More at stake in overlapping offshore area

Thailand and Cambodia need to resolve land dispute or Gulf riches will remain unexploited

Despite the limited impact on the Thai economy for the time being, the border clash with Cambodia could have more serious repercussions if the conflict escalates and heightens complications over the overlapping offshore area between the two countries.

One thing is certain: discussions on the maritime border issue cannot truly begin until some compromise has been reached on the pressing issue of the Preah Vihear temple.

Encouraged by successes on joint development of the South of Thailand with Malaysia and Indonesia, the government initiated a similar proposal with Cambodia for the overlapping area in the East of Thailand. However, the discussions stalled in 2009, as the countries wrangled over the disputed area around the Hindu temple.

Energy Minister Wannarat Charnnukul acknowledged yesterday that negotiations could only be renewed when the countries put to an end their diplomatic and military conflicts.

To date, trade and investment between the countries remains largely intact despite the recent gunfire in the Thai border province of Si Sa Ket. Though some border markets have been closed and some villages deserted as residents feared for their lives, the Kingdom's trade policy has not changed.

On the part of the Energy Ministry, the policy to trade oil and gas with Cambodia remains despite the renewed violence.

The eight listed Thai companies with investment projects in Cambodia are expected to experience only a slight impact on their earnings, providing the conflict is contained to the border area.

Among the major investments are Siam City Cement's joint venture with Chip Mong Group for a 1 million-1.5 million-tonne cement plant worth about US$200 million (Bt6 billion), and the $127-million joint venture between Siam Cement Group and Cambodia's Khaou Chuly Group, also for a cement plant.

Khon Kaen Sugar Industry last year also commenced operations at a $100-million sugar mill in Koh Kong, the first of its kind in Cambodia.

In 2009, in terms of projects, Thailand was the fifth-largest foreign investor in Cambodia, with China placed first. But in terms of value, the Kingdom was the second-biggest foreign investor.

However, more is at stake when it comes to potential investment offshore.

Thailand and Cambodia share an area in the Gulf of Thailand that encompasses more than 26,000 square kilometres. Called the Overlapping Claims Area (OCA), it has been a bone of contention in the relationship between the countries. Settlement of the dispute would be a boon to not only diplomatic relations, but also to further energy exploration and production in Southeast Asia.

The OCA is estimated to contain up to 11 trillion cubic feet of natural gas and unknown quantities of condensate and oil.

It has been estimated that reserves from the area could increase Thailand's domestic natural-gas reserves by 30 per cent. With the gas, Thai reserves would be expected to last 30 years, against the current estimate of 20 years.

Yet, the opportunities are tarnished by slow progress in the negotiations, as political tensions between Cambodia and Thailand have remained fragile since 2003 when the Thai Embassy in Phnom Penh and Thai-owned businesses in Cambodia were attacked. Subsequent tensions over Preah Vihear have only worsened the situation.

The Thai negotiation team is now headed by Deputy Prime Minister Suthep Thaugsuban.

Songpop Polachan, deputy director-general of the Natural Minerals Department, said that as petroleum prices remain attractively high, both countries would want to make good use of the overlapping offshore area, which possesses huge opportunities for petroleum exploration.

Yet, the negotiation process can resume only with the approval of both countries' leaders. Then, the military and foreign ministries of both countries would have to settle the land boundary in order to use the last demarcation pillar to indicate the sea boundary, he said. "After the issue of the last pillar is agreed upon, we can proceed with the joint development in the same way that Thailand and Malaysia have done."

PTT and Malaysia's Petronas this week announced another round of joint exploration in the Thai-Malaysian Joint Development Area (JDA).

CLC Asia, a political and market intelligence firm, said the JDA concept was the only realistic solution to the countries' overlapping claims. This is because it does not necessarily mean that Thailand or Cambodia has to formally relinquish any claims over territory. Rather, the JDA can operate while ongoing issues surrounding demarcation are discussed separately.

As the negotiations are still to be concluded, neither country at this stage can allow any oil and gas companies to explore the area.

Thailand in 1971 awarded exploration rights in the area, only to have them cancelled in 1975 after the Cabinet discovered the conflicting-ownership issue.

Since 2003, Thailand has awarded further exploration rights to Thailand Block (blocks 5&6), British Gas Asia (blocks 7-9), Chevron Thailand Exploration and Production (blocks 10-13) and PTT Exploration and Production (block G9/43).

Cambodia later also made a move on exploration, with an Australian company awarded rights. After the contract expired, another was awarded to France's Total.

Political risks remain, and not until Thailand and Cambodia settle their diplomatic disputes will they be able to reap the full benefits from their natural resources.


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