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China advances in the South China Sea

Beijing has seized the initiative in the contested area. But Australia and Timor-Leste are nearing agreement in their zone of dispute

China enjoyed an almost free hand in cementing its claims on the South China Sea during 2017 as it continued to aggressively build infrastructure within the self-declared Nine Dash Line in defiance of international laws.

As Beijing built more military-type facilities in the Paracel islets, in a maritime zone claimed by Vietnam, it scored a clear victory on land in the diplomatic war.

To the dismay of Vietnam, in particular, which has challenged China's ambitions in waters through which a third of the world's shipping passes, Philippines President Rodrigo Duterte has abandoned his country's former hostility to China and could even be siding with Beijing against America.

During the Asean summit in Manila last November, chaired by Duterte, the Philippines president studiously evaded the issue, one of the most pressing for the region, by saying that it was "better left untouched" by non-claimant parties. That can only mean the US and other key regional allies like Japan and Australia, which have been expressing their concerns for years.

Duterte's soft stance was all the more surprising because it was the Philippines that first pressed the issue, taking a case to the Permanent Court of Arbitration, which in July 2016 flatly rejected China's claims.

According to Washington-based Asia Maritime Transparency Initiative, the Philippines president could be under the thumb of Beijing. "Realising its rising economic influence, China has pressured Asean under Duterte's watch to soft-pedal on the South China Sea disputes," the organisation argued in January.

Greater Sunrise field—Contains over 5 trillion cubic feet of gas and 226m barrels of condensate

Meanwhile, China's continuing construction work inside other countries' maritime zones, all of it confirmed by satellite images, is heading for a flashpoint if it interferes with their exploration and production activities. At present, Vietnam is the most vulnerable because it has started exploration near the Spratly islands, where China has built a base. In an historic turnaround, Hanoi has welcomed president Trump's promise of military support.

As a report in US think tank Rand Corporation noted in late 2017, following Trump's visit to Hanoi, the offer includes patrol boats for Vietnam's maritime zone. In a deliberate warning, Washington has also promised to send an aircraft carrier to Cam Ranh Bay, closest to the Spratlys.

Other countries lying on the South China Sea such as Malaysia and Indonesia seem for the moment to be undertaking exploration and production without being harassed. But Vietnam, which has led the fight for a code of conduct in the South China Sea could be in the firing line. As Rand Corporation points out, "Hanoi has been left holding the bag on this issue."

Timor-Leste dispute eases

The good news in the region is that Timor-Leste's interminable dispute with Australia over rich oilfields could soon be over, with an agreement expected over where the gas will be liquefied. The dispute concerns the future of the so-called Joint Petroleum Development Area, which includes the Greater Sunrise field. Located about 150 kms southeast of Timor-Leste and 450 kms northwest of Darwin, it contains contingent resources of over 5 trillion cubic feet of gas and 226m barrels of condensate. The owners of Sunrise are operator Woodside (33.5%), Conocophillips (30%), Shell (26.56%) and Osaka Gas (10%), all of which have been involved on and off in these negotiations for years.

Although the terms of the deal remain under wraps, the general assumption is that it will be signed in New York in early March. Citing government sources, Dili-based research body La'o Hamutuk, said the nation will receive 70% of the upstream revenues from Sunrise if the pipeline is run to a new liquefied natural gas plant on its south coast, or 80% if the gas is piped to Darwin.

Whatever solution is selected, it can't come soon enough for Timor-Leste, whose current oil revenues are practically non-existent.

Source: Petroleum Economist

This article is part of an in-depth series on Geopolitics. Next article is: Venezuelan oil's volatile year

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