Framework for the Development of Transboundary Offshore Oil and Gas Resources in Neighbouring States - Essay Example

?Framework for the Development of Transboundary Offshore Oil and Gas Resources in Neighbouring s Introduction Discoveries of deposits of gas andoil that exist on the boundary between two sovereign states present a complex challenge that must be approached with caution1. Both sides have different interests and consequently decisions must be made that resolve conflicts and balance the competing interests of the different parties2. Transboundary deposits of gas and oil do not conform to the standard laws in relation to political boundaries or property lines. This is because the resource can be exploited from one side of the boundary without the line needing to be crossed3. There are several international conventions and guidelines that focus on how to resolve such disputes, however, not all countries have ratified to these, and they have little to no legal power. One important aspect of the development of offshore oil and gas resources is the economic perspective. These resources represent significant means for economic development for the countries in which they are present. However, this is not the only consideration. Other relevant factors are the social, political and environmental factors 4. These differ between states and two states attempting to reach an agreement over a transboundary resource may differ in how their priorities which may affect the types of technology they are prepared to use or the processes that they want to be involved in. The ideal situation for a transboundary deposit is for the states whose boundary the deposit is on to work collectively. However, the situation becomes more complex as each of the states have different laws, principals and procedures by which they work with the various parts of the oil and gas cycle, such as the discovery of the deposit, exploitation, transportation and eventual decommissioning5. This report aims to examine the current framework for how transboundary offshore oil and gas resources are managed, what the benefits and limitations are, and what appears likely for the future. Legislation Legislation concerning transboundary offshore resources is not simple, as there is no international legal system that has the authority to create legislation that is legally binding. International law arises from international custom, conventions and general law that is recognized by civilised nations6. However, some countries do not recognise all international law. One important aspect of any state is territory and boundaries. Usually, the states boundaries are well mapped and represent a specific point, which marks the difference between one state and another. Within its boundaries, a state has sovereignty and has the power to exploit any and all natural resources that are present. Oceanic boundaries are more complex. Prior to the 1940s, territorial see was viewed as three miles from the coast of the state and this was not accepted in all cases. In 1945, President Truman declared that the natural resources under the high seas that neighboured the United States were part of its territory and thus under its control. He did however state that if the continental shelf extended to another state, then ‘equitable principles’ would be used to determine who had the right to the resources7. The 1958 Geneva Convention on the Continental Shelf defined the continental shelf as being the deep-sea areas that were next to the coast of a territory but were not part of the territorial sea. The coastal state has the right to exploration of the continental shelf and exploitation of any natural resources that are present. In the case of a shelf that is next to two or more costal states, the Convention states that the boundary should be decided by agreement, and if none is made, then the boundary will be the median line between the territories. An important piece of legislation concerning the rights of states and the sea in general is the United Nations Convention on the Law of the Sea (UNCLOS)8. This article is a comprehensive document with 320 articles, involved more than 150 countries worldwide, and was worked on for 14 years. It covers all elements of the ocean, including the continental shelf and transboundary resources. This Convention introduced the idea of an exclusive economic zone (EEZ), which is a 200 nautical mile area where they have jurisdiction over economic and scientific activities. This document gives the provision for any disputes to be taken to arbitration, an International Tribunal established as a consequence of the Convention or the International Court of Justice. Although the United States is not a party to the Convention, and has not ratified to it, the United States does affirm that the Convention in general is a representation of customary international law9 Consequently, the legal precedent for transboundary resources is to work to find an equitable solution, and if one cannot be found then it is possible for the states to seek arbitration through the United Nations. However, under legislation there is little framework for the way in which to reach these conclusions or what is considered to be a fair result. It is generally accepted within international law that a state will not act in a way that could be at a detriment to the rights of other states10. If two states fail to meet a corporative agreement, then they have two options. Either the states increase their efforts to find a resolution, or they move forward with developing the resource11. Treaties and Agreements Some states use treaties as a means of establishing borders and boundary areas between countries. Treaties and arrangements between countries that share a transboundary resource have been prevalent worldwide. One of the earliest incidences of a transboundary resource occurred in the early 1960’s, when deposits of gas and oil were found on the boundary between the United Kingdom and Norway. At the time, there was no legal precedent and no requirement for the resources to be shared. This resulted in the formation of the Delimitation Treaty of 1965. Aspects of this treaty have helped to shape the international framework for transboundary resources12. There is wide range of different cases, beginning in 1958 (Table 1), where governments have worked together to create a framework of the development of these resources. The complexities of these agreements vary. Some involve systems of profit sharing and jurisdiction, while others are simply based on cooperation. In most cases areas where boundaries are disputed are resulted by the creation of a joint development zone. This allows both countries to gain from the process13. These agreements can be used as templates, to see what works effectively and what does not, and consequently to begin to develop a framework for means of developing transboundary offshore gas and oil resources. Table 1: Figure developed from Estranda 2012. Year Countries Involved Resolution 1958 Bahrain and Saudi Arabia Establishment of a joint development area 1960 Austria and Czechoslovakia The establishment of common deposits 1962 Federal Republic of Germany and The Netherlands Establishment of a joint development zone, with subzones for each country 1971 Iran and Sharjah Establishment of a joint regime 1974 Japan and Korea Establishment of a joint development zone, with as many subzones as required 1974 Saudi Arabia and Sudan Establishment of a common zone 1976 Norwary and UK The definition of exact geographic areas surrounding the deposits 1978 Australia and Papua New Guinea Establishment of a protected zone 1989 Australia and Indonesia Establishment of a cooperation zone, subdivided into areas An example of where the international guidelines have not worked is in the case of China and Japan in the East China Sea. China has chosen to opt out of the procedures involved in UNCLOS and as a consequence the two countries have little option but to resort to further negotiation. Regardless, unless one side backs down from some of their demands, an agreement for either joint development or delimitation will never be reached14. For both sides, the debate is a fight for resources which are important for the countries continued growth as well as its ability to provide for its people. China is rapidly growing and currently has more than a billion people. The ability to access the contested resources could greatly alleviate the strain on much of the country. China has managed amicable conclusions with other countries that it has shared borders with. However, there are fears that if the tension between China and Japan is mishandled, it could result in armed violence15. Another example is the disagreement between the United States and Mexico over the Gulf of Mexico. This is a deep body of water between the two countries. It is an important area as it contains many oil and gas deposits. Both countries have had an active oil industry for more than 70 years, with the Mexican oil industry becoming nationalised in 1938. In 1970, a treaty was established between the two countries which established the boundaries of each country at 12 miles16. During the creation and ratification of the treaty, both countries were aware of the potential for transboundary resources. Despite this, little success has occurred in joint processes or oil sharing between the countries17. While initially the oil industries of Mexico and the United States were entirely distinct from one another, as the available resources have decreased, the two countries have began to move towards deeper areas which are further from their own shorelines and closer to the border18. One problem that has been faced by the two states is that while Mexico is a party to the UNCLOS, the United States is not. This means that they cannot make a joint submission concerning this area and the United States does not consider that it needs the support of the Commission in order to have what it considers to be its right19. The situation between the United States and Mexico over the deep ocean between the two states remains an important issue that needs to be resolved for the benefit of both countries. These examples show that while resolution for such conflicts is possible, it is often difficult to achieve. Some states have strong demands and do not desire to reach a compromise, while others feel that they are not economically able to. While the international legislation plays a significant role in helping these problems, it has no enforcing power, and thus countries are left to decide themselves whether they will compromise or whether they will continue to try for full and exclusive access to the resource. For states with transboundary resources that have not developed an agreement to jointly develop the resources, or for those who contest who has rights over the resource, one technique used is to agree that neither side will develop any transboundary resources. In many cases, international disputes over oil and gas resources are solved using an external technical expert. This is a difficult role, as the expert faces the problem that there are no international conventions that support this role, and there a lack of harmonisation as to definitions of terms internationally20. Thus, one or both of the states involved may not accept the decision made by the expert and consequently ignore it. Industry Practice throughout the Oil and Gas Cycle There are many different aspects to the development of an offshore oil or gas resource, and an agreement between two states concerning a transboundary resource must take these into account. The four main phases that are important are exploration, the development of the well, production and decommissioning21. Each of these is important, and must be understood by all parties involved. The first step in the development of any offshore resource such as oil and gas is exploration. There are particular rock formations that are strongly associated with the presence of gas and oil, and divers can look for these. Exploration also involves examining the geophysical phenomena, and may require exploratory drilling. Under international guidelines it is generally considered to be an act of good faith to consult and inform other states of any potential resource which may have an impact on them before even exploratory drilling takes place22. If this is not done, it can create an atmosphere of distrust will make future proceedings difficult. If an agreement is not reached, then the area may remain undeveloped, and both states will not have access to the resource as a consequence. Alternatively, one or both may decide to develop anyway, which could potentially lead to armed conflict. Development is the next step and this is generally, where both states become involved, if the decision has been made to share the resource. It may involve splitting the area into regions, co-operating and building the wells, or both operating different wells within the region. Alternatively, an agreement could be made where one state does the drilling while the other gets a portion of the product. If so, this would occurring during the production phase. Finally, when there is no more resource to be gained from that location, it is necessary to decommission the wells. International law suggests that it is the country that is responsible for the area that will need to do this, however, if the zone is contested this is more difficult, and there are no guidelines. Conclusion Developing offshore oil and gas resources can be a difficult process if the resource stretches across the boundary of neighbouring states. The nature of oil and gas extraction means that the entire resource could be exploited from either side of the boundary. International law demands that states do not act in a way that is detrimental to another state. The consensus view point is that when a resource exists on a boundary between two states, that the parties should reach a diplomatic solution, such as sharing the area, leaving it untouched by either side, or by collaborating in the process of development and extraction. While there are many examples of this being successful, there are also instances where a resolution has been difficult to accomplish. International law has no enforcing power and is vague in terms of how states should reach a middle ground. Consequently, the way in which states solve this problem differs from dispute to dispute. References Cameron, P. (2006), 'The rules of engagement: developing cross-border petroleum deposits in the North Sea and the Caribbean'. Dutton, P. (2007), 'Carving up the East China Sea', Naval War College Review, 60 (2). Estrada, J. E. (2012), 'Reservoirs that cross country lines need special agreements', (updated 1 July 2009) , accessed 10 January. Hagerty, C.L. (2011), 'Outer Continental Shelf Moratoria on Oil and Gas Development'. Hong, S.Y. and Van Dyke, J.M. (2009), Maritime boundary disputes, settlement processes, and the law of the sea (65: Martinus Nijhoff). Jianjun, G. (2008), 'Joint Development in the East China Sea: Not an Easier Challenge than Delimitation', The International Journal of Marine and Coastal Law, 23 (1), 39-75. Neff, J.M., Rabalais, N.N., and Boesch, D.F. (1987), Offshore oil and gas development activities potentially causing long-term environmental effects (New York: Elsevier Applied Science Publishers Ltd). Noussia, K. (2010), 'On International Arbitrations for the Settlement of Boundary Maritime Delimitation Disputes and Disputes from Joint Development Agreements for the Exploitation of Offshore Natural Resources', The International Journal of Marine and Coastal Law, 25, 63-80. Okoye, A., et al. (2007), 'Cross-Border Unitization and Joint Development Agreements: An International Law Perspective', RAE2008. Stultz-Karim, S. (2007), 'Expert Determination in International oil & Gas Disputes: The Impact of Lack of Harmonization in Reserves Classifications Systems and Uncertainty in Reserve Estimates'. Tkachenko, G. (2008), 'Estimation and Development of Oil-gas Resources in the Okhotsk Sea Basin and Sustainable Development in Northeast Asia', Energy and environment in Slavic Eurasia: toward the establishment of the network of environmental studies in the Pan-Okhotsk region, (19), 67. United Nations (2012), 'United Nations Convention on the Law of the Sea of 10 December 1982', (updated 9 November) , accessed 10 January. Wong, A. 'The North Sea Experience - An Analysis of Cross Border Unitisation and Move Towards Establishing an International Legal Framework', (University of Dundee).  Read More