2 July 2022

Philippines-China energy sharing dead in the water


MANILA – In perhaps the clearest sign yet of outgoing Philippine President Rodrigo Duterte’s fruitless strategic lean toward China, the outgoing leader’s chief diplomat has announced bilateral energy exploration talks in the South China Sea have collapsed.

“The President had spoken. I carried out his instructions to the letter: oil and gas discussions are terminated completely. Nothing is pending; everything is over,” Foreign Affairs Secretary Teodoro Locsin Jr. said in a major speech last week.

“We had both tried to go as far as we could – without renouncing China’s aspiration on his part; and constitutional limitations on my part. I shut down the shop completely,” the diplomatic chief added, warning of a “constitutional crisis” at home should Manila press ahead with resource-sharing with China within Philippine-claimed waters.

The strongly-worded speech marked the culmination of a years-long build up in strategic frustration between the two neighbors. On its part, the Philippines has been dismayed with Beijing’s non-fulfillment of an avowed US$24 billion worth of big-ticket investment pledges.

Manila has also been peeved by Chinese militia vessel harassment of Filipino boats in the South China Sea, including during the Reed Bank (2019) and Whitsun Reef incidents (2021).

China, despite cultivating warm and cordial ties with Duterte, has failed to secure a joint development agreement (JDA) with the Philippines in the South China Sea, which could have served as a blueprint for similar agreements with other Association of Southeast Asian Nations (ASEAN) members.

With both sides failing to secure any major breakthrough in a period of warm relations, incoming President Ferdinand “Bongbong” Marcos Jr may struggle to replicate his predecessor’s strategic subservience towards Beijing.

Strategic rollercoaster

Not long ago, Philippine-China relations were among the most toxic anywhere in the world. The late Filipino President Benigno Aquino III took China to international arbitration over escalating disputes in the South China Sea while openly welcoming expanded defense cooperation with traditional allies including the United States, Australia and Japan.

After a months-long naval standoff in 2012 that saw China occupy the Philippine-claimed Scarborough Shoal, the former Filipino leader even contemplated the ‘Nicaragua option’, referring to the Central American nation’s efforts to force the United States to abide by an international ruling through mobilization of support at the United Nations General Assembly.

However, the South China Sea arbitral tribunal ruling in Manila’s favor over Beijing was handed down after Aquino left office. And his successor Duterte had a radically divergent position on the issue, openly preferring a “soft landing” in the South China Sea by effectively “set[ting] aside” the Philippines’ landmark arbitration award at The Hague against China.

Chinese President Xi Jinping shows the way to Philippine President Rodrigo Duterte in a file photo. Photo: AFP

Instead of seeking international support to pressure China to abide by the ruling under the aegis of the United Nations Convention on the Law of the Sea (UNCLOS), Duterte instead called on external powers to keep out of the region since it’s best that maritime disputes are “left untouched”.

In exchange, Duterte sought large-scale infrastructure investments from Beijing including under its Belt and Road Initiative. Believing that smaller nations can enjoy China’s “mercy” if they remain “meek” and “humble”, the Filipino leader expressed his openness to “co-ownership” of disputed energy resources in the South China Sea.

“If we can get something there with no hassle at all, why not?” he explained in his second year in office, then openly supporting joint exploration agreement with China.

According to the United States Geological Survey (USGS), the Reed Bank area, which is claimed by both China and the Philippines, holds “anywhere between 0.8 and 5.4 billion barrels of oil and between 7.6 and 55.1 trillion cubic feet (tcf) of natural gas in undiscovered resources.”

The whole South China Sea basin, meanwhile, likely holds 11 billion barrels of oil and 190 tcf of natural gas.

In recent decades, the Philippines had to repeatedly suspend energy exploration activities in the area in tandem with local and international companies due to rising tensions with China.

Under international law, particularly the UNCLOS, resource-sharing is favored as a potential solution to overlapping maritime claims.

Under a Joint Development Agreement (JDA), according to an authoritative definition, competing states “share jointly in agreed proportions by inter-state co-operation and national measures the offshore oil and gas in a designated zone of the seabed and subsoil of the continental shelf to which both or either of the participating states are entitled in international law.”

As the highest form of resource-sharing, a JDA allows competing parties to press ahead with “[joint] exploration for and exploitation of certain deposits, fields or accumulations of nonliving resources which either extend across a boundary or lie in an area of overlapping claims.”

Along these lines, the Philippines and China announced a preliminary agreement to pursue resource-sharing in the South China Sea in 2018. Later that year, the Duterte administration announced the formation of a technical working group (TWG) to examine the legality and economics of resource-sharing in certain areas of the South China Sea.

The Malampaya Plant was seen as a potential model for Philippine-China resource-sharing in the South China Sea. Image: Twitter

With the Malampaya Plant, a major offshore natural gas extraction facility in the Philippines, soon running out of resources, then-Philippine Foreign Secretary Alan Cayetano emphasized the urgency of the matter by arguing:

“[I]f we work it out with China and we get billions of dollars worth of oil there, and the deal is better or as good as Malampaya – is that good or bad for the country? I think it’s good. I’d rather have two or three Malampayas rather than one.”

Duterte publicly backed the move by arguing any resource-sharing deal with China is a mutually-beneficial deal since, “[w]hen they [China] start to excavate the gas and oil [in the South China Sea], I tell you it’s going to be just like a joint venture… it will be fair.”

All fall down

Soon, however, it became clear that any resource-sharing deal would face fierce resistance in the Philippines, including among top-level officials who feared a political and legal crisis.

After all, China’s expansive claims in the South China Sea are inconsistent with both modern international law as well as the Philippines’ sovereign rights within its Exclusive Economic Zone (EEZ).

Both the 1987 Philippine Constitution as well as the 2016 arbitration award ruling at The Hague make it clear that China does not have sovereign rights over energy and fishery resources within Philippine waters.

So when Chinese President Xi Jinping’s visited Manila in late 2018, he failed to secure even a preliminary resource-sharing agreement with the Philippines.

Almost exactly two years later, the Philippines upped the ante when Energy Secretary Alfonso Cusi announced that the Philippines would be pressing ahead with unilateral exploration of energy resources within several offshore blocks, one of which, the Reed Bank, falls within China-claimed areas.

“The lifting of the suspension places the service contractors under a legal obligation to put capital into the contract areas and hire Filipino engineers and technical workers,” the Philippine energy secretary said, calling on domestic and international investors to resume energy exploration activities in the disputed areas.

China’s foreign ministry spokesman Zhao Lijian immediately responded by calling on the Philippines to reconsider its decision so that “the two sides will meet each other halfway, promote joint development and continue to make positive progress.”

Notwithstanding the constitutionality questions, the Duterte administration had already begun to sour on its relations with China. On one hand, China hardly delivered even a single big-ticket infrastructure investment project in the Philippines.

As Benjamin Diokno, a former budget secretary and the outgoing Philippine central bank governor, recently admitted: “There were a lot of promises [by China] but not much was delivered [in the end].”

Moreover, China expanded its naval and paramilitary deployments across the South China Sea, thus triggering the Reed Bank incident (2019), where a suspected Chinese militia vessel sank a Filipino fishing boat, and the 2021 Whitsun Reef incident (2021), when an armada of Chinese paramilitary forces swarmed Philippine-claimed islands in the Spratlys.

Those incidents helped to fuel a nationalistic backlash against China. Authoritative surveys show that a vast majority of Filipinos want their government to take a tougher stance in the South China Sea. In recent years, China’s net trust rating in the Philippines has reached as low as -33%, according to a Social Weather Stations pollster survey.

Now, even Duterte has publicly criticized China in his twilight months in office. During the China-ASEAN Summit last year, the Filipino president announced how he “abhors” China’s harassment of Filipino vessels in the South China Sea, warning his counterparts in Beijing “[t]his does not speak well of the relations between our nations and our partnership.”

New Philippine leader Ferdinand ‘Bongbong’ Marcos is big on sovereignty in the South China Sea. Photo: Twitter / Rappler

With Duterte having little to show for his years-long lean towards China, incoming President Marcos Jr has chosen to strike, at least initially, a more assertive tone to please his domestic audience.

“Our sovereignty is sacred and we will not compromise it in any way, we are a sovereign nation with a functioning government… there’s no room for negotiation there… it is sacred and inviolable, so that is my approach to sovereignty,” Marcos said in his first major press conference following his election victory last month, even as he welcomed mutually-beneficial economic relations with China.

“[W]e will not allow a single square, and maybe make it even more smaller, [a] single square millimeter of our maritime coastal and up to 200-kilometer rights to be trampled upon,” he said, referring to the Philippines’ EEZ in the South China Sea.

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