US gas find off Vietnam adds to China tension

Financial Times

26-10-11
 

By Ben Bland in Hanoi, Leslie Hook in Beijing and Sheila McNulty in Houston

American oil major ExxonMobil has made a “potentially significant” gas discovery off the coast of Vietnam in an area that is also claimed by China.

The find brings the bitter territorial dispute over the resource-rich South China Sea back into focus at a time when leaders in both Communist nations have been trying to play down tensions.

China has become more vocal about its claims to the South China Sea in recent years, and Chinese vessels have several times tangled with Vietnamese and Japanese ships in contested waters this year.

In May, PetroVietnam, Vietnam’s state oil and gas monopoly, claimed that Chinese ships had harassed and damaged its oil exploration ships on more than occasion.

ExxonMobil, the world’s largest oil group by market capitalisation, said in a brief statement on Wednesday that it had “encountered hydrocarbons” after drilling a second well in block 118 off the coast of Danang, central Vietnam, in August.

The company did not comment on the size of the discovery, saying that it was analysing the data from the second well after its first well failed to find oil or gas.

But an executive from another oil company prospecting nearby said that this was “a potentially significant find”, given the geology of the area. An executive from PetroVietnam, ExxonMobil’s production partner, said that they had found gas.

ExxonMobil has a licence from the Vietnamese government to explore blocks 117, 118 and 119 off the coast of Danang. This area falls well within what Vietnam claims is its 200-mile exclusive economic zone under international maritime law.

But these blocks also fall within China’s vast claim to almost the entire South China Sea, also claimed in part by Brunei, Malaysia, the Philippines and Taiwan as well as Vietnam. The sea is thought to contain substantial oil and gas reserves and encompasses key global trade routes and important fisheries.

China has pressed international oil companies, including BP and ExxonMobil, to withdraw from oil and gas exploration deals with Vietnam, according to industry executives and leaked American diplomatic cables that have been published online by Wikileaks.

A confidential American diplomatic cable sent from then ambassador Michael Michalak to Washington in July 2009 claimed that ExxonMobil “quietly signed” a production-sharing agreement with PetroVietnam in order to minimise any negative reactions from China.

The agreement covered blocks 117,118 and 119, which Mr Michalak said lay “well within China’s line of demarcation”.

Beijing has consistently said that China opposes oil and gas exploration in what it considers its territorial waters.

The foreign ministry said Thursday it was too soon for them to comment on reports of the ExxonMobil discovery.