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South China Sea: It's not all about
oil
By Alan Boyd
SYDNEY - Any illusions that
Beijing's stance on the ownership of the hundred
oil-rich atolls in the South China Sea might have been
weakening have been firmly laid to rest with its offer
of shared drilling rights. The Philippines has bitten,
but none of the other four claimants - Vietnam,
Malaysia, Taiwan and Brunei - appears ready for a
commercial sellout that would make China master of one
of the key global trading routes.
Widely
anticipated once negotiations had hit rock-bottom on the
sovereignty issue, the Chinese offer implies that the
legalities of maritime jurisdiction could be set aside
until oil and gas reserves had been fully exploited. In
effect this would cement the dominant position of China,
which has claims over most of the Spratly and Paracel
groups, as well as parts of the continental shelf at the
southern end of the South China Sea.
It is no
surprise that Beijing chose to target Manila first: with
a weak naval capability and heavy dependency on oil
imports, it needs no reminding that China holds all of
the security cards.
"Chinese vessels have been
openly flouting the maritime territorial zone declared
by Manila for many years, so they really are not in a
strong negotiating position. It makes sense to grab what
they can while it is on offer," said an Asian diplomat.
"But at this early stage we have nothing concrete on
what the Chinese are proposing."
In his talks in
Manila, Wu Bangguo, chairman of the National People's
Congress Standing Committee, spoke only of a bilateral
"joint exploration and development program" that would
eventually be extended to other claimants if they
agreed.
Wu referred to the offer as a
"diplomatic breakthrough" that could build upon last
year's non-aggression pact with members of the
Association of Southeast Asian Nations. However, it is
not likely to be seen that way by the other ASEAN
claimants, Vietnam, Malaysia and Brunei, given their
insistence that the sovereignty issue be settled before
any talk arises of commercial deals.
Vietnam,
whose naval forces clashed with Chinese vessels in 1988
and 1992 over a contested Spratlys atoll, has its own
drilling plans and will not deal with China at all on
the issue. Nor will Taiwan. Malaysia and Brunei are not
likely to rush in either, as they have substantially
more to lose than the Philippines: included in China's
package of claims are some existing gas fields that
might have to be shared under the joint-venture terms.
So why is Beijing dealing at all?
According to oil-industry analysts, the Chinese
have become increasingly edgy over their energy
exposure, to the extent that state-owned procurement
agencies are locked into a furtive struggle with
Japanese buyers to lock in long-term supplies of Persian
Gulf crude.
Tokyo was forced out of the key
Iranian market this year under pressure from the United
States over Tehran's suspected nuclear weapons
ambitions, clearing the way for Beijing. But Japan has
hit back by offering Russia low-interest loans in return
for a trans-Pacific pipeline linking eastern Siberia and
the port of Nakhodka, south of Vladivostok, with onward
shipment to Japan.
This has created uncertainty
over China's 2001 accord for the establishment of a
separate Siberian pipeline to Daqing. Beijing agreed in
December to buy 20 million tons of crude oil from Russia
each year from 2005.
Last September, the
state-owned China National Offshore Oil Corp (CNOOC)
invited exploration bids from foreign oil companies for
12 oil and gas blocks in the South China Sea. CNOOC is
already active in the more tranquil Pearl River Basin,
at the easternmost point of the sea, where it reported a
new gas discovery last year. But it is the first time
bids have been called for high-risk deepwater drilling,
where the recorded depth is as great as 2,300 meters.
"The message is that China is not going to sit
on the sidelines anymore and wait for a diplomatic
solution that will never be found ... they want to force
the issue by taking it to the market," said a diplomat.
"So far the market hasn't really responded."
Oil
companies have eyed the region's exploration potential
for decades from a distance, but have been deterred by
the regulatory vacuum, which might expose investors to
future court challenges. Denver-based Crestone Energy
was contracted by CNOOC in 1992 to explore the Wan'an
Bei-21 block in the southwest of the Spratlys, only to
learn that Vietnam had given an overlapping contract to
ConocoPhillips. Neither deal proceeded.
Apart
from the uncertain sovereignty of the region, investors
were put off by the sheer cost and technical
difficulties of exploring in turbulent waters far from
shore that may not even have oil or gas in commercial
quantities. There are now stronger indications that
viable deposits probably do exist, while the technology
has also moved on since the early 1990s, with drillings
of 3,000 meters taking place in the Atlantic. CNOOC test
drillings have uncovered substantial evidence of methane
gas and other trace elements associated with
petro-fuels, while natural gas is already being
extracted out of reefs on the southern boundaries by
Malaysia and Brunei.
A formal accord between
China and the Philippines that covered only the reefs
contested by these two countries would offer a form of
security to investors, given that it would be unlikely
to be challenged. But not nearly enough.
"The
question one has to ask is whether this type of
bilateral arrangement offers an uncontestable guarantee
of contractual protection that could stand up in a court
of international arbitration," said a European diplomat.
"The answer would have to be 'no'.
"We cannot
preclude a narrow form of government-to-government
cooperation, but I doubt that China has the technical
ability to undertake exploration on this scale and in
these conditions without help from the US or European
multinationals," he added.
For the ASEAN
countries there is the wider issue of maintaining
solidarity in the face of economic imperialism from
China, which is already carving deep inroads into the
region's low-cost export markets. To dispel these fears,
Beijing has offered to rotate the leadership of a
joint-venture resources-management body. But there is
little doubt that China, with the biggest economic
leverage, would be in the best position to benefit.
Asian officials are concerned that the central
issues of territorial integrity and ensuring stable
relations may be overshadowed by Beijing's territorial
ambitions.
"What is China's real objective? Are
we only talking about oil security, or does China want
to parade its credentials as a regional power and send a
signal to Washington?" said the Asian diplomat.
"I think China wants to split the ASEAN position
so it can work on bilateral agreements, as this has
always been the Chinese approach. Personally I think the
Philippines is making a grave error by playing the
Chinese game," he said.
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
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