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Territorial tensions in offshore waters – global flashpoints in the quest for oil

29 Jul 2014 (Last Updated July 29th, 2014 18:30)

With dwindling oil and gas reserves growing more valuable every year, blurred boundaries are ripe for dispute. We profile territorial tensions over oil hot spots, from open aggression emerging in the South China Sea to long-simmering tensions in the Falklands and the Arctic. By Praveen Duddu and Satyabrata Kar.

Territorial tensions in offshore waters – global flashpoints in the quest for oil

Arctic Ocean

Arctic Ocean

Rapidly melting ice is opening up vast stretches of the Arctic, an area estimated to hold 30% of the world’s undiscovered gas and 13% of the world’s undiscovered oil, leading to contested territorial claims by countries including Canada, Russia, Norway, the US and Denmark.

The maritime territory delineation in the Arctic Ocean has so far remained unresolved with a hotchpotch of legal regimes dominated by the United Nations Convention on the Law of the Sea (UNCLOS), which is ratified by all arctic states except the US, and a number of smaller treaties between the arctic countries. Under UNCLOS, a state willing to claim territorial sovereignty beyond 200 nautical miles (nm) from its territorial-sea baselines is required to make a public declaration and submit geophysical and other specified information backing its claim to the United Nations Commission on the Limits of the Continental Shelf (CLCS) within ten years of entry into force of UNCLOS.

Arctic Territorial tensions peaked up after Russia submitted its claim for territorial expansion to the CLCS in December 2001, claiming 1.2 million km2 of Arctic territory including the seabed at the North Pole, which was contested by the other Arctic Powers. After being asked by the UN Commission to revise its claim, Russia, using two dual-manned submarines, placed a titanium Russian Federation flag on the seabed 4km below the North Pole to proclaim its control over the disputed arctic territory. Russia, subsequently, also ordered strategic bomber flights over the Arctic Ocean. Following Russia’s action, North American Treaty Organisation (NATO) countries including the US, Canada, Norway, Iceland and Denmark/Greenland were all reported to have expanded their military presence in the Arctic region.

While Russia has remained adamant over its rights to territory in the Arctic Ocean, Iceland, Denmark and Canada all made CLCS submissions between 2009 and 2013 which potentially involve overlapping territorial claims in the Arctic Ocean. These add to other longstanding disagreements in the region including tension between Canada and Denmark over the rights to Hans Island, the dispute between US and Canada regarding the Beaufort Sea, competing claims over the Lomonosov Ridge by Russia, Denmark and Canada, and the dispute over the Lincoln Sea between Canada and Denmark. Meanwhile Russia and Norway ended a 40-year dispute over a 175,000km2 oil rich area in Barents Sea in September 2010, signing an Arctic border treaty to split the area into two equal sized regions, opening up them up for oil companies to explore.

South China Sea

China’s aggressive territorial claims in the South China Sea, an area of the Pacific Ocean which holds potentially huge oil and gas reserves, has provoked outrage from Malaysia, Vietnam, the Philippines and other bordering countries. China lays claim to more than three-quarters of the South China Sea, and has been alleged to have commenced drilling operations in waters claimed by other countries, a move which violates the UNCLOS treaty which allows countries the right to exploit marine resources up to 200 nautical miles out from their coastlines.

China’s claim over three especially oil and gas rich areas in the South China Sea has led to prolonged disputes. Its control over Paracel Islands has created maritime territory dispute with Taiwan and Vietnam. Scarborough Shoal, a triangle-shaped chain of reefs and rocks, covering 150km2, has also been the scene of dispute resulting in a standoff between China and Philippines in 2012 after the Philippine Navy spotted eight mainland Chinese fishing vessels in this region. Spratly Islands is another disputed area of the sea housing potential undiscovered oil and gas reserves which is claimed by China, Brunei, Malaysia, Vietnam, Philippines, and Taiwan.

The biggest recent territorial dispute in the South China Sea is the one between China and Vietnam. Tension peaked in May 2014 after the Chinese Offshore Oil Corporation sent its HD-981 deepwater drilling rig into waters around Paracel Islands immediately west of two offshore blocks where the United States’ ExxonMobil, in partnership with the state firm PetroVietnam, had made significant oil and gas discoveries.

Vietnam, in turn, attempted to stop the rig using 29 Vietnamese vessels which were confronted by 80 Chinese ships, including seven warships. Although the oil rig was withdrawn by July 2014, tension prevails as China continues to aggressively assert its sovereignty over major parts of the sea.

East China Sea

East China Sea

A group of eight uninhabited islands and rocks occupying 7km2 in the East China Sea, known as the Senkaku islands by Japan and the Diaoyu islands in China have been the subject of bitter territorial dispute for several years. The islands located north-east of Taiwan, east of the Chinese mainland and south-west of Japan’s southern-most prefecture, Okinawa, are currently controlled by Japan, who in 2012 decided to nationalise these Islands by buying them from Japanese private owner.

This move sparked public and diplomatic protests in China with protesters taking to the streets in several cities. Since then, Chinese ships have often navigated in and out of the waters around the islands regularly asserting China’s territorial claim over the area.

The creation of a new air-defence identification zone covering the islands was also announced by China in November 2013 to protect the country’s interest over the offshore area. Reacting to the move US president Obama’s assured Japan of US backing in the island dispute with China, while the Chinese foreign ministry reiterated that China had "indisputable sovereignty" over the islands and warned "the so-called Japan-US alliance" not to encroach on China’s territorial rights.

China is credited with discovering the islands which it controlled from the 14th century until they were taken under Japanese control in 1895 following the Sino-Japanese war. The US administered the islands from 1945 after Japan surrendered them the end of World War II. The islands were returned to Japanese control in 1972, under the Okinawa Reversion Agreement between the United States and Japan.

The Gulf of Thailand

Thailand and Cambodia have an overlapping claims area (OCA) extending more than 27,000km2 in the Gulf of Thailand. The OCA, believed to be the most attractive undeveloped oil and gas exploration area in all of Asia, is yet to be developed due to the dispute which can be traced back to 1907.

A Memorandum of Understanding (MOU) to settle the dispute through an agreed mutual framework was signed by both countries in 2001, but Thailand cancelled it in 2009. In a rush to proclaim their control over the OCA, both Thailand and Cambodia have already divided the offshore area into different blocks and awarded conditional exploration and production licenses to a number of oil and gas companies. The development of these blocks, however, remains uncertain as there has been no progress to resolve the dispute in the last few years.

Chevron, British Gas, Mitsui, Idenistsu and PTTEP, which were awarded the conditional licences by Thailand, and Idemitsu, ConocoPhillips and Total, which were awarded conditional licences by Cambodia to explore and commence production from the offshore blocks in the disputed area, are all waiting for the settlement of the territorial dispute before they commence work.

Greater Sunrise Gas Field

Caribbean Sea

Territorial tensions in the Caribbean Sea, involving Nicaragua, Colombia and Costa Rica, have flared up during recent years with Nicaragua and Colombia granting oil exploration licences in areas claimed by others, followed by both sides making regular claims to the International Court of Justice (ICJ) to determine their maritime boundary.

The most recent tension in the Caribbean arose from Nicaragua’s CLCS submission in June 2013 claiming the outer limits of their continental shelf beyond 200 nautical miles from its Caribbean coastline. This was soon followed by the decision in August 2013 to offer oil blocks for exploration to the US-based Noble Energy in the waters claimed by both Colombian and Costa Rica.

The Costa Rican Government that alleges the oil blocks being offered by Nicaragua covers about 15,000km2 of its Caribbean territory, announced in 2014 that they would approach the ICJ to delineate its maritime boundary with Nicaragua.

Earlier in 2010, the Nicaraguan Government accused Colombia of granting oil concessions in Caribbean territories that did not belong to it and asked the ICJ to settle the border dispute. The ICJ ruling in November 2012, however, granted the disputed San Andres archipelago comprised of three islands and several uninhabited islets to Colombia, but redrew the maritime border allowing Nicaragua access to the potentially oil and gas rich Caribbean seabed around the archipelago. Colombia rejected the ruling and claimed new international borders can only be fixed by bilateral accords.

Timor Gap

The Timor Gap, an oil and gas rich area of ocean forming part of the Australia – East Timor maritime border, has raised controversy after the Timor-Leste Government acted against Australia in the Permanent Court of Arbitration in 2013 contesting the latest treaty signed between two countries in 2006 which only set forth a revenue sharing arrangement without delineating their maritime boundaries.

The origin of the Timor Gap dispute traces back to 1972 when Australia and Indonesia negotiated their sea border. The Timor gap is part of the line that could not be defined as Portugal, who governed East Timor, did not enter into negotiations. After East Timor came under Indonesian control, Australia and Indonesia negotiated the Timor Gap Treaty in 1989 which provided for the joint exploitation of petroleum resources in a part of the Timor Sea seabed which is claimed by both countries.

In 2002, the year East Timor became independent, a new treaty called Timor Sea Treaty was negotiated between East Timor and Australia which provided for the sharing of the proceeds of petroleum found in the Joint Petroleum Development Area (JPDA), an agreed area of seabed, by which East Timor would get 90% and Australia 10% of the revenue derived from the area. The agreement, however, decided that around 80% of the Greater Sunrise field, estimated to contain 5.1 trillion cubic feet of liquefied natural gas (LNG) and 226 million barrels of condensate, lie in Australian jurisdiction and only 20% in the JPDA. This led to the Timor- Leste Government expressing dissatisfaction over the fact that it would get only 18% revenue from the Greater Sunrise field.

A treaty negotiated in 2006 on Certain Maritime Arrangements in the Timor Sea (CMATS) provided for the sharing of upstream petroleum revenues from the Greater Sunrise field between the two countries on a 50:50 basis. Timor-Leste now rejects the validity of previous treaties claiming that it was forced to agree to the revenue sharing agreement. It demands a permanent delineation of its maritime border as it strongly believes under the international Law of the Sea, that the entire Greater Sunrise field will fall under its territorial jurisdiction.

At present the Greater Sunrise field, to be developed by a joint venture led by Woodside Petroleum, remains undeveloped due to a disagreement between the developers and Timor-Leste over how the gas field should be developed. The developers prefer gas processing on floating platform in the sea, whereas East Timor insists on a pipeline connecting to its southern coast for onshore processing.

Falkland Islands

Caspian Sea

The Caspian Sea, the world’s biggest landlocked body of water, has been a subject of intense territorial disputes since the USSR disintegration in 1989. Since being under the exclusive control of the USSR and Iran the inland sea, which is believed to hold between 17 and 33 billion barrels of oil and 325 trillion cubic feet of natural gas, is now subjected to contested territorial claims by five countries, Russia, Azerbaijan, Iran, Kazakhstan and Turkmenistan.

Overlapping territorial claims have stalled a number of petroleum resource development projects in the sea. The development of the oil and gas rich Alov-Sharg-Araz initiated by Azerbaijan, for instance, was stopped after British Petroleum’s (BP) survey vessel was threatened by Iranian warship and fighter planes, forcing the company to cease its contractual obligations for oil drilling in the area in July 2001.

According to a WikiLeaks cable release, Iran allegedly sent an oil rig toward Azerbaijan’s territorial waters in the Caspian Sea in 2009.

In another instance, the Serdar filed, known as the Kyapaz field in Azerbaijan after it was discovered in 1959 by Azerbaijani geologists, has not been developed so far as both Azerbaijan and Turkmenistan continue to make aggressive territorial claim over the location.

Territorial tension over the Caspian Sea can be expected to aggravate further until maritime boundaries of the five bordering countries are delineated. However, in a conference held in Moscow in April 2014, to discuss the preparations for the 4th Caspian Summit scheduled for September 2014 in Astrakhan, Russia, the foreign ministers of five Caspian countries were said to have reached a significant rapprochement on the legal status of the Caspian Sea concerning the delimitation of maritime territories.

The Falklands

Antagonism between Britain and Argentina has intensified due to the presence of oil-rich zones in the Falkland Islands, which are believed to contain up to 8.3 billion barrels of offshore oil reserves. Conflict between the two nations over the sovereignty of the Falkland Islands in the south-west Atlantic Ocean turned bitter when the two nations fought a brief war in 1982. Britain first claimed the islands in 1765 whereas Argentina claims that it inherited the islands from Spain, which had taken over the settlement from France in 1767. Argentina calls the inherited islands Las Malvinas. Britain withdrew its settlement in 1774 on economic grounds, but continues to claim sovereignty.

While tensions continued off and on in the 20th Century, tempers flared in 2009 when the UK rejected Argentina’s request for talks on the future sovereignty of the islands. The UK also turned down a law passed by the Argentine parliament that claimed the Falklands, South Georgia and the Sandwich Islands. The islanders also passed a referendum in March 2013 voting largely (more than 99%) in favour of remaining in British territory. The UK has been firm on not initiating any talks with Argentina despite UN intervention on the matter.

The result of the tension has been that oil and gas companies have stepped back from initiating any exploration and development activities. Sea Lion is the only oil field being significantly explored at the Islands at present after drilling by Desire Petroleum, a British company, stirred tensions between the two governments in early 2010. Other companies actively exploring the region include Borders & Southern and a partnership between local company Falkland Oil and Gas (FOGL), Edison and Noble Energy.

NRI Energy Technology