The South China Sea is an important world energy trade route

April 4, 2013

Stretching from Singapore and the Strait of Malacca chokepoint in the southwest to the Strait of Taiwan in the northeast, the South China Sea is one of the most important energy trade routes in the world. Almost a third of global crude oil and over half of global liquefied natural gas (LNG) passes through the South China Sea each year.

The Strait of Malacca is the shortest sea route between African and Persian Gulf suppliers and Asian consumers. The strait is a critical transit chokepoint and has become increasingly important over the last two decades. In 1993, about 7 million barrels per day (bbl/d) of oil and petroleum products (20% of world seaborne oil trade) passed through the Strait of Malacca, according to the Center for Naval Analysis. EIA estimates that by the end of 2011, trade through Malacca was greater than 15 million bbl/d, or about one-third of all seaborne oil. In comparison, the world's most important chokepoint for maritime transit, the Strait of Hormuz between the Persian Gulf and Arabian Sea, had an oil flow of about 17 million bbl/d in 2011 (see World Oil Transit Chokepoints). Average daily oil consumption worldwide in 2011 was about 88.3 million bbl/d.

A significant amount of crude oil arriving in the Strait of Malacca (1.4 million bbl/d) goes to terminals in Singapore and Malaysia instead of continuing on to the South China Sea. After processing, this crude oil is shipped out again to Asian markets through the South China Sea as refined petroleum products, such as motor gasoline and jet fuel. The rest of the crude oil passes through the South China Sea to China and Japan, the two largest energy consumers in Asia. Finally, about 15% of crude oil moving through the South China Sea goes on to the East China Sea, mostly to South Korea.

Crude oil flow in the South China Sea also comes from intraregional trade, particularly from Malaysian, Indonesian, and Australian crude oil exports. Intraregional trade is distributed evenly among Singapore, South Korea, Japan, and China, with smaller amounts going to other Southeast Asia countries.

The South China Sea is also a major destination for LNG exports. About 6 trillion cubic feet (Tcf) of liquefied natural gas, or more than half of global LNG trade, passed through the South China Sea in 2011. Half of this amount continued on to Japan, with the rest of it going to South Korea, China, Taiwan, and other regional countries. Almost 75% of all LNG exports to the region came from Qatar, Malaysia, Indonesia, and Australia.

With growing demand for natural gas in East Asia, the South China Sea's share of global LNG trade will likely increase in the coming years. Moreover, Japan has increased its LNG imports to replace the energy lost from nuclear power outages following the Fukushima crisis. Much of the new supply will come through the Strait of Malacca, although some countries like Indonesia are investing in their own LNG export capacity.

Finally, large quantities of coal from Australia and Indonesia, the world's two largest coal exporters, pass through the South China Sea to markets around the world, especially to China, Japan, and India. These coal shipments include both steam coal used for generating electricity and process heat as well as metallurgical coal that is a key ingredient in primary steel production.

For more information, see the South China Sea Regional Analysis Brief.

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Apple Apologizes Amid Media Backlash in China

HONG KONG – Apple has backtracked on its erstwhile stance on its smartphone warranty policy in China, as its CEO apologized to his Chinese consumers in a public letter and pledged to alter what he admitted to be a perception of the company as “arrogant and unconcerned” about public criticism of the brand in the country.

In a Chinese letter titled “To Our Respected Chinese Consumers” and posted on Apple’s Chinese portal April 1, Tim Cook said the company has received “much feedback about Apple’s repairs and warranty policies in China,” on which his team have “reflected deeply.”

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“We sensed that an insufficient external communication during the process [of dealing with criticism of the company’s policies] has led to a public perception of Apple being arrogant, unconcerned and placing no emphasis on consumers’ feedback. We offer our sincerest apologies for the anxiety and misunderstanding this has brought to consumers,” the letter read.

Cook said the company would revise the warranty policy for smartphones in the country, with customers receiving a brand-new set when they return their malfunctioning phone to the company within one year of purchase, with the new warranty starting from the day the new set was given to the consumer.

Effective from April, this new rule was aimed at resolving the one major complaint aired on state broadcaster China Central Television’s consumer rights’ show March 15. Previously, customers trading in their malfunctioning phones within the one-year warranty period would be issued a set with new innards covered by the back lid of the returned phone. Critics said this delivery of partially new phones is not in line with the brand’s practices elsewhere in the world.

Since then, Apple has come under persistent attack in mainland Chinese media, with state-backed publications like the People’s Daily running an article last week that attacked the brand as “ignoring Chinese consumers, substandard customer service, suspected tax evasion and a steadfast refusal to admit wrongdoing when it’s caught out.”

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Claiming the Chinese market contributed $7.3 billion to Apple’s coffers during the previous quarter, and that the country’s consumers made up 34 percent of the company's increase in revenue in December, the piece said China “should be regarded as Apple’s main financial backer. … It’s the Chinese market which propped up the brand’s remarkable results.”

Meanwhile, government departments have also promised tighter scrutiny of the company’s Chinese operations, with the State Administration of Industry and Commerce announcing Thursday that it is looking into public complaints of Apple not offering the two-year warranty as stipulated in Chinese law.

It’s a backlash that Cook and his team has taken to heart over in California: He ended the letter by saying how the company “has always held endless respect to China, and Chinese consumers have always been the most important in our hearts.” It remains to be seen whether this groveling apology would work as Beijing attempts to bolster the pedigree of domestic products at home in the face of what the officials see as a foreign invasion.

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