Is China Pressuring ExxonMobil to Cease Vietnam Operations?

An analysis by Carl Thayer
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Retired Vietnamese scholars protest outside China's consulate in Ho Chi Minh City, Aug. 10, 2019.
Retired Vietnamese scholars protest outside China's consulate in Ho Chi Minh City, Aug. 10, 2019.
Facebook / Hoang Dung

Earlier this month  private emails from Vietnam and elsewhere reported that ExxonMobil was about to suspend or terminate its mammoth Blue Whale natural gas project in Block 118 off Vietnam’s central coast because of pressure from China. At this stage these rumors have not been confirmed. Bill Hayton in a Tweet suggested that commercial differences over the price of gas could be the main factor. He suggested a wait and see approach.

However, if the rumors are confirmed this would not be the first time that China has pressured ExxonMobil to steer clear of oil exploration and production in Vietnam. In late 2007, a senior Vietnamese official confided to me that China had acquired a classified copy of Vietnam’s Maritime Strategy to 2020 and were privately warning western oil companies that their interests in China would suffer if they assisted Vietnam.

I passed this information to Greg Torode at the South China Morning Post. In June 2008 he was able to get ExxonMobil to go public confirming Chinese intimidation. In May 2009, two Obama Administration officials, the deputy assistant secretaries for state and defense, testified before a Congressional committee. They recommended a ‘carrot and stick’ approach to counter China’s attempted coercion of American oil companies.

In 2014, during the Hai Yang Shi You 981 maritime confrontation between China and Vietnam, ExxonMobil dispatched senior executives to Beijing to determine China’s intentions and the implications for its Blue Whale Project.

ExxonMobil acquired Blocks 117, 118 and 119 in the Phu Khanh Basin from BP in 2009. These blocks lie eighty-eight kilometers from Quang Nam province well within Vietnam’s Exclusive Economic Zone.  ExxonMobil began exploration in 2010 and achieved positive results two years later at its third well, Ca Voi Xanh (Blue Whale)-3X.

On January 16, in a significant development, PetroVietnam Exploration Production Company and ExxonMobil Vietnam signed a project framework heads of agreement and a gas sales heads of agreement to develop Vietnam’s largest gas project. The Blue Whale blocks contain an estimated 150 billion cubic meters of gas reserves and will cost an estimated U.S. $10 billion to develop. Gas production is estimated to begin in late 2023.

Currently, ExxonMobil's EMEPVL (ExxonMobil Exploration and Production Vietnam Limited) and PetroVietnam and PetroVietnam Exploration Corporation are cooperating in the Blue Whale Project. ExxonMobil holds 64% of the working interest.

In January this year, ExxonMobil awarded Saipem's XSIGHT (Italy) an onshore-offshore Front End Engineering Design contract to develop integrated natural gas to power infrastructure connecting the Blue Whale Block 118 with facilities on shore. ExxonMobil is now filing permits, planning applications and undertaking other preparatory work for this project.

On  August 13, I was told by a senior Vietnamese foreign ministry official that ‘Blue Whale was next’ and that when China's Foreign Minister Wang Yi met Russia's Foreign Minister Sergei Lavrov in Bangkok on August 2 on the sidelines of the ASEAN Ministerial Meeting, Wang Yi asked his counterpart to get Rosneft to cease its hydrocarbon exploration activities in Vietnam. Lavrov declined the request.

In other words, if Vietnam failed to curtail the operations of Rosneft Vietnam and dithered on joint development involving Chinese state-owned companies, Beijing would turn up the pressure directly on other foreign oil companies operating in Vietnam. Some reports suggest ExxonMobil postponed a decision on its Final Investment Decision (FID) until next year to see how the situation with China pans out. But the record indicates that the decision to consider the FID in 2020 was made in January 2019, or five months before China deployed the Haiyang Dizhi 8 to waters near Vanguard Bank.

ExxonMobil is currently engaged in obtaining regulatory approvals, government guarantees, executed gas sales agreements and economic competitiveness evaluations.

The Vietnamese government has a lot riding on this project; it is after all the largest gas field in Vietnam. Some estimate the government could earn $20 billion from the Blue Whale Project. Vietnam Electricity, PetroVietnam and Singapore’s Sembcorp are currently holding talks to build and operate two power plants to convert the gas to 2 Gigawatt of electric power. This would amount to ten percent of Vietnam's current total power demand.

If China is putting pressure on either or both Vietnam and ExxonMobil its timing may be off. There are strong rumors President Nguyen Phu Trong will visit President Donald Trump at The White House next month to expand their comprehensive partnership. The U.S. has issued strong statements criticizing China for bullying Vietnam and threatening its long-standing oil and gas exploration. Recent U.S. statements generally include support for ‘other lawful uses of the South China Sea.’ This could be read as the right to exploit resources in a littoral state’s Exclusive Economic Zone.

Carl Thayer is emeritus professor at The University of New South Wales, Canberra.

Comments (2)

Hate Communists

from ghet bac Ho

Yeah, I'm mad as hell.
Both vultures and sharks are circling and picking VN apart.
It sucks when one can't control one's interest and outcome!
I'm asking what about VN and her people?
VN stands to lose a great deal!
I don't see how the people will benefit from any of these! It isn't like the VCP will trickle the profits back into the economy.
In the end of the day, VN is drained of her resources, the rich is getting richer, and the VNmese people will live in a environmental mess of oil spilled and contamination - mark my words on this!

Oct 04, 2019 11:29 AM

Mary Pho

from usa

Expert Carl Thayer's inside scoop on Vietnam comes from social media magic, outcasts-turned-democracy activists and of course, professional serial e-mailers whose productivity is 2nd to none in Asia, if not the world.... His government source that "confided" to him secret information about Chinese pressure, must be the same loser that confided "80 Chinese vessels invading Vanguard Bank and Vietnamese ain't doing nothing" - going viral for 12 hours!

Sep 18, 2019 11:36 AM





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