • Despite noisy sabre-rattling China has allowed other countries to extract oil and gas from disputed parts of the South China Sea
  • That’s because the resource has never been valuable enough to fight over, and will soon be worthless

Australia’s decision to go ahead with the purchase of nuclear-powered submarines from the United States and United Kingdom reflects a judgement that China, and more particularly Chinese naval power, represents a serious threat to Australian interests. A prominent reason for this judgement has been China’s pursuit of territorial claims in the South China Sea, motivated by the desire to exploit resources including oil, gas and fisheries.

In pursuit of this objective, China has undertaken a variety of measures. These include militarising several islands and creating new artificial islands on mostly-submerged reefs. China has continued to assert its territorial claims in the area, particularly against the United States Navy, which seeks to assert its own purported right to “Freedom of Navigation Operations”. There have been repeated near-collisions over many years as a result of aggressive patrolling by both sides.

There are, however, good reasons for thinking that the danger of major conflict over South China Sea resources has already passed, if indeed it was ever real. China’s actions in this area should not be understood as a serious attempt to use naval power to capture control of valuable resources.

The resources of the South China Sea aren’t all that valuable.

The question of fisheries can be dispensed with quickly. Disputes over fisheries, between nations, or between groups of fishers, are frequent, and often involve resorting to violence. The “Cod Wars” of the 1950s through to the 1970s between Iceland and the United Kingdom ended with a single (accidental) death. The outbreak of piracy off the coast of Somalia, which became a major crisis between 2000 and 2010, was sparked initially by disputes about overfishing of Somali resources by foreign fishers. Relations between Indonesia and Australia were strained for some years by Indonesian fishers operating within Australia’s exclusive economic zone.

But none of these disputes came close to generating actual naval warfare. Fish simply aren’t valuable enough to risk the loss of warships costing tens of billions of dollars.

Philippine fishing boats (front) as a Chinese coast guard ship last month sails in the Scarborough Shoal, South China Sea (STR/AFP via Getty Images)

Philippine fishing boats (front) as a Chinese coast guard ship last month sails in the Scarborough Shoal, South China Sea (STR/AFP via Getty Images)

Surprisingly enough, the same appears to be true of oil and gas. Despite its belligerent rhetoric, and aggressive naval gestures, China has taken little or no effective action to prevent other nations from exploring for and extracting oil and gas in disputed parts of the South China Sea, particularly where rival claims appear stronger. Vietnam, Indonesia and Malaysia have all developed resources on the periphery of the “Nine-Dash Line”. Only the Philippines seem to have been deterred effectively.

An obvious reason is that, despite some hyperbolic claims, the resources in the region aren’t all that valuable. Like fisheries, they are worth a quarrel, but not a war. Vietnam’s state-owned PetroVietnam produced about 10 million barrels of oil last year. That implies total revenue of around US$700 million at current prices, most of which would have been spent on extraction costs. China’s own Hainan gas field is currently yielding about 20 million cubic metres a day. The price of gas is notoriously opaque, but it is unlikely that this amounts to more than US$1 billion a year after extraction costs. That’s about the annual operating cost of a single aircraft carrier in peacetime.

The transition away from oil and gas may not be fast enough to prevent severe global heating, but it is already making the development of new oil and gas fields problematic.

So, the resources of the South China Sea aren’t all that valuable. More importantly, the days of oil and gas as critical resources are drawing to a close. The transition away from oil and gas may not be fast enough to prevent severe global heating, but it is already making the development of new oil and gas fields problematic, even on a purely financial basis.

The big shift in oil demand is due to the transition to electric vehicles, in which China is a world leader. Sales of internal combustion engine cars in China peaked before the Covid pandemic, and are now declining. Because car ownership in China has been growing rapidly, it will take some time before declining sales translate into a declining number of combustion engine vehicles on the road, and therefore to declining demand for oil. But the decline will be underway in ten years at the most. Given the time it would take to bring new wells into production, and the high cost of deep-sea drilling, it would make little sense to fight for the right to develop these resources further.

Much the same applies to gas. Until quite recently, it was viewed as a “transition fuel” that could be used to bridge the gap between current reliance on coal and a future powered by solar and wind energy. Gas-fired electricity in particular was seen as a complement to variable supplies of solar and wind.

Two facts have changed this. First, there has been increasing focus on the negative aspects of gas, in particular the leakage of methane associated with its extraction. Second, rapid technological advancements in energy storage have undermined the main rationale for gas-fired electricity generation. The use of gas in heating and cooking is also being challenged by a shift to electricity.

There are plenty of serious reasons to see the current Chinese government as an enemy of freedom and democracy. But the threat of a costly conflict over resources of diminishing value in the South China Sea appears low among them.

8 thoughts on “Climate change, ironically,reduces the heat in the South China Sea

  1. JQ: “The transition away from oil and gas may not be fast enough to prevent severe global heating, but it is already making the development of new oil and gas fields problematic, even on a purely financial basis.”

    This holds in spades for another touted offshore province in a conflict zone, the Aegean Sea, contested between Greece and Turkey. A fair part of the South China Sea is fairly shallow continental shelf, though parts go down to 1700m. The Aegean is mostly deep, down to 3,000m. It is technically possible to extract oil and gas as such depths, but very expensive. Throw in the insurance problem, and development looks very unlikely.

    See also my news item on VLCC tankers, stranded in the Sandpit:

  2. The opposite is true in the Ukraine. Odds are there is some internal rationality to Putins madness and that internal rationality told him his economic/ power to blackmail position will get weaker with every other year. So he started the war a year ago.

  3. The article begs the question. What do the elites of nations consider *is* worth fighting over? Clearly, they are certainly still seeking fights and starting fights as they always have done. Putin’s war against Ukraine is the most obvious recent and ongoing example. If the elites feel their interests are threatened in any way and they calculate that their position, not even their nation’s position, will be enhanced in any way by aggression, then they will undertake aggressive actions.

    Here, I am assuming those major events in this world that are human controlled, are elite human controlled. That seems a justifiable assumption both historically and today. On a whole raft of issues, not just arms and war issues, the elites are still getting their way and the things that the majorities want, even in democratic or nominally democratic countries, are most often not being done.

    The elites consider that the actions which further their goals, as elite individuals firstly and as oligarchy alliances secondly, are the actions which must happen. These actions inevitably do happen when the elites have the financial power and/or military power to make them happen and they do have those levers of power. The rights or the good of humanity in general or of the environment are simply not considered.

    I see no sign that anything is changing in this regard. Elite control of nations is intensifying, the poor are being destroyed and the middle classes, lower sections first, are being pushed down to poverty as well. Putin has miscalculated for himself and humanity. There is no guarantee that other leaders won’t do the same sort of things. Indeed, I see them doing it continually. Unless we radically change our politics and economy there is no hope.

  4. Ikon, you are right that I am using “China” as shorthand for “the Chinese political elite”, which is rapidly reducing to “Xi Jinping”. But he doesn’t show signs of Putin-style craziness as yet

  5. Give it time. And sorry for my post being so negative. If I can say nothing good about the world I should really say nothing. Time for a vow of silence but I don’t seem to have the self-discipline for that yet.

  6. Economic motives rarely figure large as reasons for going to war – although they are often imputed after the event. Putin is clearly driven by nationalist revanchism; Xi taps into Chinese collective memory of the years of humiliation: redress demands that all territory not formally alienated is to be redeemed and made irreversibly Chinese (so Tibet, Xinjiang, Taiwan, the South China Sea); India holds to the glories of the Raj, and sends soldiers to fight over a few hundred metres of glaciated mountainside because it was marked as part of India by British surveyors.

  7. Does China have any reasonable claim to Tibet? Anyway, it’s all about power and in particular elite power. All great powers try to go empire building. They all find their quagmire sooner or later.

  8. Yes, there was a version of a nation that could reasonably be called a predecessor of today’s China that did include Tibet. Chinese nationalism is at least as bad as any other when it comes to unfounded feelings of superiority towards other nations or internal ethnic minorities. Regarding ambitions for territorial expansion, it is relatively tame. Emphasize on the relatively as always, since those geography changes based on ancient history just make no sense in general. No need to start torturing history the way Putin does to lay the territorial claim. China could just start to claim Malaysia, or Singapore etc. “our poor Chinese Brothers and Sisters are oppressed by Muslim radicals… ” “all ethnic Chinese in one nation”. There must also be some historical form of “China” that did own a bit more down there in the South beyond what China aspires to now, Vietnam and the like.

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