Could tensions in the South China Sea affect the SE Asian oil and gas sector?
Will disputes over sovereignty of islands, reefs and waters in the South China Sea have an impact on the oil and gas industry in SE Asia?
Tensions in the South China Sea have been rising over recent weeks as China and Vietnam remain locked in a battle of wills over who owns the waters around the Paracel Islands off the coast of Vietnam. Neither side is expected to back down any time soon.
It's not the first time that such disputes have arisen. The South China Sea is dotted with islands, reefs, shoals and waters which China, Vietnam, the Philippines, Malaysia, Indonesia and Brunei have all argued over for years, even centuries. Many of these disputes are ongoing.
Even Singapore, which has remained neutral in this latest spat, has fought with Malaysia over sovereignty of a small island known as White Rock, or Batu Puteh in Malay, which is located at the point where the Singapore Straits meets the South China Sea.
So why is this particular body of water the source of so much tension? And what impact could territory disputes such as the row between China and Vietnam have on the Southeast Asian oil and gas industry, in which Singapore and Malaysia are big players?
Rich oil and gas reserves
Recent rows over sovereignty in the South China Sea are not just about expanding water territories. They are centred on resources, and there are two resources that can cause conflict among neighbouring nations like no others - oil and gas.
Of course, the area is home to a wealth of fisheries and military bases, and it is also an important route for trade. But its oil and gas reserves are well documented, and by claiming rights to certain islands and waters, Southeast Asian nations also claim the right to exploit the resources that can be found there and to use them to further their economic expansion.
According to the World Bank, there are proven oil reserves of at least seven billion barrels in the South China Sea, as well as 900 trillion cubic feet of natural gas, so it's no wonder Southeast Asian countries are clamouring to take advantage of it.
For China, these reserves provide energy security for its fast-growing economy and help it reduce its dependence on the Middle East and Africa, while for smaller nations such as Malaysia, the Philippines and Vietnam they represent an important economic opportunity.
These waters also act as one of the world's busiest international sea lanes, with half of global oil tanker shipments passing through them. The South China Sea sees three times more tanker traffic than the Suez Canal and more than five times that of the Panama Canal.
The China-Vietnam dispute
The dispute began at the start of May when a state-owned Chinese oil company set up a $1 billion oil rig in an area close to the contested Paracel Islands. China and Vietnam both views these islands and the surrounding waters as their territory, while Brunei, Malaysia and Taiwan also have competing claims. Primarily, however, it is China and Vietnam that are the main parties in the row.
The construction of the rig has caused clashes at sea between Vietnamese and Chinese ships, with one side accusing the other of intentionally ramming parts of their fleet. The Vietnamese claim Chinese vessels attacked them with water cannons, while the Chinese have accused Vietnamese divers of dropping obstacles such as fishing nets in the waters to hamper their operations on the rig.
But it didn't stop there. The row has also caused trouble on land, sparking anti-China riots in Vietnam in which five Chinese nationals were killed and hundreds more injured. Factories owned by Chinese and other foreign companies were looted and set on fire.
The US had waded in and its secretary of state has called for China and other Southeast Asian nations to get together for dialogue, fearing a possible conflict further down the line. G7 leaders have also expressed concern over a possible escalation of the tensions and have appealed to the countries involved to pursue their territorial claims "in accordance with international law".
Meanwhile, Southeast Asian states have been calling on China to conclude a Code of Conduct that will govern naval actions in the South China Sea, but China has been stalling.
Officials in the Philippines have said that China's "expansion agenda" may threaten security and stability in the region, and they have called on all states claiming rights to the disputed territory to stop any construction activities that may cause tensions to escalate
What is emerging is a public relations battle, with both China and Vietnam seeking to win international support for their claims to the Paracel Islands and other nations using the dispute to reassert their own sovereignty claims elsewhere in the region.
How might it affect the oil and gas industry in SE Asia?
Oil and gas are extremely valuable commodities in Southeast Asia, and countries in the area rely heavily on them for economic prosperity. Tensions in the South China Sea could therefore have a big impact on the oil and gas sector in the region if they are allowed to escalate.
Some commentators have warned that recent territorial disputes could reduce petroleum supply in the region and affect the global petroleum trade by disrupting the supply of oil and gas from the Middle East to East Asia through the South China Sea.
As mentioned, these waters are an increasingly important international trade route, particularly for the oil and gas sector. Not only do tankers carrying crude oil and liquefied natural gas pass through in their droves, but the sea is also an important route for processed petroleum shipped from refineries in Singapore and Malacca to China, Japan and other Southeast Asian nations.
Whether the disputes will threaten the passage of these shipments, however, remains to be seen. Jayenda Krishna, a Singapore-based analyst at Drewry Maritime Services, told the AFP news agency that he does not believe this will be the case.
"It's not in China's interests, and it's not in the interests of Japan, South Korea or Taiwan, to have some sort of blockade or disruption," he explained. "I'm not worried. I don't think it will happen."
Shivaji Das, a Singapore-based senior vice president at Frost and Sullivan, expressed a similar view, noting that all of the countries involved have an "immense stake" in ensuring that trade routes remain open. He insisted that only an all-out war would disrupt oil and gas supplies in this way, with threat of interruption coming more from piracy in the South China Sea than from territorial disputes.
But what about oil prices? Could the sovereignty rows affect the global oil markets? Some observers suggest they could, since conflicts and tensions in oil-rich regions do tend to translate into higher prices, particularly where there is a high level of uncertainty.
Oil prices have been on the up lately, but according to Victor Shun, the Singapore-based vice president of IHS Energy Insight, this trend has nothing to do with the South China Sea rows. Instead, it is the fighting in Iraq that is driving the increases.
One possible consequence of the tensions, however, is increased risk for the oil and gas companies operating in the region, which could result in higher insurance costs and even reduced margins should the disputes turn into conflicts.
Could there be a collaborative solution?
One solution to the territorial disputes in the South China Sea could be for claimant nations to work together to exploit the rich oil and gas reserves there, rather than battling over individual rights.
It's a suggestion that's been made by the Malaysian prime minister Najib Razak, who believes that taking a collaborative approach could help to avoid potential conflict in the region and prevent "extra-regional states" from becoming involved in the rows.
"Instead of passing on choppy waters to the next generation, we should endeavour to leave them a calmer sea," he stated. "We should seek the common ground needed for an amicable understanding among the claimants."
His calls echo those already made by China, which has been pushing for joint development in disputed waters, and indeed it would not be the unusual for Southeast Asian states to cooperate in their oil and gas exploration efforts.
Malaysia, for example, shares a commercial arrangement area in the Malay Basin with Vietnam, and four years ago the country came to an agreement with Brunei to jointly develop areas close to Borneo.
Vietnam and the Philippines have rejected this suggestion, however, with the latter in favour of international arbitration to settle the arguments over who owns which territory instead.
But the worry is that lengthy negotiations may end up stalling efforts by all nations involved to develop the region and exploit the resources it holds, which is essentially what all parties want to do.
"What I'm concerned about is all this debate is leading nowhere in terms of establishing effective regimes for managing the South China Sea and its resources," Sam Bateman, a senior fellow at the Maritime Security Program at Nanyang Technological University in Singapore, told CNN.
"It's taking us away from the effective cooperation that's necessary because the reality is that I don't think the sovereignty claims are ever going to be settled in the foreseeable future."
If collaboration on oil and gas exploration does take place, it could change the shape of the Southeast Asian oil and gas industry considerably. However, in recent talks between China and Vietnam, the former accused the latter of hyping up the dispute, which suggests that relationships between these two nations, if not others in the region, could remain rocky for some time yet.
Indeed, in an area that has been dubbed the Second Persian Gulf by the Chinese media, and where claims to certain territories have been hotly contested for centuries, further disputes could well emerge.