Subject: Dili delivers Woodside broadside
June 10, 2010
Dili delivers Woodside broadside
By Simon Roughneen
East Timor's government has declined a proposal by Australian oil and
gas company Woodside to process gas drawn from the Greater Sunrise field
on board a floating liquefied natural gas (LNG) plant in the Timor Sea,
claiming that it would be deprived of tens of billions of dollars in
much needed revenues under the arrangement.
As the conflict between Australia's second-largest energy company and
one of the world's newest and poorest island countries (whose official
name is Democratic Republic of Timor-Leste) escalates, there is no quick
resolution in sight. Dili may seek to prevent the plan coming into force
and thereby seek a revision of the three treaties that underpin the
Greater Sunrise project. Under the current agreement, East Timor has
only the option to veto any arrangement to extract the gas which it
Dili has accused Woodside and its partner companies of ''grandstanding''
over their plans for the multibillion-dollar floating processing
project, and has said under no circumstances would it consent to the
plans. The government also claims that the company has not followed all
the procedures outlined in various international agreements between East
Timor and Australia.
For its part, Woodside says that an onshore plant in East Timor
"presents significant technical risks", according to a presentation
(available on the Woodside website) given by chief executive officer Don
Voelte to an investors conference in Sydney on June 3. Citing concerns
about running a pipeline through the "seismically-active" 3,000
meter-deep Timor Sea trench to the Timorese coast, Woodside says that
East Timor's infrastructure deficit would add "approximately US$5
billion" to the capital cost versus the projected cost of the floating
plant. The company has accused the East Timor government of "posturing".
Dili has latched on to Woodside's admission that "there were no
technical impediments" to processing the LNG onshore in East Timor.
According to Dili-based La'o Hamutuk, also known as the Timor-Leste
Institute for Development Monitoring and Analysis, the country's State
Secretariat for Natural Resources (SERN) created a Sunrise Task Force in
mid-2008 "to develop their own information on the technical, economic
and social aspects of the Sunrise project."
That task force has been supported by Malaysian energy giant Petronas
and Korea Gas, suggesting that Dili is courting other multinational
suitors to exploit its share of the field as a counterweight to its
existing commercial arrangements with Woodside. East Timor has said that
it does not want to be Woodside's "guinea pig", claiming that there are
as yet no other floating LNG processing projects in place anywhere in
"This argument is weak ... such projects are underway around the world
from Brazil to Indonesia," said Anatoliy Kurmanaev, oil and gas analyst
at Business Monitor International. "There are inherent risks to any new
technology, but prospects for any environmental disasters are limited.
No floating re-gasification facility has had a serious leak yet and
they've been in operation for decades."
While Woodside and its partners have talked up the socio-economic
benefits that East Timor would accrue through the proposed offshore
facility, Dili says it would receive more benefit if the processing was
done onshore. With a 33% share, Woodside is marginally the largest
company involved in the Greater Sunrise project; other players are
Conoco-Phillips (30%), Royal Dutch-Shell (27%) and Osaka Gas (10%).
The commercial reality is that Woodside is making its decisions first
and foremost based on the bottom line and shareholder interests, though
in this case within the parameters set by the existing bilateral
treaties between Dili and Canberra. The Timorese government wants the
gas piped to a "greenfield" LNG processing plant on the country's
southern coast, saying that this would give the country billions in
additional energy revenue and facilitate the development of spin-off
Government spokesman Agio Pereira said those industries would help to
create "five to thirteen times the proportionate revenue" of the fuel
exploitation. In a June 4 statement entitled "https://lists.riseup.net/www/arc/east-timor/2010-06/msg00049.htmlTimor-Leste
Can Wait", the government outlined its projection that it would generate
a "minimum of [$65 billion] in additional revenue to rebuild the
impoverished nation which has endured 24 years of war before gaining
independence eight years ago".
The Australian government says it has no influence over decisions made
by Woodside and its partners. The simmering issue nonetheless threatens
to undermine bilateral relations. Australia provides A$100million
(US$90.7 million) per annum in overseas aid to its northern half-island
An April 28 statement issued by the Australian High Commission in Dili
said "Any suggestion that Australia has threatened Timor-Leste on the
issue is incorrect. Australia's long-standing position is that a
decision about development of Greater Sunrise is for the commercial
partners to make, consistent with the treaties Australia and Timor-Leste
One of the options assessed by Woodside and the joint venture partners
was to pipe the gas to an existing plant at Darwin on Australia's
northern coast. Timor watcher and professor at Deakin University Damian
Kingsbury commented on the East Timor Action Network (ETAN) website that
" the assumption that the Australian government has, more than
influence, a directing hand in this affair is incorrect".
He added that "the 'floating platform' option does not especially
benefit Australia. It is a fairly neutral outcome in terms of flow-on
benefits - one only has to go to Darwin to see the disappointment there
with the decision to know this is not a pro-Australia outcome."
However, the perception is growing in East Timor that Australia is
trying to steal Timorese gas, as seen in a number of recent angry
articles in the East Timor press that have conflated Australia's
presence and policy towards the country with the controversial Woodside
At the same time, China has pushed ahead with the latest in a series of
high-profile partnership projects, with East Timor's navy now the owner
of two new Chinese vessels. Although China's official aid to East Timor
is far less than major donors, including Australia, Portugal and the
European Union, Beijing has focused on lavish government building
efforts, such as the new Presidential Palace, that are prominent in the
public eye as Chinese gifts to the impoverished new nation.
President Ramos-Horta and others have meanwhile engaged in diatribes
against the vast overseas presence in East Timor since Indonesia's
withdrawal in 1999, adding to the perception that many Western aid
workers are vastly overpaid consultants who do little more than advise
Timorese officials. A 2009 study showed that more than US$8 billion in
aid had been spent in the country since 1999, but it remains possibly
Asia's poorest nation in real terms. A counter-argument would point to
what Ramos-Horta has described as entrenched corruption in the country's
bureaucracy as an alternative and internal inhibition to development.
Figures of per capital gross domestic product of more than US$2,000 are
based on the assumption oil and gas money will flow into the countryside
and are not a reflection of what the average Timorese actually earns or
spends. Around 90% of the population works in agriculture, much of which
is subsistence, with unemployment rising to 40% for urban youth. The US
Central Intelligence Agency Factbook's entry on East Timor says "the
technology-intensive [oil and gas] industry, however, has done little to
create jobs for the unemployed because there are no production
facilities in Timor."
Driven by energy revenues and high government spending, economic growth
has in recent years hit double digit figures, albeit from an extremely
low base. The Timorese government has big spending plans, much of which
is supposed to be financed on oil and gas largesse. Prime Minister
Xanana Gusmao recently launched a summary of his country's new 20-year
strategic development plan entitled "From Conflict to Prosperity". He
said "We are determined to take Timor-Leste out of the list of fragile
and poor states and make it a medium-income country in 15 to 20 years."
Critics argue that his government is aiming to spend existing
energy-earned funds too quickly, undermining the logic behind the
country's escrow-style Petroleum Fund, which is designed to ensure that
the country spends oil and gas revenues responsibly and has plenty of
money in the bank after the Timor Sea reserves are depleted.
East Timor is prepared to wait for Greater Sunrise if it means it gets
better terms. Charles Scheiner of
La'o Hamutuk told Asia Times Online that the 12-13 years of revenue
accruing from the existing Bayu Undan field should tide the government
over for the meantime - notwithstanding fluctuating oil and gas prices
and if the government over time spends money responsibly.
The pipeline for this field, the other major one in the Timor Sea,
already runs to Australia. Scheiner adds that East Timor would get much
more value-added from a Greater Sunrise extraction project further down
the line, and that a delay would hopefully see the country in a better
position - in terms of infrastructure, human resources and know-how - to
maximize revenues and the developmental impact of the project.
Another reason for Dili to hold off might be an opportunity to revisit
the terms for extraction from the Greater Sunrise field. If a
development plan is not approved by February 2013, or if extraction does
not take place by 2017, then either Australia or East Timor can cancel
the existing arrangements, meaning that Sunrise development would be
suspended until a new treaty was in place.
Woodside's Voelte told the conference in Sydney that the combined effect
of two of the treaties underpinning the Greater Sunrise project is "that
approximately 82% of Greater Sunrise oil and gas is apportioned to
Australia and approximately 18% to Timor-Leste."
He said that the 2007 Certain Maritime Arrangements in the Timor Sea (CMATS)
treaty between Australia and East Timor "provides for the even
distribution of upstream petroleum revenues from Greater Sunrise.
Effectively this more than doubles the petroleum revenue to be received
That assessment indicates that East Timor is getting a good deal.
However, Scheiner believes that "some of the treaties and contracts
derive out of an era of illegal occupation", referring to Indonesia's
24-year hold on its tiny neighbor, which was not recognized under
Geographically, the Greater Sunrise field is much closer to East Timor
than Australia, and under the UN Convention on the Law of the Sea (UNCLOS),
maritime boundaries are generally drawn halfway between the land
boundaries of the respective countries. That assessment would put the
field in Timorese waters, contrary to the existing maritime boundaries,
which were divvied-up between Indonesia and Australia. So Dili may have
room yet to hold out until its gets its onshore LNG plant.
Simon Roughneen is a journalist covering Southeast Asia. His website is
Back May Menu
Back June Menu
World Leaders Contact List
Main Postings Menu