China's push for offshore oil: A
chance for joint deals
AS CHINA'S energy demand and oil import bill soar and its other
domestic sources run dry, it is increasingly casting its eye
offshore - to disputed areas in the South and East China seas. This
has raised tension. But it has also created the opportunity for
joint development, which could build confidence and improve
relations in the region.
The recent flurry of activity concerning the contested Spratly
Islands brought an abrupt end to the relative calm that followed the
multiple-claimant Nov 4, 2002 Declaration on the Conduct of Parties
in the South China Sea. This was supposed to be a so-called 'code of
conduct' for the behaviour of the claimants in the contested area.
The declaration was signed by all claimants in what was hailed as a
breakthrough agreement decreasing tension and allaying concerns of
both the claimants and foreign maritime powers like Japan and the
United States, which depend heavily on the safety and security of
sea lanes adjacent to the disputed area.
THE SPRATLY CONTEST
THE 40-plus tiny atolls and their attendant ocean space, seabed
and resources are claimed in whole or in part by China, Taiwan,
Brunei, Malaysia, the Philippines and Vietnam. China, Taiwan and
Vietnam base their claims on discovery and historical usage since
'time immemorial'. But if legalities ever come into play - an
unlikely event - International Court of Justice precedents have
shown they will favour those who can show the best evidence of
continuous, effective occupation, administration and control
History, particularly ancient history, will not be a major factor
unless continuity of control - without protest - can be shown. And
this is not possible for any of the claimants - at least from
ancient times. China, through its claim to Taiwan, actually has one
of the best legal claims to a feature since it can demonstrate
continuous, effective occupation, administration and control of
Taiping Dao. While others have had troops on some features since the
1970s, Taiwan has had marines and now coast guard personnel on
Taiping Dao continuously since the early 1950s.
The first significant sign that the 'code of conduct' was not
holding came last month when Vietnam announced the beginning of
commercial flights and the construction of an airport on the largest
feature - what it calls Truong Sa (Spratly Island). This was
undoubtedly an attempt by Vietnam to enhance its legal claim by
demonstrating 'effectivities'. But this activity drew strong
protests from China, Taiwan and the Philippines.
All claimants believe the Spratly area contains considerable
petroleum resources. Although the size of any deposits in the
Spratlys is and will remain unknown until drilling actually occurs,
traces of gas were struck on the Reed Bank in the 1970s.
China had been gearing up to explore for oil in the southern
Spratlys. But such plans were strongly protested by the Philippines.
So it must have come as a bit of a shock to the Philippines' fellow
Asean claimants when it was announced on Sept 8 that Philippine
President Gloria Macapagal Arroyo and Chinese President Hu Jintao
had reached an agreement to 'study' potential oil deposits in the
This three-year pre-exploration 'study' is to be undertaken by
the two nations' state energy firms. To implement the agreement, a
Memorandum of Understanding to collect, process and analyse seismic
data was signed by the Philippine National Oil Company and the China
National Offshore Oil Company.
Politically, that the Philippines would enter such a bilateral
arrangement with China is a striking volte-face. For years Asean
struggled to maintain a united front against China's constant
'divide and conquer' strategy. The Philippines was one of the most
frequent and ardent advocates of Asean solidarity vis-a-vis China,
particularly after China occupied and built structures on the
Philippine-claimed Mischief Reef.
Perhaps because of this political contradiction, the Philippines
went to great lengths to emphasise to its Asean partners that
neither drilling nor production is covered by its agreement with
China, presumably because such activities could be seen as a
violation of the 'code of conduct'. But even the 'research' covered
by the agreement could be interpreted as violating the code's solemn
undertaking to exercise 'self-restraint in the conduct of any
activities that could complicate or escalate the disputes'. And the
Philippines-China announcement stated that 'any definitive agreement
for further cooperation between the Philippines and China shall be
subject to further discussions'.
This could mean that if the seismic results identify good
petroleum prospects, China and the Philippines may agree to proceed
to drilling. As an indication of the intentions of the parties,
Philippine Speaker of the House Jose de Venecia urged other
claimants to revise the 2002 declaration to allow oil exploration in
the disputed area.
The China-Philippines agreement should be of concern to the other
claimants for several reasons. First of all, it adds weight to the
claims of China and the Philippines to both the islands and the area
at the expense of others. In particular, the agreement would seem to
legitimise China's occupation of Mischief Reef on the Philippines'
legal continental shelf, and also tacitly implies that both parties
recognise the legitimacy of each other's claims to the area to be
'researched', as well as to the nearby features.
Naturally, those claimants that were left out protested
vehemently. Vietnam claimed the agreement violated the 2002
declaration. In response, the Philippines denied that it violated
the 'code of conduct' and announced that the 'research' plans would
be discussed with the other claimants. This leaves open the
possibility that a multilateral arrangement to explore the area
could be reached. Indeed, the bilateral arrangement was on the
agenda at a high-level Asean-China meeting in Manila late this
month, in the larger context of a possible Asean-China 'strategic
CLAIMS IN EAST CHINA SEA
THE situation in the East China Sea is somewhat similar. China's
June 22 proposal to Japan to jointly develop an offshore gas field
in the East China Sea is an opportunity to improve relations between
the two while harvesting the sea's petroleum resources. The
development of oil and gas in much of the area has been prevented
for decades by the boundary dispute. Several Japanese companies,
including Japex and Teikoku, have been pressing the Japanese
government for some years to claim the resources in the area.
However, the government has refused to do so because it could
adversely affect negotiations with China on the boundary line.
But now, China is drilling near the mid-line between its claim
and that of Japan, and Japan is concerned that China's well could
take some of its resources by pumping from an oil pool that extends
under the line. Japan has officially protested against the drilling
and is now exploring the area and even considering undertaking its
own test drilling on its side of the mid-line. This, in turn, has
been protested by China. Although tension is increasing, it may be
time to make a deal.
The East China Sea is thought to contain up to 100 billion
barrels of oil as well as 200 billion cubic metres of natural gas in
the area of drilling, and is one of the last unexplored
high-potential hydrocarbon resource areas located near large
markets. Ownership of the area is claimed by China, Taiwan and
Japan, based in part on their claims to the Diaoyu islands.
The Diaoyutai, or 'fishing platform', consists of five
uninhabited islets and three barren rocks, located approximately 120
nautical miles north-east of Taiwan, 200 nautical miles east of the
Chinese mainland coast, and about 200 nautical miles south-west of
Japan controls the islands, which it calls the Senkakus. Taiwan,
in a Bill submitted by its Cabinet to its legislature, has defined
its territory as including the Diaoyu Islands. China has already
incorporated the Diaoyu Islands into its territory under its law on
the territorial sea. The total maritime area that might be claimed
from the islands is about 20,500 square nautical miles and includes
potential oil, gas and mineral deposits.
The dispute over the boundary in the area involves differing
interpretations of the 1982 United Nations Convention on the Law of
the Sea to which China and Japan are parties - but not Taiwan. China
and Taiwan hold that because the Diaoyu islands are small,
uninhabited and unable to sustain economic life of their own, they
are not entitled to generate a continental shelf or consequently a
200-nautical mile Exclusive Economic Zone (EEZ).
To China and Taiwan, this means that the boundary should be at
the edge of their continental shelf which they argue is the axis of
the Okinawa Trough, very near to Japanese territory. But Japan
maintains that the topographical features are indeed islands and are
therefore entitled to have continental shelves and EEZs, and the
Okinawa Trough is a mere indentation in a continuous shelf. Japan
therefore uses the Diaoyu islands as base points for its continental
shelf and EEZ claims, and argues that the boundary should be the
line equidistant between the Chinese and Taiwanese coast and the
As proposed by China, the sovereignty dispute could be shelved,
allowing the governments to jointly develop resources in an agreed
area of overlapping maritime claims. Taiwan and China might then
jointly develop the resources on the Chinese side of a provisional
As part of the deal, Japan might be allowed to purchase gas from
China at a reduced rate in return for investment in the project. And
Japan might offer technical assistance in the development of
alternative energy and in pollution control. Thus China's aggressive
offshore exploration activities in or near disputed areas could
actually prod the other claimants into joint development agreements
which would, in turn, contribute to regional confidence building.
This is the silver lining in the cloud of vituperative exchanges
that surround these controversial initiatives.
The writer is a senior fellow at the East-West Center in
Hawaii where he has focused on maritime policy and international
relations for 25 years.
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