China, PH may partner in Recto Bank gas project

Posted at 07/05/2012 1:47 AM | Updated as of 07/05/2012 1:19 PM

WASHINGTON – China with its technological expertise in deep-water drilling may be the Philippines’ partner in developing natural gas resources in Recto (Reed) Bank despite the row between the two countries over Panatag Shoal, the Washington-based Stimson Center think tank said.

Such a project could set a precedent for similar joint-development projects in other areas of the West Philippine Sea (South China Sea) where many barren islands, reefs and coral outcrops are claimed by a number of countries, said an article by Zach Dubel, a research assistant with Stimson’s Southeast Asia program.

China claims almost all of the sea while the Philippines, Vietnam, Malaysia, Taiwan and Brunei claim parts of it.

Recto Bank west of Palawan island is within the Philippines’ exclusive economic zone (EEZ) and surveys indicate it has huge gas deposits.

Dubel said Philex Petroleum chairman Manuel Pangilinan made a recent trip to Beijing to talk with executives of the Chinese National Offshore Oil Corp. (CNOOC) about the possibility of partnering to develop gas resources in Recto Bank.

“Though Pangilinan said that CNOOC was only a potential partner and that Philex had not ruled out partnering with other foreign companies, CNOOC at least has a foot in the door for this type of project, and the added technological expertise of deep-water drilling can help their prospects while potentially setting a precedent for joint-development projects in other areas of the South China Sea,” Dubel wrote.

The most difficult aspect of negotiation between Philippine and Chinese energy companies would be whether the terms of such an agreement were sufficiently balanced to avoid enflaming Filipino national sentiments.

The stakeholders of any potential agreement in both countries would have to tread carefully lest this potential opportunity for progress harms, rather than helps, the possibility for cooperative development and the avoidance of conflict, Dubel said.

He said many had feared the recent launch of a new oil rig (HYSY 981) by CNOOC plus the launch of China’s first deep-water pipe-laying ship (HYSH 201) would be used to exploit seabed resources in disputed areas.

Instead both were deployed to the Liwan fields area well within the boundaries of what would be China’s 200-nautical mile EEZ, rather than the Spratly Islands area.

“Together, these two vessels represent a landmark achievement and technological hurdle that had previously left China dependent on the expertise of foreign oil companies for offshore resource extraction deeper than a few hundred meters,” Dubel said.

In the short-to-medium term, neither the People’s Liberation Army, Navy nor any of China’s several paramilitary patrol and surveillance entities have sufficient capability to completely ensure the safety of any significant oil installations and transport vessels in areas of the South China Sea beyond its EEZ, he said.

Subsequently, the risk of such an action to regional stability and China’s security would likely be too high to accept, given the high cost of expanding its oil and gas operations to the unexplored fields of the disputed areas with the unavoidable nationalistic backlash in other claimant states, with which China has important and growing trade and investment ties, Dubel said.

Given these realities, the introduction of HYSY 981, which gives China the ability to drill in deep-water conditions up to depths of 3,000 meters for the first time, has the potential to be a positive development for the region, he said.

HYSY 981 could end up making CNOOC more attractive as a development partner because of its newfound capability to exploit resources in areas that would be beyond the technological reach of some of China’s neighbors.

This could have the effect of promoting joint development without either a resolution of the underlying maritime boundary dispute or a formal government-to-government agreement, Dubel added.