Oil and gas companies expand their exploration work in the contested waters.
After appearing to make progress in cooling tensions over the South China Sea in recent weeks, Southeast Asia and China face the potential for more trouble ahead as oil and gas companies expand their exploration work in the contested waters.
In the latest move, an energy company controlled by Philex Mining Corp. of the Philippines plans to drill at least two wells and conduct more seismic surveys starting next year in a natural-gas prospect in the Reed Bank, one of the most-disputed areas in the South China Sea near the Philippines, Philex’s chairman said Tuesday.
That move comes after the Philex-controlled exploration company, London-listed Forum Energy PLC, wrapped up an earlier round of seismic surveying earlier in the year in the region, which has already been the subject of numerous dust-ups in the past.
Other companies, including China National Offshore Oil Corp., or Cnooc, and Vietnam’s state-run Vietnam Oil & Gas Group, or Petrovietnam, are also ramping up surveying efforts in the South China Sea.
“There should be more exploration in the area,” said Philex Chairman Manuel Pangilinan, whose Philex group owns 65% of Forum Energy, and who envisions spending as much as $86 million in the area between now and 2013. “Obviously, the issue will be a political one,” he said in Manila. “My only request to the claimants, and this is the ideal situation, is allow us to do our work.”
There was no immediate response to the plan from China, which also claims parts of the Reed Bank and which has opposed exploration there before. In one incident this year, Philippines authorities dispatched two military aircraft to the area after a Philippines oil-exploration vessel said it was being intimidated by Chinese patrol boats, though China has said it wasn’t intruding.
However, an official Chinese newspaper on Tuesday accused the Philippines of lacking sincerity in its efforts to resolve territorial disputes, and warned of unspecified consequences if China is ignored. The editorial in the Communist Party’s flagship People’s Daily cited recent construction work by Philippines troops on a disputed island and said China won’t sit idly by while territories it claims are taken over.
“Were there to be a serious strategic miscalculation on this matter, the due consequences would have to be paid,” the newspaper said.
China and Southeast Asia’s governments said last month at a regional security summit that they had agreed to work together to resolve their arguments over the resource-rich South China Sea, which is subject to overlapping claims by Vietnam, China, the Philippines, Malaysia and others. Since then, however, Philippine President Benigno Aquino III has promised to upgrade his country’s military to defend its claims in the South China Sea, and tensions have remained high.
Analysts say there are a number of reasons why interest in the area has increased significantly lately, including rising nationalism in China as well as the potential for large fish catches at a time when food-price inflation is worrying governments across Asia.
Advances in oil and gas exploration, along with stubbornly high energy prices, are adding to the stress. Improved deep-water-drilling technology is making it easier for oil companies to prospect in far-out areas of the sea that used to be out of reach, increasing the strategic importance of controlling as much of it as possible.
Meanwhile, with oil prices hovering around $95 a barrel and energy demand outpacing new supply in Asia, the urgency to step up exploration is intensifying, leading to more conflicts. Vietnam has also accused China of interfering with its oil-exploration vessels offshore in recent months.
Cnooc, which is China’s largest offshore oil producer, recently took delivery of a nearly $1 billion offshore rig capable of operating in water depths of 3,000 meters, with plans to deploy the rig in the South China Sea quickly, company officials said. Much of China’s existing production off its shores is in depths of 10 to 300 meters, according to documents from Cnooc Ltd., the company’s listed unit.
Cnooc executive Yang Hua said in May that Cnooc expects to drill four to six deep-water wells in the South China Sea this year, and that it plans to accelerate oil exploration in deep-water wells over the next four years. In addition to the new deep-water rig-which is designed to withstand typhoons common in the South China Sea-Cnooc and other major Chinese energy-related firms have recently taken delivery of a deep-water seismic survey ship and deep-water pipe-laying vessels, industry analysts say.
“Right now, China is not too aggressive there, but once it has the technology, it will go more aggressively” in the area, said Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University in China. “It’s a race. This [sea] is disputed, it has a resource, and whoever can get more of it can get more,” he said. If other countries are prospecting, “why wouldn’t China?”
A Cnooc spokesman said in response to questions that the Chinese government’s goal is to avoid conflicts in the South China Sea, and that Cnooc would “address any oil and gas exploration problems in accordance with the Chinese government’s” position.
Part of the problem is that it’s still uncertain how much oil and gas will be found, or whether much more of it can be developed at reasonable costs. According to reports published by the U.S. Department of Energy, the South China Sea could contain anywhere from 28 billion barrels of oil-a little less than double China’s current proved reserves-to as high as 213 billion barrels, though analysts generally discount the higher figure as unrealistic, and some say it could even be below the lowest estimates..
“Expectations about the oil and gas potential of underexplored areas in the South China Sea tend to heighten perceptions of their strategic significance,” said Tom Grieder, an energy analyst with IHS, a consulting firm. Even so, he said, “in many contentious areas of the South China Sea, exploration is in the preliminary stages. The oil and gas potential of these areas is still in the process of being confirmed.”