Australia and East Timor squabbling threatens gas deal

Australia and East Timor squabbling threatens gas deal

Neil Sands
Agence France-Presse
Sydney, Australia

Australia and East Timor are locked in a David and Goliath
struggle over spoils from Timor Sea gas fields, which analysts
warn could jeopardize the entire project.

Despite their aim to ratify the Timor Sea Treaty by the end of
the year, little progress has been made by either country,
causing growing impatience among oil companies keen to tap into
the liquefied natural gas (LNG).

One of them, Phillips Petroleum, has said work needs to begin
on the Bayu-Undan gas field early next year to meet contracts to
supply Japanese customers by 2006.

The company recently expressed fears that delays would cause
its contracts to default, saying "in the worst case, the gas may
not be sold for years, if at all."

At stake is what East Timorese Prime Minister Mari Alkatiri
has described as his country's passport from poverty following 24
years of Indonesian occupation that ended in 1999 -- the revenue
from Timor Sea gasfields called Bayu-Undan and Greater Sunrise.

East Timor stands to earn an estimated US$3.5 billion from
Bayu-Undan over 20 years and even more from the larger Sunrise
field.

"This is the money we will use to treat tuberculosis, for
education," a spokeswoman for the East Timor government's Timor
Sea Treaty office said.

With aid from the United Nations set to dry up in 2004, the
oil and gas revenue is vital to East Timor, one of the world's
newest, and poorest, nations.

John Colnan of Shaw Stockbroking said there was a real risk
oil companies could abandon both gas fields if political problems
continued to delay development.

"With any resource you have a window of opportunity to sell
into the market and LNG is going strong globally right now,
particularly with developments in northern Asia," he said.

"But if the Timor Gap issues aren't resolved before that
window closes if could be five or six years before conditions in
the market improve. International companies will move on
elsewhere, that's how capitalism works."

A treaty signed in May gave East Timor 90 percent of revenue
from a 62,000 square-kilometer (23,900 square-mile) joint
petroleum development zone that encompasses the Bayu-Undan field.

But how to divide revenue for Sunrise, which straddles the
development zone and Australian maritime territory, remains a
sticking point preventing the treaty's ratification.

The Australian government will not ratify the treaty until the
so-called "unitization" is resolved, despite East Timor's
requests for the issue to be handled separately.

East Timor has asked for a greater percentage of potential
Sunrise revenues, but Australia has refused to budge, opting
instead to withdraw from the jurisdiction of the International
Court of Justice for the arbitration of maritime boundaries to
forestall any East Timorese claim to the Sunrise land.

Australia-East Timor Association convener Andrew McNaughton
accused Australia of abusing its power to try to force the East
Timorese into an unfair deal.

"The concern is that Australia will use its disproportionate
power over East Timor, will use the fact that East Timor
desperately needs money coming into its treasury to get them to
accept a deal that runs the risk of being disadvantageous in the
long term," he said.

Talks on the treaty's ratification were to resume next month.