Asia Times Online
Southeast Asia
Jul 30, 2008
By Andrew Symon
SINGAPORE - A face-off between troops from Thailand and Cambodia over contested territory immediately surrounding an ancient temple on their mutual border threatens to delay even longer the resolution of a more economically significant border dispute between the two sides.
Tension over the temple complex, known in Thailand as Preah Vihear, escalated this month when it was listed as a United Nations Educational, Scientific and Cultural Organization national heritage site.
To the south, a 27,000 square kilometer area in the northern Gulf of Thailand known as the Overlapping Claims Area (OCA) and potentially rich in fossil fuel reserves has long been contested by the two countries. Moves to resolve the problem now risk becoming unraveled in the deteriorating political climate at a time both countries' economies desperately need new domestic sources of fuel.
Issues related to national prestige and contested histories have long prevented any binding resolution to the maritime dispute and energy analysts and executives worry the recent temple row could complicate dealings over the OCA, where multinational energy companies have been granted overlapping concessions. The economic stakes surrounding the competing claims have grown as global oil prices have surged.
Thailand is proportionally one of Asia's largest oil importers, with the bill for oil imports accounting for 12% of its gross domestic product (GDP), and it now faces a growing gap between indigenous fuel supplies and surging demand for power generation. Cost-push inflation, driven by rising global oil prices, is starting to weigh on the country's economic growth, which is expected to slow dramatically over the next year.
For underdeveloped Cambodia, revenue from petroleum production would be enormously beneficial to its economy, while gas supplies could help to reduce its current over-reliance on expensive diesel and oil for power generation. High global oil prices are also taking an inflationary toll on Cambodia's recent strong growth, with headline inflation up to 18.7% in January, the last time the government released official figures.
Previous speculation that Cambodia might be on the verge of an oil-and-gas bonanza, related to a find (outside the disputed area)made by US energy giant Chevron and announced in January 2005, has been tempered by the company's reluctance to provide hard estimates or to commit to a production start-up date. Chevron has said it is "working hard to find a solution to develop the complex reservoir" that is "scattered over small dispersed fields" rather than "one core area".
Companies that have explored other offshore Cambodian blocks have yet to report positive results, leading many geologists to believe that the OCA's concentrated resources are the maritime area's main prize.
One Singapore-based international lawyer working with petroleum companies in the region told Asia Times Online that "negotiating joint development areas is a politically sensitive activity at the best of times. Governments run the risk of being seen by some as compromising sovereignty and giving away the nation's riches."
"In light of the recent developments around [Preah Vihear] and the tensions [that the temple dispute] has caused between Thailand and Cambodia and domestically, it might be a difficult time for any progress to be made on the OCA."
The two countries share a conflicted past. Despite their shared cultural links through Theravada Buddhism, Cambodia has long viewed Thailand as a threat, dating to when marauding Siamese troops destroyed the Angkor kingdom in the 14th century and in later times when it took control of large swathes of what is currently west and north-western Cambodia.
The unresolved OCA dispute, as with the row over Preah Vihear, an 11th-century Hindu temple, has its origins in borders set over a century ago between Thailand and France, then the colonial ruler of Cambodia, Laos and Vietnam. Thai objections to those boundaries, including claims in the northern areas of the OCA drawn perpendicular to each other, have prevented any exploration in the contested waters since 1974.
Unexplored acreage
Nonetheless, geologists with knowledge of the field say that there are good prospects of it holding both oil and gas, with one describing it as "the best unexplored acreage left in Southeast Asia". The area represents a continuation of geological structures in adjacent Thai waters that have produced large volumes of oil and gas for several years.
The OCA lies in relatively shallow waters less than 80 meters deep, with oil and gas deposits believed to be mainly in the north, while the south is thought to be more gas and condensate prone. Broad estimates of the energy prize from various sources in the petroleum industry have ranged from anywhere between 8 trillion to 15 trillion cubic feet of gas and 400 million to 1,000 million barrels of liquid fuels, including oil and condensates.
These figures are highly speculative in the absence of detailed explorations that neither Thailand nor Cambodia has allowed. Efforts to resolve the dispute made some headway in 2001 when the two sides signed a memorandum of understanding agreeing that a joint development regime could be established over the southern two-thirds of the OCA, while the northern third could be developed once the maritime border was delineated.
Subsequent Thai demands that the northern OCA border must be agreed on before any joint development activities take place in the south have stalled negotiations. Thai negotiators have proposed that the disputed area be divided into three strips running north to south with the revenue from the central area shared equally. The share from the outer areas would be weighted in favor of the country adjacent to that area.
Because the most fuel-rich areas are believed to be in the OCA's western region, such an arrangement would favor Thailand. For its part, Cambodia has proposed dividing the area vertically down the middle and then six times horizontally to create 14 blocks from which revenues would be shared equally. Along those lines, each country would be responsible for managing seven of the 14 blocks, which would be allocated checkerboard style.
Thailand has refused to accept equal division and has openly argued for a greater share of the OCA's fiscal benefits. According to a study by United Kingdom-based petroleum industry consultants Wood MacKenzie, 85% of the OCA's overall economic benefits would likely accrue to Thailand under a joint production agreement, based on the assumption gas would flow into that country's existing comprehensive pipeline system in the Gulf.
Over the years, both sides have awarded exploration blocks over the same areas to multinational energy companies, including ConocoPhillips and Chevron, both US-based, British Gas, Australia's BHP Billiton and Japan's Idemitsu, Inpex and Moeco.
None of these companies has relinquished those overlapping claims, pointing to the potential strength of the OCA's production prospects, analysts say.
Chevron holds "a working interest in several blocks in the Thailand-Cambodia Overlapping Claim Area", according to a notice on the company's website dated May this year. "As of early 2008, these areas were inactive pending resolution of border issues between the two countries," the notice said.
The ultimate legal position of companies allocated blocks is unclear, with the Thais making the majority of their awards under a royalty tax system in the late 1970s and Cambodia its competing concessions under a production-sharing system in the late 1990s.
Officials from both sides have met several times a year under the terms of the 2001 MOU. Under former Thai prime minister Thaksin Shinawatra, who was known to have close ties with his counterpart Hun Sen, there were signs of a possible breakthrough, but overall little or no progress was made.
Discussions broke off following a breakdown in Thai-Cambodian diplomatic relations in early 2003 after mobs, angered by reports that a Thai actress said Cambodia's revered Angkor Wat temple should be part of Thailand, attacked the Thai embassy and Thai-owned businesses in Phnom Penh.
Bilateral relations were eventually repaired and negotiations resumed, but the September 2006 military coup in Thailand cast a new cloud of uncertainty over the talks. The energy minister in the successor Thai interim government did acknowledge the importance of finding a way to overcome the impasse.
Prospects of resolving the temple clash may have improved with the appointment last week of a retired career diplomat, Tej Bunnag, as Thailand's foreign minister following the resignation of Noppadon Pattama, forced to quit over his handling of the Preah Vihear issue. Noppadon was a former lawyer for Thaksin. On Monday, Tej led Thai negotiators at a meeting with their Cambodian counterparts at Siem Reap, near Angkor Wat.
Considering that each country's Foreign rather than Energy Ministry is mainly responsible for the OCA negotiations, nationalistic notions of prestige and sovereignty have taken precedence over economic imperatives. That will continue to be the case as long as the Preah Vihear temple controversy is unresolved - to both countries' growing economic detriment.
Southeast Asia
Jul 30, 2008
By Andrew Symon
SINGAPORE - A face-off between troops from Thailand and Cambodia over contested territory immediately surrounding an ancient temple on their mutual border threatens to delay even longer the resolution of a more economically significant border dispute between the two sides.
Tension over the temple complex, known in Thailand as Preah Vihear, escalated this month when it was listed as a United Nations Educational, Scientific and Cultural Organization national heritage site.
To the south, a 27,000 square kilometer area in the northern Gulf of Thailand known as the Overlapping Claims Area (OCA) and potentially rich in fossil fuel reserves has long been contested by the two countries. Moves to resolve the problem now risk becoming unraveled in the deteriorating political climate at a time both countries' economies desperately need new domestic sources of fuel.
Issues related to national prestige and contested histories have long prevented any binding resolution to the maritime dispute and energy analysts and executives worry the recent temple row could complicate dealings over the OCA, where multinational energy companies have been granted overlapping concessions. The economic stakes surrounding the competing claims have grown as global oil prices have surged.
Thailand is proportionally one of Asia's largest oil importers, with the bill for oil imports accounting for 12% of its gross domestic product (GDP), and it now faces a growing gap between indigenous fuel supplies and surging demand for power generation. Cost-push inflation, driven by rising global oil prices, is starting to weigh on the country's economic growth, which is expected to slow dramatically over the next year.
For underdeveloped Cambodia, revenue from petroleum production would be enormously beneficial to its economy, while gas supplies could help to reduce its current over-reliance on expensive diesel and oil for power generation. High global oil prices are also taking an inflationary toll on Cambodia's recent strong growth, with headline inflation up to 18.7% in January, the last time the government released official figures.
Previous speculation that Cambodia might be on the verge of an oil-and-gas bonanza, related to a find (outside the disputed area)made by US energy giant Chevron and announced in January 2005, has been tempered by the company's reluctance to provide hard estimates or to commit to a production start-up date. Chevron has said it is "working hard to find a solution to develop the complex reservoir" that is "scattered over small dispersed fields" rather than "one core area".
Companies that have explored other offshore Cambodian blocks have yet to report positive results, leading many geologists to believe that the OCA's concentrated resources are the maritime area's main prize.
One Singapore-based international lawyer working with petroleum companies in the region told Asia Times Online that "negotiating joint development areas is a politically sensitive activity at the best of times. Governments run the risk of being seen by some as compromising sovereignty and giving away the nation's riches."
"In light of the recent developments around [Preah Vihear] and the tensions [that the temple dispute] has caused between Thailand and Cambodia and domestically, it might be a difficult time for any progress to be made on the OCA."
The two countries share a conflicted past. Despite their shared cultural links through Theravada Buddhism, Cambodia has long viewed Thailand as a threat, dating to when marauding Siamese troops destroyed the Angkor kingdom in the 14th century and in later times when it took control of large swathes of what is currently west and north-western Cambodia.
The unresolved OCA dispute, as with the row over Preah Vihear, an 11th-century Hindu temple, has its origins in borders set over a century ago between Thailand and France, then the colonial ruler of Cambodia, Laos and Vietnam. Thai objections to those boundaries, including claims in the northern areas of the OCA drawn perpendicular to each other, have prevented any exploration in the contested waters since 1974.
Unexplored acreage
Nonetheless, geologists with knowledge of the field say that there are good prospects of it holding both oil and gas, with one describing it as "the best unexplored acreage left in Southeast Asia". The area represents a continuation of geological structures in adjacent Thai waters that have produced large volumes of oil and gas for several years.
The OCA lies in relatively shallow waters less than 80 meters deep, with oil and gas deposits believed to be mainly in the north, while the south is thought to be more gas and condensate prone. Broad estimates of the energy prize from various sources in the petroleum industry have ranged from anywhere between 8 trillion to 15 trillion cubic feet of gas and 400 million to 1,000 million barrels of liquid fuels, including oil and condensates.
These figures are highly speculative in the absence of detailed explorations that neither Thailand nor Cambodia has allowed. Efforts to resolve the dispute made some headway in 2001 when the two sides signed a memorandum of understanding agreeing that a joint development regime could be established over the southern two-thirds of the OCA, while the northern third could be developed once the maritime border was delineated.
Subsequent Thai demands that the northern OCA border must be agreed on before any joint development activities take place in the south have stalled negotiations. Thai negotiators have proposed that the disputed area be divided into three strips running north to south with the revenue from the central area shared equally. The share from the outer areas would be weighted in favor of the country adjacent to that area.
Because the most fuel-rich areas are believed to be in the OCA's western region, such an arrangement would favor Thailand. For its part, Cambodia has proposed dividing the area vertically down the middle and then six times horizontally to create 14 blocks from which revenues would be shared equally. Along those lines, each country would be responsible for managing seven of the 14 blocks, which would be allocated checkerboard style.
Thailand has refused to accept equal division and has openly argued for a greater share of the OCA's fiscal benefits. According to a study by United Kingdom-based petroleum industry consultants Wood MacKenzie, 85% of the OCA's overall economic benefits would likely accrue to Thailand under a joint production agreement, based on the assumption gas would flow into that country's existing comprehensive pipeline system in the Gulf.
Over the years, both sides have awarded exploration blocks over the same areas to multinational energy companies, including ConocoPhillips and Chevron, both US-based, British Gas, Australia's BHP Billiton and Japan's Idemitsu, Inpex and Moeco.
None of these companies has relinquished those overlapping claims, pointing to the potential strength of the OCA's production prospects, analysts say.
Chevron holds "a working interest in several blocks in the Thailand-Cambodia Overlapping Claim Area", according to a notice on the company's website dated May this year. "As of early 2008, these areas were inactive pending resolution of border issues between the two countries," the notice said.
The ultimate legal position of companies allocated blocks is unclear, with the Thais making the majority of their awards under a royalty tax system in the late 1970s and Cambodia its competing concessions under a production-sharing system in the late 1990s.
Officials from both sides have met several times a year under the terms of the 2001 MOU. Under former Thai prime minister Thaksin Shinawatra, who was known to have close ties with his counterpart Hun Sen, there were signs of a possible breakthrough, but overall little or no progress was made.
Discussions broke off following a breakdown in Thai-Cambodian diplomatic relations in early 2003 after mobs, angered by reports that a Thai actress said Cambodia's revered Angkor Wat temple should be part of Thailand, attacked the Thai embassy and Thai-owned businesses in Phnom Penh.
Bilateral relations were eventually repaired and negotiations resumed, but the September 2006 military coup in Thailand cast a new cloud of uncertainty over the talks. The energy minister in the successor Thai interim government did acknowledge the importance of finding a way to overcome the impasse.
Prospects of resolving the temple clash may have improved with the appointment last week of a retired career diplomat, Tej Bunnag, as Thailand's foreign minister following the resignation of Noppadon Pattama, forced to quit over his handling of the Preah Vihear issue. Noppadon was a former lawyer for Thaksin. On Monday, Tej led Thai negotiators at a meeting with their Cambodian counterparts at Siem Reap, near Angkor Wat.
Considering that each country's Foreign rather than Energy Ministry is mainly responsible for the OCA negotiations, nationalistic notions of prestige and sovereignty have taken precedence over economic imperatives. That will continue to be the case as long as the Preah Vihear temple controversy is unresolved - to both countries' growing economic detriment.
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