The Philippines and China to Jointly Explore Oil Beneath the Spratlys – Is This a Fair Deal?

Automology’s Philippine correspondent, Harold, believes that the Philippine-China dispute over parts of South China Sea, if resolved amicably, will positively impact the future of the Philippine automotive, transport and power industries.

There is something untold about this dispute over the Spratlys. The major players, the people who have long-term commercial interests in the untapped resources beneath these islands, have employed top notch PR firms and experts to advance their agenda and, where needed, muddle the issue. One thing is clear: China and the Philippines dispute parts of a sea, but both need fuel. Now both are sure they’ll find some. Where does that leave the USA then in this equation? Careful, because once the USA’s interests are not included, they will certainly make their presence felt.

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This dispute is made to appear as an issue of national sovereignty to fire up patriotic sentiments, especially coming from the Acting Chief Justice of the Supreme Court (and a former managing partner of a powerful law firm known in the legal circles as “the firm”), Tony Carpio, but it isn’t about just sovereignty—it is an issue of oil and gas deposits, and who should be enriched by it.

Yes, the Philippines won the UN arbitration case over China but who will implement the judgement? Can the UN Security Council compel China to abide by the decision? Will countries rally in support of the Philippines and impose economic sanctions against China? Not even the other claimants— Malaysia, Vietnam, Taiwan and Brunei—had the guts to file a case against China. Are they scared? Or do they know that the International Tribunal’s judgement has no “judicial teeth” and can’t physically be enforced?

Even the foul-mouthed strongman Philippine President Duterte, accused of ordering the killing of thousands of drug traffickers, conceded that there is no point going to war against China because the Philippines will lose before it can even start. War has no winners, by the way, only losers.

Maybe President Duterte also knew that the UN arbitration case was not really the initiative of the Philippine government, during President Noynoy Aquino’s term, but the work of US companies who have interests in the oil and gas beneath the Spatlys. And there was no better time to file the arbitration case than at that time, when a former executive of a US firm was the Philippine Secretary of Foreign Affairs; no wonder he took the strongest initiative to muster the forces of the Philippines and fight China, at least legally. And, the Philippines won. Back to the question: Which powerful independent police force will enforce the decision on China? None! The USA is certainly an “impartial police” in this case.

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Photo taken on June 13, 2015 shows China’s Xingwang deep-sea semi-submersible drilling platform in the South China Sea.

Here are the bare facts: China, the world’s second largest economy, growing by 6.5% this year, needs fuel to sustain its economic growth. The Philippines, expected to grow its economy at least 6.8% this year, just entered the second year of its much expected infrastructure construction boom, and that takes a lot of fuel too to make this happen.

“No wonder the two sides are taking their new friendship to another new level by working toward joint exploration for oil and natural gas under the South China Sea between them despite a sovereignty dispute. From mid-February, officials have been deliberating how their oil exploration firms can work together on two tracts off the Philippine archipelago’s west coasts. One is held by Manila alone and another lies in contested waters,” observed Ralph Jennings of

Some Filipinos accused President Duterte of selling the Philippines to China in this joint exploration deal. Really? The latest news revealed that Duterte was able to have the Chinese President agree in principle to a 60-40% split, in favour of the Philippines, and with China providing the funding. That was a smart entrepreneurial diplomacy Mr. President. Truth be told, this is a far better deal than the Malampaya Gas Exploration, of which 45% was owned by Shell, 45% owned by Chevron and 10% by the Philippines—whoever agreed to this deal clearly has sold the Philippines to the US of A. So, was this Philippine-China joint exploration plan a fair deal for the Philippines? Yes! To benchmark it, Qatar Petroleum required its previous foreign partner to give a 60% share to Qatar. That was the same sharing deal struck by Qatar with Exxon Mobil.

According to report, the U.S. Energy Information Agency estimates that 11 billion barrels worth of oil lies under the whole South China Sea, along with 190 trillion cubic feet of natural gas. Most of that is located near coastlines rather than in the disputed open sea. The sea spans 3.5 million square kilometers all told. About one-fifth of untapped deposits lie under the disputed areas. Tracts southwest of the Philippines hold from 1 to 2.5 billion barrels of oil or its equivalent, according to U.S. EIA maps.

The Philippines, now consuming 400,000 barrels per day, will need more fuel to build roads, railways, seaports and airports as part of President Duterte’s aggressive infrastructure modernisation programme. There would also be a drastic drop in cost of fuel for cars, trucks, buses, ships, planes, factories and power plants, as is the case with fuel prices in oil exporting countries. The Philippines is “pursuing it aggressively because we need it,” Foreign Affairs Secretary Peter Cayetano admitted to reporters in February this year.

On the other side of the sea is China, a country that consumes about 11 million barrels per day and burns a lot of fuel for its manufacturing-based US$12 trillion economy. And this week, Premier Li Keqiang pledged to open factory investments further to foreign capital, so more fuel is needed.

Understandably, China and the Philippines would “compromise” over any disputed tracts opened for exploration and they “should contract as sovereign equals and observe the principle of equality under international law,” Philippine presidential spokesman Harry Roque said in March.

Did you know that CNOOC, China’s state-run offshore oil driller, has joint exploration agreements now with Vietnam to take fuel out of the Gulf of Tonkin between them. The Philippine government could look to the Vietnamese-Chinese deal as a model for its own with China, Roque said.

Asian countries have generally learned how to work around sovereignty disputes and find resources, according to Alan Chong, associate professor at the S. Rajaratnam School of International Studies in Singapore. “The neglected story is that everyone has a finger in everyone else’s pie,” he said.

And thus comes the sensitive question: Should the Philippines insist on its sovereign rights over the disputed islands and fight to the end? Or should it take a pragmatic view and go for joint exploration with China and expedite legislation to support this move? What do you think?

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