China Seeks to Stall Vietnam Oil

CNOOC claims may discourage development.
An analysis by Michael Lelyveld
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CNOOC's first independent deep-water oil drilling rig departs from a port in Shandong province, May 21, 2012.
CNOOC's first independent deep-water oil drilling rig departs from a port in Shandong province, May 21, 2012.

China is unlikely to derive any commercial value from the oil and gas fields it has claimed near the coast of Vietnam, experts say.

Even if it could enforce its claims within Vietnam's 200-mile (320-kilometer) offshore zone and lure foreign companies into development, China would find it hard to launch production in more distant disputed areas of the South China Sea.

"It's one thing to explore far away from your own shores in disputed territory. It's quite another thing to produce from that area," said Edward Chow, senior fellow in the energy and national security program at the Center for Strategic and International Studies in Washington.

"To actually produce, you're placing billions of dollars' worth of assets out at sea very far away from you, drilling a number of production wells. How do you protect that?" Chow said.

Security and logistics have been among many questions raised since June 23 when the state-run China National Offshore Oil Corp. (CNOOC) announced it was offering nine offshore blocks that are already claimed by Vietnam as part of its exclusive economic zone under the U.N.-sanctioned Law of the Sea.

The challenge came soon after Vietnam's National Assembly passed the country's own maritime law on June 21, asserting sovereignty over the Paracel and Spratly islands, which China calls Xisha and Nansha, respectively.

China's National People's Congress called on Vietnam to correct its "erroneous" law, the official Xinhua news agency reported. The CNOOC announcement of tenders for the 160,124 square kilometers (61,824 square miles) of blocks near Vietnam followed the next day.

The area "lies entirely within Vietnam's 200-nautical-mile exclusive economic zone and continental shelf," said Vietnam Ministry of Foreign Affairs spokesman Luong Thanh Nghi, Bloomberg News reported. "This is absolutely not a disputed area."

Nine-dash map

The conflict is one of many that stem from China's insistence on its "nine-dash map" of South China Sea borders that overlaps claims of Vietnam, the Philippines, Brunei, Malaysia, and Taiwan.

The arguments have been simmering for years with flare-ups over issues including oil, fishing and naming rights, followed by diplomatic efforts to calm them down.

But the tensions may have entered a new phase on May 9 with the launch of CNOOC's first domestically developed semi-submersible deepwater drilling rig, which has started drilling wells 320 kilometers (198 miles) southeast of Hong Kong.

The giant 5.3-billion yuan (U.S. $834.5-million) floating platform may be pushing China's offshore oil claims beyond the theoretical stage.

China believes that one-third of its presumed oil and gas resources are in the South China Sea, and 70 percent of those are in deep water, Xinhua said in May.

It is unclear whether the platform's current location is in disputed waters, the Financial Times said, but neighbors may wonder where CNOOC plans to put it next.

Despite the new capability, Edward Chow sees a host of practical obstacles to the CNOOC tenders in Vietnam's offshore zone.

"There are so many practical challenges to operating in disputed waters very far away from home that makes you wonder whether the Chinese really believe they're going to do this, or is it really about something else?" Chow said in an interview.

"I fundamentally believe it has more to do with sovereignty and foreign policy than it does with oil and gas," he said.

From the security standpoint, China would probably be unable to keep its navy on station indefinitely to guard all the operations that support drilling and production, even if the effort did not lead to immediate conflict.

Then, there would be the problem of transport for resources that are more likely to be gas than oil.

"It would be simpler if it were oil, it would be more valuable if it were oil, but so far the region has been gas-prone," Chow said.

Long pipelines would be needed to bring the gas onshore, meaning that only huge discoveries would be commercially viable.

But big discoveries would have their own problems because they would need billion of dollars to develop.

"Who's going to risk that kind of capital until they know they have the concurrence of all the parties disputing the territory?" Chow asked.

Raising risks

In other regions, conflicting claims usually succeed only in freezing development until the disputes are resolved.

That may be the point. By making claims, CNOOC may be upping the stakes in the dispute by raising the risks for Vietnam's offshore development.

"It's a fairly transparent effort to put out markers," said Mikkal Herberg, research director for energy security at the Seattle-based National Bureau of Asian Research.

"I think no company is going to touch those blocks, given the dispute," Herberg said. "Typically, what happens in these cases is that the large players will shy away because they have large interests particularly in China but also perhaps in Vietnam."

If there is any good news in this interpretation, it is that clashes would be unlikely to result from CNOOC trying to move equipment into Vietnam's offshore zone.

The bad news is that China's chess move may raise tensions by discouraging Vietnam's offshore investment.

"It's clearly going to make it more difficult for Vietnam to get companies to invest in blocks that are out there on the margin where China is making a claim," Herberg told RFA.

Herberg said China already has some pipeline infrastructure in the South China Sea developed in the 1990s for the Yacheng 13-1 gas field.

Onshore connections include a 60-kilometer (37-mile) pipeline to Hainan Island and a 780-kilometer (485-mile) line to Hong Kong, according to BP, which turned over the operations to CNOOC in 2004.

"You could run pipes up into that infrastructure that connects to the Chinese market, but it would have to be a very large discovery to justify a long undersea pipeline, which is very expensive," Herberg said.

Comments (2)


from Nguyen

What is china thinking? Are they above the law. So they can do what they want. We will not buy any products made from china. So we dont give them any more chance to get more rockets or bullets to kill our people.

Aug 23, 2012 04:52 PM


from Houston

Chinese( elephant been woke up ,but it were,nt Lion,elephant cant run can't chase big head small brain

Jul 20, 2012 02:04 AM





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