The South China Sea is a critical world trade route and a potential source of hydrocarbons, particularly natural gas, with competing claims of ownership over the sea and its resources.
Stretching from Singapore and the Strait of Malacca in the southwest to the Strait of Taiwan in the northeast, the South China Sea is one the most important trade routes in the world. The sea is rich in resources and holds significant strategic and political importance.
The area includes several hundred small islands, rocks, and reefs, with the majority located in the Paracel and Spratly Island chains. Many of these islands are partially submerged land masses unsuitable for habitation and are little more than shipping hazards. For example, the total land area of the Spratly Islands encompasses less than 3 square miles.
Several of the countries bordering the sea declare ownership of the islands to claim the surrounding sea and its resources. The Gulf of Thailand borders the South China Sea, and although technically not part of it, disputes surround ownership of that Gulf and its resources as well.
Asia’s robust economic growth boosts demand for energy in the region. The U.S. Energy Information Administration (EIA) projects total liquid fuels consumption in Asian countries outside the Organization for Economic Cooperation and Development (OECD) to rise at an annual growth rate of 2.6 percent, growing from around 20 percent of world consumption in 2008 to over 30 percent of world consumption by 2035. Similarly, non-OECD Asia natural gas consumption grows by 3.9 percent annually, from 10 percent of world gas consumption in 2008 to 19 percent by 2035. EIA expects China to account for 43 percent of that growth.
With Southeast Asian domestic oil production projected to stay flat or decline as consumption rises, the region’s countries will look to new sources of energy to meet domestic demand. China in particular promotes the use of natural gas as a preferred energy source and set an ambitious target of increasing the share of natural gas in its energy mix from 3 percent to 10 percent by 2020. The South China Sea offers the potential for significant natural gas discoveries, creating an incentive to secure larger parts of the area for domestic production.
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