A New South China Sea Solution
Image Credit: Flickr / Daveeza

A New South China Sea Solution


As the South China Sea heats up as a geopolitical flash point, it’s worth considering an alternative view on how to resolve tensions in the region. Recent disagreement has placed nations in the area on a course for conflict, which could have obvious dire consequences.  But one alternative vision worth considering would take a quite different approach: building and operating a multilateral, pan-Asian energy infrastructure.

At its core, the dispute over national boundaries in the South China Sea is a struggle over offshore oil and gas. Coupled with fishing and transit rights, the sea is worth fighting over.

In the coming years, Asia (defined as China, Japan, South Korea, the Association of Southeast Asian Nation states, East Timor, Australia and Papua New Guinea) needs to invest trillions of dollars in new energy infrastructure, ranging from generation to transmission infrastructure, to exploration and production infrastructure.

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Without this investment, Asia’s economies can’t grow. And without it, Asia’s living standards can’t improve, and the region’s greenhouse gas emissions can’t be brought under control as the global energy economy shifts from coal to natural gas to diversified renewables.

This means that Asia needs new energy infrastructure at the same time as territorial conflict looms over energy. Why not allow dispassionate markets to arbitrate resource claims? And how might this work?

The place to start is with what’s planned. Australia plans to invest nearly $200 billion bringing on line new natural gas supplies for shipment to China, Japan and South Korea as Liquid Natural Gas (LNG). Meanwhile, the ASEAN states are deepening interconnections between their natural gas pipeline networks and electricity grids under the Trans- ASEAN Gas Pipeline (TAGP) project and the Trans-ASEAN Electricity Grid (TAEG) project.

China, for its part, is leading the world in deployment of next-generation, high-capacity, long-distance Ultra-High Voltage Direct Current (UHVDC) power lines to upgrade existing HVDC technology. China’s also building out a national natural gas pipeline distribution network, with a possible use to import natural gas from Kazakhstan and Russia.

The telecommunications revolution, meanwhile, continues apace. A number of companies plan to lay new fiber optic cables across the South China Sea as Asia’s online communities grow. Indonesia is now laying subsea fiber optic cable across its entire eastern archipelago as far as West Papua and Timor. Indonesia would like to interconnect this network, known as Palapa Ring, to Australia.

It’s easy to see how a “network of networks” is taking shape. If these networks interconnect (the Internet is a template), the benefits will be huge: more liquid energy markets, more accurate (through aggregation) price signals for investment and lowered investment risk due to improved certainty of market access.

But the biggest benefit may come from reducing regional tensions. That’s because a multilateral infrastructure crossing Southeast Asia (either by land or by sea), could allow for the more efficient “hub and spoke” development of the South China Sea’s oil and gas fields.

One idea that could bear fruit would be to propose a bundled UHVDC power line, fiber optic and natural gas pipeline network stretching from Australia to China, Japan and South Korea. The potential of this network to produce radical transformation is real. In terms of sun and wind in Asia, Australia and China enjoy the region’s largest comparative advantage. Australia’s outback, for instance, could generate enough solar energy to power the world.

In China, harvested Mongolian winds could power China all by themselves. And that’s before taking into account offshore wind resources.

China and Australia, therefore, would be the “anchor tenants” of a pan- Asian energy infrastructure. Summertime Australian sun could satisfy northern China’s winter peak heating needs. Summertime Chinese wind could help meet South Korea, Japan’s and even ASEAN’s air conditioning demands.

With proper cross-border interconnections, a massive managerial and trading market could grow using the real-time communications enabled by the fiber optic cables included in the HVDC power lines. With a multilateral delivery infrastructure in place, development of the South China Sea’s oil and gas resources could be put out to tender, raising revenue to help build this infrastructure; ensuing development rights would go to those prepared to pay the most for them, and who are thus best equipped to efficiently exploit them. Markets would arbitrate prices.

This presents a welcome alternative to tests of nerve, for instance those seen recently between Chinese and Philippine ships at Scarborough Shoal.

An added benefit of a pan-Asian energy infrastructure is that it opens the way for a vast gas pipeline network to span the region. At present, long-distance trade in natural gas across sea frontiers has involved building expensive, single-generation, greenhouse gas-intensive Liquid Natural Gas infrastructure. Over the long-term, this may be wasteful. LNG isn’t a long-term technology. Pipelines are. Properly constructed pipelines can carry fuels other than natural gas. These include hydrogen, biofuels, waste carbon and even ammonia. Natural gas pipelines, in other words, provide “call options” on new technologies and energy carriers. LNG doesn’t.

Given all this, the logic for a pan-Asian energy infrastructure is strong. A ubiquitous, frictionless network would allow the markets to do the work of “picking winners” in the coming energy revolution. But it requires a massive change to orthodox thinking, and countries will need to think beyond national boundaries and work collectively. Climate change is a cross-border problem and this would be a cross-border solution. It’s surely worth thinking about.

Stewart Taggart is an analyst with Grenatec, an Australia-based research organization focused on the economics and technical challenges of deepening energy market integration in Asia.

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