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Petronas to stoke Chinese fury as Transocean drills in South China Sea

On the move: Transocean's Deepwater Nautilus
On the move: Transocean's Deepwater Nautilus

Analysts are expecting a backlash from Beijing as Malaysian national oil company (NOC) Petronas prepares to drill in gas-rich Block SK 316 in the South China Sea off the eastern Malaysian state of Sarawak.

Petronas will use the Transocean Deepwater Nautilus rig for the Gaharu-1 wildcat, according to a notice to mariners issued by Malaysia’s Marine Department. The semi-submersible will carry out drilling activities for about 68 days from around the 20 August. And the exploration work will be supported by Singapore-based Swire Pacific’s very large anchor-handling supply ship Pacific Centurion and the Norwegian-flagged Far Stream.

“Block SK 316 is located within China’s expansive nine-dash line claim, which suggests that any attempt by Petronas to drill the acreage will trigger a backlash from Beijing,” Hugo Brennan, an Asia analyst at geopolitical risk consultancy Verisk Maplecroft, told Energy Voice.

“Beijing’s typical playbook is to deploy a combination of maritime militia, law enforcement, as well as civilian vessels, to harass and intimidate ships engaged in developing new oil and gas resources in waters it claims,” added Brennan.

Malaysian upstream operations have already come under similar pressure earlier this year during a four-month tense standoff with China. Significantly, the uptick in coercive activities by Chinese vessels against Malaysian oil exploration is likely linked to Kuala Lumpur’s decision to submit a continental shelf claim in December 2019. China opposes the move on the basis that it challenges its own South China Sea claims

Meanwhile, China has gone on the geopolitical offence in reaction to the international backlash it received for its initial handling of the COVID-19 outbreak. This suggests that Beijing is likely to more aggressively pursue its perceived rights in the South China Sea, warned Brennan.

China wants to coerce Southeast Asian governments into signing joint development agreements with it, while discouraging international energy companies from participating in offshore oil and gas projects with Southeast Asian energy companies, without Beijing’s approval, Ian Storey, a senior fellow and Asian security expert, at the ISEAS Yusof Ishak Institute in Singapore, told Energy Voice.

As such, Storey expects China’s coast guard, maritime militia or navy to harass any Petronas-chartered drilling rigs off eastern Malaysia. “Other than monitoring the situation and issuing a diplomatic protest, Malaysia’s options in responding to China’s bullying are limited,” he added.

Malaysia has been reluctant to pushback against Chinese claims in the South China Sea and has adopted a hedging stance more generally, Bec Strating, a senior lecturer in politics and international relations at La Trobe University, Australia, told Energy Voice. However, “it has been a driver of the recent flurry of diplomatic notes and its government has come out more forcefully in these notes about the need for states to abide by the United Nations Convention for the Law of the Sea and international law,” she added.

Earlier this month, Malaysian minister for foreign affairs, Hishammuddin Hussein, told parliament that his ministry is keen on resolving the South China Sea dispute constructively through “appropriate diplomatic negotiations.”

He underscored two main issues facing Malaysia.

“Firstly, I do not want Malaysia to be dragged and trapped in a geopolitical tussle between superpowers,” said Hishammuddin.

“We must prevent any unwanted incident from happening within our territorial waters. We must also prevent any military clashes in the waters between any relevant parties,” he added.

Secondly, Hishammuddin said that the South China Sea dispute cannot be used as an issue that will cause disunity between Association of Southeast Asian Nations (ASEAN) countries.

“If we follow the narrative and succumb to the pressure of superpowers, the potential for ASEAN countries to bend and take sides with certain countries will be high. When facing big superpowers, we must be united, as one bloc, so that our strength will be synergised effectively,” he said

Hishammuddin said that Malaysia’s territorial dispute in the South China Sea is not just with China. There are also overlapping claims with fellow ASEAN nations like the Philippines, Vietnam and Brunei.

“If ASEAN breaks apart, and Malaysia ourselves are not able to stand up to US and China, our best chance is if ASEAN remains solid. To resolve the South China Sea issue with China, we must ensure that ASEAN’s solidarity is strong, and we remain united as one bloc,” he reiterated.

Strating thinks China’s approach will be to pressure Southeast Asian states to do a deal – for example, to submit to joint development projects and effectively backdown on some of their jurisdictional claims.

However, one of the challenges is that all this activity is happening at the same time as ASEAN and China are supposed to be working towards a code of conduct in the South China Sea, said Strating. “This kind of behavior opens China up to criticisms that it is not genuinely interested in cooperating on a framework for managing disputes, but rather is engaging in a talk while take strategy,” she cautioned.

Indeed, it will be interesting to see how China reacts to Petronas’ latest drilling on Block SK 316. The block, 100% owned by Petronas, holds the multi-trillion cubic feet (tcf) Kasawari field, which is under development for supply into the Bintulu LNG export complex. Energy research company Wood Mackenzie estimates over 7 tcf of gas has been discovered to date on the block.

Although the block does lie within China’s maritime claim line, SK 316 is well within Malaysia’s exclusive economic zone (EEZ) and has been developed as such for a number of decades, Andrew Harwood, Asia Pacific research director at Wood Mackenzie, told Energy Voice.

An EEZ is a sea zone prescribed by the 1982 United Nations Convention on the Law of the Sea over which a sovereign state has special rights regarding the exploration and use of marine resources.

“It would be a huge concern for security in the region if the Chinese were to interfere with activity this deep into Malaysia’s maritime territory,” added Harwood.

But China’s recent actions, including blocking upstream operations by Russia’s Rosneft in the South China Sea off Vietnam, suggests that Beijing is becoming increasingly confident in upholding its perceived territorial claims and also implies that the Chinese leadership feels unassailable on these matters.

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