Part of our weekly "In Focus" series—stepping back, looking closer.
Why are China and Japan locked in a tense face-off, alarming the world and inflicting substantial economic pain on themselves, over a bunch of tiny uninhabited islands in the East China Sea?
Nationalist politics and historical resentments figure heavily in the territorial dispute, as do fish. But there's another potent ingredient: energy.
Map by National Geographic
In Asia, and especially in China, demand for power and fuel is fast outstripping supply. (Related: "Pictures: A Rare Look Inside China's Energy Machine") Meanwhile, advances in deepwater drilling technology have put offshore oil and gas resources within reach for the first time. The result of all this, says Stephanie Kleine-Ahlbrandt, Northeast Asia director of the International Crisis Group, which studies conflict hot spots, is a "race to assert control over energy resources in disputed territories before they are developed by a rival."
Last spring China began drilling in deep water in the South China Sea—rattling Vietnam, the Philippines, and other nations that have competing territorial claims.
Lately, however, the flashpoint has been in the East China Sea, along a disputed maritime boundary between China and Japan. In September, outrage at Japanese control of the Senkaku Islands (known to the Chinese as the Diaoyu) erupted in violent protests across China; Japanese factories and auto showrooms were looted and burned. This past week, China sent a naval flotilla into the disputed area to assert its claim to the islands, the largest of which is home to a few hundred feral goats, an endangered species of mole, and not much else.
It's all a bit bewildering—until you consider the rich natural gas deposits of the East China Sea. "Energy is clearly what's driving a lot of Chinese behavior," says Sheila Smith, a senior fellow at the Council on Foreign Relations in Washington, D.C. "They will give you a long, historical explanation of their sovereignty claim. But the idea that there are vast resources under the East China Sea just off their coast is a tremendous motivation for the intensity of their territorial dispute." (Related: "Can China Go Green?")
Just how much oil and natural gas is at stake, in either the South China or the East China Sea, is unclear. The territorial disputes have prevented any reliable survey. One Chinese estimate puts the oil stores in the South China waters at 213 billion barrels, an amount that would exceed the proved reserves of every country except Venezuela (296.5 billion barrels at the end of 2011) and Saudi Arabia (265.4 billion barrels). That's about ten times higher than a U.S. Geological Survey estimate from the mid-1990s—but even that lower figure puts the South China Sea's oil potential at four or five times that of the Gulf of Mexico. (Related Quiz: "What You Don't Know About World Energy") Similarly, China estimates that one of the world's largest natural gas deposits, containing some 250 trillion cubic feet, lies all but untapped in the East China Sea. U.S. energy analysts reckon the "proven and probable" reserves there at only 1 to 2 trillion cubic feet—much less than the Gulf of Mexico, but still considerable.
The U.N. Convention on the Law of the Sea gives countries the right to an exclusive economic zone extending 200 nautical miles from their coasts. In the seas off China and Southeast Asia, this rule leads to many overlapping claims, which in theory must be negotiated by the parties. China has been producing natural gas since 2006 from the Chunxiao gas field, located near a median line between the two nations that Japan has proposed (but China has rejected) as a maritime boundary. Japan suspects China is siphoning gas from Japan's side of the median. Those fears are fanned by China's refusal to share its seismic data.
The Senkaku/Diaoyu islands lie southwest of that gas field, near Taiwan—which also claims them. Whichever country gets the islands would see its claims bolstered not only to Chunxiao gas, but also to untapped petroleum reserves that are believed to lie around the Senkakus and beyond. Japanese nationalists such as Shintaro Ishihara, who stepped down as governor of Tokyo this week to form a new political party, say the current national government has not acted aggressively enough against China. Earlier this year Ishihara began raising private money to take over and develop the islands as a way of cementing the Japanese claims.
The eight uninhabited islands, covering 7 square kilometers in all (2.7 square miles), already are part of Okinawa, Japan's southernmost prefecture. But until this year several of the islands were owned privately by a single family. To forestall Ishihara's gambit and avoid antagonizing China, the Japanese government announced in September that it had purchased those islands for about $30 million and would not develop them. Instead of mollifying the Chinese, the move only inflamed them. Vice President Xi Jinping, in line to become Communist Party chief next month and ultimately China's president, called Japan's action "a farce"—an epithet that could easily be applied to the riots, naval exercises, and diplomatic dealings that followed, were the stakes not so high.
Japanese Prime Minister Yoshihiko Noda urged that the dispute be resolved peacefully, while insisting the islands were an "inherent part of our territory, in light of history and international law." Foreign Minister Yang Jiechi of China responded that his nation's claim to the isles dates back to ancient times, and that Japan "stole" them in 1895. The United States, which administered the islands after World War II but returned them to Japan in 1972 along with Okinawa, occupies a dicey position in the middle of the dispute. Officially it has taken no side, but Japan assumes the Okinawa treaty would compel the U.S. to support Japan's sovereignty. This week, a bipartisan group of former American national security officials set out on visits to both Japan and China to urge the two nations to talk.
Technology Opens Prospects
Japan's exports to its largest trading partner have plummeted, further weakening an economy still struggling to recover from the March 2011 earthquake—precisely the kind of outcome it has always sought to avoid. Even though it's been known at least since a United Nations-led geological survey in 1969 that large oil and natural gas reserves are at stake in the East China Sea, and even though Japan lacks other fossil fuel reserves, it hasn't jumped to exploit the offshore bonanza. 1972, the year Tokyo regained control of Okinawa and the other islands in the East China Sea, was also the year U.S. President Richard Nixon went to China, which enabled Japan to normalize relations with its giant neighbor. "The diplomatic opportunity for Japan took precedence over everything else" at the time, Smith notes.
Until recently, in any case, there was no way to exploit a lot of the East China Sea's riches. The most promising petroleum prospect lies in water more than 8,200 feet (2,500 meters) deep, between the Chinese and Japanese continental shelves in the Okinawa Trough. Only in the past two decades has the oil industry developed the technology to plumb such depths. Ultra-deepwater production in the Gulf of Mexico took off only after 2005. "If the technology had been available in the 1960s and 1970s, there might be a different story to tell," Smith says.
China is now writing such a story in the South China Sea, which stretches from the Strait of Malacca near Singapore to the Strait of Taiwan. (Related: "Crossroads of Asia: South China Sea." The full text of this 1998 story is available with an all-access subscription to National Geographic.) In May, China deployed its first deepwater drilling rig some 200 miles (320 kilometers) southeast of Hong Kong, plunging into a sea where eight other nations have competing territorial claims. China also invited foreign companies to bid to drill in disputed areas. It announced plans to deploy a military garrison on Woody Island in the Paracel island chain, which also are claimed by Vietnam and the Philippines.
In response, Vietnam passed a law asserting jurisdiction over the Paracel and Spratly islands and accepted exploration bids in some of the same areas allocated by China. The Philippines, meanwhile, recently sought bids for two areas claimed by China. Philippines-based Philex Petroleum has said that it plans to start drilling next year on disputed Reed Bank in the northeast section of the Spratly islands.
The Paracel and Spratly chains encompass hundreds of "partially submerged islets, rocks, and reefs unsuitable for habitation" that amount "to little more than shipping hazards," according to the U.S. Energy Information Administration. Like the Senkakus, though, they are large enough to support a flag that would bolster claims to the surrounding sea.
Ahlbrandt, of the International Crisis Group, notes that tensions were already mounting in the region because of fishing disputes. While armed conflict remains unlikely, the region is increasingly volatile, she said.
The South China Sea is one of the busiest sea corridors in the world, a link between the Pacific and Indian oceans. The United States, with strong commercial stakes in the region but no territorial claims, issued a lengthy statement urging restraint. Through a commentary in the state-run People's Daily, Beijing urged the U.S. to "shut up."
China is the world's largest energy consumer, and its consumption is growing 6 percent each year. (Related: "China Drills Into Shale Gas, Targeting Huge Reserves Amid Challenges") Its neighbors have rapidly growing energy needs too, but they also have deep trade and economic ties to China. There are thus a lot of common interests as well as sources of conflict. Earlier this month, at an Association of Southeast Asian Nations (ASEAN) forum in Manila, Beijing offered 3 billion yuan ($474 million) for a maritime cooperation fund. The move was seen as an effort to defuse tensions with its southern neighbors-even as the tension with Japan was building in the East China Sea.
In 2008, after much skirmishing over the Chunxiao gas field, Japan and China actually forged a pact to cooperate on energy exploration in the East China Sea. (Related: "Amid U.S.-China Energy Tension, "Clean Coal" Spurs Teamwork") But they've never been able to agree on how to execute the plan. It was a lost opportunity, in Sheila Smith's view. "Joint energy development, largely funded by Japan, could have made both Japan and China content with a more cooperative approach to their maritime boundary," she says. "The precedent of energy cooperation could have changed the equation in the East China Sea." Perhaps it's not too late.
(Related: "Pictures: China's Rare-Earth Minerals Monopoly")
This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.