US Key to Philippine Plan to Tap Oil, Gas in South China Sea

(Bloomberg) -- The Philippines is counting on the US and its allies to play a crucial role in its plans to explore energy resources in the disputed South China Sea, according to Manila’s envoy to Washington. 

The country is seeking to parlay its deepening security ties with Washington into broader economic benefits, said Philippine Ambassador to the US Jose Manuel Romualdez. 

“When the time comes that we are going to start exploring it, we’ll have the options to be able to see how we can secure the expedition,” Romualdez said in an interview in Manila. “We’re working closely with our allies, not only the US but also Japan and Australia,” he said.

The Philippines is exploring several options in its quest to tap the resource-rich South China Sea, waters that China claims almost in its entirety. The body of water is estimated to hold significant quantities of oil and gas, according to the US Energy Information Administration.

Inviting US companies to invest in the exploration as well as development efforts and discussions with countries like Vietnam that also have overlapping claims with China are among the possible courses of action, he said on March 5. 

The Philippines imports almost all its fuel needs and has been trying for years to start energy exploration in the disputed waters, including through a partnership with China. Negotiations between Manila and Beijing have, however, stalled amid heightened tensions, with their coast guard vessels recently clashing again at sea.

Amid its spat with China, the Southeast Asian nation is enforcing a new strategy to defend its territory and economic interests. It has also recently inked several security deals with countries like the UK, Australia and Canada.

Calculated Way

Now the Philippines and its allies are “moving in a calculated way,” the envoy said declining to provide more details on the energy plan, except to say that it will likely happen within President Ferdinand Marcos Jr.’s term ending in 2028. “It’s part of our energy package,” he said, referring to a broad strategy to bring power costs — among the highest in the region — lower to attract investors.

As the Philippines builds its security alliances amid tensions with Beijing, it wants these partnerships to yield more trade and investment, said Romualdez. “While we have all these defense ties, the bottom line is economic prosperity. If we do not have economic security, we can have all these defense agreements and it would mean nothing to us,” the envoy, a cousin of Marcos, said.

China is also keen on reaping benefits from the resource-rich waters. President Xi Jinping has called on the military to align its maritime strategy with economic development, in what may further intensify its dispute with the Philippines.

In a wide-ranging interview ahead of the US trade and investment mission this week, Romualdez said Marcos is trying to leverage his rising influence on the global stage to win deals for the country. Over the past year, Marcos has deepened security ties with the US. The Philippine leader last month addressed the Australian parliament and in May will be the keynote speaker at regional security forum. 

Marcos is scheduled to meet with US Secretary of Commerce Gina Raimondo on Monday before he heads to Germany for meetings with Chancellor Olaf Scholz, alongside other Southeast Asian leaders.

“President Marcos is very, very keen on trying to catch these investment opportunities open to us now because we’re in the center,” Romualdez said. Even European countries are taking interest, he added.

Raimondo will lead a delegation to Manila that also includes about 20 American executives from Microsoft Corp., United Airlines Holdings Inc., Alphabet Inc.’s Google and some energy firms, aiming to strengthen economic relations and spur investment into an increasingly important ally. Raimondo will then proceed to Thailand, in hopes of boosting ties in areas including supply chain diversification.

While the Philippines’ strong relations with the US is an advantage, competition for investment among Southeast Asian nations is intense. Marcos has to prove that his government can provide a conducive business environment including less red tape and lower electricity costs, the envoy said.

High power costs remain one of the biggest hurdles for investors, according to Romualdez, and is one of the incentives driving the Philippines’ push to explore its own energy resources.

Marcos’s defense chief, earlier this year, said that it’s increasingly urgent for the Philippines to pursue resource exploration in contested waters, as a key gas field nears depletion.

Last month, the nation’s foreign affairs secretary signaled openness to energy talks with Beijing, while maintaining that Manila would not yield control of any venture to China.

For Philippine Ambassador Romualdez, the time for being soft with Beijing is over. 

“What is ours is ours, and we’re not going to stop,” he said of the nation’s plans to explore resources in its exclusive economic zone. “We’ll do it when we feel like it’s time for us to do it,” he said.

(Updates with more background in 7th paragraph.)

©2024 Bloomberg L.P.