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China to move into ultra-deepwater exploration

21st June 2012

Chinese energy experts say Beijing will eventually move its first ultra-deepwater rig to explore in deeper and more oil-rich waters further south in the South China Sea, where China, Vietnam, the Philippines, Taiwan, Malaysia and Brunei have overlapping territorial claims

The deepwater area of the South China Sea currently remains untapped

China has spent nearly USD 1 billion on an ultra-deepwater rig that appears intended to explore disputed areas of the South China Sea, according to reports.

The area is one of Asia's most volatile hotspots and where the US is strengthening ties with Beijing's rival claimants.

For now, the locally built Haiyang Shiyou (Offshore Oil) 981 rig owned by China's state-run CNOOC oil company is drilling south of Hong Kong in an area within Beijing's ambit.

"With Chinese offshore drilling technology improving, it is just a matter of time for them to enter the central and southern part of the South China Sea," said Liu Feng, senior researcher at the state-backed National Institute for South China Sea Studies.

Asked whether CNOOC would move the rig to disputed waters, Lin Boqiang, professor and director of the China Center for Energy Economics Research at Xiamen University, said: "I feel they will ... If CNOOC does not do it, other countries will do it. So why (should) CNOOC not do it?"

The deepwater area of the South China Sea remains untapped, largely because tensions between rival claimants have made oil companies and private rig-builders reluctant to explore contentious acreage well away from sovereign coastlines.

CNOOC, or the China National Offshore Oil Corp, is an $89 billion company with oil and gas assets in Indonesia, Iraq, Australia, Africa, North and South America, as well as China.

It declined comment on whether it would move the 981 rig into disputed waters, although the company described the vessel as "mobile national territory" when it began drilling 320 km (200 miles) south of Hong Kong last month.

That sparked concerns that China's quest for oil and gas to feed its economy would push Beijing into the disputed zone of the South China Sea and potentially a confrontation with other claimants.

"Large deepwater drilling rigs are our mobile national territory and strategic weapon for promoting the development of the country's offshore oil industry," the official Xinhua news agency quoted CNOOC Chairman Wang Yilin as saying.

In response, Vietnam called for mutual respect of international law governing exploration in the South China Sea, which it calls the East Sea.

"Activities in the East Sea by countries must abide by international laws ... and must not infringe upon sovereignty, sovereign rights and national jurisdiction of other countries," said Luong Thanh Nghi, spokesman for Vietnam's foreign ministry.

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