MANILA (Reuters) - The Philippines and China have agreed to set up a special panel to work out how they can jointly explore oil and gas in part of the South China Sea that both sides lay claim without having to address the explosive issue of sovereignty.

FILE PHOTO: Chinese structures are pictured at the disputed Spratlys in South China Sea April 21, 2017. REUTERS/Erik De Castro/File Photo

China claims most of the South China Sea, where $3 billion in sea-borne trade pass every year, and has competing claims in various parts of it with Brunei, Malaysia, Taiwan, Vietnam and the Philippines.

“It’s just the start of a process,” Philippine ambassador to China, Chito Sta. Romana, told reporters late on Tuesday after diplomats from both sides met for the second time under a bilateral mechanism aimed at defusing longstanding maritime tensions.

He said the decision to form a working group on cooperating on energy was a “breakthrough”.

Forming an agreement for a joint project would be extremely complex and sensitive as both countries claim jurisdiction of the site of the oil and gas reserves, so sharing them could be deemed legitimizing the other side’s claim, or even ceding sovereign territory.

The idea of joint development was first hatched in 1986, but disputes and the sovereignty issue have stopped it from materializing.

But time is of the essence for the Philippines, which relies heavily on energy imports to fuel its fast-growing economy. That is complicated by estimates that its only domestic natural gas source, the offshore Malampaya field, will be depleted by 2024.

Sta. Romana said a second coordinating group was created to address sovereignty issues and “to prevent any crisis from escalating”.

The Philippines in 2011 accused Chinese ships of harassing a survey vessel hired by a Forum Energy, which won a contract to explore oil and gas in the Reed Bank, near the Spratly.

The Philippines went the Permanent Court of Arbitration in the Hague in 2013 to question that, among other bones of contention.

The tribunal’s 2016 ruling, which China refuses to recognize, included clarifying that the Reed Bank was within the 200 nautical mile Exclusive Economic Zone of the Philippines and therefore it had sovereign rights to exploit resources there.

A senior Philippine official also said Southeast Asian countries and China would next month start negotiations on a long-awaited maritime code of conduct.