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Tensions rise as China offers blocks in waters offshore Vietnam

By Song Yen Ling in Singapore, with Dao Dang Toan in Hanoi; Edited by Mriganka Jaipuriyar

June 29, 2012 - China claims sovereignty over roughly 80% of the South China Sea. Vietnam is occupying more than 20 of the Spratly Islands and is viewed by its northern neighbor as one of its most determined rivals for the disputed waters and the oil and gas resources they are believed to hold. Naturally, relations between the two remain uneasy (see related map: Exploration & Production: South China Sea).

The relationship turned particularly sour on June 21 when Vietnam's National Assembly approved a maritime law claiming sovereignty and jurisdiction over the Paracel and Spratly islands in the South China Sea.

While Vietnam said the law was merely a continuation of a number of provisions in existing laws, China viewed it as a violation of its sovereignty.

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On the same day Beijing announced that it had elevated the administrative status of the Nansha (Spratly) and Xisha (Paracel) islands from a county to a prefectural-level district.

This was followed two days later by state company CNOOC offering nine offshore blocks, located in what Vietnam says is its exclusive economic zone, to international oil and gas companies for bidding.

Since then, the two sides have exchanged strong words and have reversed any progress they might have made last October when they signed an agreement aimed at resolving their maritime disputes.

Hanoi, "strongly protests and requests that China cease the offer for nine oil and gas blocks [which lie] within Vietnam's exclusive economic zone and continental shelf," foreign ministry spokesman Luong Thanh Nghi said June 26.

Nghi called CNOOC's offer "illegal" and said it "seriously violates Vietnam's sovereignty, jurisdictional rights [and] legitimate national interests."

Beijing, meanwhile, has maintained that CNOOC's block offer is normal business practice and complies with Chinese and international laws.

Chinese foreign ministry spokesman Hong Lei said China's position on dispute in the South China Sea remains unchanged and it will work towards a resolution through dialogue and consultation, including actively promoting joint development and cooperation.

Petrovietnam, partners to continue operations

State-run PetroVietnam has urged foreign companies not to bid for these offshore blocks.

"These blocks lie deeply on the continental shelf of Vietnam and overlap with Vietnam's blocks 128 to 132 and 145 to 156," PetroVietnam General Director Do Van Hau said at a press conference June 27, where the company also handed out a map clearly indicating the overlapping blocks.

The general director said oil companies that are currently operating in the area in cooperation with PetroVietnam include India's ONGC Videsh Limited (block 128), Russia's Gazprom (blocks 129-133), ExxonMobil (blocks 156-158), and Vietnam's PVEP (blocks 148, 149).

"PetroVietnam and its partners will continue their planned operations on these blocks and will cooperate with Vietnam's related authorities to ensure normal operations of the companies," Hau said.

"PetroVietnam welcomes CNOOC and other Chinese oil and gas companies to cooperate in projects in Vietnam’s exclusive economic zone and continental shelf," he added.

All these companies have received warnings from China at some point in time regarding their operations in the South China Sea.

Russian gas giant Gazprom was subtly admonished in April when it signed contracts for the offshore blocks.

The Chinese foreign ministry said at the time that Beijing hoped that companies from countries outside the region would respect and support the efforts to resolve the overlapping maritime claims through bilateral negotiations.

"Russian diplomats that I spoke to were not concerned at China’s public statements criticizing Gazprom for its new involvement in Vietnam’s oil industry," said Carl Thayer, an analyst on issues involving the South China Sea at the Australian Defence Force Academy, who was in St. Petersburg recently for a conference on security in Asia.

"China’s protest were for the record, designed to shore up its sovereignty claims," Thayer said.

China has also pressured ONGC Videsh and ExxonMobil to avoid conducting exploratory work in the area.

Gazprom and ONGC Videsh officials have not been available for comment.

“Sovereignty is a matter only governments can address. We do not provide details of our exploration programs,” said Patrick McGinn, ExxonMobil’s Houston-based spokesman for global upstream operations.

Next page: High risk, unlikely to draw bids

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