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China, Philippines Working Out South China Sea Oil Exploration

China gas

China and the Philippines have set up a panel to study ways of resolving their rival claims to parts of the South China Sea that may contain oil and gas reserves, the Philippine ambassador to China told media after a meeting of government officials from the two countries.

Ambassador Chito Sta. Romana noted that this is just the start of a process but added it was a breakthrough in its own right after years of disagreement that even led to a lawsuit in 2016. A court in The Hague ruled against China’s territorial claims and in favor of the Philippines—one of several neighbors opposing China’s expansion in the basin. China however, has not acknowledged the ruling, which has heightened tensions in the area.

This heightened tension and China’s muscle-flexing to its neighbors with artificial islands and troop deployment has made it very difficult for anyone to imagine that the conflict could be resolved. Yet, the Philippines are in urgent need of new oil and gas supply as its economy is growing at a fast rate and the country is almost entirely dependent on imports to satisfy its energy needs. The fact that its only producing gas field will be depleted by 2024 adds to the urgency.

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.

Related: IEA Warns Of New Oil Glut

China is claiming about 90 percent of the basin and has been crystal clear in its message to its neighbors: don’t try to explore for oil and gas in disputed areas, or else. In July last year, for example, Vietnam called off a drilling project in one of these areas, just a week after it started, after pressure from Beijing.

The Philippines has been more careful. Also, last year reports emerged that Manila and Beijing may agree on joint exploration, but there was no follow-up with specific information on that progress. Now, coming from a senior government official, the confirmation that the two are closer to working on oil and gas exploration in the South China Sea could be cause for optimism that there will be an end to regional tensions in one of the world’s top shipping routes.

By Irina Slav for Oilprice.com

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