East Timor faces tough talks on boundary, oil and gas

East Timor faces tough talks on boundary, oil and gas

Dow Jones, Canberra

East Timor, the world's newest nation, will have trouble
settling its disputed maritime boundaries with Australia, Stephen
Sherlock, an analyst at the Australian Parliament library, said
Thursday.

At stake are potentially huge royalties from energy production
in the area.

East Timor wants to settle the issue in such a way as to
increase potential revenue from the development of oil and gas
resources in the Timor Sea, between the two nations, but it isn't
in a very good bargaining position.

"Actually they don't really have any leverage to make
Australia come to the negotiating table," he said in an interview
on Australian Broadcasting Corp. radio.

If Australia says it doesn't want to negotiate new boundaries,
then the only way for East Timor to bring Australia to the table
is by applying enough domestic or international pressure to do
so, he said.

East Timor could theoretically line up with Indonesia on the
issue and seek joint talks on the issue, but "there's no sign
that Dili and Jakarta are getting together or even that there's
any serious discussion in either capital about it."

"It's something that may happen in the future but there's no
sign of it actually happening" now, he said.

"Since the issue potentially involves major economic assets,
the success of future trilateral relations between East Timor,
Indonesia and Australia may depend on a final resolution," he
said in a research paper issued by the library.

East Timor came into existence May 20, and immediately signed
the Timor Sea Treaty with Australia.

The treaty is the fundamental document setting out how the
economic benefits of energy developments in a Joint Petroleum
Development Area in the Timor Sea are shared between the two.

The treaty, which hasn't yet been ratified, was established
without prejudice to the setting of maritime boundaries between
the two nations.

East Timor didn't establish maritime boundaries with Australia
or any other nation and it didn't inherit any boundaries that
existed prior to May 20.

Sherlock said East Timor agreed to put aside the seabed
boundary issue because it didn't want to jeopardize a possible
flow of revenue that likely will come from energy production in
the Joint petroleum Development Area in the next several years,
namely the Bayu-Undan project, operated by Phillips Petroleum Co.

First stage of Bayu-Undan, to strip condensate and liquefied
petroleum gas from wet natural gas and reinject the dry gas into
the offshore reservoir, is scheduled to begin production early in
2004.

Australia refused to agree to a new seabed boundary and new
talks on the matter might have stalled investment in energy
exploration and production in the area, he said.

In June, Prime Minister Mari Alkatiri said East Timor will
make its claim for the maritime boundary with Australia "under
international law."

East Timor previously has said it wants the boundary set at
the midpoint between the two nations.

But Australia wants to retain the boundary that operated up to
May 20, which is at the edge of Australia's continental shelf,
well north of the midpoint and just off East Timor's south coast.

Sherlock said Australia could be at a disadvantage in boundary
talks given changes in law of the sea and general international
practice in the past 30 years.

When Indonesia and Australia signed agreement on maritime
boundaries covering the Timor Sea in 1972, the principle was that
a nation's maritime boundary ran along the edge of the
continental shelf, he said.

"Things have changed since then and generally its recognized
that there should be a median, a midway line drawn between two
countries that share a particular sea," he said.

If the midpoint boundary is accepted, Australia could lose
billions of dollars in potential revenue from royalties from the
proposed Greater Sunrise project on the eastern edge of the Joint
Petroleum Development area.

The Greater Sunrise gas field falls 20.1 percent within the
Joint Petroleum Development Area while 79.9 percent falls
exclusively in Australian territory.

Greater Sunrise joint venturers, Woodside Petroleum Ltd.
Phillips, Royal Dutch/Shell Group and Osaka Gas Co. Ltd. are
still considering development options for the project.

Woodside and Shell want a floating liquefied natural gas
facility constructed at Greater Sunrise with first production in
around 2007.

Alkatiri has said he welcomed a preparedness by Australia to
discuss the boundary issue and that he wants the "problem of
maritime boundaries (to) be resolved within a reasonable period
of time."

Sherlock said East Timor is in a weak position to pursue its
case because recourse to the International Court of Justice has
been cut off by Australia's withdrawal announced March 25, 2002,
of acceptance of the court's jurisdiction on maritime boundary
issues.

East Timor leaders later described this move as an "unfriendly
act."

Last month Australia and East Timor representatives both said
they want to conclude a unionization agreement that will allow
development of Greater Sunrise by the end of the year.

The unitization agreement is necessary because Greater Sunrise
straddles Australian territory and the Joint Petroleum
Development Area.

An international unitization agreement, a relatively common
feature in the oil industry, allows for unified development of a
field where two countries agree on development of a shared
resource.

Developers of the Great Sunrise project have said they won't
go ahead until the agreement is reached.