CourcyInt

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 23 MARCH 2006

From: JKC de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: THE SOUTH CHINA SEA

The US government's Energy Information Administration (EIA) has just released its latest report on the SOUTH CHINA SEA.

The key highlights are as follows:

* Ownership of virtually all of the South China Sea remains contested, and the disputed areas often involve oil and natural gas resources.

* Between now and 2025, oil consumption in developing Asian countries is expected to rise by 3.0% annually on average, with more than one-third of this increase coming from China.  If this growth rate is maintained, oil demand for these nations will increase from about 15.1m barrels per day in 2002 to nearly 33.6m barrels per day by 2025.

* Currently the South China Sea region has proven oil reserves of about 7.0bn barrels and oil production of around 2.5m bpd.  Chinese estimates suggest that potential oil resources for the South China Sea could be as high as 213bn barrels, with the Spratly and Paracel Islands accounting for 105bn barrels.

* China's optimistic view of the South China Sea's hydrocarbon potential is not shared by most non-Chinese analysts.  However, the South China Sea is important regardless of its potential as a source of energy.  More than half of the world's annual merchant fleet tonnage passes through the Straits of Malacca, Sunda, and Lombok, with the majority continuing on into the South China Sea.  Virtually all shipping that passes through the Malacca and Sunda straits must pass near the Spratly Islands.  More than 80% of the crude oil supplies for Japan, South Korea, and Taiwan flow through the South China Sea from the Middle East, Africa, and South China Sea nations such as Indonesia and Malaysia.  LNG is also shipped via this route, and as a result about two-thirds of South Korean energy supplies and almost 60% of Japan and Taiwan's energy supplies flow through the Sea.

* The UN Law of the Sea created the potential for overlapping claims in semi-enclosed seas such as the South China Sea.  Claims to an Exclusive Economic Zone (EEZ) could be extended by any nation which could establish a settlement on the islands in the region.  South China Sea claimants have established (mostly military) outposts on the islands in order to conform with Article 121, which states that rocks that cannot sustain human habitation or economic life of their own shall have no exclusive zone or continental shelf.

The full report can be downloaded using the following link: http://www.eia.doe.gov/emeu/cabs/South_China_Sea/pdf.pdf

END