South China Sea joint energy deals will fail in face of maritime disputes, study finds

Chinese scholar Song Xue examined 19 joint development projects worldwide between 1958 and 2008 and found territorial disputes that hurt bilateral ties often caused pacts to fail
She cited the Philippines-China venture as an example where both sides had set aside claims for ‘mutual economic gains’

South China Sea

Bhavan Jaipragas

Published: 12:30pm, 20 Dec 2019

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Joint development of oil and gas resources in the disputed South China Sea between claimant states that simultaneously are seeking maritime delimitation with one another are likely to end in failure, a new study based on historical analysis of similar projects indicates.

The peer-reviewed qualitative study by Song Xue of Fudan University in Shanghai found that in 19 joint development projects worldwide between 1958 and 2008, the “necessary condition” for failure was a deterioration of bilateral ties between the partner countries – often over their maritime disputes.

In contrast, there were no consistent correlations between failure of such bilateral pacts and five other factors: an absence of economic incentives, high energy independence of countries involved, domestic politics, “third-party” interference and disagreements over the details of the venture.

Writing in the latest edition of the Contemporary Southeast Asia journal published by Singapore’s ISEAS-Yusof Ishak think tank, Song wrote that for the claimant countries to cash in on the energy bounty of the South China Sea, the best approach would be to “shelve their territorial disputes to pursue joint development”.

The waters – claimed by China, Vietnam, the Philippines, Brunei, Malaysia and the self-ruled island of Taiwan – have 200 oil- and gas-bearing structures and 180 hydrocarbon resource fields, Song said, adding that some Chinese researchers call the area a “second Persian Gulf”.

The study of past joint ventures showed “improved bilateral relations is the prerequisite for the effective implementation of joint development ventures, and not the other way around” said Song, an assistant professor at the Institute of International Studies.

“Littoral states should also not pursue joint development agreements as a false pretext to secretly consolidate their maritime boundary claims, or to confirm the status of a ‘dispute’.”

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The code of conduct currently under negotiations between China and members of the 10-nation Asean bloc “may help to create a conducive atmosphere for claimant states to agree on the joint development of offshore hydrocarbon”, Song wrote.

There is currently heightened focus on energy exploration activities in the disputed waters.

Beijing claims sovereignty over some 90 per cent of the waters and the nine-dash line demarcating its claims overlap with the exclusive economic zones of the other claimants.

Over the past year, China and the Philippines have developed plans for joint explorations in contested waters, with Manila entitled to 60 per cent of the revenue.

An aerial view shows the Pagasa Island, which belongs to the disputed Spratly group of islands in the South China Sea. Photo: Reuters

A memorandum of understanding was signed in 2018 after President Rodrigo Duterte diverged from his predecessor Benigno Aquino’s hawkish stance on the Philippines’ claims and instead pursued an aggressively pro-China policy.

The cases studied by Song offered rich evidence of how bickering over long-standing, seemingly intractable differences over maritime boundaries lead to implementation failure of joint development pacts.

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Of the 19 projects, seven were classified as failures based on two definitions: there was no progress within five years of a deal coming into effect or the venture was cancelled within the validity period of the agreement.

The seven ventures included a 1971 deal between Iran and the Sharjah sheikhdom, a 1979 deal between Malaysia and Thailand, a 1982 deal between Vietnam and Cambodia, a 1993 deal between Columbia and Jamaica, a 1995 deal between Britain and Argentina, a 2001 deal between Thailand and Cambodia and a 2008 deal between Japan and China.

A crewman from the Vietnamese coastguard in the South China Sea. Photo: Reuters

In most cases, the “breakdown in bilateral relations transpired out of the very same disputes which the countries had initially sought to address through joint development”, Song wrote.

In the 2008 deal between Japan and China to jointly develop gas fields in the disputed East China Sea, for example, the pact was eventually unsuccessful due to the “war of words” between the countries over maritime delimitation, she wrote. Tensions have simmered between the neighbours over the dispute for years.

Like the South China Sea, the East China Sea is home to rich fishing grounds and large oil and gas reserves. The two countries both claim uninhabited islands in the waters known as the Senkakus in Japan and Diaoyus in China.

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“Both China and Japan proposed the delimitation plan to back their own territorial claim, and showed little sincerity to truly make a viable plan to develop together,” Song wrote.

Song found an “encouraging factor” for joint development in the South China Sea was that several claimant states have experience in either joint development or cooperative development – the latter which involves ventures where countries are not necessarily involved in territorial disputes.

Of the South China Sea claimants, Malaysia, Vietnam and China were signatories in at least one of the 19 bilateral joint developments featured in Song’s study. Elsewhere in the region, Brunei, Cambodia and Thailand have also previously engaged in such ventures.

A Philippine Navy vessel grounded over the Second Thomas Shoal, a remote South China Sea reef. Photo: AFP

“The collective wisdom of these countries can and should be harnessed for the future joint development of the South China Sea,” Song said.

She cited the mooted Philippines-China venture as an example where two countries had set aside their dispute “for mutual economic gains”.

She described how Duterte had not insisted on full compliance with the 2016 ruling of the Permanent Court of Arbitration in The Hague – a case brought by Aquino – that threw out China’s claim on the Southeast Asian country’s waters. In turn, Beijing has “returned the favour by allocating 60 per cent of the revenue of the joint development to the Philippines”, Song said.

“Hence, if joint development was seen in economic rather than geopolitical terms, this could encourage claimant states to shelve their territorial disputes to pursue joint development,” she said. “However, this would require a spirit of reciprocity between the states: a diplomatic process of give-and-take on the basis of mutual respect and equality.”

This article appeared in the South China Morning Post print edition as: Joint projects in disputed waters‘recipe for failure’

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