Introduction
The South China Sea is a region of immense strategic and economic importance, harboring vast hydrocarbon reserves that could reshape energy dynamics in Southeast Asia. According to the U.S. Energy Information Administration, the region contains an estimated 190 trillion cubic feet of natural gas and 11 billion barrels of oil in probable reserves, with undiscovered reserves projected at an additional 160 trillion cubic feet of gas and 12 billion barrels of oil. These resources are primarily located along the sea’s margins, with key areas like Reed Bank holding approximately 5 billion barrels of oil and 55 trillion cubic feet of gas. While countries like Vietnam, Malaysia, and Indonesia are advancing energy exploration projects in contested waters, the Philippines has been slower to capitalize on its resource potential due to a 2014 policy suspending exploration in disputed areas. However, with the Malampaya gas field nearing depletion, the Philippines is now ramping up efforts to revitalize its oil and gas sector through projects like redeveloping the Cadlao Oil Field and pursuing joint exploration ventures, signalling a renewed commitment to addressing energy security and rising costs.
The Philippines faces significant challenges in harnessing its vast hydrocarbon resources, primarily due to Chinese aggression in disputed waters. Despite a 2016 arbitral tribunal ruling under the United Nations Convention on the Law of the Sea (UNCLOS) affirming the Philippines’ exclusive rights within its exclusive economic zone (EEZ) and invalidating China’s “historic rights” claims under the nine-dash line, enforcement remains problematic as China refuses to recognize the decision. Confrontations, such as maritime harassment in Reed Bank, exemplify the difficulties in asserting sovereign rights over these critical resources. Nonetheless, the Philippines is taking steps to safeguard its maritime sovereignty and unlock its estimated $263 trillion worth of untapped hydrocarbon reserves. Initiatives include renewing the Malampaya service contract and attracting investments in fields like the Sulu Sea and Cotabato Basin. Coupled with proposals for joint patrols with the U.S. and stronger naval coordination, these actions underline the Philippines’ intention to secure its energy future. As the West Philippine Sea represents both the nation’s sovereignty and economic potential, the international community’s support in upholding the 2016 ruling and promoting peaceful resolutions is vital for regional stability and the responsible development of these invaluable resources.
Rich Resources in the South China Sea
The South China Sea stands as a pivotal region of paramount strategic and economic significance, primarily due to its abundant natural resources, notably vast reserves of oil and natural gas. Latest estimates from the U.S. Energy Information Administration (EIA) indicate that the South China Sea harbors approximately 190 trillion cubic feet of natural gas and 11 billion barrels of oil within proven and probable reserves. Moreover, there are additional untapped resources comprising 160 trillion cubic feet of natural gas and 12 billion barrels of undiscovered oil within the region.
Among the notable features in the South China Sea, the Reed Bank, also known as Recto Bank, emerges as a focal point with substantial potential for enhancing energy security in the Philippines. Estimates suggest that Reed Bank could potentially hold up to 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas. Despite being situated within the Philippines’ exclusive economic zone (EEZ), Reed Bank is subject to territorial disputes and overlapping claims, notably by China.
The development of resources in the South China Sea, particularly at Reed Bank, carries significant economic implications for the Philippines. It has the potential to enhance the country’s economy by providing a stable energy source and decreasing reliance on imports. This is especially crucial as the Malampaya gas field, currently supplying 20% of Luzon’s electricity demand, is projected to be depleted by 2027.
However, challenges and tensions persist in the region, impeding exploration and development efforts. Territorial disputes, notably with China, have hindered oil and gas surveys, with Chinese coast guard vessels posing obstacles to Philippine activities. Despite international rulings affirming the Philippines’ rights over Reed Bank, China continues to assert its claims, leading to ongoing tensions.
Recent developments have seen calls for the Philippines to resume exploration endeavors at Reed Bank to address escalating energy costs and the imminent depletion of existing gas fields. Proposals for joint patrols with the United States have emerged to ensure the safety and security of exploration activities in the region.
China’s Claims vs. UNCLOS Ruling
The July 2016 ruling by the Permanent Court of Arbitration (PCA) in The Hague marked a significant moment in the longstanding dispute between the Philippines and China over the South China Sea. The tribunal’s decision favored the Philippines, declaring that China’s expansive claims within the nine-dash line held no legal basis under the United Nations Convention on the Law of the Sea (UNCLOS). This verdict upheld the Philippines’ exclusive economic rights in the region while also condemning China’s actions, including illegal fishing and the construction of artificial islands, as violations of the Philippines’ sovereign rights.
Despite the international legal ruling, China adamantly rejected the decision, labeling it as “null and void.” In defiance of the tribunal’s judgment, China continued to exhibit assertive behavior in the South China Sea. Notably, the China Coast Guard (CCG) intensified its patrols around key features like Scarborough Shoal, Luconia Shoals, and Second Thomas Shoal, underlining China’s persistence in asserting its sovereignty in the region. Moreover, China’s interference in the Philippines’ energy exploration activities, exemplified by incidents such as the harassment of Philippine supply ships near Second Thomas Shoal in 2023, has further added tensions between the two nations.
Recent developments in the South China Sea have seen escalating geopolitical tensions as external powers, including the United States, have become more involved, adding complexity to the already contentious situation. In November 2024, a security agreement was signed between the United States and the Philippines, signaling a joint commitment to sharing classified information and presenting a unified front against China’s maritime ambitions. Against this backdrop, confrontations between Philippine and Chinese vessels have become more frequent, resulting in injuries and damages. The escalation reached a critical juncture when Philippine President Ferdinand Marcos Jr. enacted two landmark laws aimed at defining the country’s maritime boundaries, further heightening tensions in the region.
Philippines’ Energy Challenges
The impending depletion of the Malampaya gas field, a vital energy source supplying a substantial portion of Luzon’s power needs in the Philippines, poses a looming energy crisis set to unfold by the first quarter of 2027. With the remaining reserves projected at 858.8 million standard cubic feet, the country faces the urgent need to diversify its energy portfolio to avert potential shortages and disruptions once the field is exhausted.
In response to this challenge, the Philippines has decided to shift towards harnessing renewable indigenous sources to increase its energy security. Central to this initiative is the National Renewable Energy Program (NREP), designed to elevate the share of renewable energy in the country’s power mix to 35% by 2030 and an ambitious 50% by 2040. Notably, the Philippines stands as the third-largest global producer of geothermal energy, leveraging this abundant resource with geothermal plants with an impressive 65 to 71% capacity factor, rendering them reliable baseload power providers.
Exploration of potential energy reserves, exemplified by endeavors at the Reed Bank, emerges as a pivotal component of the Philippines’ energy strategy. The Reed Bank is earmarked as a promising site for natural gas reserves, envisioned to play a crucial role in filling the void left by the Malampaya gas field’s depletion. The Department of Energy (DOE) spearheads efforts to promote the exploration and development of indigenous energy sources, emphasizing the necessity of securing a stable and sustainable power supply for the nation’s energy needs.
Across the energy landscape, notable milestones and initiatives highlight the Philippines’ commitment to energy diversification and sustainability. For instance, the Tiwi and Makban geothermal facilities, operated by AP Renewables Inc. collectively contribute 300 megawatts to the national grid. APRI’s innovative strides include pioneering the country’s first battery energy storage and geothermal hybrid system, enhancing grid stability and resilience. Furthermore, the NREP sets forth ambitious targets, aiming to achieve 15.3 gigawatts of renewable energy capacity by 2030, encompassing diverse sources such as hydropower, wind power, solar power, and biomass power.
To fortify energy security, the DOE is actively pursuing the development of liquefied natural gas (LNG) import terminals, complementing the country’s renewable energy endeavors. This strategic move seeks to ensure a consistent supply of natural gas, consequently reducing dependency on imported fossil fuels and fortifying the Philippines’ energy resilience in the face of evolving challenges. Amidst this critical juncture, the Philippines’ concerted efforts towards renewable energy adoption and exploration activities stand as linchpins in shaping a sustainable and secure energy landscape for the nation’s future.
U.S. Interest and Joint Ventures
U.S. companies have proactively sought collaborative ventures with Philippine counterparts to delve into energy exploration endeavors within both contested and uncontested territories. A recent U.S. Presidential Trade Mission to the Philippines witnessed a significant stride in this direction, with 12 out of 22 U.S. firms unveiling joint projects and partnerships with local entities. These initiatives span a spectrum of sectors, encompassing renewable energy projects, advancements in the digital economy, and infrastructural developments. Noteworthy among these engagements are Ultra Safe Nuclear Corporation’s collaboration with the Manila Electric Company (Meralco) to pioneer cutting-edge nuclear solutions and Sol-Go’s expansion of solar panel manufacturing capabilities in Lipa City.
The strategic alliance between the United States and the Philippines has seen a notable reinforcement through joint military patrols and the revitalization of the Enhanced Defense Cooperation Agreement (EDCA). Exemplifying the essence of these joint endeavors, partnerships such as Ultra Safe Nuclear Corporation’s collaboration with Meralco to advance nuclear battery solutions for clean energy highlight the fusion of technological prowess towards sustainable energy goals. Similarly, Sol-Go’s ambitious expansion plans in the solar energy sector within the Philippines, targeting a capacity of 15 megawatts by 2025, pinpoint the commitment to harnessing renewable resources for a greener future. Concurrently, ventures like Innovation Force’s collaboration with Aboitiz Power signify an effort to foster innovation in the realm of clean energy solutions. Additionally, the joint air and maritime patrols strategically conducted in the South China Sea serve as visible manifestations of the collaborative resolve between the United States and the Philippines to deter provocative actions and uphold regional stability in the face of escalating tensions.
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Regional Developments and Tensions
Despite objections from China, countries like Vietnam, Malaysia, and Indonesia have persisted in their exploration endeavours within the South China Sea, resolutely advancing their efforts to tap into natural resources situated within their Exclusive Economic Zones (EEZs). Malaysia, through its state-owned entity Petronas, stands out for its proactive gas exploration activities in the region, even in the face of direct pressures exerted by Chinese authorities. Concurrently, Vietnam has undertaken ambitious island-building initiatives in the Spratly Islands, a move that has triggered diplomatic protests from neighboring Malaysia, underlining the escalating competition for strategic resources in the region.
In contrast to its regional counterparts, the Philippines finds itself grappling with policy hesitations and internal debates, impeding its progress in energy exploration within the South China Sea. Despite a staunch focus on diversifying energy sources and championing clean energy initiatives, the country’s energy policy stance has inadvertently led to delays in crucial exploration activities. The Philippine Energy Plan 2023-2050 sets forth ambitious targets, aiming to carve out a 35% share for renewable energy in its power generation mix by 2030, ascending to 50% by 2040. However, the confluence of geopolitical tensions and market price fluctuations has posed formidable challenges for the Philippines in securing stable energy supplies.
Past incidents involving confrontations over drilling operations serve as stark reminders of the potential for future escalations within the region. Noteworthy instances include Chinese Coast Guard vessels encroaching on waters near Malaysia’s Kasawari gas field in 2021, sparking diplomatic protests from Kuala Lumpur. Similarly, Indonesia has grappled with Chinese vessel intrusions near the Natuna Islands, prompting Jakarta to deploy warships in response.
The South China Sea emerges as a cauldron of complex dynamics, where strategic economic interests, territorial sovereignty assertions, and environmental preservation imperatives intertwine to shape the geopolitical landscape.
Economic and Strategic Opportunities
The Sulu Sea and Cotabato Basin stand out as regions brimming with substantial untapped potential for oil and gas exploration within the Philippines. The Philippine Department of Energy has identified the offshore Sulu Sea Basin as a reservoir holding an estimated potential of 203 million barrels of oil equivalent. Similarly, the Cotabato Basin boasts a potential of 159 million barrels of oil equivalent, with an existing discovery of 29 billion cubic feet (BCF) of gas. The strategic development of these resources holds the promise of propelling the Philippines into a position of net energy exporter, thereby reducing its reliance on imported fossil fuels and catalyzing economic growth across the nation.
A pivotal energy asset for the Philippines, the Malampaya gas field situated off the coast of Palawan has played a crucial role in the country’s energy landscape. In a strategic move to sustain production and exploration activities within this vital field, President Ferdinand R. Marcos Jr. inked a renewal agreement for the Malampaya Service Contract No. 38 in May 2023. Originally slated to expire in February 2024, this 25-year production contract has been extended for an additional 15 years, now stretching until February 2039. The extension encompasses a comprehensive work program, featuring geological and geophysical studies alongside the drilling of a minimum of two deep-water wells during the initial Sub-Phase 1 spanning from 2024 to 2029. This initiative is poised to unlock the full potential harbored within both the existing gas field and the adjacent prospect areas, paving the way for sustained exploration and extraction activities in the region.
China’s Criticism of U.S.-Philippines Ties
China has consistently voiced its opposition to the deepening U.S.-Philippines military ties, citing concerns over regional destabilization. Chinese officials have vehemently criticized the increased American military presence in the Philippines, framing it as a component of a broader containment strategy aimed at China and interference in regional dynamics. The Chinese embassy in Manila has explicitly warned that such military collaboration will not only jeopardize Philippine national interests but also imperil peace and stability within the region.
In stark contrast, the Philippines has staunchly defended its decision to enhance defense cooperation with the United States, asserting that such partnerships are imperative for fortifying national security and safeguarding sovereignty. Anchored in the National Security Policy (NSP) 2023 to 2028, the Philippines emphasizes the paramount importance of upholding territorial integrity and augmenting defense capabilities. The government contends that the U.S. military presence plays a pivotal role in enabling more efficient responses to natural disasters and various security threats, aligning with the nation’s strategic imperatives for safeguarding its borders and populace.
Recent developments have further heightened tensions between China and the Philippines, particularly following the Philippines’ consent in February 2023 to grant U.S. forces access to an additional four military bases under the Enhanced Defense Cooperation Agreement (EDCA). This move elicited strong rebuke from China, which accused the U.S. of exploiting the Philippines to encircle and constrain China’s influence. Despite the ensuing diplomatic friction, the Philippines maintains that the expansion of the EDCA sites is aimed at fostering local economic development and enhancing disaster response capabilities, underscoring the multifaceted objectives behind the strategic military arrangements.
Under the EDCA framework, the U.S. now enjoys access to a total of nine Philippine military bases, with plans in motion to transform these sites into hubs for humanitarian aid and disaster response operations. The National Security Policy (NSP) 2023 to 2028 serves as a guiding beacon, delineating the strategic roadmap for safeguarding national security interests and deepening defense collaborations with allies such as the United States, marking a pivotal component of the Philippines’ overarching security apparatus in an era fraught with geopolitical complexities and regional power dynamics.
Global Responsibility
The Permanent Court of Arbitration in The Hague delivered a significant ruling on July 12, 2016, favoring the Philippines in its dispute against China over the South China Sea. The tribunal’s decision unequivocally invalidated China’s expansive claims, notably the contentious nine-dash line, citing that these claims lacked any legal grounding under the United Nations Convention on the Law of the Sea (UNCLOS). Furthermore, the ruling deemed China’s activities, such as island building and land reclamation, as unlawful, marking a pivotal moment in the legal landscape of maritime disputes in the region.
Despite the resounding verdict, China has persistently maintained its claims across a vast expanse of the South China Sea. This assertion is signified by the construction of military installations on artificial islands and the continuous deployment of coast guard and maritime militia vessels. Recent escalations include confrontations like the use of water cannons by Chinese coast guard ships against Philippine vessels near the Scarborough Shoal, actions that were swiftly condemned by the G7 foreign ministers, who emphasized the absence of legal legitimacy backing China’s territorial assertions.
Amidst these tensions, the global community, including the Philippines, has advocated for unobstructed and peaceful exploration of natural resources within the Philippines’ Exclusive Economic Zone (EEZ). The Philippines’ armed forces have pledged to safeguard such activities, demonstrating a commitment to ensuring the safety and security of resource exploration endeavors. Notably, efforts to facilitate joint oil exploration through a memorandum of understanding with China have encountered obstacles due to ongoing territorial disputes.
Central to discussions on regional stability is the imperative of fostering peaceful and lawful exploration within the West Philippine Sea. The Association of Southeast Asian Nations (ASEAN) has been actively engaged in formulating a code of conduct for the South China Sea, aimed at averting conflicts and upholding the primacy of international law. The Philippines has welcomed the G7’s endorsement of a rules-based order in the broader Indo-Pacific region. Beyond the legal and geopolitical dimensions, the South China Sea remains a critical maritime conduit, facilitating the transit of over $3 trillion in annual ship-borne commerce.
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Call to Action
The South China Sea, a region of immense strategic and economic importance, serves as a vital global shipping route, harbors rich natural resources, and sustains a diverse marine ecosystem. However, it has become a hotspot for territorial disputes, particularly between China and the Philippines. China’s expansive claims under the “nine-dash line” encroach on the Exclusive Economic Zones (EEZs) of several Southeast Asian nations, prompting provocative actions such as militarized artificial islands, extensive military drills, and confrontations involving its coast guard and fishing fleets. In response, the Philippines has pursued legal and legislative measures to assert its maritime rights, including a landmark 2016 ruling from the Permanent Court of Arbitration invalidating China’s claims, along with the enactment of laws like the Maritime Zones Act. Additionally, the Philippines has strengthened alliances, notably with the United States, to safeguard its interests. Resolving tensions requires robust international collaboration, adherence to the United Nations Convention on the Law of the Sea (UNCLOS), and the active role of ASEAN in mediating disputes, complemented by global diplomatic efforts and freedom of navigation operations to uphold international norms and regional stability.
