Vietnam is a country that has seen its share of war, suffering and hardship. From its days of French colonial rule and the 1950s war to expel the French, to the destructive and costly war with the US in the 1960s, and 70s, that resulted in the defeat of the democratic US backed South unifying them with the communist North (forming modern day Vietnam), the country has bounced back and has become an Asian tiger with bragging rights, experiencing rapid economic growth for nearly two decades with a GDP of $123 billion in 2011. Its infrastructure is greatly improved and Foreign Direct Investment (FDI) has been expanding.
However the Southeast Asian country hasn’t just wrestled with and expelled Western powers. It has a much longer and checkered history with China. For a millennium China ruled Vietnam, often with an iron fist, finally being overthrown in the 10th Century AD. To this day there is still lingering resentment against China in Vietnam.
In Ho Chi Minh City (Saigon) a few months ago, I had a conversation with several university students at a coffee shop in the city’s upscale District One. Since it was my first trip to Vietnam I thought that talk would lead to the long-ago Vietnam War, which I dreaded getting into. But they would have none of that. The new generation of Vietnamese, with a median age of just 27, and with scant knowledge of that conflict except from history books, have other things on their minds: Fashion, Korean pop music, the best cappuccino to drink and China. One female student, age 19, said in surprisingly clear English: “Sir, I know nothing about war, what will I do if they draft me into the Army?” She was referring to her country’s recent tensions with China over the Paracel Islands, located approximately 200-nautical miles due east of Danang in the South China Sea. I assured her that the army would not draft women. But I had no idea if that was true or not, I just wanted help ease her stress.
Tensions over the Paracel Islands (Quan Dao Hoang Sa in Vietnamese - Xisha Qundao in pinyin Mandarin) do however have their roots in the Vietnam War. Toward the end of the war, after American troops departed, North Vietnam was gaining the upper hand over the South. Around the same time the South Vietnamese navy squared off with its Chinese counterpart over the Paracel Islands. Vietnam had claimed these uninhabited islands (approximately 130 small coral islands and reefs) for centuries and re-established that claim during French colonial rule, according to Naval Institute Press historian Thomas J. Cutler. But China disputed that claim based upon a proclamation made by them in September 1958, which ironically was acknowledged by then North Vietnamese Prime Minister Pham-Van-Dong. The South refuted this claim and maintained a small weather observation garrison on Pattle Island, the largest island in this group.
Fighting began on the morning of January 19, 1974 as South Vietnamese ships slugged it out with Chinese gunboats in a brief but intense gun battle. South Vietnam’s three frigates and a corvette [a small, maneuverable, lightly armed warship]
engaged China’s four older and smaller corvettes, which were reinforced by two Chinese submarines toward the end of the battle. In the 35-minute battle ships from both sides took direct hits. However the smaller Chinese warships maneuvered into the blind spots of the main cannons on the larger Vietnamese warships and succeeded in damaging all four Vietnamese ships. One Vietnamese ship was disabled and her crew abandoned ship while her captain went down with his ship.
Vietnam’s other three ships were forced to retreat, eventually pulling back to their base at Danang. The next day, China sent an amphibious landing force, with support from Chinese jet fighters and attack aircraft, and captured Vietnamese Marines on three islands in the engagement area. Since that time China has held control over the Paracels but Vietnam still claims them as well.
Vietnam never lodged a formal protest over the incident since it was the South that suffered the loss. However, a unified Vietnam now vehemently lays claim to the Paracel Islands.
Yet, unlike the Philippine-Chinese dispute over the Spratly Islands which fall within the Philippines’ 200-nautical mile Exclusive Economic Zone (EEZ) and well outside China’s EEZ, the Paracel Islands are trickier. They fall on the disputed border between Vietnam and China’s EEZ, although China’s nine-doted line claim extends far beyond them and toward the Vietnamese coastline itself.
Current tensions between China and Vietnam are not merely over territory or historical claims this time. Like China’s dispute with other claimants in the South China Sea- it’s over hydrocarbons.
Vietnam becomes energy pro-active
According to the US Energy Information Agency (EIA), Vietnam now ranks third in terms of proven oil reserves for the Asia-Pacific region. Vietnam held 4.4 billion barrels (bbl) of proven oil reserves as of January 2012, a marked increase over its 0.6 bbl in 2011. The increase is in part a result of Vietnam’s exploration and development efforts of its offshore fields. Experts claim that as Vietnam intensifies its exploration activities the figure will increase since Vietnam’s waters remain largely under explored.
The country’s natural gas production has also risen rapidly since the late 1990s and is used entirely to support Vietnam’s expanding population and economy. According to the EIA, Vietnam held 24.7 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2012. In 2010, Vietnam produced 290 billion cubic feet (Bcf) or 0.8 Bcf/d of natural gas, more than double 2005 production and it expects production will rise to 1.4 Bcf/d by 2015. Currently the country is self-sufficient in natural gas.
Nevertheless, all is not well for the country’s natural gas future. Vietnam’s Natural Gas Master Plan projects that gas consumption in the country will increase from 290 Bcf in 2010 to over 460 Bcf by 2015. Meanwhile, PetroVietnam forecasts that there will be a gas supply gap of 1.3 Bcf/d by 2025 as demand outstrips supply. Much of that increased gas demand comes from power generation. The country’s electricity demand has accelerated as its economy continues to grow. For the past 15 years, Vietnam’s GDP has increased by an average of 7% annually. In line with that economic growth, electricity demand has climbed by 15% per year since the mid-1990s, according to a 2010 World Bank report. As a result, Vietnam has been aggressive in efforts to attract investment and issue exploration contracts for its offshore acreage in the South China Sea.
South China Sea’s varying reserve figures
Oil reserve estimates for the South China Sea vary. One Chinese estimate places potential oil resources as high as 213 bbl. A 1993/1994 US Geological Survey (USGS) report estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 bbl.
Natural gas, according to the USGS, is more abundant in the area than oil. The USGS estimates that about 60%-70% of the area's hydrocarbon resources are natural gas and has placed the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 266 Tcf.
Part of Vietnam’s drive for oil and gas includes a wild card – India (which is actively exploring for oil and gas in waters off Vietnam’s coast, placing India squarely in the middle of the Vietnamese-Chinese standoff). Not as if Vietnamese-Chinese tensions weren’t strained already but Sino-Indian relations alone are complex enough to keep geopolitical pundits and college professors occupied for years. At stake is national pride, hydrocarbons and control of much of the South China Sea.
Next week part two will examine Sino-Indian relations and how they intersect with Vietnam’s and China’s hydrocarbon quest in the region.
Along with Vietnam, India also has strained relations with China albeit even more complicated. The world’s two most populous countries also share a common border of
3,380 kilometers (2,100 miles) – an area that has seen plenty of conflict and bloodshed. The two have had three major military clashes along this common border since 1962 and India still accuses China of crossing into disputed areas, with a recent incident occurring in July when the Chinese army allegedly stopped work on an Indian government irrigation project in the Leh district of Ladakh, a disputed area on the Sino-Indian border.
Consequently both nations have steadily built up military forces and infrastructure along the border. Additionally, India is disgruntled at its growing trade imbalance with China. Added to the mix is the fact that India successfully launched an ICBM in April, which has a striking range of mainland China, ruffling Beijing’s feathers even more. India for her part protests China’s growing alliance with its archrival, Pakistan.
Vietnam induces India to stay put
However if India resents China’s overtures to Pakistan, China despises even more India’s meddling in its backwaters in the Paracels. This started playing out in 2006 when Vietnam, eager for more hydrocarbons, offered up bidding in the area to foreign exploration and production companies. That year Vietnam assigned oil block Numbers 127 and 128 to Indian oil and gas major ONGC (Oil and Natural Gas Corporation Limited). Despite objections from the Chinese government, ONGC began production tests in September 2009. Last May, however, Indian media reported that ONGC would likely withdraw from block 128 after gas and oil did not show up in an exploratory well. They have already withdrawn from block 127. ONGC officials informed Vietnam of its plans to terminate operations based on commercial considerations. While this no-doubt pleased China, Vietnam upped the ante and induced India to stay.
“They [PetroVietnam] told us to put two more years in the blocks and gave us additional data to improve the prospectivity in the block,” said a spokesman for ONGC’s overseas division OVL. “The decision is good for us as there is no additional responsibility. The two year period has started so we will continue in the block.”
Just a few weeks earlier Vietnam’s National Assembly approved a maritime law claiming sovereignty and jurisdiction over the Paracel and Spratly Islands.
But Beijing is not one to be out done. On June 28, Chinese oil major CNOOC announced plans to offer nine oil and gas blocks to international oil firms in waters within Vietnam’s claimed 200-nautical mile EEZ.
Heated words between the two countries were exchanged again. On July 23 China’s Xinhua news agency reported that China would establish a military garrison for a new city in the Paracels. The new city, Sansha, was approved as 1,100 Chinese residents elected a legislature to oversee the area. The next day about 150 Vietnamese marched through Hanoi in protest over China’s action.
And on August 27, China raised the stakes even higher. Bloomberg reported that CNOOC put up 26 blocks in this year’s second round of auctions. A site known as 65/12 was included, within 50 kilometers (31 miles) of the Paracel Islands, near a block put up for bid last year that prompted a protest from Vietnam.
Dr. Nicholas Thomas, associate professor at the Department of Asian and International Studies at City College in Hong Kong, described these developments as “multi-scenario,” some or all of which are in operation at any given time. He told Energy Tribune that first India needs to help ensure its future access to offshore oil reserves so at one level it is an unsurprising development. “The fact that India is moving into an area long considered China’s is a simple evolution of a rising state with large energy needs,” he said. He also added that India is trying to develop its position with respect to China’s rise.
Dr. Zha Daojiong, a professor at the School of International Studies, at Peking University in Beijing, told the Energy Tribune: “Because ONGC is a state-owned company, its answer to the Vietnamese call for biddings in the South China Sea of course is a reflection of Indian government policy preferences.”
“Viewed from China, ONGC’s decision to continue [in oil block 128] is obviously to sound a non-compliance with Chinese demands,” he said.
“Politically-diplomatically, ONGC can afford to continue on since it is not known to have entered into the offshore oil/gas sector within China proper. For the same reason, China does not have much recourse other than continuing to object and protest Indian behavior,” Zha said.
He added that the real test at the end of the day will be determined by the company’s actual performance in the specific blocks.
Dr. Harsh V. Pant with the Defence Studies Department at King’s College London has a different take. “There may not be many hydrocarbons there but Vietnam by its recent concessions is more committed to get India to stay,” he told Energy Tribune by phone. He added that since Vietnam gave India more concessions to stay in block 128, Hanoi and New Delhi view the development in “strategic terms.”
“India wants to project itself as a regional balancer and many regional states including Vietnam see a need for such a balance of China’s rise,” he said.
Dr. Keun-Wook Paik, a Senior Research Fellow of the Oxford Institute for Energy Studies, develops this theme even further. “There is a kind of invisible competition between China and India. The general verdict against China’s and India’s overseas gas expansion is that China was performing much better than India,” he told Energy Tribune.
He credited the success of China’s NOCs [National Oil Companies] to the government mandate given to them as larger and stronger than those of India. He added that Chinese entities have deeper pockets as well.
Paik also said that until recently there was no excuse for India to intervene in the South China Sea’s territorial disputes between China and ASEAN countries.
“The legitimate excuse however, will be provided once India is engaged in Vietnam’s offshore oil and gas exploration and development and a substantial oil and gas discovery is made,” he said.
Paik added that it would be difficult for China to blame India as there is a precedent made by Russian oil company Zarubezhneft. “Vietnam managed to attract Zarubezhneft for its offshore exploration and luckily made a discovery,” he said. “Encouraged by this success, Vietnam seems to play the same card to attract India’s NOCs for its offshore exploration. If Beijing issues a warning note on this move towards Vietnam, it will indirectly confirm that Beijing is taking India’s initiative suspiciously.”
He added that India’s initiative toward Vietnam’s offshore oil and gas development will strengthen Vietnam’s and ASEAN’s [Association of Southeast Asian Nations] position highly.
If so, ASEAN needs all the help it can get dealing with China. Many claim that ASEAN is weak, at least in efforts to counter a rising China. In its July meeting ASEAN failed to reach a consensus to present a united front over the recent standoff in the South China Sea between China and the Philippines.
Therefore, has India really bitten off more than it can chew by entering the South China Sea and provoking China’s displeasure? Experts state that India’s military is no match for China’s rapidly expanding military, particularly its navy, and that India also lacks the driving force and political will to match Chinese ambitions.
Pant questioned India’s ability to stay in the South China Sea for an extended period of time. “At this time, the Indian navy is still far behind the Chinese and so the question that many have asked is: Can India afford a conflict with China on what many in India consider a peripheral issue?”
Meanwhile, Vietnam continues pressing forward, not only trying to counter China in the Paracel Islands with its Indian partners, but also further south, actually Down Under. News broke on August 30 that Vietnamese-Australian defense talks were successful and lauded by both sides, especially in “peace keeping and training.”
This fits into Vietnam’s over all strategic planning. According to Zha, Vietnam is centering itself in the world by forming alliances with the US, Russia, Vietnam and “whoever else is considered important players in this geopolitical gamesmanship.” He added that up to the present there is a good element of success in Vietnam’s plans.
However economics may still rule at the end of the day. Zha pointed to the fact that trade between Vietnam and China is increasing and that “Vietnam is also pursuing a whole range of economic ties with China, the maritime boundary dispute notwithstanding.”
Tim Daiss
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