November 2019

Oil and gas in the capitals

South China Sea military tension escalates, risks to E&P heightened
Jeff Moore / Contributing Editor

World Oil last covered Chinese military and E&P encroachment into the South China Sea (SCS) during 2017. Since then, there has been a surge of military activity in the region that poses high risks to E&P. The Pentagon, in a blunt August 2019 statement, said, “Recently, China resumed its coercive interference in Vietnam’s longstanding oil and gas activities in the South China Sea.” China appears to have the appetite to militarily back its territorial claims. In 2017, it had 317 surface ships and submarines, making it the world’s largest navy. Moreover, it has a three-to-one cruise missile advantage over the U.S.

Recent South China Sea military activity. China has poured military resources into the SCS, and the U.S., plus its allies, have responded in kind. The U.S. Indo-Pacific Command’s (USINDOPACOM) Admiral Philip S. Davidson summed up the situation in March 2018, when he told the Senate, “China is now capable of controlling the South China Sea in all scenarios short of war with the United States.” At present, China occupies 20 posts in the Paracels and seven in the Spratlys.

China’s Spratly military bases are on Fiery Cross, Subi and Mischief Reefs. These bases bristle with naval and air facilities, and, in the words of former USINDOPACOM Admiral Harry Harris, are “specifically—and solely—to support advanced military capabilities that can deploy to the bases on short notice.”

China in March-April 2018 staged a massive, 40-warship exercise in the SCS near Hainan to emphasize its resolve. In the Philippines, China has militarily blockaded Scarborough Shoal and might seize it, if Philippine President Rodrigo Duterte does not drop his international legal protests of China’s actions. China is also using its blockade to pressure Duterte to sign bilateral E&P agreements for the SCS.

In August 2018, Chinese President Xi Jinping told then-U.S. Defense Secretary Jim Mattis that China would not be ceding “even one inch” of the SCS. In response, the U.S. and its allies increased their FONOPs (Freedom of Navigation Operations) in the SCS, something Beijing has not taken lightly. On Oct. 1, 2018, Chinese destroyer Luyang aggressively maneuvered within 45 yards of the USS Decatur (DDG, guided missile destroyer) near Gaven Reef.

In January-February 2019, three USS Arleigh Burke-class DDGs conducted FONOPs in the South China Sea. In March 2019, two U.S. B-52H Stratofortress bombers flew over the Spratlys, reinforcing FONOPS from the air. In April 2019, the USS Wasp amphibious assault ship sailed by Scarborough Shoal. Seemingly in response, China conducted anti-ship ballistic missile tests in July 2019 in the Hainan Island-Paracel area, and north of the Spratlys.

On Sept. 2, the U.S. Navy and 10 regional navies engaged in the first-ever ASEAN-U.S. Maritime Exercise in the waters off Vietnam. In October, the U.S. Navy sent Task Force (TF) 70 into the SCS to conduct joint naval-amphibious warfare exercises. The TF consisted of the Ronald Reagan Carrier Strike Group and the Boxer Amphibious Ready Group (ARG). TF 70’s exercises included defense against enemy ships, aircraft, submarines and small boats; maritime patrol and policing; and strike operations against enemy vessels and aircraft. The ARG carried more than 2,000 marines. This was a display meant to send a message that nobody owned the SCS.

E&P shenanigans. While all these military activities were taking place, on three different occasions in July, August and September 2019, China sent its seismic exploration ship, the Haiyang Dizhi 8, and its escorting Maritime Police vessels, to several areas off Vietnam. The July incursion included a stand-off between some 20 Vietnamese and Chinese ships.

On Aug. 13, China sent Maritime Police vessels into Block 6.01, to within five nautical miles of OVL’s (ONGC Videsh Ltd) rig there. Block 06.1 is in the Nam Con Son basin and has two producing fields: Lan Tay and Lan Rosneft. On Sept. 3, the Chinese sent CNOOC’s giant pipelaying and crane vessel, the Lan Jing, to a point within 56 mi off Quang Ngai. Finally, on Sept. 21, the Chinese announced they had deployed to the SCS their largest semisubmersible drilling rig, the Haiyang Shiyou 982.

In 2020, ExxonMobil must decide whether or not to invest fully in Vietnam’s Blue Whale project in the Song Hong basin, 50 mi off Da Nang, which holds 150 Bcm of gas reserves and may earn the government $20 billion. A platform there would pipe natural gas to an onshore treatment plant that would be connected to several power plants, and they could provide electricity to a city the size of Hanoi for 20 years. China’s nine-dashed line slices through part of Block 118, in the Song Hong basin, indicating another trouble spot.

Vietnam’s E&P sector must recognize the escalating risks and address them. Possible scenarios range from light to extreme. On the lighter side, China could use its myriad forces to intensify its harassment and forced shutdowns of E&P projects, as it has done already. It could add to this toolkit, the placement of drilling rigs in fields critical to Vietnam’s national security—such as Blue Whale—and siphon off hydrocarbons, as it did against Japan in the Chunxiao/Shirakaba fields.

More extreme scenarios range from China setting up an Air Defense Identification Zone, as it did in 2013 in the East China Sea’s Diaoyus/Senkakus area, or setting up blockades, or taking over rigs, or executing other military actions that make E&P impossible. These latter issues might sound outlandish, but given 1) the steadily increasing Chinese and U.S. military deployments, and, 2) the fact that the Chinese repeatedly state they are prepared to militarily enforce their claims, and, 3) the fact that the U.S. and its allies do not appear to be backing away from FONOPS, the stage is set for escalation.

About the Authors
Jeff Moore
Contributing Editor
Jeff Moore runs Muir Analytics, a risk consulting firm specializing in deciphering threats in conflict zones. He is author of the book, Spies for Nimitz, which depicts America’s first modern intelligence agency. He holds a PhD from the University of Exeter in the UK.
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