Oil's not well on South China Sea

China has once again warned companies looking to explore for hydrocarbons in the South China Sea (SCS) to stay away from the disputed waters. The South China Sea is believed to hold large reserves of undiscovered oil and gas.

The US Geological Survey pegs the discovered and undiscovered resources at 28 billion barrels of oil and 7.5 trillion cubic metres of gas in the offshore basins of the SCS — reason enough for the dragon to spew fire.

India in SCS cauldron

Despite the United Nations Convention on the Law of the Sea (UNCLOS, 1982) guidelines, ownership disputes continue to stir up the SCS waters. Among the nations flanking its shores, China, Vietnam and the Philippines are aggressively claiming sizeable portions of the sea.

China has been demanding almost the entire area and is rooting for bilateral talks to resolve the territorial disputes, arguably to use its size to influence the one-to-one dialogues.

Recently, Beijing raised objections to ONGC's presence in SCS. ONGC's overseas arm, ONGC Videsh (OVL) holds stakes in a producing gas field — Block 06.1 in the Nam Con Son basin off Vietnam's south coast — in a joint venture with TNK-BP and state explorer PetroVietnam.

In 2006, OVL won a contract to jointly explore, along with PetroVietnam, Blocks 127 and 128 in the Phu Khanh basin, Vietnam. It then signed a three-year deal with Petrovietnam in September 2011 to jointly explore for oil and gas in these blocks. OVL later relinquished Block 127 after it encountered dry wells.

The blocks in question — 127 and 128 — lie within the Vietnamese maritime border as per the UNCLOS guidelines and partially beyond the line of control claimed by China. However, China's claims are based on historical maps that find little support in international law.

energy ties with ASEAN

Not only is the South China Sea believed to possess substantial hydrocarbon reserves, but it is also a vital transit point for ships. Despite China's repeated warnings to nations for cessation of exploration in South China Sea, India has maintained its stand of respecting the freedom of international navigation through this key shipping route.

The region can be an important piece on the energy supply map for both India and China. It opens up the shipping route for bringing ONGC's Sakhalin oil to India's coast through the Strait of Malacca.

Vietnam, Indonesia and the Philippines are pushing for increasing exploratory drilling in their respective Exclusive Economic Zones (EEZs) and Indian companies, like other international players, should grab this opportunity with both hands.

First, this will add a hydrocarbon supply source that is closer to its own shores, cutting down on the transportation distance; second, India's relationship with the Association of South-East Asian Nations (ASEAN) will gain ground, apart from the ‘customary' regional cooperation status.

Diplomatic masterstroke

Notwithstanding China's rhetoric, India has reiterated its intention to partner with Vietnam in exploring for oil and gas in the disputed waters and expanding the decade-old cooperation with Vietnam on key sectors, including energy.

New Delhi has, so far, done well in dealing with the Chinese diplomacy on this issue. Moreover, India's commitment to partner Vietnam can be a dampener for China's intentions; China would have thought of using its size to dominate the bilateral negotiations with stakeholders for its claims of ‘indisputable sovereignty over the entire South China Sea' — a bid to seek regional hegemony.

To protect its interest in the South China Sea and in ASEAN, India needs to be both forceful and diplomatic. As of now, New Delhi's reply to Chinese bickering has been that India has faith in Vietnam's sovereign claims over the concerned blocks and ONGC's investment is purely commercial in nature, with no political connotation. As per the UNCLOS boundaries, India stands justified.

New Delhi, with due regard to its own stand on Kashmir, should not put its foot in its mouth by giving opinions on territorial debates. It also has to deal with the tempestuous task of settling its own border dispute with Beijing. Hence, concerted efforts to increase bilateral energy cooperation with Vietnam, the Philippines and other ASEAN countries may prove to be a diplomatic masterstroke, as it will check China's high-handedness in the region and establish India's commercial interest without political spite.

All about energy security

Conventional wisdom says having more friends always helps. Both India and China would be reluctant to get into a debate that threatens the stability of the region. Moreover, the South China Sea is not the only thread in Sino-Indo ties.

In today's globally interdependent world, India and China need each other in more ways than one. Military engagement will bring no material gains to either side. China seems to understand this, considering its reluctance so far to use its military might in thwarting oil exploration efforts in the SCS.

Igniting a dispute that leads to a full-fledged military engagement — which unites the ASEAN against Beijing, stops all exploration activities and provides the US a reason to intervene — will surely be unpalatable for Beijing.

India, like China, is on the cusp of a demographic and economic makeover, and in need of increasing energy supplies to fuel economic development. Both the countries are keen on securing energy supplies from across the globe, with energy import bills damaging their balance of trade. The South China Sea is one such region that holds promise. It will be foolhardy to let the opportunity pass, while global majors flock to exploit the region despite the sovereignty disputes.

The presence of energy majors such as ExxonMobil and BP in the SCS substantiates the promise that the region holds. Hence, it is in the best interest of both countries and the other littoral states to let the region be explored and its potential be assessed through material developments.

Internal strife could lead to waning international interest and lesser involvement of global energy majors, who bring with them invaluable expertise and world-class technology.

Indian policymakers will do well to stick their neck out for protecting India's interest in the SCS, without jeopardising the peace of the region by taking a radical diplomatic stand at ASEAN.

The debate on the territorial sovereignty is not new, and many companies continue to explore in the region without much problem. Fittingly, as the energy industry believes, challenges and opportunities go hand-in-hand.

(The author is with Energy and Chemical Practice of Evalueserve. The views are personal)

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