While oil prices are notoriously volatile, key market analysts see Brent well above $100 a barrel through 2012 and a growing global supply and demand gap, factors that make potential oil discoveries in the South China Sea increasingly attractive for countries claiming sovereignty, analysts said.
Singapore Institute of Southeast Asian Studies fellow Ian Storey told Reuters the high oil price was a driving factor.
“China needs access to oil and gas to reduce their dependency on overseas supplies, which presents a strategic vulnerability," he said.
"This is partly why tensions have been rising over the last two to three years because the Chinese feel the other claimants – particularly Vietnam, Malaysia and the Philippines – have been unilaterally plundering natural resources that really belong to them."
China has made the largest claim over the area, and Taiwan, Vietnam, Brunei, Malaysia and the Philippines also assert territorial sovereignty, which covers one of the world's busiest sea lanes and also provides rich fishing opportunities.
Except Taiwan, all other non-Chinese claimants are members of the 10-nation Association of South East Asian Nations (ASEAN), which will be holding the region's biggest security forum this week.
The meeting at the Indonesian resort island of Bali is expected to focus on the South China Sea dispute and China's perceived muscle-flexing there.
Estimates for proven and undiscovered oil reserves in the South China Sea range from 28 billion to as high as 213 billion barrels of oil, the US Energy Information Administration (EIA) said in a March 2008 report.
The most optimistic outlook would be the equivalent to around 60 years of current Chinese demand.
"The Chinese refer to the South China Sea as the new Saudi Arabia or the El Dorado of oil. But I think that their claims of oil and gas reserves are widely optimistic," Storey said.
The US Geological Survey last year estimated a 50% chance that the area would hold at least 10.25 billion barrels of undiscovered oil, with most of it near the Spratly Islands.
For gas, the South China Sea is seen as even more promising with between 60% and 70% of the area's hydrocarbons believed to be natural gas.
The US Geological Survey estimated a 50% chance of at least 3.79 trillion cubic metres of undiscovered conventional gas, equivalent to more than 30 years of current Chinese consumption.
With some Southeast Asian fields already on the decline, pressure to explore for new discoveries deeper into the South China Sea has surged, increasing the likelihood of confrontations over sovereignty rights.
Earlier this year, Vietnam and the Philippines accused China of cutting the seismic cables of ships exploring for oil and gas, threatening to ram vessels and firing shots at fishermen.
Despite the growing tension, countries are continuing to invest and offer oil blocks to energy companies to explore further into the South China Sea.
"It's Vietnam who is really keen for developing the resource there because its main oilfields are declining," an unnamed Beijing-based industry executive told Reuters.
State oil and gas group Petrovietnam wants to raise total crude oil output to 90 million tonnes for the period from 2011 to 2015, an increase of 14% from the previous five years.
China, the world's second largest oil user, is also desperate to boost its domestic oil and gas output to avoid power shortages. Oil demand is expected to grow to 10.18 million barrels per day next year from 9.7 million this year, according to the International Energy Administration.
Analysts expect oil exploration to eventually be allowed in the most disputed parts of the area not through military conflict, but by bi-lateral or multi-party agreements.
Australian Defence Force Academy professor Carl Thayer told Reuters that China “realistically can't expect everything.”
“The push for joint development could be serious ... as China cannot sustain the damage to its prestige with this animosity building up," he said.
Any mutual agreement between claimant countries will likely take some time. The Philippines earlier this month ruled out any more joint exploration with other claimant countries in the Reed Bank in the South China Sea.
