Beijing maintains expansionist tendencies
China has not lost its interest in oil and gas assets around the South China Sea
China has not been distracted from its assertive agenda in the South China Sea despite its domestic focus on combating Covid-19. It continues to deploy oil and gas vessels and military muscle to bolster its position in the strategically vital region.
The major focus of China’s obstructive role in the area is where its claims overlap with both Malaysia and Vietnam, neither particularly friendly towards Beijing. Malaysian national oil company (NOC) Petronas is exploring in blocks ND1 and ND2, which are in waters also claimed by the Vietnamese and within China’s so-called nine-dash line boundary.
The Chinese elbowing into the bilateral dispute is described by US-based thinktank the Asia Maritime Transparency Initiative (AMTI) as a campaign of intimidation—including harassing Malaysian oil and gas work close to shore.
Malaysia and Vietnam have been the most robust among regional players in challenging China’s South China Sea claims. In effect, these mean that anyone prospecting in areas within the nine-dash line face persistent interference from Chinese law enforcement and paramilitary vessels.
64pc – Exxon’s stake in Vietnam’s Blue Whale
The AMTI has termed this the “new normal” in the region, with Chinese vessels approaching rivals' rigs and supply vessels and coming close to causing collisions. The intended message seems to be that E&P efforts—such as those around blocks ND1 and ND2—are too risky with which to persevere.
Marine standoffs are becoming more frequent, warns Greg Poling, director of the AMTI. “It used to be you would hear about these games of chicken about once a year, with the Chinese just reminding people of their claim. Now their presence is so overwhelming in every inch of the South China Sea that it seems like they are trying to pick a fight every time.”
China’s attention has also recently turned to Cambodia, a country with which it has historically had good relations. In February, Cambodian Resources Energy Development, a little-known Chinese oil company, was granted a three-year exploration licence in Block D in Cambodian waters in the Gulf of Thailand. The company is scheduled to begin exploration this year in a 5,500km² zone.
This may be strategically important, given China’s lack of friends in the region. “Cambodia is seen by the Chinese as a bridgehead,” says Bill Hayton, an associate fellow at thinktank Chatham House’s Asia-Pacific programme. “Both countries are antagonistic towards Vietnam, and there is an expectation of a free trade agreement being signed between them.”
Now is the time
The tension between Malaysia, Vietnam and China reflects in part the sense among the region’s smaller states that now may be a good time to exploit Chinese vulnerability over the coronavirus outbreak.
But any challenge to Beijing is unlikely to go unanswered, as China has no clear incentive to soften its stance in the South China Sea. “China is simply not prepared to trust the multilateral rules of the game. There is little appetite for compromise,” says Hayton.
“Cambodia is seen by the Chinese as a bridgehead” Hayton, Chatham House
The Xi regime’s obstructionism does not necessarily mean that senior officials are taking a day-to-day interest in the South China Sea. “Beijing does not really get involved until things escalate to a crisis. So, when it comes to day-to-day harassment, it has probably got nothing to do with anybody in Beijing,” says Poling.
China is, admittedly, showing a certain restraint, with Chinese firms thus far scrupulous about not extracting oil anywhere they should not be. “Mostly, Chinese companies have taken care so that—even in the recent confrontation around Malaysia and Vietnam, where China has been seeking to prevent them drilling by sending in survey ships—this has not been about drilling for oil themselves,” says Hayton.
China has not drilled in the southern part of the Spratly Islands, for example, despite sending a large rig to the area. So far, China has largely kept to the northern end of the South China Sea.
Elsewhere, China has been keeping close tabs on Russian producer Rosneft’s activity in Vietnam's portion of the South China Sea. Last summer saw skirmishes between Chinese survey vessels in the Vanguard Bank, where Rosneft is drilling for gas in blocks 06.1 and 05.3/11. Rosneft is rumoured to be considering pulling out of the blocks.
“There is no visible wellhead because they are going to connect it to the existing infrastructure, so it is impossible to tell if they really are pulling out," says Poling. “If you take Rosneft at their word, they have finished drilling the well and are going to come back and connect to their production facilities at a later date. The big question is, are they really going to come back and try to produce from this well after they saw the way the Chinese reacted?”
"When it comes to day-to-day harassment, it has probably got nothing to do with anybody in Beijing” Poling, AMTI
Western oil companies also appear to have been spooked by Chinese expansionism. ExxonMobil operates the Blue Whale project, a joint venture with local producer Vietnam Oil & Gas Group located some 80km from the coast of Danang and north of Rosneft’s block. Last September there was intense speculation—never confirmed or denied by the US company—that it was about to sell its 64pc stake in Vietnam’s largest offshore energy project.
Blue Whale is just outside the nine-dash line, but it is potentially close enough to it to attract China’s attention. “The Chinese have been very cagey about whether or not they object,” says Poling. “However, [ExxonMobil is likely to] pull out, as almost every other western company in the area has.”
In 2018, state-owned oil firm PetroVietnam ordered Spain’s Repsol to halt work on a project off Vietnam’s southern coast, costing the company about $200mn.