Background Since ancient times, petroleum and natural gas deposits have been known and used. Human beings cannot use petroleum to generate electricity and propel economic development forever. In September 2010, the Kingdom of Saudi Arabia said it will be able engage in the exploration and production of oil for another 80 years.1 The first oil crisis took place in October 1973. Since then, all world leaders have become more conscious of controlling oil supply. In August 2009, the Paris-based International Energy Agency (IEA) warned that a disastrous energy crunch looms, because most of the major oil fields in the world have passed their peak production and such an “oil crunch” within the next five years could jeopardize recovery from the global recession. The IEA added that many governments appear unaware that oil is running out faster than previously predicted, with global production likely to peak in about 10 years, at least a decade earlier than most had estimated.2 Before 1993, the PRC was self-sufficient in oil. However, in that year, its state-owned China Petroleum & Chemical Corp (Sinopec) for the first time signed a memorandum of understanding to purchase 3.5 million tons of oil from the Saudi Arabian Oil Company (Aramco), the world’s biggest oil producer, symbolizing that China has become a net oil importer. In January 2010, it was reported that more than 60 percent of China’s oil was imported. Each day, it needs 8 million barrels of oil. By 2030, 20 million barrels will be needed each day.3 Conscious of securing an uninterrupted supply of oil, the PRC in September 2009 began building the first oil reserve at Dushani (Maytagh) District in Xinjiang, so as to meet the nation’s long-term goal of having enough storage capacity for 90 days’ use.4 PRC plans to explore and produce gas and oil on a large scale by 2020.5

The issue In the late 1940s, the ROC Government drew the Chinese (broken) U-shaped line in the South China Sea (SCS).6 At that time, no country in the world

protested. From October 1949, the PRC Government inherited the line and maintains it up to this day. Since the late 1960s, there have been several Southeast Asian claimants, scrambling for petroleum and natural gas deposits in the SCS. As of mid-August 2011, Beijing possesses 12 islands and one of the official Chinese maps in the early 1990s includes Natuna Islands archipelago7, Taipei, 1; Hanoi, 25; Manila, 8; and Malaysia, 5 out of 11.8

In October 1978, DENG Xiaoping mentioned the following Chinese characters about the Diaoyutais (Fishing Platform), when he was visiting Japan: ZhuquanShuWo/ZhuquanZaiWo (subordinate sovereignty under China), GezhiZhengyi (shelf the Diaoyutais/Senkakus dispute), and GongtongKaifa (develop joint exploitation). In August 1990, Beijing proposed to shelve the dispute and jointly develop energy resources in the SCS, if not elsewhere such as the East China Sea (ECS). Tun MAHATHIR bin Mohamad held a similar policy, when he was the fourth prime minister of Malaysia.9 In late 2009, Malaysian Deputy Foreign Minister LI Zhiliang, for the first time, said “joint development of the area is the best solution,”10 thereby reversing his country’s lukewarm attitude on the PRC’s proposal. In mid-1986, DENG instructed the PRC’s oil company to cooperate with foreign companies to explore and exploit oils in the ECS. In mid-1987, China National Offshore Oil Corporation (CNOOC), which was created in February 1982, proposed to Japan’s Uruma Resources Company the following places for cooperation and coordination in the ECS: E124 degree; E125 degree; N26 degree and 20 minutes; and N27 degrees and 50 minutes.11