China’s military, law enforcement, and militia engaged in regular standoffs between 2018 and 2021 with Southeast Asian neighbors over oil and gas exploration inside Beijing’s nine-dash line claim in the South China Sea. By contrast, 2022 was comparatively quiet when it came to tensions over hydrocarbons, aside from one encounter involving the Philippines. But as several claimants forge ahead with new offshore projects in 2023, oil and gas development could reemerge as a primary flashpoint in the disputes.
This feature details new exploration and development projects by claimants across the South China Sea. Many of the new projects lie in disputed waters, some at the sites of previous confrontations. With the China Coast Guard increasing the frequency of patrols across disputed waters, the prospect of confrontation between Chinese law enforcement and oil and gas operators at many of these locations is high.
All of the projects detailed here and more are available to explore on AMTI’s newly updated map of Energy Exploration and Development in the South China Sea.
In the last year, China has begun development at several gas fields south of Hainan. In September, the China National Offshore Oil Corporation (CNOOC) announced that production had started at two gas fields in the Yinggehai Basin: Dongfang 1-1 and Ledong 22-1. In January, CNOOC began drilling at the Lingshui 25-1 gas field, the second deepwater field to be developed by China after the nearby Lingshui 17-2, which began production in June 2021.
Ledong 22-1, Lingshui 17-2, and, most likely, Lingshui 25-1 sit in areas of the continental shelf claimed by both Vietnam and China. These are on the Chinese side of the median line but remain technically disputed in the absence of any boundary delimitation.
Jakarta drew attention from both the media and the China Coast Guard in January when it approved a $3 billion plan to develop the Tuna gas field that sits at the northern edge of its maritime claims. The field is also at the southern edge of China’s claimed nine-dash line. China engaged in a months-long operation in late 2021 to harass exploratory drilling in the block. Indonesian officials in January said the project, operated by a subsidiary of the United Kingdom’s Harbour Energy, was an affirmation of Indonesia’s sovereignty and would be secured by the Indonesian Navy. Shortly after the announcement, China’s largest coastguard vessel was seen navigating near the area on commercial AIS platforms.
Later that month, Indonesia also included another block at least partially inside the nine-dash line, Natuna D Alpha, among the license areas it would auction off for exploration this year.
Harbour Energy plans to sell gas from the Tuna block to Vietnam by connecting a pipeline to the latter’s Nam Con Son project at Vanguard Bank, which also lies within the nine-dash line. The common denominator is Russia’s state-owned Zarubezhneft, which is Harbour’s partner in the Tuna block and operates Block 06-1 in the Nam Con Son basin. Zarubezhneft purchased Block 06-1 from Rosneft after the latter was harassed by China in 2019. And it has continued to operate the block despite Vanguard Bank being patrolled almost daily by the China Coast Guard since mid-2020.
Farther north in the Nam Con Son basin, a Japanese-developed gas field has also quietly come online. The Sao Vang-Dai Nguyet gas and condensate development project, located in blocks 05-1B and 05-1C, is operated by Japan’s Idemitsu Kosan and produced its first gas at Sao Vang in November 2020.
Drilling rig Hakuryu-11 at Sao Vang Field, August 2020
In 2021, Idemitsu completed a central processing platform for the project, and the first gas was expected from the Dai Nguyet field in 2022.
Nearby in block 12W, Harbour Energy began infill drilling to extend the life of existing production at the Chim Sao and Dua fields in September 2022. This block is projected to continue producing through 2028.
Another key foreign operator is ExxonMobil, which has partnered with PetroVietnam to develop the Ca Voi Xanh or “Blue Whale” gas field and a corresponding pipeline in the northern South China Sea. The project would not take place inside the nine-dash line, but Beijing might claim the area based on a continental shelf from the Paracel Islands. In January, it was reported that Vietnam’s Minister of Industry and Trade, Nguyen Hong Dien, instructed government authorities and PetroVietnam to accelerate the project and reach a deal for a gas supply contract within the first quarter of 2023. With an estimated 150 billion cubic meters in reserves, Ca Voi Xanh would be Vietnam’s largest gas project to date, but has been delayed for years.
Indian operator ONGC Videsh Ltd. has also held on to its investments in Vietnam. In August 2022, the firm received an extension through June 15, 2023 for its exploration contract in Block 128. The seventh such extension, its persistence has been viewed primarily as a strategic move to maintain India’s standing in Vietnam. The block has been under exploration since 2006 but has shown no sign of holding significant hydrocarbon reserves.
The ongoing developments in Nam Con Son and the potential start of the Ca Voi Xanh project may indicate a turnaround in fortunes for Vietnam’s struggling offshore energy industry. Many foreign firms, like Rosneft, pulled out of projects over the last decade due to pressure from Beijing. Spanish firm Repsol, which previously operated and held stakes in several Vietnamese and Malaysian hydrocarbon concessions, has withdrawn from the region, selling its assets to Malaysian firm Hibiscus Petroleum. Vietnam in 2020 paid $1 billion in reimbursements for costs related to Repsol’s development of blocks 07/03 and 135-136/03, both of which were terminated by leadership in Hanoi out of concern that the projects would trigger a maritime incident with China.
Despite multiple incidents with the China Coast Guard in recent years, Kuala Lumpur has continued to push ahead on several oil and gas projects in the South China Sea.
Since last fall, three discoveries have been made in exploration blocks off Sarawak in an area that is a hub for both Malaysian oil and gas activity and China Coast Guard patrols.
In September, exploratory drilling struck gas in block SK320. Then in December, hydrocarbons were discovered at exploratory wells in blocks SK306 and SK410B. The latter block was the site of confrontations between the China Coast Guard and the Royal Malaysian Navy in 2020 over similar exploratory drilling. Meanwhile, production is moving ahead at the Kasawari gas field, a target of China Coast Guard harassment in 2021. Seemingly unperturbed, production is slated to start in 2023, and the site has even become host to a major offshore carbon capture and storage operation, the world’s largest by estimated annual emissions reductions.
Last fall, Malaysia also completed the licensing of four “ultra-deepwater” exploration blocks off of Sabah which, notably, feature cooperative agreements with French and UK operators.
A production sharing contract for block 2K was signed in October between France’s TotalEnergies, Malaysia’s Petronas, and the United Kingdom’s Shell, with Shell having previously signed contracts for blocks 2V, 2W, and X.
The Philippines continues to suspend all oil and gas projects in disputed waters of the South China Sea, which has been policy since 2014. Manila briefly permitted exploration at Reed Bank last spring, but quickly shut it down amid challenges from the China Coast Guard. Without access to more promising prospects, Philippine operators have turned to redeveloping the Cadlao oil field, an old concession that sits outside of China’s nine-dash line claim and that last produced oil in the early 1990s. Cadlao today has an estimated 5 million barrels in reserves—a far cry from Reed Bank’s estimated 5 billion barrels of oil and 55 trillion cubic feet of gas. This leaves the Philippines the only claimant not developing hydrocarbon resources on the portions of its continental shelf covered by China’s nine-dash line.