India may have a geopolitical interest in the South China Sea area, but it is driven by an economic need. India must make its presence felt and pursue its engagements in the area. This in turn will involve a continued effort to cooperate and collaborate with the Southeast Asian nations.
The South China Sea (SCS) is a major trade route and known to be rich in untapped hydrocarbon resources. The region is also emerging as a military flashpoint with six nations competing for territorial rights. India’s economic interest in the region is driven by its need for hydrocarbon resources. As tensions in the SCS rise, India’s continued presence in the region is viewed with geopolitical interest. This article looks at India’s economic interests in the SCS caught amidst the political tensions of the region.
Indian petroleum company ONGC Videsh Ltd. (OVL), the global arm of Oil and Natural Gas Corporation (ONGC), has stakes in hydrocarbon exploration blocks with Vietnam. The company’s engagement with Vietnam dates back to 1988 when it acquired its first overseas asset, Block 06.1. OVL then acquired block 127 and 128 for exploration in 2006. Block 128 falls within Vietnam’s exclusive economic zone (EEZ) but is claimed by China in the SCS.
According to the US Energy Information Administration (EIA) estimates, the SCS contains 11 billion barrels (bbl) of oil and 190 trillion cubic feet (tcf) of natural gas in proved and probable reserves. EIA notes the difficulty in making accurate estimates of oil and natural gas in the area given the lack of exploration and territorial disputes. Hence, reserve estimates in the area vary greatly. According to Chinese media reports, the South China Sea oil reserves are estimated to be around 23 to 30 billion tonnes and 16 trillion cubic metres of natural gas. There may also be additional hydrocarbon reserves in underexplored areas of the South China Sea.
OVL currently holds two assets in Vietnam. Block 06.1 is a producing asset and block 128 is an exploratory asset. OVL holds 45 percent of the Participatory Interest (PI) in block 06.1 and its 2011-12 production was 2.023 billion cubic metres (BCM) of gas and 0.036 million metric tonne (MMT) of condensate. OVL has invested an amount of US$ 342.78 million for development of the project. It later relinquished block 127 to PetroVietnam due to the lack of hydrocarbon presence. Block 128 is an offshore exploratory block with 7,058 square kilometres in Vietnam. OVL holds 100 per cent PI with operatorship in the block.
China’s largest offshore crude oil and natural gas producer China National Offshore Oil Corporation (CNOOC) has a net production of 135,007 barrel of oil equivalent per day (BOE/day) from the Western SCS and 155,070 BOE/day from Eastern SCS. The SCS accounts for approximately 31 per cent of the company’s total production. Clearly, China has high stakes in the South China Sea. Territorial disputes in the SCS are aggravated due to the competition over acquiring hydrocarbon resources. China has strongly opposed to Indo-Vietnamese collaboration on block 128. India’s cooperation with Southeast Asian nations is in line with the Look East Policy. However, OVL’s commercial interest has now run into political trouble played out by geopolitics.
OVL attempted to drill block 128 in 2009 but was unsuccessful due to a hard carbonate sea bottom. Due to technical difficulties in exploration, OVL decided to exit the block in 2012. However, PetroVietnam requested that OVL continue the exploration programme for two years, leading OVL to reconsider its earlier decision to pull out. This change in decision caught Beijing’s attention. China feels that the decision to stay back is fuelled by geopolitical interests rather than economic interests. China has vigorously opposed internationalisation of the territorial disputes in the SCS. Beijing maintains that the disputing nations should resolve the issue at a bilateral level. On the other hand, nations like Vietnam and the Philippines insist on taking the matter to a multilateral forum. While the Philippines seek a greater US presence on the issue, Vietnam has expressed its interest on Indian presence in the waters. Vietnamese Deputy Prime Minister, Mr. Vu Van Ninh in January 2013 reiterated its stance by inviting "Indian companies to continue to invest and enter into Vietnam". M
OVL has a long history with Vietnam with the company earning its first hydrocarbon overseas revenue from its investment in Vietnam. Beijing strongly opposed India’s collaboration with Vietnam in the South China Sea. Expressing Beijing’s opposition toward the joint exploration, Chinese Foreign Ministry Spokesperson, Hong Lei said that "any country or company’s oil and gas exploration activity in the waters under China’s jurisdiction without the permission of the Chinese Government is an infringement upon China’s sovereignty, rights and interests, and is thus illegal and invalid".
Continuing to assert its claims on the South China Sea, Beijing in June 2012, put up nine oil and gas blocks for exploration with foreign companies. CNOOC invited international companies to bid for the oil blocks which also consisted of block 128. Vietnam strongly protested accusing China of violating Vietnam’s sovereignty and called on international firms to boycott the bid. Putting up an oil block already under exploration by OVL is a controversial move. The message was loud and clear - this is Beijing’s territory and no country can meddle in its affairs. Chinese Foreign Ministry Spokesperson Hong Lei, commenting on the issue said "bidding of oil and gas blocks is a normal business activity which complies with relevant Chinese laws and international practices". In another statement, Lei also urged Vietnam to immediately stop oil and gas activities and to honour the efforts to maintain peace and stability in the region.
India has long maintained that its presence in the area is purely commercial. However of late, India has hinted at the willingness to be present in those waters and playing the balancing actor that Vietnam seeks. Indian Navy chief Admiral D.K. Joshi in December 2012 remarked that the Indian Navy is preparing to be in the disputed waters to protect national interests. He said "Not that we expect to be in those (South China Sea) waters very frequently, but when the requirement is there, for example in situations where our country’s interests are involved, for example ONGC Videsh etc, we will be required to go there and we are prepared for that. Are we preparing for it? Are we holding exercises of that nature? The short answer is yes."
In response, Beijing reiterated its earlier stance by saying that "We hope relevant countries can respect China’s claim, position and rights and interests, and respect and support efforts made by countries in the region to solve disputes through bilateral negotiations." Admiral Joshi’s comments are however in line with the Indian Maritime Doctrine which outlines the importance of protecting the nation’s economic interests - "India is also investing in hydrocarbon assets worldwide, which would have to be maintained by sea and use the sea lanes for repatriation to India. Security of energy thus has a strong maritime component, which will remain of prime national concern."¹
Along with economic investments India also maintains an interest in the Freedom of Navigation through the SCS. It has become important for India to be present in those waters to safeguard its stakes. Vietnam continues to be an attractive investment destination for Indian companies with a total Indian investment of US$ 750 million.2 Furthermore, New Delhi seeks to enhance its cooperation with the Southeast Asian nations both politically and economically.
OVL’s presence in the South China Sea is a commercial venture. The company’s extension in block 128 despite the lack of production suggests to an optimism to gain future economic opportunities. The SCS is a resource rich area and India’s commitment to be present in the area brings in the hope for further economic cooperation with the littoral states. India may have a geopolitical interest in the area but it is again driven by an economic need. India must make its presence felt and pursue its engagements in the area. This in turn will involve a continued effort to cooperate and collaborate with the Southeast Asian nations.
Endnotes:
1 . Indian Navy, Indian Maritime Doctrine (Integrated Headquarters, Ministry of Defence (Navy), 2009.
2 . Ministry of External Affairs, Annual Report, 2011-2012.
(Darshana M. Baruah is an Editorial Associate, South China Sea Monitor)
Courtesy : South China Sea Monitor
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