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China’s Asian Infrastructure Investment Bank’s (AIIB) first investment should be — without a doubt — the Trans-ASEAN Gas Pipeline (TAEG) and Trans-ASEAN Electricity Grid (TAEG).
No other Asian infrastructure project achieves as many positive outcomes for China, Asia and the world.
The TAEG is estimated to cost US$6 billion, the TAGP $7 billion. Their combined $13 billion cost amounts to about 13% of the AIIB’s $100 billion capital.
That’s a highly manageable sum for the bank’s first loan, which China wants to make this year.
What’s more, both the TAEG and TAGP fit perfectly into China’s One Belt, One Road concept.
They also complement other proposed China-led Asian infrastructure projects. These include, for instance, theKunming-Singapore Railway. At $40 billion, the railway is a far bigger project. But it could follow completion of theTAGP and TAEG.
Together, the TAGP, TAEG and Kunming-Singapore Railway offer a confidence-building regional economic development template for China and Southeast Asia. The three projects — and particularly the TAGP — could lead to sufficient mutual confidence for China and her Southeast Asian neighbors to agree to Joint Development Areas (JDAs) for oil and gas in the South China Sea.
JDAs are a concept all countries in the region support -- in principle -- as an alternative to war over mostly uninhabited rocks, many of which disappear during high tide.
Deepening gas, electricity and railway connections between the Chinese and ASEAN economies will speed regional decarbonization of energy markets and increase transport efficiency. That, in turn, will create economic wealth.
It can also help break the deepening diplomatic ice between China and her Southeast Asian neighbors over hot-button South China Sea territorial issues.
The best long-term solution in the South China Sea — one that all sides support in principle — is through Joint Development Areas (JDAs) for exploration and development of oil and gas resources.
The TAGP would largely lie outside the South China Sea’s most geographically-contested areas. That could enable it to serve as a confidence builder for follow on cooperation.
The AIIB could start by funding of a subsea natural gas pipeline connecting South Vietnam’s Mekong Delta, Indonesia’sNatuna islands and Malaysia’s Borneo. This has already been already proposed by the Association of Southeast Asian Nation States (ASEAN) in its TAGP concept.
The pipelines could be made interconnection-ready for extension northward to the shallow, near-shore waters off central and northern Vietnam and northeastward to Philippine Palawan.
These would provide access to highly-prospective natural gas fields east of central Vietnam’s Da Nang cityand in the Reed Bank area off the Philippines.
China National Offshore Oil Company’s (CNOOC) flagship, high-technology oil exploration rig Haiyang Shiyou 981 has explored near shore oil and gas prospects off Da Nang on three separate occasions. This has led to anti-Chinese riots in Vietnam.
Off Palawan, Philippine oil and gas explorer Philex has been on on-again, off-again negotiations with CNOOCregarding development of the Sampaguita field in Reed Bank.
Joint oil and gas development by China, the Philippines and Vietnam through creation of Joint Development Areasoff the Philippines and Vietnam can open the way for deeper energy market integration. This is already underway. China and Vietnam, for instance, trade electricity across their common border. In the Philippines, China’s State Grid Corp. of China is upgrading the Philippine electricity grid under a 25-year contract.
Both offer precedent.
Projects like the above could dial down tensions between China and Southeast Asia. In recent years, these have been worsened by CNOOC's placement of its Haiyang Shiyou 981 oil and gas exploration rig in waters claimed by Vietnam. In the Philppines, meanwhile, tensions still remain high with China over both countries' claims to theScarborough Shoal area west of Luzon.
Using AIIB funding to build multilaterally-useful infrastructure in Southeast Asia linking Joint Development Areas in a comprehensive plan to create the energy networks of tomorrow solves a host of problems at once.
China’s AIIB is an organization in a hurry.
It aims to disburse its first loan by the middle of this year, even though it has still to hire much of its executive staff. Given this, the AIIB should make its first investments in known projects that already enjoy wide support.
The TAGP and TAEG are perfect examples. They lay the foundation for outward expansion over time southward to Indonesia and Australia and northward to connect China, Japan and South Korea across the East China Sea.
Along the way, a host of thorny issues will be first sidelined, and later solved through cooperation and investment, not conflict and warships.