New discovery of a huge oil field in the South China Sea: A threat to the US economy?

China is the largest importer of crude oil in the world importing 11.1 million barrels per day in 2024 according to US Energy Information Administration (EIA) estimates. Just like the United States though, it wants to reduce its dependence on getting petroleum from foreign countries to bolster energy security. So, a recent discovery by the China National Offshore Oil Corporation (CNOOC), along with similar ones, is welcome news.

The newly found Huizhou 19-6 oilfield in the South China Sea has over 100 million tons of proven reserves reported Xinhua news agency, roughly equivalent to what China imported from Russia, its biggest supplier, in 2024. The oil company confirmed that a test well has the capacity to produce 413 barrels of crude and 2.41 million cubic feet of natural gas per day.

“This discovery has confirmed the largest integrated clastic oilfield in the northern South China Sea in terms of original oil in place, breaking the traditional theoretical understanding,” said CNOOC’s Chief Geologist, Xu Changgui.

The offshore oilfield, off the coast of Shenzen, sits at an average depth of 100 meters. These reserves typically present a challenge to exploit due to the high temperatures and pressures exerted at these depths.

Is the discovery of an oilfield in the South China Sea a threat to the US and its economy?

The South China Sea has been the site of rising tensions between China and its neighbors over Beijing’s push to claim “historic rights” to all of the territory and resources within the so-called ‘nine-dash line’, which has no legal nor historical basis. The Huizhou 19-6 oilfield squarely lies within the China’s own, legally recognized, Exclusive Economic Zone, which runs for 200 nautical miles from the coast, and not in disputed waters.

Currently, China’s domestic production of crude oil is 4.3 million barrels per day according to the EIA. Meanwhile, the nation consumes an estimated 16.3 million barrels per day.

However, China’s push to electrify its transportation mobility has far outpaced what was expected, helping to reduce its demand for crude oil that has soared over the past quarter century. The country had been the driver of over 40% of annual growth, but imports are expected to peak as soon as next year as demand for transportation fuels have begun to decline.

There is no nation that is positioned to pick up all of the slack when China starts importing less crude oil. While some sectors continue to increase their need for oil products in coming years, that demand will be far below the long-term trend.

A deceleration in demand from China could hit oil producers in the form of lower prices which have been trading between $70 and $80 per barrel for most of the year. That is despite the conflicts in the Middle East and Ukraine.

“The oil industry is sort of figuring it out,” chief commodity strategist at Morgan Stanley Martijn Rats told Reuters.

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