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China and Vietnam clash over drilling in disputed waters

Tensions have been renewed after Chinese company Cnooc moved a rig into the South China Sea area, 32 km south of the disputed Paracel Islands

China and Vietnam have clashed once again over oil and gas exploration in contested South China Sea waters after state-run China National Offshore Oil Corporation (Cnooc) moved its 981 deep-water rig into the waters to start drilling for oil and gas.

In early May, the rig was moved into a hydrocarbon-rich area of the South China Sea about 210 km offshore Vietnam and about 32 km south of the disputed Paracel Islands, sparking a renewed round of recriminations over the disputed waters. Officials in Hanoi argue that the rig is within the country's exclusive economic zone, which stretches 320 km from its coast, and Cnooc will be drilling into its continental shelf, where it holds the rights to any resources. Chinese officials counter that its control over the nearby Paracel Islands gives it sovereign rights over the waters. Both countries claim sovereignty over the Paracel Islands, but China has effectively controlled the islands since the countries fought a brief battle over the territory in 1974.

Legal standing

China's legal claim over the islands under the UN Convention on the Law of the Seas (UNCLOS) though is weak, some analysts say. The Paracel Islands are uninhabited, which gives them less weight in any discussion over sovereignty, say Ernest Bower and Gregory Poling, analysts at the Center for Strategic and International Studies, a Washington DC think tank.

Instead, China would have to base its claim that the waters are within its exclusive zone on Hainan Island, a popular tourist destination, which is around 290 km from the drilling site, significantly farther away than the Vietnamese coastline. "So China can make a legal case, however flimsy, for control over the continental shelf on which HD-981 sits. But that area is clearly in dispute," argue Bower and Poling. Drilling in the waters unilaterally runs counter to the spirit of UNCLOS, they say.

Vietnam's state oil company PetroVietnam said it sent a letter to the head of Cnooc, Wang Yilin, 'resolutely demanding that (Cnooc) cease the illegal actions immediately and move the HD-981 drilling rig out of Vietnam's waters." Vietnam's prime minister said China's 'violations' in the South China Sea were "becoming more serious and dangerous."

The conflict between the countries quickly escalated from verbal barbs to physical clashes. China has deployed at least 60 ships, including coast guard, along with the drilling rig, according to Vietnamese officials. And Vietnam has sent in its own fleet of ships. Chinese vessels have rammed Vietnamese ships and used water cannon to keep the Vietnamese ships from disrupting the drilling operations.

It is not the first clash over oil and gas activities in the area. In May 2011, Vietnam claimed a pair of Chinese fishing boats rammed into PetroVietnam's seismic cables during surveying operations in the disputed waters. A similar incident occurred in December 2012. In both instances China denied any wrongdoing and said PetroVietnam was acting illegally by carrying out the exploration activities. In June 2012, Cnooc put nine offshore exploration licences in the same disputed waters up for bidding to international companies, though it did not receive any bids.

The disputed region where the drilling is taking place could hold significant gas deposits. In 2012, US supermajor ExxonMobil said that it had made a potentially large gas discovery in the nearby blocks 118 and 119. Vietnamese press reported in March that the company was planning to jointly build a $20 billion gas-fired power complex with PetroVietnam, which would be fed by gas from the discovery. In its 2013 operational review, ExxonMobil said that it planned to drill an additional well in the area this year.

The involvement of a major US company in the region will likely only serve to escalate the situation further. Cnooc starting moving the 981 rig into position just days after President Barack Obama left the region after visiting Japan and the Philippines, which also have territorial disputes with China in the South China Sea. A US state department spokesperson said: "the unilateral decision by China to introduce its oil rig into these disputed waters, the dangerous conduct and intimidation by the vessels is concerning and certainly is representative of provocative actions."

Under pressure

In the past, China has pressured international companies, including ExxonMobil and BP, to pull out of its offshore exploration deals with Vietnam, according to US diplomatic cables released by Wikileaks. According to one of those cables, ExxonMobil 'quietly signed' its production sharing contract with PetroVietnam in 2009 to avoid raising Beijing's ire.

The latest clash, and China's increasingly strident approach to its South China Sea territorial disputes, could serve to make the region an even more difficult place for international oil companies to do business. It will also confirm China's neighbours' fears that the country is willing to use Cnooc's growing deep-water drilling capabilities to stake claims to the parts of the South China Sea it claims as its own, including the best oil and gas fields. When the 981 deep-water rig was unveiled in 2012, the head of Cnooc, Wang Yilin, called it 'mobile national territory' and a "strategic weapon for promoting the development of the country's offshore oil industry."

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