ENERGY-VIETNAM: New Oil Find Fuels China’s Worries

By IPS Correspondents Reprint | | Print |

Tran Dinh Thanh Lam

HO CHI MINH CITY, Vietnam, Oct 25 2004 (IPS) - News of the discovery of a new offshore oil field in northern Vietnam may be drawing toasts at home, but threatens to add fuel to a long-time controversy with China over a territorial dispute in the South China Sea.

Just a day after the Oct. 20 announcement of the find by a partnership of oil companies from Vietnam, Malaysia, Singapore and the United States, a Chinese spokesman made clear Beijing’s position toward future oil exploration in the region.

China is seriously concerned and strongly dissatisfied,” China’s foreign ministry spokeswoman Zhang Qiyue said. In contrast, an official with the oil companies called the oil find a ‘’lucky” one for Vietnam.

The oil find, announced by a group of companies comprising Petronas Carigali Overseas of Malaysia, American Technology Inc Petroleum (ATI), Singapore Petroleum Company and PetroVietnam’s Petroleum Investment and Development Company (PID, is at Yen Tu field, about 70 kilometres east of Hai Phong sea port.

This is west of China’s Hainan island and for Beijing, not too far from the South China Sea, where its territorial claims would cover 80 percent of the area.

Six claimants – China, Vietnam, the Philippines, Brunei, Malaysia and Taiwan – lay claim to part or whole of the Spratley island chain in the South China Sea.

At the height of wariness by China’s neighbours about its intentions, this used to be considered a key security flashpoint in the region, especially when different claimants used different means to strengthen their presence there.

Tensions rose over actions such as Malaysia’s announcement that it would organise tours to the region. In the mid-nineties, the Chinese put up what it called shelters for fishermen on islets claimed by the Philippines, fuelling concerns in the Association of South-east Asian Nations (ASEAN) about increased aggression by China and prompting increased diplomacy to engage Beijing.

China’s reaction this month to the Vietnamese government’s invitation for public bidding in oil exploration in the South China Sea is reminder that while relations between Beijing and South-east Asia are much warmer these days, old territorial disputes are very much around.

This is particularly so for China and Vietnam, whose forces clashed in the South China Sea in 1988 and 1992, and where on both occasions the Chinese emerged victorious. China seized the Paracels from Vietnam and now considers them part of the nearby island province of Hainan.

Last year, China and Vietnam agreed to abide by the consensus to keep the status quo in the region and the Declaration on the Conduct of Parties in the South China Sea, which was signed by China and ASEAN.

The South-east Asian grouping considers the document vital to avoiding moves that add tension in the disputed waters, one it finally obtained after years of refusal by the Chinese to discuss the issue multilaterally.

Now China is invoking the same document, reflecting its worries that oil exploration involving foreign companies dealing with Vietnam would undercut its claims.

China’s Zhang Qiyue urged Hanoi to ôcorrect its wrong conduct” and abide by the consensus reached in the Declaration on the Conduct of Parties in the South China Sea.

‘’As is known to all, China has indisputable sovereignty over the Nansha Islands and the adjacent waters,” the Chinese official said. ‘’The above action by the Vietnamese side constitutes an infringement upon China’s sovereign rights and maritime rights and interests.”

China calls the Spratley Islands Nansha, while Vietnam calls them Truong Sa. Both countries have fielded historical and archeological evidence to support their claims in the disputed waters.

Zhang Qiyue has asked Vietnam to ôcease to adopt any unilateral action that would complicate or give rise to further expansion of the disputes”. She also called on international petroleum companies to cease to do anything that would impair China’s sovereign rights and maritime rights and interests”.

According to ATI General Director Dinh Duc Huu, many companies have been exploring in Yen Tu for oil and natural gas but this was the ‘’ first oil strike” in the waters of northern Vietnam. He estimated preliminary reserves at 181 million barrels.

Huu said exploration would be launched to find oil in Block 106, close to Chinese territorial waters. Chinese firms had also struck oil in several fields near Block 106 earlier.

Most of Vietnam’s daily output of 400,000 barrels per day comes from oil fields off its southern coast. The country is the third largest producer in South-east Asia.

The joint venture, which started operations in mid-2000, has spent about 20 million U.S. dollars on exploration, and according to Huu, will need 100 million dollars more over two to three years before oil could be removed.

Of late, Vietnam been offering new investment opportunities for foreign crude oil and gas firms.

At a Hanoi seminar on Oct. 15, PetroVietnam invited foreign companies to Vietnam’s 2004 Licensing Round, which covers nine blocks in Phu Khanh Basin offshore. The deadline for bids was set for Mar. 31, 2005.

”Phu Khanh Basin may contain the equivalent of 5.4 billion barrels of oil, or 16 percent of the 33.6 billion estimated to lie in Vietnam’s continental shelf,” Tran Duc Chinh, PetroVietnam’s acting general manager for exploration, said in an interview.

The nine blocks, named 122 to 130, cover about 10,000 sq km and are located 600 kilometres northwest of Ho Chi Minh City. According to PetroVietnam chief executive Tran Ngoc Canh, they are at an ôearly exploration stage”.

But as PetroVietnam Vice President Nguyen Fang Lieu remarked: ‘’When oil prices are high, the efficiency of investment increases.” Record-high oil prices of above 50 U.S. dollars a barrel will probably spur interest from oil companies in the Phu Khanh Basin, officials add.

South Korea’s biggest oil refinery has already expressed its interest. Chey Tae-won, chairman of SK Corp, won a pledge by PetroVietnam President Tran Ngoc Canh to push for joint exploration activities in Vietnam’s offshore oil fields.

So far, PetroVietnam has signed 43 contracts with foreign firms to carry out exploration and production operations in shallow-water areas with a depth of less than 200 metres.