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A 'scrap of paper' in the water

China has not accepted a ruling denying its claim to energy-rich territory in the South China Sea. It may heighten tensions in the area

The untapped East Natuna gas- and oilfield in Indonesian waters could become the next flash point in the South China Sea following the comprehensive setback that China received in the ruling by the Permanent Court of Arbitration in mid-July.

China continues to claim the field, and others, in defiance of the ruling that clearly asserts neighbouring nations' rights under their respective Exclusive Economic Zones. Indeed, it declared the 497-page ruling "a mere scrap of paper".

China's defiance creates problems for ExxonMobil, which shares exploration rights in East Natuna with Pertamina, and other American operators active in the disputed waters. The US can be expected to back American companies in the event of any breach of the UN Convention on the Law of the Sea, which was fundamentally reasserted in the 12 July ruling.

ExxonMobil has a working interest in 10 platforms in five fields in the South China Sea, including East Natuna. But China has made it clear it intends to ignore the ruling after calling into question the competence and integrity of the tribunal, even implying its members may have been bribed.

Mounting tensions over East Natuna would be problematic for ExxonMobil. It's currently pursuing opportunities for pipeline and liquefied natural gas in China, where it signed long-term deals with PetroChina and Sinopec.

Contested sovereignty

Ian Storey, a strategic authority at the Singapore-based Institute of South East Asian Studies, told a packed seminar immediately after the ruling, that China had been put on the defensive. "China cannot legally claim ownership of resources overlapping 9-dash line," he said. (The 9-dash line defines China's version of its ownership of the South China Sea based on "historic rights" that were rejected by the tribunal.)

East Natuna is highly strategic. As well as being the largest untapped natural gasfield in Asia, it is estimated to hold around 0.5bn barrels of crude oil and is seen as an important source for the Trans-Asean Gas Pipeline project. The field is bordered by Malaysia, Indonesia, Brunei, Thailand and Vietnam as well as China.

China, however, continues to consider East Natuna to be up for grabs, whether on its own account or in partnership with other countries. As Storey points out, immediately following the ruling the government issued a white paper that reiterated in effect its sovereignty over the resources.

Besides East Natuna, China also claims the resource-rich Paracel archipelago off Vietnam and has a long-running dispute with Hanoi over the sovereignty of the more southerly, potentially hydrocarbon-bearing rocky outcrops known as the Spratlys. In 2014 Beijing deployed an oil rig in disputed waters off the Vietnam coast. A particularly fraught area where in the past Chinese patrol boats have harassed Filipino research vessels, the Spratly Islands have other claimants including the Philippines, Brunei, Malaysia and Taiwan.

The fear now is that, having backed itself into a corner by refusing any compromise, China may elect to underline its claims to sovereignty in the South China Sea with more vigorous action. According to Storey, a worst-case but far from improbable scenario would be an escalation in China's navy and military presence accompanied by a declaration of straight baseline areas around the Spratlys. Worse, he fears a blockade on the Philippines' territories such as the Scarborough Shoal, where China has plans to build man-made islands supporting war ships.

India, which has always supported peaceful negotiation over the South China Sea, may also come into the frame. The country's Oil and Natural Gas Corporation continues to explore for oil in disputed waters over China's objections.

Meantime, there's a question over exactly how rich are the oil and gas deposits in the South China Sea. According to specialist Christopher Len from Singapore's Energy Studies Institute, current assumptions are purely speculative. "The problem is that no party can conduct proper exploration of the region because of the ongoing tensions," he told ABC television late last year. "It is not worth the gamble."

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