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South China Sea: What Are the Prospects for Joint Development? By Carlyle A. Thayer

C3S Paper No. 0012/ 2015


Q1. The prospect of joint development projects in the South China Sea (China-Vietnam, China-Philippines) and the East China Sea (China-Japan) have been mooted in the past, what has stopped them either getting off the ground or not delivering anything substantial?

ANSWER: China and Vietnam in fact have a relatively long-standing joint oil exploration project in the Gulf of Tonkin (Beibu Gulf) that was extended a year ago. The VietSovPetro joint venture is an example of a highly successful joint development effort in the South China Sea. In September 2004, the national oil companies from China, the Philippines and Vietnam, China National Offshore Oil Corporation (CNOOC). Philippine National Oil Company -Exploration Corporation (PNOC-EC), and Vietnam Oil and Gas Corporation (PetroVietnam), respectively, entered into an agreement to conduct seismic exploration in an area west of Palawan. The agreement was known as the Joint Marine Seismic Undertaking (JMSU) and it came into effect in July 2005. A Chinese vessel conducted the survey, Vietnam processed the data, and the Philippines interpreted the results. The JMSU project was undertaken by the Gloria Macapagal administration. The JMSU was not renewed at the end of its three-year term because of allegations of Chinese involvement in bribery involving a high-speed rail project in the Philippines. The Aquino Administration ruled that the JMSU was unconstitutional because exploration took place in Filipino waters. There are two other joint development activities being undertaken in Southeast Asian waters. Malaysia and Thailand agreed on joint development in February 1979 and in 1990 set up the Malaysia-Thailand Joint Authority for exploitation on the seabed in the Gulf of Thailand. Another example is the agreement reached between Vietnam and Malaysia in June 1992 to undertake joint development in the Gulf of Thailand where their claims to continental shelves overlap.What has really bedeviled China’s proposals for joint development is China’s insistence on prior recognition of its sovereignty. This view has been conveyed to me by more than one ASEAN ambassador.

Q2. Does joint development offer parties a way to access resources without having to first resolve their legal and political differences?

ANSWER: Yes, according to legal scholars joint development entered international law in the 1970s and referred to cooperation between states to explore and develop oil and gas in a designated area which was under dispute by the concerned parties. It is common place in international law to add a clause to the effect that an agreement on joint development “does not prejudice prior claims to sovereignty.” Joint development provides a means for each party to bring something to the table (comparative advantage) in order for both to benefit.

Q3. Does China’s increasing experience in building and operating deep water equipment make it an attractive potential joint development partner to other countries? Or is it a case of the opposite?

ANSWER: China’s development of deep water oil exploration and production equipment means that China can be added to the small group of foreign companies with similar technology. This means greater choice and more competition in bidding. Whether China is an attractive partner depends on the energy strategy of each state. Vietnam attempts to diversity its clients. Other states are motivated by the best possible commercial deal. On the face of it the commercial playing field is level as far as China is concerned.

Q4. Are we likely to see a “purely commercial” joint development, along the lines of CNOOC-Philex in the Recto Bank, at some point within the next 10-20 years? Or is a state-led joint development project possible instead? Or is it off the cards completely?

ANSWER: All the oil companies in China and Vietnam are state-owned (or affiliated) and presumably are handmaidens of state policy. In theory – or declaratory policy – there should be no legal impediment to CNOOC and Philex engaging in commercial activities. Brunei has a service contract with a Chinese company. The future of joint development will depend on the political environment after the UN Arbitral Tribunal makes a judgment on the Philippines statement of claim (or prior to that declares it does not have jurisdiction in the matter).

(Article reprinted with the permission of the author Carlyle A. Thayer, Emeritus Professor,The University of New South Wales at the Australian Defence Force Academy, Canberra email: Carlthayer@webone.com.au)

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