East Asia: Stop Squabbling, Start Drilling

By Will Hickey
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Nonetheless in 2012, the US and Mexican governments signed an agreement to exploit the resources in the Western Gap under a unitization agreement. Previously there was a 10-year moratorium on drilling in this 5000-square-nautical-mile maritime area, with continental-shelf and exclusive economic zone claims disputed by the two countries.At present, neither the US nor Mexico has defined a scheme for common agreement in joint petroleum operations. To allow joint development of national hydrocarbons, Mexico has developed alegal means to defend its patrimony. Pemex, the Mexican national oil company, is the only oil company allowed as investor and operator under the Mexican system. The Mexican constitution prohibits foreign control of oil and gas production - a case similar to China and ASEAN countries, which monopolize control to state-owned oil companies.

The depletion of oil reserves onshore and in shallow waters, such as Gulf of Siam bordering Vietnam and Thailand, is driving Asian countries to explore for new resources in deeper offshore areas close to common borders. In 2010, Israel announced the largest offshore natural gas discovery in its history, the Leviathan field with 16 trillion cubic feet of natural gas. Yet this field straddles contested boundaries with Egypt, sovereignty issues will eventually be raised.

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In general, the schemes require institutions to administer the system. These can be simple or complex depending on the level of trust inthe other's authorities and institutions in matters related to border lines, permits, norms and drilling standards, to name a few. Otherwise, the schemes should include a full regime of authorities and institutions to manage issues.

Finally, the solutions to the transboundary reservoirs must be separated from the historically monopolistic structure of the petroleum industry. Different countries have varying stages of development and technological ability. Thus, in the cases of such cross-border fields, China and, say, Vietnam each could appoint companies to form a joint-development effort within contested boundaries and, under that agreement, allow PetroChina and PetroVietnam to supervise the sharing of resources. However, as mentioned, neither of the countries has yet indicated possible characteristics or guidelines for such a treaty or schedules for negotiation and approval.

The implications of successful unitization agreements with China are huge. Namely, conflict could be avoided. State actors with economic interests would have immediate access to resources. It may also set a precedent for future regions of the world in regards to resource extraction such as the Arctic Sea, Greenland, or the Antarctic, where China seeks to broaden its footprint as an emerging superpower.

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Will Hickey is an associate professor and chair of Global Management at SolBridge University. © 2012 Yale Center for the Study of Globalization

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