IHS Global Insight Perspective | |
Significance | East Timor and Woodside have increasingly been pursuing their own separate development plans for the Greater Sunrise project over the past year, although tensions have come to a head now that Woodside is preparing to deliver its final development proposal to the Australian and East Timor governments. |
Implications | Woodside is keen to reach agreement on the project as Greater Sunrise, together with its Browse Basin and Pluto LNG projects, is important to the company's future growth prospects. However, Woodside has made little indication that it is ready to drop the Darwin proposal, stating that under an international unitisation agreement it is required to develop the field to the best commercial advantage. |
Outlook | East Timor's statement threatens to delay the Greater Sunrise project from its 2013 completion date, particularly as the government is less likely to compromise on the issue due to it currently receiving petroleum revenues from other offshore fields and because Greater Sunrise has turned into an emotive political issue in East Timor. |
Duel at Sunrise
Following comments by Secretary of State Agio Pereira that East Timor would block Woodside Petroleum's development plan for the Greater Sunrise gas field, the government is now considering inviting Malaysia's Petronas to be a development partner for the project. According to Manuel Mendonca, director of communications for East Timor's Ministry of Natural Resources; "from (East Timor's) side, we just want to bring the pipeline to (East Timor) and we have differences in position on the options so we will contract another company to develop Greater Sunrise if Woodside does not change its position. The Malaysian company Petronas is qualified to develop the Greater Sunrise field". Petronas stated that it was inappropriate to comment on whether it would consider stepping in to develop the field at the present time, but did not rule out the suggestion, saying that Petronas had been working with East Timor and would continue to do so.
Over the past year East Timor and Woodside have increasingly been moving in opposite directions on the Greater Sunrise field. Not trusting the conclusions of Woodside's feasibility studies to determine costing of the various pipeline proposals, the government along with Petronas have carried out their own studies. A survey by the United States company DeepGulf Incorporated has reportedly come up with conflicting conclusions to those reached by Woodside, which claims that the Timor Trough, a 3,350-metre chasm in the seabed between the field and East Timor, would significantly increase the cost of piping gas to the country. East Timor also signed a memorandum of understanding (MoU) with South Korea, which gives the country top priority over output from the Greater Sunrise field, which appears to have been made independently of the Woodside-led consortium (see East Timor: 14 October 2008: East Timor Signs Greater Sunrise Gas Deal with South Korea).
The comments of East Timor's government come as Woodside Petroleum prepares to deliver the final development proposal to the Australian and East Timor governments, which both have jurisdiction over the field through the Joint Petroleum Development Authority (JPDA). Woodside Petroleum is widely believed to favour piping gas from the field to the existing Darwin LNG facility in north-west Australia. While the pipeline to Darwin would be around three times as long as one to East Timor, Woodside is believed to favour the Darwin option as it would save costs on terminal construction and because Australia is widely viewed as a more stable country, which would reduce operational risks for the consortium and facilitate gas sales agreements with regional buyers. Although East Timor would still benefit from petroleum revenues, taxes, and training opportunities, even if gas is piped to Australia, the government is keen for output to go to its shores to provide feedstock for a planned natural-gas-fired power plant and a petrochemical facility. The consortium's other proposal for a floating LNG plant over the gas field, which could load output onto tankers for export to customers, has also been rejected by the government. This option would require a re-gasification terminal on East Timor so feedstock could be used for the planned power and petrochemical plants. East Timor is a new country with a recent history of having its interests crushed by more powerful neighbours. This could feed into the country’s strong reaction against attempts to undermine its hopes for developing the field.
Outlook and Implications
The Woodside-led consortium is keen to come to an immediate agreement on the field. A large number of LNG liquefaction projects are currently under development in the Asia-Pacific region and are due to come online over the next five-or-so years. Delays in developing the Greater Sunrise project, which holds estimated gas reserves of 5.4 tcf, could put Woodside at a disadvantage in securing long-term customers. Greater Sunrise is one of the three big development projects that are integral to Woodside's future growth prospects, the others being the Pluto and Browse Basin LNG ventures, so the company will want to launch development as soon as possible. However, whether this means the company will compromise with plans to pipe gas to East Timor is uncertain. Woodside has stated that under the international unitisation agreement, the company is required to develop the Greater Sunrise reservoir to the best commercial advantage and Woodside reportedly has evidence to that effect. Any development solution also requires approval by the Australian government, which is perhaps more likely to support the Darwin or floating LNG development plans.
East Timor can afford to delay a decision on the Greater Sunrise project. The small country is already generating petroleum revenues from other offshore fields such as Bayu-Undan, which launched production in 2004 and has an expected commercial life of 15 years. A licensing round in 2006 that attracted a host of companies to invest in upstream acreage including Eni, Petronas, and ConocoPhillips has overwhelmed East Timor's National Petroleum Authority (NPA) with work, which already encouraged the government to delay its second licensing round (see East Timor: 11 September 2009: Oil Licensing Round Delayed Due to Regulatory Reforms in East Timor). East Timor is likely to stand firm on its proposals in the near term, particularly as the Greater Sunrise issue has become quite an emotive political issue in the country.
Although negotiations between Woodside and East Timor's government are ongoing, it appears the two sides are far from a compromise. The end-of-2009 deadline for the Greater Sunrise development plan now looks like another false dawn for the project, which will most likely miss the 2013 deadline. However, the Certain Maritime Arrangements in the Timor Sea (CMATS) treaty, which provides for equal distribution of revenue from the field between Australia and East Timor, is due to expire in 2013. Both East Timor and Australia do not want the treaty to expire without a development plan in place, which could provide a considerable setback to attempts to exploit the field, particularly as the treaty provides for equal revenue sharing. As the 2013 deadline approaches East Timor and the Australian government might intensify efforts to resolve the quagmire over field development.