Subject: Age: Disparate elements play havoc in the Timor Sea

The Age April 18 2002

Disparate elements play havoc in the Timor Sea

By Rod Myer

The impasse between joint venture partners in the Sunrise gas deposit in the Timor Sea highlights doubts over plans to pipe gas from beyond Australia's north coast to SouthEast Asia, and illustrates how unstable joint ventures can be.

Woodside last year decided it wanted to reduce its development risk on the Sunrise project so it brought in a major player, Phillips Petroleum, which took 30 per cent.

The consortium, Woodside, Shell, Phillips and Osaka Gas, looked at the economics of bringing Sunrise onshore and sending part of its output down a pipeline to southern Australia but decided, according to Woodside, it did not stack up.

They have opted instead for a $5 billion floating platform technology developed by Shell. This means no gas for southern markets; the technology is designed to export bulk LNG to Japan, China and North America.

Phillips is now objecting, saying it wants onshore processing and a southern pipeline, and plans to tell Prime Minister John Howard why, in a meeting today. As a joint venture partner it can stall the whole project if it does not get its way.

Woodside and Shell have 60 per cent between them so the platform will be built or the project will be scrapped, but the onshore option is history.

Since the days of the errant visionary of the Whitlam ministry, Rex Connor, who advocated questionable borrowing to fund a national pipeline, the transfer of gas from the north has been seen by its proponents as a holy grail in national development.

Two likely candidates have emerged in recent years, with each being accepted as the favourite. Along with the Timor Sea, there is a plan by Australian Gas Light and Malaysia's Petronas to pipe gas from highland Papua New Guinea down the Queensland coast.

One northern believer is Bill Nagle, chief executive of the Australian Gas Association, a retail gas industry lobby group. "Our very strongly held position is that after 2006 we will need (gas from) the Timor Sea or PNG or somewhere else," Mr Nagle says.

Supply is an issue, and AGL and Origin Energy are restive. They face a renegotiation of their supply contracts from 2006, and see the prospects of higher prices as the Cooper Basin gas fields begin to wane.

Both have taken different paths to compensate for that perceived shortage. AGL says the northern option is the way to go; it has pinned its hopes on the $1.5 billion PNG pipeline which would earn it a return and get gas to its major markets via the Moomba terminal.

Origin, on the other hand, is looking south, saying the answer lies in getting more gas from the Southern Ocean. It has pledged to build a pipeline between Victoria and South Australia to carry gas from the Otway fields which, as an equity partner, it plans to develop.

Origin spokesman Tony Wood says talk of piping gas from the north discourages southern exploration. Nonetheless, he believes new fields such as Yolla, Minerva, Thylacine and Geographe will provide significant supplies in the future.

With Sunrise off the agenda, the northern option depends on PNG getting up. AGL has pledged to take 50 petajoules a year but the developers need contracts of 140 petajoules to bring the $6 billion project to life.

That means signing big contracts with power stations and smelters in North Queensland, which may not happen fast enough to bring gas in by 2006, and the southern fields will have to carry the load.

But with the PNG deposit holding 15 trillion cubic feet, the North West shelf 80tcf and Timor at least 22tcf, while Bass Strait has at best 5tcf left and the Otway maybe 3tcf, the northern option will one day be implemented.

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