Another Yomiuri East China Sea Map for Martin J. Frid… Wait, It Gets Better

It comes from the establishment’s paper of unofficial record, so you want some corroboration, preferably from the Chinese side (not that the Chinese authorities will oblige), or Sankei.* Still, this latest Yomiuri report on the backstory for the omission of Asunaro/Longjing omission from the deal is intriguing. And encouraging too, since it drags South Korea into the picture.

According to the Yomiuri, the negotiators worried that South Korea, not a party to the negotiations, might complain that a Asunaro/Longjing gas well could suck gas out of deposits in/on the South Korean EEZ/continental shelf, on the other side of the China-ROK median line, so they’ve given up on the idea of developing the Asunaro field altogether, like a geopolitical AWAR. The story sounds a little fishy, since the South Koreans--their Sinophobia can sometimes make Shoichi Nakagawa look like a member of the fifth column for the Chinese Communist Party—haven’t been heard complaining much. Let’s hope the story is true, though, because it shows an awareness of the need to keep smoke off the waters—there’s always the threat of flames—among three peoples who share a common, resource-starved, trade-dependent destiny (among other things).

* My skepticism is given further ammunition by the thought: Why would the Japanese side have invested in yet another JV completely under Chinese jurisdiction, or the Chinese side accepted anything less, in the first place?

Less Meets the Eye on the East China Sea Agreement Agreement(s)

Of the four gas fields in the June 15 Asahi report recorded here, only Shirakaba/Chungxiao was actually included in the final agreement. Instead of Asunaro/CanxueLongjing, included in the June 1617 Yomiuri report recorded here, an area nearby was designated as a “block for joint development”. Shirakaba/Chungxiao itself is carefully separated from the “joint development” part of the agreement. The Japanese METI/MOFA joint announcement of the agreement can be found on this webpage. The Chinese MOFA spokesman’s remarks are here.

Two things help to understand this agreement. One is the following quote from the Chinese spokesman’s remarks:

Chinese enterprises welcome the participation of Japanese legal person in the development of the existing oil and gas field in Chunxiao (sic) in accordance with the relevant laws of China governing cooperation with foreign enterprises in the exploration and exploitation of offshore petroleum resources.*

The governments of China and Japan have confirmed this…

The other is the set of coordinates for the block for joint development. I don’t have the means to actually plot out the coordinates against the Japan/China median line, but if the map on the Yomiuri front page is to be trusted, the area lies mostly on the Japanese side, with the northeast corner going over the median line.

Production from Shirakaba/Chungxiao (note that the Chinese announcement only says Chungxiao), which according to Japanese surveys extends to the Japanese side of the median line, will continue under exclusive Chinese jurisdiction, while most of the joint development activities will presumably be conducted on the Japanese side of the median line. Although the Chinese side says that “the two sides will conduct cooperation in the transitional period prior to delimitation without prejudicing their respective legal positions”, it is clear that the two sides have established de facto joint custody of the disputed area of the continental shelf between the median line and the boundary claimed by the Chinese side.

This will become clearer when, as I expect, exploration, development and production are conducted as a joint venture between a Japanese entity and a Chinese entity, each subject to the laws of their respective state of origin. Technically, this will infringe upon the mining rights—exploration and/or exploitation rights; both property rights under the Mining Law and the Civil Code—of the Japanese entity.** But I doubt that the Japanese entity will complain.

As a legal matter, the only way that Japanese opponents of this deal—there will be many if my reasoning is correct—can stop this is to establish exploration rights on their own before the Japanese entity does. Unfortunately for prospective dissidents, they are unlikely to be able to provide the required data that must accompany an application.

But there’s the political side of the issue. I can see people like LDP China hawks like Shoichi Nakagawa and powerful independent Takeo Hiranuma lining up against the agreement. But they should be more than counterbalanced by LDP members who want to make nice with China or don’t see any benefit in causing a ruckus over what is, after all, trivial in terms of the economic benefits and all but irrelevant to Japan’s energy security. So I guess my question is: will the DPJ see this as a wedge issue and side with the dissidents?

As for the media, Sankei issued a favorable editorial today, apparently under a misunderstanding based on what turned out to be an erroneous report that Shirakaba/Chungxiao and Asunaro/CanxueLongjing were to be the subject of joint development. The question here is: Can you take back an editorial?

There you are. Feel free to quote me.

* The Japanese announcement says more or less the same thing.

** It would also violate the Japanese property rights of the owner of the seabed surface if it were Japanese territory. I’m sure what the law is beyond territorial waters, but the owner, if any, would be the Japanese government, so this point is moot.

---

Sidebar: Why did the media reports grow progressively less favorable to the Japanese side?*** They obviously took leaks from the Japanese side reflecting its negotiating position of the moment and over-interpreted them. My guess is that the leaks came from officials only tangentially related to the negotiations. The principals know too much to give out information that raises false hopes, and won’t have the time to talk to reporters roaming the corridors anyway.

*** ADD note (June 20): The June 17 Yomiuri article was more accurate than I had believed, since it says “area around Asunaro/Longjing”, not Asunaro/Longjing per se. My only excuse is that it was easy to miss the distinction sans hindsight. But my broader point stands.

More on the East China Sea Gas Fields

The June 1617 Yomiuri reports that two gas fields, Shirakaba/Chungxiao and Asunaro/CanxueLongjing—not four as originally reported by Asahi—will be the subject of joint development in the initial agreement. Other gas fields, presumably including Kashi/Tianwaitian and Kusunoki/Danqiao.

Normally, I wouldn’t have blogged on this issue again until the authorities announced the agreement, but the Yomiuri article includes a map of the four gas fields in question that I want to take note of before I forget. The map gives the Chinese oil equivalent of the natural gas reserve estimates for three of the fields:

Shirakaba/Chungxiao: 63.8 million bbl
Kashi/Tianwaitian : 12.6 million bbl
Kusunoki/Danqiao : 15.2 million bbl
Asunaro/CanxueLongjing : NA

Now look at this:

Shirakaba/Chungxiao: 174.8 thousand bbl/d
Kashi/Tianwaitian : 34.5 thousand bbl/d
Kusunoki/Danqiao : 41.6 thousand bbl/d
Asunaro/CanxueLongjing : NA

That’s how much you can extract every day if you use up the entire reserve in a single year. Take a more reasonable, say 20-year life span for the gas fields, and you get an idea of how trivial the gas fields really are. Even if the Japanese side of the median line ends up doubling the reserves, the numbers still give you a feel for how marginal these fields are. I now have a little sympathy for conspiracy theorists who believe that the Chinese authorities have been pushing their exploitation just to reinforce their claims to the EEZ in the area.

ADD: Remember, it’s the legal framework for the joint development activities including jurisdiction that matters, not the economics of the deal.

Interpreting the Pending Deal on the East China Sea Gas Fields

I had been highly skeptical of the chances for a deal since I believed that the Japanese government’s legal concerns could not be adequately addressed. However, the Japanese government has apparently decided to gloss them over with a business concession from the Chinese side.

The Asahi reports that the Japanese and Chinese governments will announce a joint development deal on the East China Sea gas fields this week. According to the report, the agreement will cover four gas fields—Shirakaba/Chungxiao (SC), Kashi/Tianwaitian (KT), Kusunoki/Danqiao (KD), and Asunaro/Canxue (AC).

The two governments had been at loggerheads over the gas fields because of conflicting legal claims over their respective exclusive economic zones. The Japanese government claims jurisdiction up to the median line between the two countries, while the Chinese government claims jurisdiction up to the Okinawa Trough based on its claims over the natural extension of its continental shelf.

The Japanese government claims that Japanese surveys show that SC and KT extend to the Japanese side of the median line between China and Japan and that that may also be the case for KD and AC.* This would mean that China would be tapping into gas resources part of which rightfully belongs to Japan.* The Chinese side has refused to share its data on the matter. The Japanese government has sought a deal that would include both sides of the median line, while the Chinese government has insisted that a deal would only cover the area where the two EEZ claims overlap. In the meantime, China began production at KT in 2005, and is scheduled to begin production at SC later this year.

The Asahi report goes on to say that the Japanese side will make an equity investment in the Chinese development company for SC and that the two sides will conduct joint explorations on the Japanese side of the median line. So, has the Chinese government made a major concession? Not really.

Note that the Japanese participation on the Chinese side of the median line comes in the form of an equity investment in a Chinese company. Unless the Chinese government is constitutionally barred from conferring any mineral rights to an entity with foreign shareholders, it is not making any legal concessions with regard to jurisdiction over its EEZ. The joint exploration in the disputed areas is a different animal. Unless the exploration is conducted under the exclusive jurisdiction of the Japanese Mining Law, for all practical purposes, the result will be to effectively share joint jurisdiction over the disputed area. This will become even more obvious if and when production activities commence in the disputed area. The Chinese government may have yielded on the economics, but has not budged on the legal end.

In recent years, international law has favored the median line, and the Japanese government has offered to subject the dispute to over the International Court of Justice or the International Tribunal for the Law of the Sea. The Chinese government understandably has refused to do so. Given these recent trends in international case law, nationalists and other elements that want Japan to stand up to China no end will be displeased with the compromise and will insist that Japan continue to uphold its legal claim.

For after all, the economics of the gas fields are reportedly not very attractive. The consensus is that they are too distant and too small to be commercially extracted and transported to Japan. Nearby China is the only viable market for either side of the median line. Moreover, although the recent jump in energy prices makes the gas fields more attractive, they are insignificant as far as energy security is concerned. This is not ANWR that we are talking about. Thus, such elements will see too much loss of national honor and little of economic gain from the deal.

* You may recall that Saddam Hussein accused Kuwait of stealing Iraqi oil in justifying his 1990 invasion.

Paul Krugman’s Take on Gasoline Tax Relief

Here, Paul Krugman agrees with every other economist on the planet and slams John McCain and Hillary Clinton for supporting a one-off, temporary suspension of the federal gas tax for the summer holidays. He doesn’t use the pander word, but he does call their plans evil (Mr. McCain) and pointless (Mrs. Clinton). Pretty strong words, no?

There are several obvious differences between the U.S. tax cut follies (another Krugman choice) and the one-month suspension in Japan. The following quote from Mr. Krugman’s op-ed happens to lay them out in bold relief:

I don’t regard this as a major issue. It’s a one-time thing, not a matter of principle, especially because everyone knows the gas-tax holiday isn’t actually going to happen.

A caveat here: The DPJ—as with the refueling operations—discovered this matter of principle well after it drew up its manifest. That gives its position something of a makeshift air. Still, it can still showcase itself as a party of substance if it can expose the Fukuda administration’s fiscal reform package as a whitewash of the status quo at the autumn showdown. If the recent behavior of the Fukuda administration and the ruling coalition is any indication, there's a good chance that the proposal will be vulnerable.

Lee Myung-bak Puts Marker on Kurdistan; Japan Missing?

China is viewed with some alarm and, yes, some envy for its forays into places where angels fear to tread. But it is the South Korean businesses that have the better-established reputation for risk-taking on the cutting edge of emerging and frontier markets. (Also a reputation for being quick to cut their losses, but some of that may be envy.) Their footprints stretch from Central Asia to sub-Sahara Africa, and the Kurdistan Autonomous Region in Iraq is no exception. In fact, Korean businesses have gone in to cut oil deals with the Kurdistan Regional Government even though the national oil bill to determine control over oil fields, contracts and revenue continues to be stalled in the Iraqi Parliament in a tug-of-war between the Kurds and the central government.

On February 14, South Korean efforts were rewarded when Nechervan Idris Barzani, the KRG Prime Minister and nephew of Masoud Barzani, met President-Elect Lee Myung-bak in Seoul, where the two sides celebrated an oil development deal. For later that day, according to the FT, a “consortium led by Korea National Oil Corp. on Thursday signed a memorandum of understanding with the Kurdish Prime Minister allowing the Korean group to develop energy projects in the Kurdish Autonomous Region.” The consortium includes SK Energy, South Korea’s largest oil refinery. According to this report, the Iraqi oil Ministry had earlier this year halted SK Energy’s oil exports “in response to what it [said] were illegal oil exploration deals with the Kurdish regional government.”

So South Korea’s state-owned oil corporation join in cutting a deal with the KRG in defiance of Iraq’s central government, to which South Korea’s President-Elect gives his blessing and is rewarded with a not-quite state visit. It probably helped that South Korea has, as Mr. Barzani duly noted, troops on the ground in KAR, in the Erbil City neighborhood.

Absent from news reports with regard to Mr. Barzani’s visit was any mention of Roh Moo-hyung, who still had ten days left in his tenure as President. But it is even more notable that Mr. Barzani did not bother to stop over in Tokyo. I used to wonder, early on, why Japan was not sending its troops to Kurdistan. After all, the Kurds asked for them, and it would have been safer than Samawa, where the non-combat Self-Defense Forces eventually went. Now, it’s too late, in more ways than one.