PetroVietnam, Japanese firms sign South China Sea gas deal amid tensions with Beijing

HANOI (Reuters) - Vietnam’s state oil firm PetroVietnam said on Wednesday it has signed an agreement with two Japanese companies to sell gas from a South China Sea oil block close to waters disputed by Beijing.

Vietnam is struggling to maintain its crude oil and gas output amid declining production from key fields and ongoing pressure from China that has affected work on some projects.

“The development of the project is significant since exploration and production activities have slowed down in recent years because of tensions in the South China Sea, the ongoing corruption crackdown and persistently low crude oil prices,” a PetroVietnam official, who declined to be named, told Reuters.

The gas sale-purchase agreement, signed in Hanoi on Tuesday, will “significantly contribute to ensuring the country’s energy security” PetroVietnam said in a statement.

PetroVietnam said in April that maritime tensions with China will hurt its offshore exploration and production activities this year.

China’s U-shaped “nine-dash line” marks a vast expanse of the South China Sea that it claims, including large swathes of Vietnam’s Exclusive Economic Zone.

In March, PetroVietnam told Spanish energy firm Repsol to halt an offshore oil project under pressure from China, and in May a unit of Russia’s Rosneft expressed its concern that its recent drilling could upset China.

An anti-graft crackdown in Vietnam, led by the ruling Communist Party, has also seen several high profile executives from state firms, including PetroVietnam, go on trial for corruption. On Tuesday, the crackdown tried its first military suspect.

Sao Vang-Dai Nguyet, located at blocks 05-1b & 05-1c 300 kms (186 miles) southeast of Vietnam’s coast, is 43.08 percent owned by Japan’s Idemitsu Kosan, 36.92 percent by Teikoku Oil (Con Son) Co. and 20 percent by PetroVietnam, the state oil firm said in a statement.

The blocks containing the Sao Vang-Dai Nguyet project have not been directly disputed by Beijing in the past, but lie in waters close to the “nine-dash line”.

Tuesday’s agreement will pave the way for the project to start commercial gas production from the third quarter of 2020, PetrVietnam said.

Vietnam’s crude oil output in the first seven months of this year fell 11.3 percent from a year earlier to 7.16 million metric tonnes, government data released on Sunday showed.

Reporting by Khanh Vu; editing by James Pearson and Richard Pullin