October 21, 2016

Philippines and China closer to jointly developing the Reed Bank in the South China Sea

China and the Philippines could begin exploiting long-untapped energy reserves in the South China Sea, according to reports coming out of this week's meeting between Filipino President Rodrigo Duterte and high-ranking Chinese officials — including a Thursday sit-down with Chinese President Xi Jinping — in Beijing. How soon that may happen remains unclear, however, as Duterte cautioned reporters that he has not been empowered by his Congress to finalize any energy exploration deal with his Chinese counterparts.

Earlier reports by Philippine newspaper the "Inquirer" suggested that Beijing and Duterte were set to enter into an agreement to explore for energy sources in a part of the South China Sea close to the Philippine coastline. China has long sought to exploit what it believes could be more than 100 billion barrels of oil and hundreds of trillions of cubic feet of natural gas lurking beneath the South China Sea. However, a litany of overlapping territorial claims in the region by the more than half-dozen nations rimming the South China Sea has rendered broad energy development there a nonstarter.

The fact that potential joint development of offshore energy deposits in the region is even being discussed underscores the tectonic shift in regional foreign policy undertaken by Duterte since winning the Filipino presidency in May.

For China, one of the sea’s key prizes is Reed Bank, a tablemount (an underwater mountain) near the Philippine coast rich in untapped oil and gas deposits.





The Philippines is worried about energy security, and running out of time. The Malampaya gas field, a key source of energy for the nation’s main island of Luzon (home to the capital, Manila), is due to run out in 10 years or so. It takes about six years to set up infrastructure for a new project.

“We will have rotating brownouts in Luzon if we don’t develop a replacement area, a substitute area, and that substitute area is really the Reed Bank,” Antonio Carpio, a senior judge, said on Oct. 14. Carpio noted that 80% of the Philippines’ EEZ in the South China Sea falls within China’s nine-dash line.

Manila's state-run Philex Petroleum has the controlling stakes in two stalled concessions, the 880,000-hectare SC-72 at the Reed Bank and the 616,000-hectare SC-75 off the island of Palawan.

According to U.S. oilfield services company Weatherford, one concession - SC 72 - contains 2.6-8.8 trillion cubic feet of natural gas. That would be as much as triple the amount discovered at the Malampaya project, an offshore field that powers 40 percent of the main island of Luzon, home to the capital Manila.

In the business forum that was the focus of Duterte’s visit, China agreed to loan $9 billion to the Philippines, and 13 pacts were signed between the two nations, marking partnerships on maritime cooperation, financing, transport, drug-busting and more. Jinping has previously said that he admires Duterte’s drug-fighting tactics.

If Philippines Duterte does completely flip to China, including allowing China instead of the USA to use Philippines airbases, then this would completely alter the geopolitical situation in the South China Sea.

SOURCES - CNBC, Quartz

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