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    Southeast Asia
     Jul 18, '13

New reef rift hits China-Philippines ties
By Richard Javad Heydarian

MANILA - Despite renewed regional efforts to establish a binding code of conduct (CoC), the risk of armed confrontation is rising again in the South China Sea. Tensions between China and the Philippines have spiked in recent weeks as the two sides jostle for control over the Second Thomas Shoal, a potentially oil and gas rich fixture in contested waters.

Nearly one year after Chinese paramilitary forces and the Philippine Navy squared off precariously over the contested

Scarborough Shoal, the Second Thomas Shoal (known as "Ren'ai" in China and "Ayungin" in the Philippines) has emerged as a new regional flashpoint.

The newly contested shoal is 168 kilometers off the Philippine western island of Palawan and almost 965 kilometers from the nearest Chinese port. It has been under the de facto control of Philippine forces for over a decade, with Manila arguing that the shoal is well within its 200 nautical mile exclusive economic zone (EEZ). Beijing has repeatedly referred to Manila's claims over island and reefs in the area as "illegal occupations".

To mark Manila's claim, a small contingent of Filipino marines has been perched on a rusty hospital ship (BRP Sierra Madre) that ran aground on the coral reef in 1999. Since late May, a Chinese flotilla including a naval frigate has surrounded the small contingent of Filipino Marines, raising accusations that Beijing has intentionally blocked its forces' access to supplies.

In response, Manila dispatched a new contingent of Marines with fresh supplies of fuel, food and water. On June 21, Beijing referred to Manila's occupation of the shoal as "illegal". On July 15, the Philippine foreign ministry issued an eight-point statement, claiming China's provocations had made it "impossible" to continue bilateral negotiations on their territorial disputes. China's foreign ministry fired back the next day, saying it was "dissatisfied" over Manila's "closure of the door to dialogue".

Energized stakes
For the Philippines, maintaining control over the Second Thomas Shoal is not only a question of preserving territorial integrity. The shoal also serves as a critical gateway to the currently Philippine-controlled Reed Bank, situated 80 nautical miles from Palawan and estimated to possess among the largest reserves of untapped oil and gas in the Western Pacific.

In terms of proven and probable reserves of oil and gas, the US Energy Information Administration (EIA) estimates the entire South China Sea holds as much as 11 billion barrels of oil and 190 trillion cubic feet of natural gas. Crucially, the bulk of those projected undiscovered hydrocarbon deposits lies specifically within the Reed Bank and surrounding areas.

Citing a US Geological Survey, the EIA estimates "between 0.8 and 5.4 (mean 2.5) billion barrels of oil and between 7.6 and 55.1 (mean 25.5) trillion cubic feet (TCF) of natural gas in undiscovered resources" are in the contested northeast end of the South China Sea, encompassing areas of the contested Spratly Islands and the Reed Bank.

In 1976, the Philippines started exploration and development activities in the Reed Bank area, complementing the nearby Shell-operated Malampaya Natural Gas Field that is responsible for 40%-50% of the power generation for the industrializing northern island of Luzon.

With the natural gas facility set to exhaust its 2.7 trillion cubic feet of reserves in the next decade, Reed Bank is viewed by Manila as crucial to the nation's future energy security. The Philippines currently imports around 40% of its energy needs, which are fast growing with recent strong economic growth.

Lacking sophisticated technology and sufficient capital, the Philippines has historically relied on foreign companies to develop its offshore hydrocarbon resources. For Reed Bank, Manila enlisted the support of the US-based Sterling Energy in 2002 and UK-based Forum Energy in 2005.

The Recto Bank concession, or SC-72, has so far been composed of three drilled wells located at the southwest end of the complex, with two of the wells testing gas at rates of 3.2 million cubic feet per day (MMCF/D). and 3.6 MMCF/D. Since 2008, Forum Energy has been joined by Monte Oro Resources & Energy Inc, forming an Anglo-Filipino consortium to manage the concession. Forum Energy holds a 70% stake in SC-72.

A subsequent 2D and 3D seismic interpretation study was conducted by Weatherford Petroleum Consultants and revealed that the Sampaguita Field within the concession area contained 5.5 TCF of prospective in-place gas resources and 2.6 TCF of contingent in-place gas resources, plus possible gas-associated condensates.

Forum Energy's own estimates put the gas field's gross reserves at over 11 TCF, dwarfing the size of the now semi-exhausted Malampaya. In short, the Reed Bank is a viable and potentially game-changing hydrocarbon reservoir close to both China and the Philippines in the South China Sea.

The previous Gloria Macapagal-Arroyo administration (2001-2010) - allegedly swayed by Chinese economic sweeteners such as big-ticket infrastructural and investment pledges - agreed to slow the development of Reed Bank and join the 2006 Joint Marine Seismic Undertaking, which sought the joint exploration of hydrocarbon resources in the contested waters.

Arroyo's agreement, however, was shunned by the incumbent Benigno Aquino administration, which since taking office in mid-2010 has pushed for the immediate development of the Reed Bank and protection of what Manila deems as its rightful claim to the area. Since then, Manila has claimed that Chinese paramilitary vessels have actively sabotaged oil exploration activities in the area.

In late 2011, for example, Philippine Navy chief Vice Admiral Alexander Pama reported an "accidental collision" where a Philippine Navy gunboat (PS-74) allegedly fended off a Chinese mother ship escorting up to 25 smaller boats. This confrontation presaged the month-long standoff in 2012 over the Scarborough Shoal, over which China has since asserted virtual control.

Philippine energy companies have raised similar alarms. "If Chinese gunboats appear on the horizon, then there could be delays as those rigs and survey ships are owned by other countries," said Manny Pangilinan, chairman of Philex Petroleum Corp, the majority owner of Forum Energy, in mid-2012. In January this year, citing territorial disputes with China, Forum Energy delayed plans to drill two new wells in SC-72 from this year to 2015.

Fortified positions
There are signs that China is moving to fortify its position vis-a-vis the Philippines. A late-2012 Chinese defense ministry announcement outlined plans to accelerate the construction of Sansha City, a newly formed administrative unit on Woody Island tasked with administration of China's claimed features in Macclesfield Bank, the Paracel Islands, Scarborough Shoal, and various uninhabited features across the Spratly Islands.

The move has been interpreted widely as an effort to expand China's military fortifications in the areas, enabling its naval and paramilitary elements to project power more effectively over the maritime areas. At the same time, Philippine authorities have carped about the growing frequency and size of Chinese flotilla, composed of naval helicopters and armed surveillance ships, visiting contested features to conduct routine monitoring activities.

From Beijing's perspective, its activities in the contested waters are a natural exercise of its claimed as "inherent" and "indisputable" sovereignty over features in the South China Sea. In a July 16 statement, Chinese foreign ministry spokeswoman Hua Chunying reiterated Beijing's frustration with the Aquino administration's move away from the 2006 Joint Marine Seismic Undertaking agreement signed by the previous government.

"However, it is regrettable that over recent years, the Philippines has changed its attitude and approach in handling the issue, went back on its consensus with China, broke its commitment in the DOC, cast aside the framework of dialogue upheld by a majority of countries, refused to cooperate, aggravated the situation and set off the incident of the Huangyan Island (Scarborough Shoal) last year by harassing Chinese civilians with warships," the statement said. "This cast a shadow over China-Philippines relations and peace and stability of the South China Sea".

Left unsaid was criticism of Manila's rising strategic overtures to the US, including a recent government call for the establishment of non-permanent US bases in the Philippines. In June, Washington expressed its categorical opposition to any forcible unilateral seizure of contested features in the South China Sea. The strong statement was followed by the joint Philippine-US Cooperation Afloat Readiness and Training (CARAT) exercise, which was conducted close to the Scarborough Shoal and saw the joint deployment of the Philippine flagship vessel BRP Gregorio del Pilar and America's guided-missile destroyer USS Fitzgerald (DDG-62).

At the recently concluded Association of Southeast Asian Nations (ASEAN)-China Ministerial Meeting in Brunei, both sides agreed to restart negotiations towards a binding CoC in the South China Sea. At the same time, Chinese and Philippine officials traded barbs from the podium, positions that have since hardened with the pointed exchanges between both countries' foreign ministries on July 15 and 16. While hopes are rising for an ASEAN-led diplomatic resolution to the disputes, the threat of a military confrontation is likewise gathering pace.

Richard Javad Heydarian is a Manila-based foreign affairs analyst focusing on the South China Sea and international security issues. He is a lecturer at Ateneo De Manila University's (ADMU) Department of Political Science, and the author of the upcoming book From Arab Spring to Arab Summer: The Economic Roots and the Precarious Future of the Middle East Uprisings. He can be reached at jrheydarian@gmail.com.

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