The East China Sea: Conflict or Co-operation?

1. The East China Sea: Conflict or Co-operation? Theresa Fallon Independent Energy Analyst European Institute of Asian Studies 11 December 2008

2. Overview • Energy dependence of China and Japan • Competition for energy resources • Sovereignty debate • Conflict scenario • Co-operation scenario • Recent developments

3. Introduction • The unresolved dispute between China and Japan over territorial rights to oil and gas fields in the East China Sea threatens to develop into more serious problems between the two countries as they jockey for position to extract the energy deposits located there. • The conflict over energy between China and Japan relate to an unsettled demarcation line in the sea where the two countries’ 200-nautical-mile Exclusive Economic Zones overlap. • This situation is made more complicated by the history between China and Japan and resurgent nationalism on both sides. • In diplomatic settings, both countries support sharing the region’s resources, but embrace conflicting definitions for “joint-exploration” in the region.

4. IEA Outlook • Accelerating declines in current producing oil fields increase uncertainty. • Analysis of 800 oil fields show decline rates are expected to rise over time, from 6.7 percent today to 8.6 percent in 2030. • That amounts to a need for the equivalent of four more Saudi Arabias just to offset decline, then another two to meet future demand.

5. Japan: Energy self-sufficiency as low as 4% 90% of oil imported from ME, 96% ng imported from India, Malaysia and Australia (decline dmnd due to shrinking pop.) Necessity of securing stable source of natural resources. Competition for fossil fuels?

6. Feeding the Dragon • From 2000 to 2005 China’s energy consumption rose by 60% • This accounted for almost ½ of the growth in world energy consumption. • Domestic supplies more than 90% of energy needs—largely coal based economy • Imports ½ of the oil it consumes.

7. The Straits of Malacca Problem

8. Relevant Provisions of UN Convention on the Law of the Sea • Article 76 Definition of the continental shelf • 1. The continental shelf of a coastal State comprises the sea-bed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured where the outer edge of the continental margin does not extend up to that distance.

9. Relevant Provisions of UN Convention on the Law of the Sea • Article 83 Delimitation of the continental shelf between States with opposite or adjacent coasts • 1. The delimitation of the continental shelf between States with opposite of adjacent coasts shall be effected by agreement on the basis of international law, as referred to in Article 38 of the Statute of the International Court of Justice in order to achieve an equitable solution.

10. Basic Position of Japan on the Continental Shelf Maritime boundary for the continental shelf and EEZ should be established on the basis of the median (equidistant) line drawn between coasts of Japan and China. Delimitation based on the median line achieves “an equitable solution” within the meaning of the provisions of the UN Convention on the Law of the Sea (UNCLOS)

11. China’s Position on the Continental Shelf • Based on the natural prolongation theory which relies upon geological or geophysical factors. • However, distance between the coasts of Japan and China is less than 400 nm. In such an area, geological or geophysical factors are irrelevant in determining legal title or delimitation.

12. China’s Position on the Continental Shelf • China does not accept delimitation based on the median line. • Chinese continental shelf extends beyond 200 nm to Okinawa Trough. • Chinese development is undertaken in an area that has nothing to do with Japan. • Should Japan so wish, Japan and China can agree on joint developments in area between the median line and Okinawa Trough.

13. Troubled Waters of the East China Sea

14. Relevant Judgment of International Court of Justice • Case concerning the Continental Shelf Libya / Malta, 8 June 1985 • 39. The Court however considers that since the development of the law enables a State to claim that the continental shelf appertaining to it extends up to as far as 200 miles from its coast, whatever the geological characteristics of the corresponding sea-bed and subsoil, there is no reason to ascribe any role to geological or geophysical factors within that distance either in verifying the legal title of the States concerned or in proceeding to a delimitation as between their claims.

16. Recent history of Sino-Japanese relations • Japanese Emperor’s first visit to China in 1992 on 20th anniversary of normalization of Sino-Japan relations. • Pres. Jiang Zemin’s visit to Japan in 1998 first-ever visit made by PRC president. Nadir of relationship. • 2001-6 tense political relationship • PM Koizumi Yasukuni visits • April 2005 anti-Japanese riots • Thaw: PM Shinzo Abe visit to BJ 2006(first foreign visit as new PM, usually US) followed by Wen Jiabao’s return visit to Japan April 11-13, 2007 • PM Fukuda visit China December 2007 • President HJT visit to Japan May 6-10, 2008 (first by Chinese president since 1998)

17. Timeline of development of Chunxiao field • August 2003, CNOOC entered partnership with Unocal and Royal Dutch/Shell Chunxiao gas field 3 mi from the J claimed “median line” in ECS • Perception in both BJ and Tokyo that energy security polices are competitive • July 2005 Teikoku Oil won right to conduct exploratory drilling, first expedition met with a significant show of force by the PLA Navy in early Sept. 2005, 5 vessels included advanced Sovremenny destroyer. • Japanese exploratory drilling efforts put on hold. • July 2006 disagreement over site of joint development operations. Chinese proposals included areas near D/S occupied by Japan. Japan’s proposals focused on site straddling the median line including Chunxiao complex.

18. Economics of Field Development • As the gas and oil field lies close to Shanghai in relatively shallow water it would make economic sense to build a pipeline to the city. A pipeline to Japan would require a much larger investment.

19. In April 2006 China neither confirmed nor denied that it had started drilling gas from Chunxiao field. • Japanese planes reported flames from top of rigs which occur when gas is pumped from field.

20. CNOOC taps gas field amid border flap with Japan • CNOOC confirmed for the first time on April 11, 2007 that it had begun producing gas at a field in ECS • Japan objected to development which Tokyo perceived might drain off its own resources. • Discrepancy in state-controlled CNOOC Annual Report. Chinese version listed that gas and oil was being pumped from Tianwaitian in the ECS. English version of report did not.

21. “Don’t drink my milkshake. . .” : iStockphoto, Courtesy of Paramount Vantage Photo illustration

22. Development of oil and gas fields that straddle the median line such as Chunxiao/Shirakaba may affect reserves in the east side of the median line.

23. Has Symbolism of East China Sea Overshadowed Value of Reserves? • CNOOC lists net interest (of 50%) proved reserves of 167bcf for Chunxiao. Total field proved reserves would be double this (based on net of 50%) or perhaps a bit higher as this will exclude any government take (royalty and/or profit share). • The quantity (volume) of hydrocarbons was much less than needed to be commercial. • Unocal and Shell withdrew from project.

27. Diaoyutai/Senkaku/Taioyutai • The roots of the dispute date back to Beijing’s and Tokyo’s claimed sovereignty over the Diaoyutai/Senkaku islands and their declared Exclusive Economic Zones (EEZ) that overlap in the East China Sea. • After diplomatic relations were established in 1972, China and Japan agreed to put aside the controversy and resolve it at a future date. • Taiwan maintains an independent claim on islands and fishing rights.

28. Made up of 8 islets

30. Daiuyotai/Senkaku • ■魚釣島　航空写真

32. Daioyutai/Senkaku lighthouse • Japan placed under state control a lighthouse built by nationalists on D/S despite rival claims by China and Taiwan.(AFP/File/Goh Chai Hin)

33. Chinese protestor outside the Japanese Embassy in Beijing April 2005

34. Hong Kong activists • Ship carrying HK activists stopped by a Japanese Coast Guard patrol boat as the ship headed for disputed islands on Oct. 27, 2006. The ship changed course and moved away from the disputed islands, after coming within Japanese territorial waters. (AP Photo)

35. Taiwanese protestors

36. June 10, 2008 maritime accident near D/S

37. Taiwan activist boat turned away • June 16, 2008. Japan turned back the Taiwan activist boat which approached a group of disputed islands in protest against a ship collision the previous week, the latest drama in a fast-escalating political dispute.

38. Japan-Taiwan Relations • September 29, 1972 Japan severs diplomatic ties and recognize PRC • Great attempts made to prevent Taiwan’s expulsion from UN in 1971. • President Lee Teng-hui • President Chn Shui-bian governed Taiwan with a pro-Japan attitude for 20 years. • May 2008, KMT swept back to power, Japan-Taiwan relations is in the midst of a flux. • President Ma did not mention Japan at all in inaugural address. • Protested Japan’s hold on Diaoyutai in his earlier days. • June 10, 2008 maritime incident • September 1, 2008 Japanese PM Fukuda resigns

39. Former President Lee Teng-hui visits Okinawa in September 2008 • Japan-educated Lee was Taiwan's first directly elected president, serving from 1988 to 2000 while he was with the ruling Nationalist Party (KMT). Lee left the KMT after stepping down as president. • Former President Lee declared on return to Taiwan that Senkaku belongs to Japan.

40. Chinese survey ship Haijian No.46 about 6km west of D/S December 8, 2008

41. History of Sino-Japanese Energy Cooperation • In response to first oil crisis in 1971, the Japanese government listed diversification of energy sources as national security priority throughout 1970s. • After the establishment of official ties in 1972, China soon began to export crude to Japan. • In 1978, China implemented economic reforms which opened its door to foreign investment and aid. • Japan extended low-interest loans in the form of official development assistance (ODA) to Beijing. This provided much needed capital for China’s modernization drive in its initial stage. • The first five-year disbursement of yen loans were used for six large infrastructure projects which benefited Chinese export of coal and oil to Japan.

42. Joint Press Statement issued on 18 June 2008 on Agreement to Cooperate • Chinese enterprises will welcome Japan’s ‘participation’ in the development of Shirakaba/Chunxiao. • Japan will invest in exploration for an as yet unspecified ‘return’ from the field. • Given that China is more advanced in exploration of the field, it is expected that China will gain the most benefit from Shirakaba/Chunxiao.

43. Joint Statement (cont.) • Japan and China have agreed to designate an area straddling the median line and just south of Asunaro/Longjing as a ‘joint development area’. Japan and China are expected to have equal investment and returns in this field. • Japan and China regard the joint development area as a ‘first step’ and will continue consultations on their next steps in the other two fields.

44. Advantages • Japan came too late for exploration in the East China Sea and was disadvantaged by the Shirakaba/Chunxiao field’s distance from its territory and the expense of exploiting it on its own. By contrast, the field is close to China and China has already invested in infrastructure necessary to distribute the resources. Japan should get some return for a modest investment.

45. Uncertainties • The statement only refers to Japan’s participation in Shirakaba/Chunxiao, leaving open the possibility that Japan could be cut out of true joint development, depending on China. • That Japan derives less from Shirakaba/Chunxiao, is seen as a major concession to China, which may be drawing off what Japan regards as Japanese resources. • Doubt exists in Japan whether China will really agree to negotiate on Kashi/Tianwaitian and Kusunoki/Duanqiao, over the longer term.

46. Will the disputed waters of the East China Sea turn into one of ‘peace and friendship’? • The current deal over the energy resources there has dialed down the temperature in a long simmering dispute and has also taken a step forward to secure Japan’s energy and sovereignty needs. • The next step will be for China and Japan to sell the agreement to their respective nationalist domestic audiences and to see that it is implemented.

47. Beijing and Taipei Join Hands to Exploit ECS resources?

48. Conflict Scenario • Political tensions between China and Japan mount. Top leaders from Beijing and Tokyo refuse to meet with each other. • Nationalist hardliners from both countries hijack bilateral agenda and put the two Asian neighbors on a collision course. • Despite the high cost of a pipeline to Japan, a private Japanese oil company builds a pipeline with government subsidies to disputed gas field on the point of principle. • No military communication channel exists between Chinese and Japanese navies. Ships in East China Sea skirmish over boundary area. A serious escalation occurs.

49. Cooperative scenarios • China moved closer to Japanese position by agreeing to open parts of the existing Chunxiao complex to Japanese companies composed of four fields: Chunxiao and Tianwaitian where production has commended, and Canxue and Duanqiao, which remain untapped. • Japan moved closer to Chinese position and agreed to alternative joint development areas near the median line, or has agreed to the joint development of fields nears the D/S islands.

50. Co-operation Scenario • Relations between China and Japan experience a warming. This process continues. • The new Japanese Prime Minister does not get involved in Yasukuni Shrine visits. • Chinese military ships refrain from probing Japan’s waters. • A line of communication is established with Chinese and Japanese military counterparts for emergency use. • China and Japan have a long history of co-operation in energy. Sino-Japanese co-operation is extended in co-development projects in the East China Sea.