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China And Philiipines Opt To Set Exploration Deals

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October 22
6:00 AM 2016

China and the Philippines could begin exploiting long-untapped energy reserves in the South China Sea, according to reports coming out of this week's meeting between Filipino President Rodrigo Duterte and high-ranking Chinese officials - including a Thursday sit-down with ChinesePresident Xi Jinping - in Beijing. How soon that may happen remains unclear, however, as Duterte cautioned reporters that he has not been empowered by his Congress to finalize any energy exploration deal with his Chinese counterparts.

Earlier reports by Philippine newspaper the "Inquirer" suggested 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.

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.

The Philippines, long a U.S. ally in the region, has moved away from its bilateral ties and military entanglements with the United States and instead embraced a budding new friendship with China, long a regional rival. 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.

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 perhaps another decade's worth of energy before running out. Given that it can take half a decade or longer to bring a major new energy project online, the clock is ticking for the Philippines, which could experience rolling brownouts on Luzon, particularly in Manila.

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