Oil worries lubricate South China Sea
pact By Alan Boyd
SYDNEY -
Soaring oil prices have raised the stakes in China's
game of brinkmanship over the hotly disputed Spratly
Islands, with the Philippines this week becoming the
first rival claimant to break ranks.
In a separate development, Beijing
reacted with unusual restraint to Vietnam's announced
plans to begin regular air services to another Spratlys
atoll within months, indicating that the feuding
neighbors
may have reached
an accommodation on the issue.
Philippine
President Gloria Macapagal-Arroyo and her Chinese
counterpart Hu Jintao agreed at talks in Beijing jointly
to study potential oil deposits in the South China Sea
atolls as part of a three-year research project
involving two state energy firms. A communique by the
Philippine government went to great pains to emphasize
that the pact did not imply that the two countries,
whose naval forces have clashed over the contested
reefs, would proceed to the drilling stage.
"It
will be a pre-exploration study solely to collect,
process and analyze seismic data. No drilling or
development is covered under the study. There is no
reference to joint petroleum production," the statement
said.
Manila was also keen to underscore the
point that it had not given up its territorial rights to
a portion of the Spratlys, which are contested in part
or full by Taiwan, the Philippines, Malaysia, Brunei and
Vietnam, as well as China. Vietnam calls the islands
Truong Sa, and in China they are known as the Nanshas.
Philippine Energy Secretary Vicente Perez noted
that research agreements were permitted by the 2002
Declaration of the Conduct of Parties in the South China
Sea between China and the 10 members of the Association
of Southeast Asian Nations (ASEAN), which includes all
of the other claimants except for Taiwan.
Nevertheless, the accord represents the first
chink in the diplomatic wall that China has built around
the issue since it began to assert its sovereignty over
the entire region in a short-lived naval battle with
Vietnam in 1988.
Significantly, the communique
left open the possibility of follow-up deals on
exploration, with Manila stating that "any definitive
agreement for further cooperation between the
Philippines and China shall be subject to future
discussions".
China also reacted with relative
calm to the announcement by Vietnam that it would start
commercial flights by the end of the year to Truong Sa
Lon (Large Spratly), an island where it already has
military and administrative facilities. Although only a
small number of visitors is possible - the runway will
be a tight 600 meters in length, and there is limited
accommodation - the challenge might well have attracted
a naval response by China if it had happened a decade
ago.
But Vietnam's intentions have been widely
broadcast for the past year, and did not prevent Beijing
and Hanoi from establishing a hotline in August as part
of a commitment to resolve land and sea border disputes
without resorting to force. It was the eighth bilateral
round of talks over the South China Sea. This suggests
that an understanding has probably been reached on the
Spratlys that will set aside sovereignty issues for
future negotiation while "research" activities go ahead
at full speed.
Beijing's negotiating position
over the South China Sea has correlated to movements in
global oil-price indexes, shifting from implacable
opposition to a deal during the formative growth years
of the late 1990s, when it laid claim to 80% of the
entire sea area, to a cautious flexibility in the face
of a looming energy crunch.
Expected to be the
world's No 2 oil importer this year, China is struggling
to cool an overheating manufacturing base that consumed
6 million barrels of oil a day in 2003, a rise of 11.5%,
according to research by British oil company BP. About
30% of China's energy requirements are purchased abroad,
including half of its crude-oil supplies and massive
amounts of coal and natural gas that are shipped from
other parts of Asia and Australia to maintain industrial
power generation.
There are also 1,000 new motor
vehicles entering the congested streets each day in
Beijing alone, draining refined petroleum supplies. The
government is wary of responding too harshly to the
consumption boom, because it is the engine of the
economic-growth miracle.
Salvation was to come
from the direction of Central Asia, with Russia shipping
400,000 barrels per day of crude through an overland
pipeline to Daqing, in northern China. However, it is
more than a year behind schedule, and dogged by
uncertainty.
Suddenly the hundreds of coral
atolls have shifted back into focus, even though the
documented evidence of oil and gas supplies is at best
circumspect. Diplomatic reports suggest that China may
be poised for a decisive push into the region.
In a flurry of recent activity, China's national
oil companies have drawn up exploration plans for zones
in the East China Sea and South China Sea that all are
potential flashpoints because of overlapping economic
zones or unresolved territorial claims.
Japan
has protested vehemently against exploration plans by
China National Offshore Oil Corp (CNOOC) in waters near
the island group of Diaoyu - known by the Japanese as
Senkaku - which are also claimed by Taiwan. CNOOC has
installed a drilling plant close to Japan's exclusive
economic zone to look for natural gas, and said this
year that it had been authorized by Beijing to construct
an underwater pipeline to China.
Tokyo,
concerned that gas fields on its side of the boundary
might be exhausted, sent a survey team to the area in
July. Japan's gas reserves are projected at 200 billion
cubic meters, a commercially viable level. Beijing
proposed in June that the gas field be jointly
developed, but Tokyo has not responded, reportedly
because the extent of the Chinese reserves is unknown
and out of concern that the issue might inflame tensions
between China and Taiwan.
Further to the east,
Petro China has been given the green light to begin
drilling for gas near the Nanxia Archipelago, a
strategic area contested by Vietnam, Malaysia, Taiwan
and the Philippines. It is not known whether this will
become part of the research agreement brokered between
Beijing and Manila. Reports suggest that Petro China is
waiting only for its operations plan to be approved, and
already has drilling ships close by.
Any
exploration would technically be a violation of the 2002
code of conduct with ASEAN, which bans the installation
of any structures on or near the atolls until the
various territorial conflicts have been settled.
However, most claimants have already violated the code.
Five have permanent military garrisons on atolls, and
two - Malaysia and Vietnam - have tourism facilities;
others have hidden their monitoring stations under the
guise of "bird-watching towers" or weather huts.
With the code now effectively void, the way is
cleared for economic realism to win out against
nationalism - even if China does end up with the
diplomatic kudos.
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may have reached
an accommodation on the issue. 
