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LIBRARY | Asia's Hunger for Oil and Natural Gas |
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By Michael Richardson Singapore Strait Times 30 July 208 Rising demand for oil to churn up South China Sea ASIA'S thirst for oil and natural gas, together with a new generation of deep-water oil drilling vessels being built in China, South Korea and Singapore, combine to intensify the jockeying for control of a vast area of the South China Sea that is being disputed by six regional countries. Two of the world's largest oil companies, ExxonMobil of the United States and Britain's BP, appear ready to ignore a challenge by China. Beijing has confirmed that it has told Exxon to cancel planned oil exploration ventures off the coast of Vietnam with the state oil group, PetroVietnam. Evidently following a similar warning from Beijing, BP last year halted plans to carry out exploration work off southern Vietnam, citing territorial tensions. But on July 22 -the same day that a Chinese Foreign Ministry spokesman said Beijing opposed any activities that 'infringe on our sovereignty and territorial integrity in the South China Sea' -a BP spokesman in London told reporters that that the company's Hanoi partner, PetroVietnam, had resumed surveying activities in the block contested by China. It is about 370km offshore, between Vietnam and the Spratly Islands. China, Taiwan and Vietnam each claims all of the Spratlys and surrounding waters. Malaysia, the Philippines and Brunei assert sovereignty over some of the islands closest to their shores. All the claimants, except Brunei, have military garrisons in the disputed zone. There have been several armed clashes and stand-offs in the past couple of decades, with the main encounters involving China and Vietnam. Still, the South China Sea dispute has been managed quite successfully through Asean. But keeping the underlying territorial conflicts on the back- burner is becoming more difficult as regional demand for oil and gas rises, and new technology provides the means to find offshore fields in ever deeper waters and depths beneath the seabed. Canada's Husky Energy Inc says it will move a deep-sea drilling rig built recently in South Korea into the South China Sea next month. In September, the rig is expected to drill the first of four wells to delineate a giant gas field. Husky and its Chinese partner, CNOOC, the listed arm of state-owned China National Offshore Oil Corp, announced in June 2006 they had found the field in the northern sector of the South China Sea. Husky, controlled by Hong Kong tycoon Li Ka-shing, who has close ties to China, said the Liwan field could contain up to six trillion cu ft of recoverable resources, adding around 7 per cent to China's total gas reserves. Significantly, it was China's first deep-water petroleum discovery. The exploration well was drilled 250km south of Hong Kong at a depth of 1,500m. Among hydrocarbon explorers, deep-water drilling is usually considered to mean working in depths of 750m or more. While most of the South China Sea covers the Sunda Shelf and has a depth of less than 200m, the northern part includes a basin that in some areas is over 5,000m deep. Much of this zone is now within drilling reach of the most modern offshore rigs. Indeed, Mr Xiao Zongwei, CNOOC's head of investor relations, said in February that the company had a good chance of discovering further big oil and gas reserves in the deepwater zone of the South China Sea where geological conditions are similar to those of the Liwan field. He added that CNOOC planned to explore by itself 140,000 of the 210,000 sq km of China's offshore area, where the waters were over 300m deep. It would seek partners to explore the remaining 70,000 sq km. Will these partners -presumably foreign energy giants or service companies with the skills and equipment to find and extract offshore oil and gas at great depths -have to choose between working in China or in South-east Asian states that contest Beijing's sweeping claim to control much of the South China Sea? Unlike in the 1980s or 1990s, China may now have the military muscle to enforce its territorial claims against rivals in the region, should it decide to do so. But at what cost to its international reputation, to stability in the maritime heart of South-east Asia and to its relations with Asean? Beijing seems to be confronting Exxon Mobil, the world's largest publicly traded oil company, and BP with the choice of pursuing their offshore plans in Vietnam or jeopardising their already substantial investments in China, potentially the world's biggest energy market. Beijing may back off -at least for the time being -after re- stating its South China Sea claim. Although China is building its own deepwater drilling rigs, the first such is not due to be completed before 2011. Beijing has publicly declared its preference for joint development of energy resources in contested offshore zones and just last month reached such a deal with Japan in the East China Sea. But reaching a workable arrangement in an area like the South China Sea, where there are multiple claimants, would be much more difficult. Meanwhile, pressure within oil-short China to tap oil and gas in the offshore areas it claims is intensifying as its onshore production fails to keep pace with burgeoning demand. The writer is an energy and security specialist at the Institute of Southeast Asian Studies. Originally published by The Straits Times website, Singapore, in English 30 Jul 08.
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