Market speculation is rife that American oil and gas giant ExxonMobil is poised to withdraw from the US$10 billion Blue Whale energy project covering Vietnam’s largest gas field in the South China Sea. This week, respected independent blogger Huy Duc claimed that ExxonMobil had informed the Vietnamese government on August 28 that it plans to sell its 64% stake in the Blue Whale project, known locally as Ca Voi Xanh, which is expected to start extracting gas by 2023. David Hutt specially for the Asia Times.
Days earlier, oil market analyst Tim Daiss wrote that the general consensus among Vietnamese energy professionals “is that Beijing could very well be preparing to challenge or at least apply pressure” to the Blue Whale project. The article was headlined, “Will Beijing Kick ExxonMobil Out Of The South China Sea?”
ExxonMobil has not commented publicly on the fast-building speculation. But if the US oil giant is indeed looking to cut and run from the Blue Whale project, questions will arise about whether it was a commercial decision or motivated by Chinese pressure.
But the American firm’s possible departure would mark the fourth contract in as many years canceled by a foreign energy firm exploring under a Hanoi-given concession in Vietnam’s claimed areas of the South China Sea.
China, which claims nearly 90% of the contested sea through its controversial nine-dash line map, has pressured Vietnam to stop exploring for oil and gas in cooperation with foreign firms in disputed maritime areas. Those contested claims have come to a confrontational head in recent weeks as Chinese and Vietnamese vessels face off over the energy-rich Vanguard Bank.
A Vietnamese-Russian joint venture, led by Moscow’s Rosneft, is exploring for oil in the area.
In 2017 and 2018 Hanoi canceled oil and gas exploration projects held with foreign firms, including Spain’s Repsol, because of Beijing’s pressure and reputed threats to resort to violence in the Spratly Islands.
Deploying its maritime militia and weaponized vessels into Vietnamese-claimed waters is just one way Beijing is trying to pressure Hanoi into a corner, analysts say.
As part of a Code of Conduct for the South China Sea under negotiation with the Association of Southeast Asian Nations (ASEAN), Beijing wants the bloc’s members to agree to a clause that economic activity in the maritime area “shall not be conducted in cooperation with companies from countries outside the region.”
As such, if ASEAN accedes to the code, Vietnamese firms will no longer be able to partner with Russian or American companies to explore for oil and gas in the sea. Vietnam assumes ASEAN’s rotational chairmanship next year and could aim to cut the clause from the code, some say.
Rex Tillerson, the former chief executive officer of ExxonMobil, served as US Secretary of State between February 2017 and March 2018. Yet if ExxonMobil plans to retreat from the Blue Whale field in response to Chinese pressure, US government officials are not acknowledging that they know anything about it.
On August 22, US State Department spokeswoman Morgan Ortagus specifically stated that “US companies are world leaders in the exploration and extraction of hydrocarbon resources, including offshore and in the South China Sea…. The United States therefore strongly opposes any efforts by China to threaten or coerce partner countries into withholding cooperation with non-Chinese firms, or otherwise harassing their cooperative activities,” she said in a public statement.
As the rumors fly fast and furious, a far less sensational explanation than Chinese pressure would be that ExxonMobil is having second thoughts about the commercial viability of the project, at a time it is cutting costs and disposing of assets worldwide.
ExxonMobil recently announced that it aims to divest some US$15 billion worth of assets. Last week, Reuters reported that it wants to recoup $4 billion by divesting from projects in Norway. In mid-August, it was reported that US oil giant will also sell its stakes in British North Sea projects.
There could be good commercial reasons for ExxonMobil to depart the Blue Whale project. Some analysts suggest that the gas field’s reserves are especially high in carbon dioxide, limiting the possible uses for its extracted fuel and making it less environmentally friendly.
The financial problems of its local state-run partner, PetroVietnam (PVN), could also be a factor. Given PVN’s depleted coffers, it would unlikely be able to purchase ExxonMobil’s share in the venture if the American energy giant pulled out.
There’s also the possibility that ExxonMobil does not plan to exit, but rather is using the threat to pressure the Vietnamese government to implement and alter policies and hasten approvals for key parts of the project.
The project’s status should become clearer when Nguyen Phu Trong, Vietnam’s president and Communist Party chief, travels to Washington for a state visit later this year, most likely in October. There are already suggestions that senior officials from PVN and its upstream arm, the PetroVietnam Exploration Production Corporation, will accompany Trong to the US.
“This sounds to me more like a commercial issue (by ExxonMobil) driven either from head office (sell assets) or from the regional office (get a better price for the gas) – not by political pressure from Beijing,” Bill Hayton, an associate fellow in the Asia-Pacific Program at Chatham House in London, tweeted on September 10.
Yet the geopolitical intrigue cannot be totally dismissed.
Carlyle Thayer, a Vietnam expert and emeritus professor at the University of New South Wales in Australia, predicted on August 17 that if Beijing doesn’t think “progress” is being made in harassing Vietnam’s oil exploration with Rosneft near the Vanguard Bank, “it could stage provocations in other oil blocks such as ExxonMobil’s Blue Whale that is adjacent to the nine-dash line.”
“China will not move to dramatically escalate tensions so much as to apply continual pressure on Hanoi, Manila and Kuala Lumpur to demonstrate that there is little these three countries can do to resist Chinese intrusions,” Thayer wrote last month, in reference to two other Southeast Asian rival claimants in the waters. “China seeks to demonstrate that no country can rely on the United States or the international community to come to their assistance,” he wrote.
Bennett Murray, Hanoi bureau chief for the Deutsche Presse-Agentur, wrote in August that for Vietnam “linking its petroleum industry to great power politics may be its best chance of hanging on to some of its drilling fields within the nine-dash line.”
He specifically noted the importance for Hanoi of maintaining ExxonMobil’s interest in the Blue Whale field, which he noted is “sandwiched precariously off the coast of Danang, between China’s proclaimed continental shelf boundary and one of the nine dashes.”
If, indeed, ExxonMobil is looking to cut and run from the multi-billion dollar project – even for financial, not geopolitical reasons – it will represent a blow to US-Vietnam relations at a crucial geo-strategic juncture. Now more than ever, Hanoi is looking for commitments from Washington that it will take its side in any armed confrontation with China in the contested sea.
Washington, however, is sending mixed signals. US-Vietnam relations have grown even stronger under US President Donald Trump, deepening ties built by his predecessor Barack Obama’s rapprochement with Hanoi. Trump has twice visited Vietnam and has seldom said anything critical about Southeast Asia’s worst human rights offender.
But the US leader is still apparently annoyed by Vietnam’s bulging trade surplus with the US, a friction point agitated by reports Hanoi is allowing trade war-sanctioned China-made goods to be re-labeled and exported as Vietnamese-made goods. In response, Trump referred to the nation in June as “almost the single worst abuser of everybody” in a press interview.
Still, Trump’s government has responded resolutely to China’s recent moves near the Vanguard Bank, with State Department spokeswoman Ortagus admonishing China for taking “a series of aggressive steps to interfere with [Vietnam’s] longstanding, well-established economic activities.”
Russia’s involvement at Vanguard Bank has complicated the picture. China’s intimidation near the feature was intended to pressure Vietnam to cancel its ongoing joint-exploration with Rosneft, the second-largest state-controlled company in Russia.
The Russian government owns a 50% stake, while the second and third-largest stakeholders are BP and Qatari QH Oil. Russian giant Gazprom and wholly state-owned Zarubezhneft are also involved in energy projects with Vietnam in its area of the South China Sea.
There are market rumors that ExxonMobil could seek to sell its shares in the Blue Whale project to Rosneft.
Russian President Vladimir Putin has been mainly agnostic about the South China Sea disputes, but this could change as Moscow’s energy interests also come under Beijing’s pressure in the maritime area.
“Where [Spain’s] Repsol, a private firm from a minor world power, held little geopolitical clout, Russia can be expected to play old-fashioned great-power politics to defend cash flows to the state,” wrote Murray. “Although Russia may not officially take Vietnam’s side in the dispute, its companies are the only ones currently producing at the country’s behest within the nine-dash line.”
Thayer, the Vietnam expert, says that when Chinese and Russian foreign ministers Wang Yi and Sergei Lavrov met in Bangkok for a regional summit in August, Yi asked that Rosneft stop its activities with Vietnam at the Vanguard Bank, a request that Lavrov reportedly declined diplomatically.