South China Sea concerns flare up as Duterte considers drilling in Beijing’s claims

17-Jul-2017 Intellasia | CNBC | 6:00 AM Print This Post

Manila appears to be testing its relationship with Beijing as Philippine President Rodrigo Duterte considers resuming energy exploration in the tension-laden South China Sea.

Oil and gas drilling in the Reed Bank, located in the international waterway, has been suspended since 2014. That came after Manila launched an international arbitration case against Beijing over the latter’s territorial expansion in the South China Sea – an issue that has sparked numerous Philippine protests against the mainland and weighed on bilateral ties.

But activity in the Reed Bank could recommence before end of the year, Ismael Ocampo, a director at the Philippines’ Department of Energy’s Resource Development Bureau, said on Wednesday, Reuters reported. An underwater mountain off the Philippine coast, the feature is believed to hold significant oil and gas deposits.

Over 20 oil, gas and coal blocks in the Reed Bank as well as areas around Palawan and the Sulu Sea could be be offered in a corporate bidding round set for December, Ocampo said.


A year ago, a tribunal in The Hague validated Manila’s right to access offshore oil and gas fields in its 200-mile Exclusive Economic Zone that includes the Reed Bank, but Beijing refused to recognise the ruling. Since then, Duterte has stalled on enforcing the court decision, opting to instead improve existing ties with the North Asian giant in order to secure mainland investments.

Earlier this year, the Philippine leader claimed Chinese President Xi Jinping had warned of war should Manila attempt drilling in the South China Sea’s contentious waters.

However, Wednesday’s news indicated Duterte may be changing his mind on the matter.

The new development points to a few potential scenarios, according to Eufracia Taylor, Asia analyst at risk advisory firm Verisk Maplecroft.

“Manila is largely hoping for the best, and plans could be highly vulnerable to a direct rebuke from China,” she wrote in a Thursday note. “Having watched Vietnam develop disputed offshore areas, with the absence of physical intervention from China, Manila is also testing the boundaries.”

Alternatively, Manila may have sought direct approval from China and traded a softer stance in the South China Sea for exploration rights, she continued.

Regardless, the murky political situation could impact corporate demand for energy drilling if December’s bidding round does materialise.

Upstream oil and gas company PXP Energy was one of the companies whose Reed Bank operations were disrupted in 2014, but while it “may be eager to continue with exploration, other companies will be wary of China’s position on drilling in disputed waters,” Taylor said.

The decision to restart drilling also highlights Manila’s energy security concerns, especially as the country’s Malampaya natural gas field, also located in the South China Sea, winds down, Taylor noted.



Category: Philippines

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