China Warns Some Oil Companies on Work With Vietnam, U.S. Says

By Jason Folkmanis

July 16 (Bloomberg) -- China told some international oil and gas companies to halt exploration in offshore areas that Vietnam considers part of its territory, an American government official told the U.S. Congress.

The U.S. is “concerned about tension between China and Vietnam, as both countries seek to tap potential oil and gas deposits that lie beneath the South China Sea,” said Scot Marciel, a deputy assistant secretary of state, in comments yesterday before a U.S. Senate subcommittee posted on the Web site of the Foreign Relations Committee.

Vietnam is among the claimants to all or part of the Spratly Islands in the South China Sea, along with Brunei, China, Malaysia, the Philippines and Taiwan, according to the Central Intelligence Agency. Chinese maps also show an international boundary symbol off the Vietnamese coast, the U.S. agency said, in a profile of China on its Web site.

Any Chinese moves to discourage new drilling in areas where Vietnam has awarded exploration rights may hamper Vietnamese efforts to reverse a recent decline in oil output. Vietnam is opening up new areas to bidding by foreign companies, as a production decline at its biggest oil field pushes the country behind Thailand on regional output tables.

“Starting in the summer of 2007, China told a number of U.S. and foreign oil and gas firms to stop exploration work with Vietnamese partners in the South China Sea or face unspecified consequences in their business dealings with China,” Marciel said, in prepared comments which didn’t name any companies.

In 2007, BP Plc abandoned planned exploration in an area known as Block 5-2 between the Spratlys and an existing BP- operated gas project in Vietnamese waters, because of competing ownership claims between China and Vietnam, according to the U.S. Energy Information Administration.

BP’s Portfolio
BP said in March it was in talks with Vietnam Oil & Gas Group and Vietnam’s government to withdraw the U.K. company’s stakes in Blocks 5-2 and 5-3 because projects in the area “do not fit within its current portfolio.” BP declined then to comment on whether it was influenced by territorial disputes.

“We have raised our concerns with China directly,” Marciel said. “Sovereignty disputes between nations should not be addressed by attempting to pressure companies that are not party to the dispute.”

The U.S. has recently established a “high-level policy dialogue” with Vietnam as part of a strategy of preventing tensions in the area from developing into a threat to American interests, Robert Scher, deputy U.S. assistant secretary of defense, said in testimony prepared for the Senate panel.

U.S. Navy
American naval ships have visited Vietnam regularly since 2003 when the USS Vandegrift arrived in Ho Chi Minh City. It was the first U.S. Navy vessel to dock in the country since the end of the Southeast Asian nation’s civil war in 1975. American and Vietnamese heads of state and top defense officials have also exchanged visits in recent years.

“As the U.S. withdraws from Iraq it has more time and energy to focus on Southeast Asia, and as it re-engages, tensions may rise,” said Mark Valencia, an international maritime policy analyst based in Hawaii and Malaysia who’s written a book about the Spratlys.

“I am not one of them, but there are people who think that China is trying to build up a claim to the entire South China Sea,” Valencia said, in a telephone interview today from Hawaii.

To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net