SEE ALSO: Philippines counts on upstream revival
Damon Evans, SINGAPORE: Despite worsening territorial feuds with China, the Philippines is pushing plans to license oil and gas exploration acreage in the disputed South China Sea, risking further confrontation with its powerful neighbour.
The blocks, in the Reed Bank, are far from the disputed Spratly islands and well within the Philippines’ 200 nautical mile exclusive zone, claims energy undersecretary Jose Layug. Most of the permits on offer in the latest licensing round are not in disputed waters.
Areas 3 and 4 lie within China’s boundary claim, which could deter investors. But these licences are relatively close to the producing Malampaya gasfield, so are still likely to garner interest, said Emma Cruickshank, head of southeast Asia upstream research at consultancy Wood Mackenzie.
China has made the largest claims over the South China Sea, which is believed to be rich in oil and gas deposits, while, Taiwan, Vietnam, Brunei, Malaysia and the Philippines also assert territorial sovereignty over sections of the sea. Part of the problem is that expectations about the hydrocarbon potential of the South China Sea’s under-explored areas tend to heighten perceptions of their strategic significance.
Last year, the US Geological Survey (USGS) put the likelihood that the disputed areas would hold at least 10.25 billion barrels of oil at about 50%, adding that the most prospective area was near the Spratly Islands. Gas potential is seen as even more promising, with between 60% and 70% of the area’s hydrocarbons believed to be gas. The USGS estimated a 50% chance of the area holding at least 134 trillion cubic feet (cf) of undiscovered conventional gas.
Tensions reach boiling point
Earlier this year, tensions reached boiling point when both Vietnam and the Philippines reported skirmishes with Chinese boats (PE 5/11 p31). Both nations claimed Chinese vessels cut cables from seismic survey ships operating in the South China Sea and in some instances threatened to ram them. China denied that it was to blame, saying both nations were exploring in disputed waters.
Raising the stakes further, London-listed Philippines-focused explorer Forum Energy plans to drill at least two wells and shoot more seismic starting next year at a gas prospect in Service Contract 72 in the Reed Bank, one of the most contentious areas.
Forum Energy – majority owned by local Philex Mining – expects to find reserves of 3.4 trillion cubic feet of gas (cf), with an upside of 10 trillion cf, and the potential to add another 20 trillion cf from further leads in the block. Other companies, including China’s CNOOC and state-owned PetroVietnam, are also ramping up surveying efforts in the South China Sea.
Eventually, analysts expect exploration to proceed even in disputed areas of the sea, not because of military conflict, but through bilateral or multi-party agreements. But mutual agreements between claimant countries will likely take some time to achieve.
In July, Chinese and Association of Southeast Asian Nations (Asean) officials agreed on draft guidelines to avert tension in the South China Sea. Until now, China has resisted agreeing to any such code of conduct. The document, Guidelines on the Implementation of the Declaration on the Conduct of Parties in the South China Sea, must be approved by the governments of China and Asean countries.
All sides called it a hopeful sign toward a peaceful resolution to the overlapping claims in the South China Sea. But the Philippines recently ruled out any more joint exploration with other claimant countries in the Reed Bank and said it will boost its military presence in the area. To hedge against a more assertive China, southeast Asian nations are turning to the US for support. Vietnam and the US have announced a new round of joint military exercises; and the US recently held joint drills with the Philippines.
