Spratlys dispute blocks exploration
The continuing six-sided dispute over ownership of the tiny islets
and rocks known as the Spratly islands in the South China Sea is
preventing development of an area believed to be rich in undersea oil
and gas deposits.
The dispute has practically halted exploration in the disputed waters,
and claimants are holding back from offering oil and gas blocks for
international tender until some sort of agreement is reached.
China and Vietnam have been at the forefront of the dispute, having
come to blows over the islands. But both sides are now taking a less
confrontational stance, avoiding exploration in the area and sharply
limiting activity in disputed blocks already tendered to foreign
companies.
China, Vietnam and Taiwan claim sovereignty over all the islands in
the 800-kilometer long chain, while the Philippines, Malaysia and
Brunei claim at least some. The Spratlys have long been a regional
flash point, and some of the claimants occupy several of the islands
and station troops there.
Diplomatic crises flare up periodically and on occasion have led to
naval clashes. With much of the world's cargo - and crude oil -
passing through nearby shipping lanes, the dispute has the potential
of drawing the U.S. and China into conflict.
Chinese geologists have conducted surveys of the waters around the
islands, and there is speculation the area could contain hydrocarbon
resources of as much as 70 billion barrels of oil equivalent some
200-1,000 meters below the surface of the sea.
But the claimants have in recent years held off awarding offshore
concessions in the Spratlys for fear of provoking a clash with their
rivals. And foreign companies aren't likely to make any commitments
to explore the area until the territorial dispute is settled or the
claimants come to terms on joint development, oil company officials
say.
"Oil and gas operators ready to enter into contracts in the region
need to assess the potential ramifications," said an official with a
major oil company involved in oil production in the Pearl River Mouth
Delta region of the South China Sea.
The dispute over the Spratlys has been particularly bitter between
China and Vietnam. China and the former South Vietnam fought a
naval battle over the islands in 1974 after the Saigon government
allowed western oil companies to explore in the area.
In 1988 the two nations again clashed at sea over possession of
Johnson Reef in the Spratlys. The two countries normalized relations
in 1991, and Chinese President Jiang Zemin has since made two trips
to Vietnam, the most recent one earlier this year. But the two nations
still remain at loggerheads over the Spratlys.
"We don't think that investors can do anything in the whole Spratly
region in the next five years or at least until Vietnam and China can
reach agreements on sea demarcation," said an official with Vietnam's
state-owned PetroVietnam.
He said companies wanting to carry out exploration in the area would
have to submit an application to the Vietnamese government.
"But so far, because many areas are still under claims by more than
one country, exploration is not open for them right now," the official
said.
China, Vietnam Granted Contracts In Overlapping Areas
In 1992 China and Vietnam granted oil exploration contracts to U.S.
oil companies covering areas in the Spratlys which overlapped.
In May of that year China National Offshore Oil Corp. and Crestone
Energy Corp., based in Denver in the U.S., signed a cooperation
contract to jointly explore the 25,155-square-kilometer Wan'an Bei-21
block in the Spratly area of the southwest portion of the South China
Sea.
CNOOC was to provide seismic and other data covering the contract
area, which lies under 300-700 meters of water 1,764 kilometers
south-southwest of Hong Kong. Crestone agreed to cover all costs
and conduct more seismic surveys and drilling in the area.
The contract was extended in 1999 after Crestone failed to complete
the exploration.
Crestone's Wan'an Bei-21 contract in part covered Vietnam's blocks
133 and 134, where PetroVietnam and ConocoPhillips Vietnam
Exploration & Production BV, a unit of ConocoPhillips Co., agreed to
jointly evaluate prospects in April of 1992.
This led to a confrontation between China and Vietnam, with each
demanding that the other cancel its contract. The two countries
have kept quiet about the matter recently, but this doesn't mean
they have stepped back from their positions, said the official with the
oil major operating in the South China Sea.
While China continues to stand firm on its claim of sovereignty over
the Spratlys, it has offered to join with the other claimants to explore
and develop the area.
"China may reconcile itself to give up some interest in terms of
resources in the area, but will never give up its sovereignty," said Li
Guoqiang, a researcher at the Research Center of Borderland History
of the Chinese Academy of Social Sciences.
But the other claimants, which except for Taiwan belong to the
Association of South East Asian Countries, have insisted the
sovereignty issue be settled first, according to Liu Nanlai, a
researcher at Law Research Institute of the Chinese Academy of
Social Sciences.
China recently held talks with Asean countries aimed at realizing a
proposal for a free trade area with the 10 members.
This, Liu said, shows that China is building better economic relations
with Asean, making it less likely that it would get into a fight over oil
and gas exploration in the disputed waters of the Spratlys.
China and Asean also have been engaged in talks to create a code of
conduct aimed at easing tensions in the disputed islands.
By Xu Yihe - Dow Jones Newswires - June 10, 2002.
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