Using regional tension to generate progress

Counterintuitive as it seems, South China Sea tensions could foster pan-Asian integration.

How?

Through implementing Joint Development Areas (JDAs) for offshore oil and gas development. These in turn could spur long-term cooperative investment in a multilateral energy delivery infrastructure.

These ideas aren't new. They aren't unconventional. They aren't iconoclastic. They've all been suggested before.

Consider how it might work.

A South China Sea 'JDA-zone' could be established in a 'corridor' between 100-200 nautical miles off South China Sea littoral states' mainlands. This would include most of the hot button areas of dispute.

China's 'nine dotted line' generally (but ambiguously) includes all South China Sea ocean areas lying more than 100 nautical miles off littoral states. Vietnam and the Philippines claim, for the most part, minimum exclusive economic zones stretching 200 nautical miles from their mainland coastlines.

The above ribbon idea ignores territorial claims emanating from the Paracel, Spratly and other small South China Sea islands and rock clusters. Leaving these claims results in a large, residually-contested central area of the South China sea.

However, nearly all of that central area lies in very deep water. That renders it less attractive over the near- to medium-term for energy development.

Within the 100 nautical mile wide ribbon, oil and gas development rights would be auctioned off to the highest bidder.

Proceeds would be used to build an open-access, common-carrier pipeline infrastructure connecting the offshore fields to market.

One topology could stretch from Philippine Luzon and Palawan down through Indonesia's Natuna islands and up along the coast of Vietnam en route to China's Hainan island and onward to Hong Kong.

As oil and gas flowed from the JDAs, they could be connected through the pipeline infrastructure to downstream markets. Access to the pipelines would subsequently be offered to new players bidding on new JDAs.

This would spur a virtuous circle of upstream investment encouraged by downstream access. Over time, high-capacity, high-voltage power lines could be laid alongside the pipeline network. So could fiber optics cable.

The resulting multi-dimensional network would increase efficiency across the board through enabling 'fuel switching' based upon changing relative prices. The result outcome would be an accelerated energy market 'discovery process' leading to expanded production of the most competitve, lowest priced energy.

In coming years, 'Asia' (defined here as China, Japan, South Korea, the ASEAN states, East Timor, Papua-New Guinea and Austraila) needs tens of trillions of dollars of infrastructure, the bulk of that for energy.

Meanwhile, recent exploration has revealed massive oil and gas potential in the South China Sea. China now claims virtually the whole area through its nine-dotted line ambit-claim. This has spurred 'me-too' ambit claims by Vietnam and the Philippines. These now all overlap.

The big risk now is a 1964 Gulf of Tonkin type incident that leads to a hot-headed shooting match at sea that drags Asia towards war. No one wants that.

JDAs solve that problem.

Under the United Nations Convention on the Law of the Sea, resolution of territorial claims can be set aside indefinitely while claimants cooperate to develop resources in the disputed areas.

JDAs have a long and proven history in the Arctic, West Africa and the Middle East.

In the Gulf of Thailand, Malaysia has had separate JDAs in place with Thailand and Vietnam since 1971. In 2008, China and Japan agreed to negotiate a JDA in disputed areas of the East China Sea. Philippine President Benigno Aquino also has publicly supported JDAs.

Elements of the ideas above already exist.

For instance, fiber optic cables already traverse this route. Furthermore, an offshore natural gas pipeline route similar to this was proposed in 2001. It was called 'Asian Gas Grid.' Portions of it have since been included in the Association of Southeast Asian Nations' (ASEAN) proposed Trans-ASEAN Gas Pipeline.

Later, high capacity, long distance HVDC cables could be added to this network. These would provide, among other things, access to terrestrial grids for offshore wind farms.

What's more, ASEAN's proposed Trans-AEAN Electricity Grid project already suggests laying subsea power lines along portions of the old Asian Gas Grid route and the more current proposed Trans-ASEAN Gas Pipeline project.

From there, the vision gets even bigger. Japanese telecommunications billionaire Mahayoshi Son has proposed an East Asian Energy Grid of high-capacity, high-voltage power stretching from Japan down through the Philippines, Borneo and Malaysia and then up the Vietnamese coast to Hong kong and up China's coast -- mirroring and extending the topology outlined above.

Meanwhile, my research organization Grenatec is actively examining the topologies and economics of a Pan-Asian Energy Infrastructure of bundled natural gas pipeline, high-capacity high-voltage power lines and fiber optic cables stretching from Australia to Northeast Asia.

In expanding concentric networks like this, the South China Sea lies in the center. Everyone will gain from cooperation, and the kinds of networks outlined above could serve the region for a century or more.

Down the track, gas pipeline spurs could penetrate the South China Sea's deeper waters. This would extend development of the South China Sea's energy riches. These could include seafloor methane hydrates.

It could also encourage devleopment of ocean thermal energy conversion, or OTEC. OTEC exploits temperature differentials of 20C or more between surface waters and those found at 1,000-meters deep to create essentially limitless baseload power.

Finally, deepwater aquaculture could be developed assuming adequate infrastructure in the South China Sea. This, in turn, could provide needed marine protein to Asia's growing, increasingly affluent population.

In short, crisis offers opportunity.

Joint Development Areas in the South China Sea coupled with long-term infrastructure could bind the region together in an 'everyone wins' outcome for a long, long time into the future.