Malaysia, China Keep Low Profile on Conflicting Sea Claims
Exploration Off Borneo Example of an Untroubled Corner of the South China Sea
An international energy consortium's natural-gas discovery off Malaysia's coast is drawing attention to an area of the South China Sea that has remained relatively untroubled despite overlapping territorial claims that involve China.
There have been no public complaints from Beijing over the Monday announcement of the discovery around 144 kilometers, or 90 miles, off the coast of Malaysia's state of Sarawak—or over extensive Malaysian-sponsored oil-and-gas exploration and production there going back years, even though the area lies inside waters where China previously has asserted claims.
The lack of confrontation is in contrast with the jousting 1,000 kilometers to the north between China and Vietnam, where coast-guard and fishing vessels have faced off since early May over the deployment of a Chinese rig in an area both countries claim.
The China-Malaysia relationship is being maintained despite China's increasing assertiveness, including in waters claimed by Malaysia. Experts say this is due to a combination of the countries' greater distance from each other and strong economic ties.
"Malaysia and China have disputes in the South China Sea. But the two sides share broad consensus on appropriately handling the disputed issues," the Chinese Foreign Ministry said in a statement to The Wall Street Journal on Tuesday.
For its part, the Malaysian government is sticking with a policy of saying little either about China's military flexing or any dispute with its largest trading partner. The Malaysian government didn't respond to requests for comment on Tuesday.
Further east, sparring over rival claims by the Philippines and China is becoming increasingly heated, while in the East China Sea, Chinese and Japanese fighter planes and armed vessels frequently circle each other in asserting overlapping claims.
Some of the South China Sea's most productive oil and gas deposits are off the states of Sabah and Sarawak, on Malaysia's side of Borneo. The area is the origin of most of Malaysia's natural-gas production, according to the U.S. government Energy Information Administration.
At least nine oil-and-gas blocks are now under development and expected to start pumping within two years. Investors include Royal Dutch Shell RDSB.LN -1.16% PLC, U.S.-based Murphy Oil Corp. MUR +1.37% and ConocoPhillips, with some projects part of joint ventures with Malaysia's state-run Petroliam Nasional Bhd, or Petronas.
Murphy Oil said it had explored in the area since 1999, but didn't address any concern over Chinese claims in the area. ConocoPhillips didn't respond to a request for comment.
The latest gas discovery was made by Mubadala Petroleum, 55% owner of exploration block SK320 in which Petronas and Shell have stakes of 25% and 20% respectively. Mubadala declined to comment. Shell also has interests ranging from 20% to 85% in several exploration blocks in Sarawak and Sabah. It didn't immediately respond to questions of overlapping interests in these blocks.
Petronas, which has $35 billion earmarked for upstream projects including the South China Sea, didn't respond to questions on the location of its projects and possible Chinese claims.
China uses a "nine-dash line" map to roughly demarcate its claims over virtually all of the South China Sea but has never given the exact coordinates for the map.
The nine-dash line appears to go as close as 55 kilometers to the coast of Sarawak, said Dylan Mair, head of upstream research at consulting firm IHS. More than 400 exploration wells, hundreds more development wells and many active platforms overseen by Malaysia are further offshore than that, he said.
The 10-member Association of Southeast Asian Nations has made little progress on a code of conduct for conflict resolution in the South China Sea.
Individual nations, such as Vietnam and the Philippines, have sought a tougher collective response to Beijing. Malaysia and Brunei, whose claims also overlap with China's, have kept a lower profile. Meanwhile, Cambodia—a close ally of China—has sided with Beijing in previous Asean discussions on the disputes.
"Both Malaysia and Brunei have tended to play down tensions in the South China Sea, and unlike Vietnam and the Philippines, the dispute does not overshadow their relations with China," said Ian Storey, senior fellow at the Singapore-based Institute of Southeast Asian Studies.
China was Malaysia's largest trading partner for the fifth consecutive year in 2013, with two-way trade that year valued at $62 billion, according to data from Malaysia's Ministry of International Trade.
China and Malaysia have deep energy ties: Malaysia is the third-largest supplier of liquefied natural gas to China. And in April, state-owned China Petroleum & Chemical Corp., or Sinopec, agreed to join a Petronas-led project in Canada, known as Pacific Northwest LNG, as a minority partner.
However, China has been stepping up its military presence in Malaysia's corner of the South China Sea. In January, a Chinese naval flotilla conducted a patrol of the Paracel Islands, claimed by China and Vietnam, before proceeding to the James Shoal, a reef some 80 kilometers off Malaysia's coast in areas claimed by both China and Malaysia.
It then proceeded beyond waters claimed by Beijing to the Indian Ocean, where it conducted the first exercises by Chinese military vessels in waters south of Indonesia. In all, the ships spent 23 days at sea.
Also, according to IHS ship-tracking data, the Chinese research vessel Zhong Guo Hai Jian-23, which is currently off Vietnam, was sailing off Sarawak three months ago, after which it showed up near the disputed Mischief Reef, north of Palawan in the Philippines, where China has been conducting building work.
That has led to questions among experts whether the status quo in the southern part of the South China Sea is under pressure.
"Malaysia may have to recalibrate its South China Sea policy," Dr. Storey said. He added, "Perhaps sooner rather than later Malaysia may have to take a tougher line against Beijing."
