Exxon-Vietnam gas deal to test Tillerson's diplomacy

Exxon-Vietnam gas deal to test Tillerson's diplomacy

US energy giant Exxon Mobil and state-owned PetroVietnam agreed this month
to develop Vietnam's largest natural gas-fired power generation project, a
US$10 billion joint venture known as 'Blue Whale' (Ca Voi Xanh). The deal,
signed while outgoing US Secretary of State John Kerry was on his last
official visit to Vietnam, threatens to create new ripples in the contested
South China Sea under the new Donald Trump administration.

The project is scheduled to come online in 2023 and will draw on a natural
gas field situated 88 kilometers from Vietnam's central Quang Nam province
in the South China Sea. The field is estimated to hold some 150 billion
cubic meters of natural gas, three times the amount of Vietnam's current
largest gas project, a joint venture with Russia's Gazprom in the southern
Con Son Basin.

Exxon Mobil will construct an 88-kilometer sea-to-shore pipeline, while
PetroVietnam's Exploration Production Corporation (PVEC) subsidiary will
build gas treatment and four power plants with a total capacity of 3
gigawatts, according to reports. A planned expansion phase will generate
enough gas for another 5,750 megawatts of power and petrochemical
production, the reports said. PetroVietnam estimates the project will
produce US$20 billion for state coffers over an undefined timeline.

The deal comes against the backdrop of Trump's decision to scrap the
Trans-Pacific Partnership agreement, a US-initiated trade pact of 12 Pacific
Rim countries of which Vietnam stood the most to gain. The tariff-slashing
deal, if it had been implemented, projected to boost Vietnam's gross
domestic product (GDP) by 11%, or US$36 billion, and exports by 28% over the
decade spanning 2015-2025. Vietnam is a signatory to the China-led Regional
Cooperative Economic Partnership, which does not require the same type of
economic reforms that TPP would have required.

The ExxonMobil project will have a strong diplomatic defender in US
Secretary of State designate Rex Tillerson, Exxon Mobil's former chairman
and chief executive officer. It will also likely open him and the Trump
administration to conflict of interest accusations. Two days before Kerry
met with Vietnamese leaders, Tillerson threatened China over the South China
Sea, saying in a Senate confirmation hearing that the Trump administration
would send Beijing a "clear signal" and "block" China's access to artificial
islands it has built in the contested waters.

While within Vietnam's exclusive economic zone (EEZ), the deepwater field is
also in an area China claims on its nine-dash map, which lays wide-ranging
claim to 90% of the entire South China Sea. In 2011, China indirectly warned
Exxon Mobil soon after the company announced a big gas find at Block 118,
contained in the Blue Whale project zone, saying foreign companies should
refrain from exploration in the contested area. Other multinational energy
companies appeared to buckle under China's pressure by abandoning their
exploration activities with Vietnam.

China has also explored in the same area and is believed to have discovered
its first commercially viable store of fuel in the South China Sea. In
mid-2014, state-run China National Offshore Oil Company (CNOOC) positioned a
massive deepwater exploration rig in the contested area, setting off sea
skirmishes and sparking anti-China riots in Vietnam that resulted in arson
attacks on foreign factories and the exodus of hundreds of fearful Chinese
nationals.

Vietnam expert Carlyle Thayer wrote in a January 16 background briefing
paper on the deal that Tillerson "would have institutional knowledge of
Chinese attempts to intimidate Exxon Mobil from investing in Vietnam dating
back to 2007-8" and that the businessman-cum-envoy "will not be receptive to
Chinese protests at the Exxon Mobil deal with PetroVietnam." Thayer wrote
that Chinese officials had previously privately warned Western oil companies
that their interests in China would suffer if they assisted Vietnam's
exploration ambitions.

China has not commented specifically on the multi-billion dollar Blue Whale
deal, though mouthpiece media has blasted Tillerson's Senate confirmation
comments on the South China Sea. The China Daily said in a January 13 op-ed
that Tillerson's remarks were "a mish-mash of naivety, shortsightedness,
worn-out prejudices and unrealistic political fantasies." It added: "Should
he act on them in the real world, it would be disastrous."

The Exxon Mobil-PetroVietnam venture was announced while Kerry was in Hanoi
and Vietnam Communist Party General Secretary Nguyen Phu Trong was in
Beijing meeting with Chinese President Xi Jinping, where the two signed a
joint communiqué on cooperation and peace. The pro forma agreement is not
expected to resolve or even mitigate the South China Sea disputes.

Hanoi and Beijing maintain a wide network of cooperative ties and agreements
despite their South China Sea disputes. Whether these agreements, including
a joint steering committee to oversee relations, help to restrain bilateral
ructions or are useless in the face of serious disputes, such as China's
2014 incursion into Vietnam's EEZ, is difficult to say due to the opaque
nature of both nominally communist regimes.

The sea disputes have been accentuated and complicated by recent joint
exploration ventures Hanoi has entered into with foreign energy concerns.
The deals have also added new geostrategic dimensions to the volatile
region. For instance, India's drive to sell Hanoi advanced missiles and
other power-projecting weaponry is believed to be motivated in part to
protect its ONGC Videsh Limited energy company's joint exploration ventures
with Vietnam in the South China Sea.

China's threat to Vietnam's exploration activities in the area, however, is
as much about political power as natural resources. U.S. Energy Information
Agency (EIA) estimated in 2013 that the South China Sea holds 11 billion
barrels of oil and 190 trillion cubic feet of natural gas, including both
proven and possible reserves. China's estimates for the sea are higher, with
the state-run China National Offshore Oil Corporation (CNOOC) projecting 125
billion barrels of oil and 500 trillion cubic feet of gas. China consumed
around 1.7 billion barrels of oil in 2015, according to industry estimates.

Like China, Vietnam sorely needs the energy to fuel its fast expanding
industrializing economy. The Exxon Mobil deal is believed to be part of a
broad Vietnamese central plan to integrate its coastal economy with natural
resources in its EEZ, according to academic Thayer's briefing paper. Those
designs for contested maritime areas riled China in the past and will likely
do so again if Tillerson backs his tough language with firm action in the
South China Sea.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://www.atimes.com/article/exxon-vietnam-gas-deal-test-tillersons-diploma
cy/

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com