Disputed claims in the South China Sea slow oil and gas exploration

Disputed claims in the South China Sea slow oil and gas exploration

Block 136/3 lies far off the southern Vietnamese coast, under warm and
thundery tropical skies.

The drillship Deepsea Metro I, drilling an exploration well there for a
partnership of state firm Petrovietnam, Spain's Repsol, and Abu Dhabi's
Mubadala, found oil and gas there last month, and intended to keep going
deeper. But the drillship had sailed into another storm: China claims this
area, too, and threatened military action if the drilling went on.

On Wednesday, Vietnam decided after a contentious Politburo meeting to stop
the drilling for now, although the Deepsea Metro I is still on station.
Reportedly, the party general secretary and the defence minister felt they
could not rely on the United States in case the confrontation escalated.

Further north, close to the mouth of the Gulf of Tonkin, ExxonMobil,
formerly headed by the US secretary of state Rex Tillerson, is developing
Blue Whale, Vietnam's largest new gas project. China has not commented
specifically on Blue Whale, but it has warned off foreign companies from the
area, and threatened BP back in 2007. India's state ONGC is also exploring
off Vietnam, while Delhi seeks to sell Hanoi advanced weaponry, part of its
own policy of trying to build regional allies against Beijing.

Surprisingly, given its China-like manufacturing boom, oil and gas is still
30 per cent of Vietnam's GDP. But oil output has been on a plateau since
2000, and dropped by 8 per cent last year. This fast-growing country of 93
million people became a net importer of oil in 2010. With domestic gas
output set to decline, Vietnam is also expected to begin importing liquefied
natural gas (LNG) by 2023. It is urgent for it to develop more of its
offshore resources.

The Philippines has a similar dilemma. All its gas comes from the Malampaya
gas field, developed by Shell, which will run out within a few years. The
giant Sampaguita field beneath Reed Bank, estimated to hold 20 trillion
cubic feet of gas (Malampaya originally held just 2.7 trillion cubic feet),
is also disputed by China.

Despite a win at arbitration over maritime borders, in which China refused
to recognise the tribunal, tough-talking Filipino president Rodrigo Duterte
instead appears to have conceded his country will not develop Sampaguita on
its own.

Of the other countries that claim part of the South China Sea, oil output in
the small but wealthy petro-state the Sultanate of Brunei is declining.
Malaysia and Indonesia, once major petroleum powers, are both now importers,
and have to ship LNG from their remoter islands to their populous
industrialised heartlands. ExxonMobil last month gave up on trying to
develop Indonesia's giant but technically complex Natuna D Alpha gasfield,
also theoretically within China's claim.

Unlike the Gulf of Tonkin area, which abuts the large Chinese island of
Hainan, neither Block 136/3, Natuna nor Sampaguita are anywhere near China,
so Beijing cannot develop them itself. Its policy is more one of principle
over all its expansive claim to the South China Sea, asserting its dominance
over its neighbours, and testing the US' resolve.

It is not clear whether the US' lack of support for Vietnam is a deliberate
policy, or the result of a government distracted by internal battles and a
calamitously understaffed state department. The former US ambassador to
Vietnam David Shear criticised the Trump administration's "inattention" to
the region. Once the Chinese artificial reefs and oil platforms create
"facts on the sea", there will be no going back.

The US' withdrawal from the Trans-Pacific Partnership trade deal has left
the neighbouring countries looking to a Chinese alternative. But some are
engaging other allies too: Vietnam's links to India, as mentioned, and
Indonesia's marine cooperation with Australia, a growing LNG supplier to the
whole of east Asia.

Abu Dhabi's Mubadala is only a minority partner in the Vietnamese oil
venture, but it has other stakes in the country as well as in Thailand,
Indonesia and Malaysia. The UAE is a neutral party with strong economic
relations with all concerned countries. Without interfering, some quiet
diplomatic conversations may still be useful. Like the Middle East, South
East Asia is increasingly served by tanker-delivered LNG, but there are very
few cross-border gas pipelines. Mubadala itself, of course, developed
Dolphin, the Middle East's most successful international pipeline.

If the South East Asian states cannot develop the disputed resources
themselves, the next best option is cooperation with China. "Joint
development areas" already exist between Malaysia and Thailand, and Vietnam
and Malaysia, and China and Vietnam have agreed on sharing the Gulf of
Tonkin. But a wider accord is problematic because China has never formally
clarified its expansive South China Sea claim.

Cooperative solutions would allow Vietnam, the Philippines and China to go
ahead with these promising resources, creating mutual trust and shared
interests, without any party having to relinquish sovereignty. Otherwise,
Block 136/3 will continue generating diplomatic thunder rather than energy.

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Link to Original Article:
https://www.thenational.ae/business/disputed-claims-in-the-south-china-sea-s
low-oil-and-gas-exploration-1.617355

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com