3 May 2007 - 08:33
  • News Code: 103755

Persuading oil firms to wade in disputed waters may not be easy, given the legal and fiscal uncertainties that add to soaring exploration costs and the risk of drilling dry wells.

High oil prices and dwindling output may not be enough to get Asian governments to resolve decades-old maritime border disputes any time soon. But joint exploration to unlock energy wealth is still on the cards.

This dangles the prospect of recovering billions of barrels of oil and gas staying buried under Asian seas at a time when the region’s growing wealth is projected to keep sucking up a resource priced near $70 a barrel.

“These things can be glacial--but countries are acting and in diplomatic terms this looks like Formula One,“ said Noel Tomnay at energy consultancy Wood Mackenzie in Singapore.

Analysts said disputes with potential for resolution in the next decade included the gas-rich Gulf of Thailand, in an area contested by Thailand and Cambodia, the Spratly Islands in the South China Sea and acreage disputed between China and Vietnam.

The need for import-dependent Asian countries to secure energy supplies has led to many protracted disputes, as areas of potential wealth lie on strategic shipping lanes in a region where losing litigation may mean losing face and influence.

These problems were highlighted by Chinese major CNOOC’s confirmation this month of unilateral gas production starting in the disputed East China Sea, just as China’s leader made his first trip to Japan to vow cooperation.

“Such unilateral action carries costs and risks, which mean that it would likely be more feasible to jointly develop,“ said Chris Flynn, a senior associate at law firm Ashurst.

“This is often how moves towards joint development commence as it adds a sense of urgency.“

Analysts said the hurdles to agreeing maritime boundaries start with political leadership at the top, which requires the backing of the people on issues that have led to public protests and gunboat diplomacy in Asian waters in recent years.

“It’s extremely hard for governments to compromise on territory,“ said Clive Schofield, research fellow at the Australian National Centre for Ocean Resources and Security.

“If you draw up definite boundaries, then you run the risk that the majority or all the resources at stake may end up on the wrong side--this uncertainty promotes deadlock.“

Persuading oil firms to wade in disputed waters may not be easy, given the legal and fiscal uncertainties that add to soaring exploration costs and the risk of drilling dry wells.

China’s foreign ministry complained this month that Vietnam was stirring up trouble by agreeing with BP Plc to build a $2 billion gas pipeline in the South China Sea, though Vietnam said the project was within its sovereignty.

Claims rest on the intricacies of international rules, based on the 1982 UN Convention on the Law of the Sea, ambiguous on topics such as the difference between islands and rocks that each allow different sea territory. But a successor is unlikely.

Quiet Movement

Still, some analysts remain hopeful.

“Border issues are holding up prospective areas of acreage--but a lot are quietly being resolved,“ said Tomnay. “This is about high oil prices and the greater confidence of China.“

The key to solving these disputes will be separating territorial claims from joint agreements to explore for oil, and then agreeing how to divide up the resources.

This could involve one country claiming tax and passing some on to the other, or a joint authority to issue permits and remit proceeds.

“You can agree to disagree--to explore and to develop natural resources under the sea, without giving up the rights to fishing or to patrol the area,“ said Tomnay.

 

Prospects

Other prospects include the Gulf of Thailand’s Pattani Trough, a gas-producing zone. The disputed boundary involves no territory, and comes between a Thailand desperate for more domestic fuel and a Cambodia desperate for any kind of income--factors that could all augur well for a resolution.

PIN/ NDTVPROFIT.COM

News Code 103755

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