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Foreign Countries Chase Oil in South China Sea Without Incident


FILE - The deck of Bluewater's floating production, storage and offloading vessel Munin, which floats on the Lufeng oil field, 250 kilometers south-east of Hong Kong in the South China Sea.

A South Korean firm's uncontested discovery of oil in a sea where six other governments vie for sovereignty shows how outsiders harvest maritime resources without adding to decades of political friction.

South Korean petroleum refining company SK Innovation Co. found crude oil at a Chinese tract in the South China Sea, the company said Thursday.

Its case shows that firms from countries with no political stake in the resource-rich South China Sea can find oil and natural gas by contracting with one of the claimant governments. Those governments normally rent out blocks in their 370-kilometer-wide exclusive economic zones rather than further at sea where conflict is more likely, analysts say.

"This is not uncommon, but of course whenever there is a discovery, the people would raise their eyebrows, especially nowadays these various claims to South China Sea territories and sea beds have been intensifying," said Oh Ei Sun, international studies instructor at Singapore Nanyang University.

MAP: South China Sea territorial claims
MAP: South China Sea territorial claims

Discoveries by outside parties

Six governments claim the 3.5 million-square-kilometer sea that stretches from Taiwan to Singapore. They are Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam. Their disputes rest partly on control of undersea oil and gas. The U.S. Energy Information Agency estimates 11 billion barrels' worth of oil under the sea along with 190 trillion cubic feet of natural gas.

China, the most militarily powerful, claims about 90 percent of the waters. Its island-building and passage of ships since 2010 have upset the other governments, leading to world court action against Beijing in 2016.

But India and Spain have worked with Vietnam since 2016 to find fuel under the seabed. The Philippines was working with U.S.-based Forum Energy in 2012 to explore for the same. In 2014, Shell and a Malaysian partner found natural gas.

SK Innovation found a 34.8-meter-thick oil pool at a depth of more than 2,000 meters last year, the company said on its website. Oil production has been tested at up to 3,750 barrels per day, it added.

The company had explored since 2015 as the 80 percent owner of a block also held by Beijing's state-owned China National Offshore Oil Corp. SK Innovation began its oil and gas business in 1983 by acquiring interests in Indonesia, which has a small stake in the South China Sea.

Countries with South China Sea claims are quietly setting aside politics to make the most of a globalized oil economy, sometimes through joint ventures, said Alan Chong, associate professor at the S. Rajaratnam School of International Studies in Singapore.

"The complexity is just tangled. And so indirectly someone benefits along the way even though officially the governments will be at loggerheads," he said. "As much as the governments are officially drawing the lines around recognizing Chinese claims, privately I think they've just closed an eye to all these subterranean corporate linkages."

Block sales

Most fuel exploration contracts involving outside companies take place when a claimant country offers a block of the ocean to outside bids. Blocks usually lie within an awarding country's exclusive economic zone to minimize risk of dispute, analysts say, although the zones themselves are often contested because of overlapping claims.

"So far I would say it hasn't strayed that far out into a region where there may be potential risk," said Song Seng Wun, economist with the CIMB private banking unit in Singapore. "No one would want to come in anyway at the same time.

"I think it's pretty straight forward on that side," he said. "It's quite well regulated."

In mid-2017, the Spanish firm Repsol suddenly stopped looking for oil in a block controlled by Vietnam but disputed by China. China had pressured Vietnam to drop the project, political scholars said at the time.

Oil companies may not mind the political risk, Oh said, as they're used to projects in the politically volatile Middle East. They fear more the prospect of finding no fuel under the sea after spending billions of U.S. dollars, he said.

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