East Asia: Stop Squabbling, Start Drilling

By Will Hickey

As naval patrol vessels of China, Japan, South Korea and other Southeast Asian nations shadow one another and tension mounts, it's time to consider peaceful alternatives. At stake are marine resources and possible large reserves of oil and gas underneath the waters, rocks and shoals claimed by East Asian countries. If a solution can be worked out for sharing the proceeds among concerned parties: Japan, Vietnam, Malaysia, China and the Philippines while tactfully avoiding the contentious sovereignty issues, confrontation can be avoided.

In the oil industry, border disputes between countries are resolved with joint development areas, or the oil and gas mechanism of "unitization." Essentially, unitization lets each nation access undersea resources that cross borders, but leaves national boundaries, or overlapping claims to boundaries, intact. There's much at stake regarding recent territorial disputes with the Diaoyu/Senkakku Islands between China and Japan and the Spratly/Paracel Islands in the South China Sea overlapping borders with China and ASEAN members. Since 1947 and the revolution, China has linked maritime territorial claims with national sovereignty, pointing to historical maps showing a "9 dotted line" stretching throughout the South China Sea. Through collaboration and unitization, China versus Japan, Vietnam, Malaysia, the Philippines, Brunei and others could develop the resources. But no incumbent government would lose credibility with its citizens over sovereignty rights.

Receive email alerts

ASEAN countries, in particular, have urgent need to settle disputes quickly as a defensive position. Over the past 30 years, China has gained international competence in oil drilling. Companies operating from China could now theoretically extract resources under disputed borders or exclusive economic zones by using directional drilling, which can reach near 90 degrees horizontal and extend out several kilometers. ASEAN members, except for Malaysia, technically lag the Chinese petroleum industry and need to protect reserves from private development. Additionally, oil and gas reserves can move underground from areas of high hydraulic pressure to low pressure - meaning a well operating under Chinese production could cause undeveloped oil or gas reserves under the Philippine side to migrate toward the China side. Unitization requires thorough mapping and accounting of the reservoir, particularly if it's to be exploited as a single source. Without unitization, the "rule of capture" usually prevails; oil and gas that has migrated from underneath adjacent borders can be readily appropriated without compensation to others by producing entities.Oil reservoirs that cross national frontiersneed special agreements. In petroleum states where cross-border reservoirs have been discovered, for example fields straddling Norway and the UK in the North Sea, the governments agreed on a common framework to develop these resources. With unitization, owners of operating and nonoperating interests pool property interests in a producing area, normally a field, to form one cohesive operating unit. In return, claimants receive a pre-negotiated percentage of interest. Unitization is usually undertaken to achieve the most efficient and economical exploitation of reserves to benefit all parties.

Established common deposits of oil and natural gas, not referring to a particular country area but to certain deposits, the extent determined by the states parties through a mixed technical commission, empowered to calculate the resources in situ (Austria-Czechoslovakia 1960);A unitization agreement can help define boundary limits by separating the issue of underlying resources, dealt with through a joint regime, from sovereignty. Based on the solutions found to similar problems in other regions of the world, an agreement on the issue of transboundary petroleum reservoirs has:

Defined precise geographical areas in connection with oil resources (Norway-UK, 1976);

Established joint development zones, divided by provisional medians separating two sub-zones, one for each country (Federal Republic of Germany-the Netherlands, 1962) or as many subzones as needed (Japan-Korea, 1974);

Established joint development areas (Bahrain-Saudi Arabia, 1958) or joint regimes (Iran-Sharjah, 1971) or common zones (Saudi Arabia-Sudan, 1974);

Defined delimitation schemes setting up protected zones (Australia-Papua New Guinea, 1978) or a cooperation zone, defined by geographical coordinates and divided into zones (Australia-Indonesia,1989).

In the Norway-UK agreement, for example, each government required the acknowledgment of the counterpart to establish a contract with the licensees of the neighboring country to appoint a common operator. The agreement regulates the free movement of persons and materials, safety issues, inspections, taxation, transfer of rights and other matters, but does not affect rights and jurisdiction ineach country. This framework represents a good model for China and its neighbors. The scheme would reduce administrative costs, but give the parties enough control to safeguard sovereignty, requiring nations to agree on the most effective development plan and the way in which the proceeds are to be apportioned.

1 | 2 | Next Page››

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

Sponsored Links
Related Articles
December 13, 2012
The Demographic Trends that Will Shape the World - Joseph Chamie
December 13, 2012
High Stakes for China in Xinjiang - Ting Xu
December 5, 2012
Latin America's Lessons in Chinese - Sean Burges
December 4, 2012
Who Will Rule Japan? Nationalism - Justin McCurry
December 6, 2012
Japan's Voters Ready to Make Right Turn - Todd Crowell
Will Hickey
Author Archive