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Global Energy Advisory 22nd September, 2017

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China’s belligerence towards its neighbors in the South China Sea is hampering oil and gas exploration in the basin, analysts are warning. A couple of months ago, China threatened Vietnam with a military response after the country gave Spain’s Repsol the go-ahead to start drilling in a disputed block. Now, Indonesia, which has an exclusive economic zone in the South China Sea, has said it will use its military to secure oil and gas exploration in the zone.

China shares the basin with Vietnam, the Philippines, Malaysia, Brunei, and Taiwan, but it is claiming roughly 90% of it. Its neighbors are naturally not happy with its claims but the Asian giant has remained unfazed by their protests to its territorial claims. Due to the size of its market, oil players eyeing projects in the region need to tread extremely carefully, which in reality means making sure they play by Beijing’s rules.

At the same time, however, China doesn’t seem to be too eager to develop its own resources in the disputed areas of the sea. That’s because more than 70% of the discovered reserves within the area that China claims as its own are commercially unviable.

There are also doubts about the total oil and gas resources in the South China Sea but due to the heightened regional tensions new estimation activities are unlikely to happen soon. Meanwhile, Chinese fields are nearing depletion and the country’s state oil giants are buying production assets…

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