Subject: AU: Dili gas talks vital to early development of Timor reserves

Also: Timor Sea LNG plant a floater

The Australian

November 15, 2001, Thursday

Dili gas talks vital to early development of Timor reserves

Nigel Wilson

* Energy writer

GOVERNMENT-level talks in East Timor next week are seen as the last chance of early development of vast Timor Sea gas reserves.

Senior officials from the departments of Foreign Affairs and Trade, Industry, Science and Resources and Attorney-General are to hold talks with the East Timorese government in Dili in what is described as a visit "to conclude gas pipeline negotiations".

"We welcome the progress that has been made in recent talks between East Timor and representatives of petroleum companies on the outstanding fiscal issues relating to the implementation of the Timor Sea Arrangement signed in Dili on July 5," the ministers said.

But the statement's reference to technical issues that have to be resolved has Timor Sea licence holders demanding the discussions include fiscal and legal issues.

Despite talks in the past month in Dili between companies and the new administration, led by Dr Mari Alkatiri, companies claim there has been little progress on either taxation matters or security of the resource. It was these issues that led to the "indefinite" deferment of a large-diameter pipeline between Phillips Petroleum's Bayu-Undan project, now under construction, and Darwin in August.

Since then it has become clear also there is little enthusiasm from Woodside and Shell for bringing gas onshore at Darwin from the Greater Sunrise fields. Without gas either from Bayu-Undan or Sunrise the concept of building an internationally focused industrial hub in Darwin will be stillborn as will the idea of bringing Timor Sea gas to major Eastern States markets before the end of the decade.

Government officials conceded yesterday that the question of pipelines from the Timor Sea gas reserves and Darwin could not be resolved until the fiscal and legal uncertainties were settled.

The end of December is regarded as the deadline for converting a letter of intent from US energy giant El Paso to a sales and purchase agreement to buy 4.8 million tonnes a year of liquefied natural gas from the Timor Sea.Already, the exclusive nature of the LOI with the Greater Sunrise project has lapsed and Phillips Petroleum, the company that arranged the LOI, fears that El Paso will walk away by the end of the year unless difficulties with the East Timorese are settled.

Phillips, Shell and Woodside are also no closer to deciding between an onshore LNG plant in Darwin and Shell's ambitious floating LNG proposal, with Canberra under pressure from the Northern Territory administration to insist on an onshore development.Meanwhile, Australian Pipeline Trust is to increase capacity of the Carpentaria pipeline from Ballera

West Australian

November 17, 2001

Timor Sea LNG plant a floater

By Michael Weir

WOODSIDE Petroleum and US oil and gas company Phillips Petroleum have agreed to back Royal Dutch-Shell's $4 billion plan to build the world's first floating liquefied natural gas plant in the Timor Sea.

At an all-day meeting in Perth yesterday it is understood the Timor Sea partners, including Osaka Gas, endorsed the radical FLNG project as the preferred plan to develop the Greater Sunrise gas reserves.

The decision spells the end of Phillips' dream for an onshore LNG plant, throws into doubt the future of its Bayu-Undan gasfields and adds to the uncertainty about a domestic gas industry being developed in Darwin.

But the agreement is also seen as a truce among the joint venture partners and gives the rich Timor Sea assets the best chance to be developed but with Shell calling the shots.

Yesterday's meeting was the third get-together of the joint venture since Shell dropped its FLNG bombshell in August.

Despite the fact that it was Phillips which organised a $20 billion letter of intent with US-based utility El Paso to underpin its Darwin LNG project, the numbers for its project did not stack up against Shell.

Shell's proposal was said to be 40 per cent cheaper than the Phillips plan and the Dutch giant also told the partners the venture would be risk-free because it would stake its financial strength on the world-first idea.

Shell has pledged to sign a take or pay contract to buy gas from the Sunrise joint venture and guarantee to fulfil the $20 billion order for 4.8 million tonnes of LNG a year starting in 2005 for El Paso.

Shell has offered for its Timor Sea partners to take a stake in the LNG plant, but only if they would share the risk.

If any of the partners want a financial interest, it is expected to take months to bed down the complex commercial arrangements.

Under a cooperative agreement, Greater Sunrise is owned 26.6 per cent by Shell, 30 per cent by Phillips, 10 per cent by Osaka Gas and 33.4 per cent by Woodside, which is also the operator.

Shell's plan involves building an LNG processing unit on a 400-metre barge moored permanently in the Timor Sea over the Sunrise gasfields.

The barge would house a single five-million-tonne-a-year processing train about 300m long, with export shipments pumped directly into tankers moored alongside.

Domestic gas would be pumped to Darwin if a market existed.

But that appears unlikely in the near future after Canadian-based Methanex earlier this month confirmed it had scrapped Darwin as its site for a $3 billion methanol plant in favour of the Burrup Peninsula in WA.

Methanex plans to build a plant producing two million tonnes a year of methanol to supply its customers in the Asia-Pacific region and has signed a detailed memorandum of understanding with the North West Shelf partners for the supply of 200 terajoules of gas a day for 25 years from 2005.

Under the original Timor Sea development plan, a Phillips-led joint venture wanted to develop its Bayu-Undan gasfields and pipe gas to Darwin for an LNG plant and domestic downstream processing proposals, such as Methanex.

The Greater Sunrise fields would be tapped into once the shorter-life Bayu-Undan was exhausted.

But the partners have been concerned about the legal, fiscal and taxation regime under the new Timor Gap arrangement with East Timor.

That uncertainty forced Phillips to recently shelve its pipeline plan, which led to Methanex switching its position.

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