Sino-Japanese energy cooperation in East China Sea takes backseat

Statoil platform17 September 2013, News Wires – Ever since China and Japan agreed in 2008 to jointly explore for oil and gas in the disputed waters of East China Sea, energy cooperation has been declining. The ascension of Xi Jinping in China and Shinzo Abe in Japan did not provide any breakthrough in improving energy ties. Instead, actions taken by the two leaders exacerbated strained bilateral relations, which was bedeviled by contentious territorial disputes and involved the military on occasions. As a result, Sino-Japanese energy cooperation has become a victim of the tense bilateral relations.

President Xi and Prime Minister Abe have yet to hold any substantive meeting and the lack of direction from the top leaderships have dampened any prospects for resolving disputes and fostering cooperation, including energy, between the two Asian economic giants.

“Both leaders are not even thinking of meeting each other, only low level communications going on … China incursion in Japanese waters will have to stop and bilateral tensions need to lower significantly before any joint energy cooperation is possible,” Bhubhindar Singh, assistant professor at the Rajaratnam School of International Studies told Rigzone.

In a brief encounter at the Eighth G20 Leaders’ Summit in St. Petersburg, Russia Sept. 5, Xi told Abe that China-Japan ties are “facing grave difficulties” and that Japan should “correctly deal with sensitive issues as the Diaoyu/Senkaku islands,” China’s Xinhua News agency reported.

The Territorial Spat
The Diaoyu/Senkaku (Chinese/Japanese) islands in East China Sea are at the heart of the territorial spat between the two countries. The five uninhabited islands and three rocks – currently occupied by Japan – lie northeast of Taiwan, east of China mainland and southwest of Japan’s Okinawa prefecture. The disputed islands, though barren, are strategically and politically significant as ownership can support claims to the surrounding sea and resources under the United Nations Convention on the Law of the Sea (UNCLOS), the U.S. Energy Information Administration (EIA) said in a September 2012 report on the area.

Control of the disputed area will give the country access to rich fishing grounds and potentially abundant energy deposits in surrounding waters. The spat has prevented extensive exploration and development of hydrocarbons in East China Sea, which covers an area of approximately 482,000 square miles.

Maritime Boundary Dispute
Beyond the territorial dispute, China and Japan clashed over the demarcation of the sea boundary in East China Sea as they adopted different approaches towards UNCLOS. Japan set its sea boundary based on UNCLOS Exclusive Economic Zone (EEZ), which extends westward from southern Kyushu Island and Ryukyu islands, while China defines its boundary using the UNCLOS principle of the natural extension of its continental shelf.  This resulted in overlapping claims of about 81,000 square miles. Japan proposed a median line (drawn equidistant between both countries’ uncontested EEZs) to resolve the issue, which China rejected.

While UNCLOS stated that “rocks which cannot sustain human habitation or economic life of their own shall have no exclusive economic zone or continental shelf,” Japan claimed that the disputed islands generate an EEZ and continental shelf. China has not taken an official position on the status of the Daioyu/Senkakus as rocks or islands, the EIA said.

Hydrocarbon Resources in Disputed Waters
Given the ongoing territorial dispute, it has been difficult to establish the volume of hydrocarbon reserves in East China Sea as it is mostly underexplored. Some estimates have however been made. The area was estimated to contain 60 to 100 million barrels of oil and 1 to 2 trillion cubic feet (Tcf) of natural gas in proven and probable reserves, figures cited in the EIA report.

Chinese sources, as mentioned in the EIA report, claimed there are 70 to 160 billion barrels of undiscovered oil resources and up to 250 Tcf of undiscovered gas resources for the entire East China Sea, mostly in the Xihu/Okinawa trough. However, these “undiscovered resources” do not take into account economic factors necessary to bring them into production, unlike “proven and probable reserves.”

A glance at the hydrocarbons reserve figures of China National Offshore Oil Corp. (CNOOC) indicates more gas than oil is available in East China Sea. CNOOC, China’s most active oil and gas firm in East China Sea, stated in its 2012 Annual Report that it has 19.8 million barrels of crude oil and liquids reserves in the area and 305.9 billion cubic feet of natural gas reserves.

2008 Agreement for Joint Energy Development
Despite their troubled bilateral relations, China and Japan made an attempt to cooperate on energy development in the disputed East China Sea. Talks begun in October 2004 and culminated in an agreement in 2008 to jointly explore four gas fields in East China Sea, while halting development in other contested parts of the regions. Both countries agreed to conduct joint surveys, with equal investment in an area north of the Chunxiao/Shirakaba gas field and south of the Longjing/Asunaro gas field.

However, the cooperation did not develop as envisaged. China began to develop the Tianwaitian/Kashi gas field unilaterally, leading Japan to protest in January 2009. Tokyo also threatened in January 2010 to take China to the International Tribunal for the Law of the Sea if the latter commenced production from the Chunxiao/Shirakaba gas field.

Since 2008, “Japan has barely made any sincere diplomatic moves towards that direction [of joint development] … It seems that Japan wants to settle the boundaries first before moving to cooperation, which is totally unrealistic,” Liu Junhong, research fellow at China Institutes of Contemporary International Relations told Reuters.

Recent Issues Upsetting Sino-Japanese Ties
Sino-Japanese ties deteriorated since the end of 2012. In December 2012, Chinese aircraft entered into the airspace over Diaoyu/Senkaku, possibly triggered by Tokyo’s purchase of three of the disputed islands from its former private owners in September 2012. The electoral success of Shinzo Abe and his Liberal Democratic Party in Japan caused Sino-Japanese ties to cool further as Abe had pledged a tough stance on the territorial dispute.

Bilateral ties also soured through a series of incidents since the beginning of this year. This included China’s plans announced in January to undertake geological survey of the disputed islands as part of its “program to safeguard its maritime rights and interests,” the British Broadcasting Corporation reported. In another incident in January, Tokyo accused Chinese vessels of placing a weapons’ controlling radar lock on a Japanese ship and a helicopter near the disputed islands, allegations which the Chinese military denied.

After a flotilla of 10 fishing boats carrying Japanese activists sailed into the disputed area, China reacted by sending eight government ships into waters surrounding the islands – the largest number of ships to date, causing Japan to lodge a formal protest with China’s envoy. Abe told the Japanese parliament that Tokyo was prepared to use force if Chinese officials attempted to land on the islands although did call for more dialogue with China to resolve the dispute, the BBC added.

Japan protested against further incursions into the disputed waters by China’s newly created Coast Guard in July and August.

“We have expressed our anger to the Chinese side … attempts to change the status quo with implied threats of force are not permitted by the international community,” Japanese Foreign Minister Fumio Kishida said in a New York Times report.

“Posturing [by leaders] is going on in both countries … Japan is trying to defend its sovereign claims, while China seeks to change the status quo and asserts its claims [over the area] … this will go on for some time,” Bhubhindar Singh told Rigzone.

Meanwhile, China plans to develop seven new gas fields in East China Sea, which Japan feared could siphon gas from the seabed beneath waters it claimed. CNOOC hopes to get state approval to develop Huangyan phase II and Pingbei projects – which totaled seven new fields – industry sources told Reuters. Even if approved, the Huangyan project is not going to have a significant impact on meeting Chinese gas demand as it will only provide a fraction of the country’s total production.

Of greater concern is the political risk if China approves the new gas fields. Observers feared a miscalculation by the two countries could lead to a border clash amid heightened tensions over the East China Sea.

The plan to develop gas in the disputed East China Sea area is “a sign of impatience on the side of the Chinese, stemming from a lack of movement on the Japanese side on the gas fields issue,” Koichi Nakano, associate professor of political science at Sophia University in Tokyo told Reuters.

Energy Cooperation Frozen
Any step towards Sino-Japanese energy exploration and development in the disputed area of East China Sea hinges on an improved bilateral ties. The current frosty ties could thaw only through direct substantive meetings between President Xi jinping and Prime Minister Shinzo Abe.

However, any resolution of the Diaoyu/Senkaku dispute has to take into account the growing economic and military power of China. The visit to China’s first aircraft carrier Liaoning by Xi Jinping last month symbolizes a more assertive China and the president used the occasion to highlight the need to safeguard the country’s sovereignty and security, something which Japanese leaders must have noted.

“Politics in both countries make the option [for joint energy exploration and development] a little bit unrealistic, at least for now … For them to go back to that cooperation in 2008, I think it’s not totally gone for good,” Singh added.

Pending an improvement in overall Sino-Japanese relations, bilateral energy cooperation will remain on ice and energy resources in East China Sea will stay untapped.
– Rigzone

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