TWO Chinese oil companies show contrasting approaches in their attempts to operate in the South China Sea where, to the discomfort of its smaller neighbours, China’s claims in disputed waters have grown increasingly assertive. One company’s actions are adding to tensions in the area, while the other’s may hint at a way to ease them.
Last July Brightoil, a company listed in Hong Kong with high-level political connections on the mainland, bought the exploration rights to 6.2m acres (2.5m hectares) of seabed from an American company, Harvest Natural Resources. The block, which the Chinese call Wan’an Bei 21 (WAB-21, part of an area known in English as the Vanguard Bank), has a controversial history. Although it lies more than 650 nautical miles (about 1,200km) from the Chinese coast and just 200 nautical miles from Vietnam, China asserts “historic rights” over the area. It lies near the south-western edge of the U-shaped “nine-dash line” that marks Beijing’s ambiguous claim in the sea (see map).
China issued a licence to explore for oil in WAB-21 in 1992. That came as a shock, because it was the first time China had claimed resources in the South China Sea so far away from its own coast. When Chinese vessels attempted to survey the block in 1994, Vietnam sent its navy to stop them. Vietnam then dispatched an oil rig to drill there, and it was China’s turn to impose a blockade. Neither side was able to extract any oil.
In 1996 Benton Oil and Gas, the precursor of Harvest Natural Resources, bought the rights to WAB-21 for $15m. Harvest was never able to develop the block. Instead, Vietnam drew up its own exploration blocks over the same area and awarded them to Talisman of Canada and ExxonMobil of America. China regards the move as a violation of its own claim. Four years ago Beijing organised a flotilla of fishing vessels to block and ensnare a seismic-survey vessel working for Talisman in the area. Talisman continued regardless, and has recently been drilling in a southern part of WAB-21, in a block the Vietnamese call 136/03.
Yet since Brightoil picked up the rights to WAB-21 (for just $3m), the Chinese have muscled back in. In late October a Chinese craft, the Hai Yang 4, guarded by four escort vessels, spent two weeks conducting seismic surveys in the area. The Vietnamese authorities appear to have decided not to force a showdown, unlike earlier in the year when they sent dozens of vessels to challenge a Chinese oil rig drilling off the Paracel Islands further north. Indeed, as the Hai Yang 4 was surveying WAB-21, China was hosting the highest-level Vietnamese military delegation to visit Beijing in years. The visit was intended to repair the damage to bilateral relations caused by the oil-rig incident. Yet renewed surveying by China could strain relations again.
A different approach to finding oil in the South China Sea emerged late last year. In mid-November Fosun, a big, private Chinese conglomerate, bought a small Australian energy company called Roc. Perhaps unwittingly, it also bought into the South China Sea disputes. Among its many interests, Roc has a contract with Malaysia’s state oil behemoth, Petronas, to develop fields off the coast of Sarawak. Crucially, though these fields, known as the Balai Cluster, lie within Malaysia’s 200-nautical-mile exclusive economic zone, they are also inside China’s claimed nine-dash line, whose legitimacy Malaysia contests. Assuming Fosun holds on to these interests, a Chinese company is in effect recognising Malaysia’s claim in this area of the sea at the expense of the Chinese claim.
Both Brightoil and Fosun have powerful connections with China’s political elite. Fosun’s chairman, Guo Guangchang, is a member of the Chinese People’s Political Consultative Conference (CPPCC), an advisory body controlled by the Communist Party. Brightoil’s chairman, Sit Kwong-lam, also sits on the CPPCC and is vice-president of the state-dominated oil industry’s trade body. His company seems to be acting as an arm of Chinese policymaking in the South China Sea, whereas Fosun seems to be acting against it. But by working with the Malaysian authorities rather than against the Vietnamese, Fosun appears much more likely than Brightoil actually to deliver oil to Chinese consumers.
This article appeared in the Asia section of the print edition under the headline "Oil on troubled waters"
