Philippines to restart oil and gas exploration in South China Sea

The Philippines will resume oil and gas exploration in the South China Sea, in a move that will test how far the country and Beijing are willing to compromise over rival maritime claims and the US’s resolve to back Manila.

“We trust China will respect our sovereign decision,” Alfonso Cusi, energy secretary, said on Friday about the move to end a six-year moratorium on resource exploration in the disputed waters.

The administration of former President Benigno Aquino III suspended exploration and drilling activities in the disputed sea in 2014 amid tensions with China. 

A UN-backed arbitration tribunal ruled in the Philippines’ favour and against the “nine dash line” under which China claims almost the entire South China Sea in 2016.

But Rodrigo Duterte, Mr Aquino’s successor, aligned the Philippines more closely with China at the expense of the US, his country’s traditional ally. In 2018, the Philippines signed a memorandum on joint exploration with China. But the proposed co-operation has not materialised.

Meanwhile the US has stepped up its support of Manila, pledging to back the country against Chinese harassment in waters where the UN tribunal declared that Beijing’s claims were illegal.

Michael Pompeo, US secretary of state, said in July: “We are making clear: Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them.”

Mr Pompeo added that China could not assert maritime claims vis-à-vis the Philippines in areas the tribunal found to be in the Philippines exclusive economic zone or on its continental shelf.

This applies to the projects Mr Duterte has allowed to resume. Forum, a UK company with Philippine backing, holds a contract to explore near the Reed Bank, an area which is thought to be rich in oil and gas but which the country has been unable to exploit the resource because of harassment by Chinese ships. PXP, a Hong Kong-listed company controlled by Philippine businessman Manuel Pangilinan, and the state-owned Philippine National Oil Company hold the two other service contracts allowed to restart.

Mr Cusi said the Philippines did not notify China prior to announcing its decision, but expressed confidence that Forum Energy and Beijing’s state-owned China National Offshore Oil Corp would speed up talks over co-operation.

China said last week it hoped the bilateral consensus on joint development of resources in the South China Sea was still on track. “I hope and believe that the two sides will meet each other halfway, promote joint development, and continue to make positive progress,” said Zhao Lijian, foreign ministry spokesman.

Manila’s decision comes as a gas reservoir at Malampaya, on which the Philippines largely relies for its energy needs, is expected to run out by 2030.

“A number of the exploration companies that have been involved in the blocks had been calling for a lifting of the moratorium,” said Andrew Harwood, an analyst at Wood Mackenzie, the energy consultancy. “The Malampaya project is entering the latter stages of its lifecycle, so as the economy grows, the Philippines desperately needs sources of gas.” 

A US diplomat in south-east Asia called Manila’s decision an “encouraging sign” and said Mr Duterte’s government may have felt emboldened by the assurance of stronger support from Washington.

But a leading analyst based in the Philippines said the exploration could also be seen as a win for Beijing. 

“The Philippines is essentially caught between the time bomb of a draining Malampaya and a Chinese shotgun to negotiate a joint development agreement,” said Richard Heydarian, a political analyst and author of a book about Mr Duterte. “Just the conversation alone is a diplomatic coup for China.”

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