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Vietnam Halts Oil Project In South China Sea

Vietnam has suspended a second oil drilling project in the South China Sea in less than a year, after pressure from China which claims a large swath of the sea, Reuters reported on Friday, quoting three sources with direct knowledge of the matter.   

Vietnam’s government ministries have suspended the project until the country’s decision-making body, the politburo, makes the final decision whether the project should be suspended or terminated indefinitely, according to one of Reuters’ sources.

The dispute in the South China Sea involves territorial claims by China as well as Vietnam, the Philippines, Taiwan, Brunei, and Malaysia. China has territorial claims to about 90 percent of the South China Sea, which has put it at odds with its neighbors.

Apart from being a critical global trade route, the South China Sea is estimated to hold around 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proved and probable reserves, with conventional hydrocarbons mostly residing in undisputed territory, according to the EIA.

In July last year, Vietnam called off another drilling expedition in the South China Sea after reported pressure from Beijing. The company that was drilling in the Block 136-03, a unit of Spain’s Repsol, was asked to stop drilling.

The latest oil drilling project that has been stopped is in an area adjacent to the Block 136-03 in which Repsol holds a significant stake.

State-held PetroVietnam, one of the partners in the project, has ordered Repsol to suspend it, the BBC reported, quoting a well-placed industry source.

Related: U.S. Electricity Sales Fall Again

The suspension was not expected as Repsol was making final preparations to begin commercial drilling at the Red Emperor project that Vietnam has been keen to develop since 2009, the BBC reports. A rig was scheduled to depart from Singapore to the site of the drilling on Thursday, and Repsol had already contracted Malaysian company Yinson to provide a Floating Production Storage and Offloading (FPSO) vessel at the site for 10 years at an estimated cost of more than US$1 billion.

According to the BBC’s source, Repsol and its partners in the Red Emperor project—Mubadala Petroleum and PetroVietnam—are likely to lose up to US$200 million of investment that they had already made.

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By Tsvetana Paraskova For Oilprice.com

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