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Is China Blocking Vietnam’s Access To $2.5 Trillion In Oil & Gas?

The United States has accused China of interfering with oil and gas drilling operations off the coast of Vietnam in the disputed waters of the South China Sea. This is the latest indication that bilateral relations have a long way to go before they are mended.

“The United States is deeply concerned that China is continuing its interference with Vietnam’s longstanding oil and gas activities in Vietnam’s Exclusive Economic Zone (EEZ) claim. This calls into serious question China’s commitment, including in the ASEAN-China Declaration on the Conduct of Parties in the South China Sea, to the peaceful resolution of maritime disputes,” State Department spokesman Morgan Ortagus said in a statement.

Earlier this month, China deployed a survey boat to the area in question, and it was accompanied by an armed escort—a move that, according to the State Department statement, constituted “an escalation by Beijing in its efforts to intimidate other claimants out of developing resources in the South China Sea.”

A lot of the South China Sea is the object of disputes between China and its neighbors, with a court in The Hague in 2016 ruling against China’s claims and in favor of the Philippines—one of the neighbors opposing China’s expansion in the basin. China however, has not acknowledged the ruling, which has heightened tensions in the area. Instead, it has continued with its agenda, according to which most of the sea is Chinese waters.

The South China Sea may hold 28 billion barrels of oil, according to an estimate from the U.S. Geological Survey from the mid-90s. Since then, with technology improvements, this figure could have increased substantially. Of course, low oil prices or no low oil prices, everyone wants a piece of the oil pie, and China wants the biggest one.  Related: Oil Prices Crash On Recession Fears

According to the U.S., China’s actions in the basin have blocked its neighbors’ access to an estimated US$2.5 trillion in untapped oil and gas resources. The statement also implies that these actions have prevented U.S. companies from taking part in the exploitation of these reserves.

The survey vessel deployment that sparked anger in Washington took place near Vanguard Bank, the same place where two years ago China threatened action against drilling commissioned by Vietnam. The threats worked and Vietnam cancelled the drilling project, which was led by Spain’s Repsol.

Now it’s India’s ONGC that is drilling in Vietnam’s Block 136-3, which it shares not with a U.S. company but with Russia’s top oil producer, Rosneft. According to earlier reports from Sputnik, unnamed sources from Vietnam had said this was the third intrusion of Chinese vessels into waters that Hanoi claims are in its exclusive economic zone.

Since ONGC is a state company, this latest incident does not bode well for Chinese-Indian relations either. India is even more reliant on imported oil than China, so resources in the South China Sea are important for it.

With regard to U.S.-China relations, however, the statement will simply add to the tension, which has now become chronic as trade deal uncertainty drags on. As to effecting any actual change in China’s behaviour in the South China Sea that could encourage U.S. companies to join the exploration drive, the chances of that are slim to non-existent.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More

Comments

  • Lee James - 24th Aug 2019 at 9:23pm:
    Geopolitical consideration is one of the main reasons that we need to wean ourselves of oil dependency. There's cost of oil dependency. Some of the cost is in today's price for a barrel of oil; a lot of the cost is something we pay some where else -- in defense budgets, for example.
  • Douglas - 25th Aug 2019 at 12:06am:
    Just another example of China ignoring international rulings and accepted behavior while expecting everyone else to play by the rules.

    When will other countries, besides the US, become fed up with the 'uneven playing field', in regards to China, and take action against them?

    China is in a 'trade war' with many other countries besides the US.
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