PetroVietnam Protests Chinese Plans as South China Sea Spat Deepens - WSJ.com
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Transcript of PetroVietnam Protests Chinese Plans as South China Sea Spat Deepens - WSJ.com
6/28/12 PetroVietnam Protests Chinese Plans as South China Sea Spat Deepens - WSJ.com
1/4online.wsj.com/article/SB10001424052702303649504577491823837421842.html
Thursday, June 28, 2012 As of 12:38 AM
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Vietnam Spars With China Over Oil Plans
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By WAYNE MA And JAMES HOOKWAY
A spat between China and Vietnam over energy rights in the South China Sea
intensified on Wednesday as Vietnam's biggest company called on China to scrap its
plans to develop areas near the Vietnamese shore.
The disagreement, the latest in a string of
arguments over the potentially energy-rich sea,
erupted earlier in the week when China National
Offshore Oil Corp. said it was offering a new
batch of oil-exploration blocks inside the 200-
nautical-mile exclusive economic zone granted
to Vietnam under the United Nations' Law of the
Sea.
Vietnam's government quickly objected, saying
the Chinese state oil firm was moving into its
territorial waters. On Wednesday, state-run
Vietnam Oil & Gas, or PetroVietnam, weighed
in, showing how territorial claims in the sea are
increasingly being backed up by powerful
companies in addition to rival governments, and
potentially adding new sources of tension to the
conflict.
PetroVietnam Chairman Do Van Hauon
Wednesday described the Chinese firm's strategy as illegal and urged it to cancel the
bidding, adding that two of the blocks offered by China National Offshore Oil, known as
Cnooc, overlap with those offered by PetroVietnam.
"We strongly protest Cnooc's offering to international companies and we request foreign
firms not to get involved," Mr. Hau told reporters.
Cnooc's spokesman in charge of legal affairs wasn't available to comment. At an earlier
news briefing, China's Foreign Ministry said Cnooc's tender represented "normal
business activities" in line with Chinese law and international practice.
Cnooc's move is likely influenced by a desire to see how far it can press its claims in the
sea rather than entirely commercial considerations, analysts and diplomats say. Few
foreign firms are likely to engage in drilling in such disputed waters, especially after
Vietnam's protests.
"There is no way any foreign company will go there," said Laban Yu, head of oil and gas
research at Jefferies Hong Kong Ltd., a securities and investment banking firm. "This is
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just Cnooc being used by the central government to make a statement."
An official from a third country that also has claims in the sea said the bidding
announcement appeared to be designed to buttress China's territorial claims to the area
while nearby countries such as Vietnam and Philippines press ahead with their own
plans to drill for oil and gas in other parts of the South China Sea.
The Cnooc blocks, in water 300 to 4,000 meters (1,000 to 13,000 feet) deep, cover an
area of about 160,000 square kilometers (62,000 square miles). Previously, most blocks
offered for joint development by the state-owned firm were located well within Chinese
waters, and mostly in shallow water.
"Either Cnooc is doing national service and helping Beijing push the boundary of the
South China Sea maritime dispute, or it's doing what analysts have been calling for" and
pursuing foreign help to increase the size of its reserves, said Simon Powell, head of
Asian oil and gas research at CLSA.
Mr. Powell added that the resources there are more likely to be gas than oil, and thus
less attractive to potential foreign partners. "Given how low natural-gas prices are in
China, the distance of these blocks from the mainland and how uneconomic it is to lay
pipelines and run gas from such distances, maybe the offerings are more about politics
than about earnings," he said.
The spat looks set to further shake relations between Vietnam and China, which, while
both having Communist governments, view each other with suspicion. Relations
between the two countries worsened after Hanoi's legislature passed a new law last
week claiming Vietnam's sovereignty over the Spratlys and Paracels archipelagos, which
are also in the South China Sea.
China summoned Vietnam's ambassador to Beijing to protest the new law, which will be
enacted at the beginning of next year but will have little real impact on who controls the
island chains.
Some of the atolls are partially occupied by small garrisons from some of the claimant
nations, including China, Vietnam and the Philippines.
Vietnam dismissed China's objections as "absurd," with a Foreign Ministry spokesman
last week describing Vietnam's move as "normal lawmaking activity."
Vietnam also has objected to apparent recent Chinese moves to assert jurisdiction over
portions of the South China Sea; China recently bestowed higher, prefectural-level
powers upon a city in its Hainan province to administer some South China Sea islands,
state media reported.
The stakes in the South China Sea have grown significantly in recent years as East
Asia's energy-hungry economies roar ahead. For China, the energy resources that
geologists believe to lie below its waters are means to potentially reduce its dependence
on imports from the Middle East and elsewhere. The contested waters contain 28 billion
to 213 billion barrels in proven and undiscovered oil resources, according to figures
cited by the U.S. Energy Information Administration. It isn't clear, though, how much is
easily accessible.
China, Vietnam and the Philippines all have stepped up exploration and drilling in the
sea in recent years. Earlier this week, Italy's Eni SpA bought 50% stakes in two
exploration blocks in Vietnamese-controlled waters. Eni's partner, Australia's Neon
Energy Ltd., said Monday that Eni will carry out early technical work and finance
exploratory drilling in each block. ExxonMobil Corp. also has acquired Vietnamese
blocks in the South China Sea. Last October it said it found oil and gas in its second
exploration well.
British-Philippine firm Forum Energy Plc, meanwhile, plans to begin drilling off Reed
Bank in the Philippines' U.N.-declared waters later this year.
In addition to China and Vietnam, the Philippines, Malaysia, Taiwan and Brunei also
claim parts of the South China Sea. The U.S. in recent years has angered China by
urging multilateral talks to resolve the overlapping claims in the area, and also to ensure
safe navigation for some of the world's busiest shipping lanes as China's commercial
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and military power grows.
Write to Wayne Ma at [email protected] and James Hookway at
A version of this article appeared June 28, 2012, on page A11 in the U.S. edition of The Wall Street
Journal, with the headline: Vietnam Spars With China Over Oil Plans.
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