PERTH Aug 30 East Timor is offering to invest $800 million to build a pipeline to take gas from the Timor Sea to the tiny nation, as it makes a new pitch to resolve a dispute with Australia's Woodside Petroleum over how to develop huge fields in the area.
East Timor has insisted for a decade that a liquefied natural gas plant to process gas from the Greater Sunrise fields should be built on its shores, bringing with it much-needed development. Woodside says the plan is uneconomical and wants to use a floating LNG plant.
Industry insiders say the chance of a near-term breakthrough remains slim, despite the new gambit. That is partly because East Timor also wants to unpick a revenue-sharing agreement after accusing Australia of engaging in espionage when the treaty was struck.
Australia will not confirm or deny the allegations, but has said the accusation is not new.
East Timor has filed for arbitration and if it overturns the treaty, it could open up discussions on a disputed maritime border, risking further delays to the project.
East Timor Secretary of State for Natural Resources Alfredo Pires said Dili is prepared to invest $800 million in a pipeline to help move things forward, using funds from its $14 billion Petroleum Fund.
"It's an indication of our willingness to take on some of the risks of the project," Pires said by telephone, adding it would be a commercial investment and could return around 7 percent, above the 2 to 3 percent the fund is currently seeing.
Soaring costs and the prospect of competition from U.S. shale gas to supply Asia customers have already threatened the future of a number of LNG projects around Australia.
Woodside has previously estimated that an onshore plant in East Timor would add as much as $5 billion to analysts' $12 billion cost forecast to develop the fields using floating LNG.
East Timor says a project using an onshore plant would cost $12-$13 billion and that floating LNG faces a greater risk of cost blowouts because it is a new technology.
Woodside declined to comment on Pires' offer to invest in a pipeline, pointing to an earlier statement from the firm that it remained committed to developing Greater Sunrise.
"We value our relationships with the Timor-Leste (East Timor) and Australian governments, and seek tripartite alignment to allow the timely development of this resource for the benefit of all stakeholders."
Six months ago, Woodside said there could be a window of opportunity for a decision to develop the project in 2013 and analysts still saw the project coming online in 2018.
But in a recent speech to investors arranged by UBS Woodside's chief Peter Coleman showcased its most prospective projects and Sunrise was the only big development not mentioned.
"There is logic to the fact that it wasn't mentioned and therefore in their eyes it ranks behind a lot of the other projects they have on their slate," John Hirjee, an analyst with Deutsche Bank in Melbourne said.
At its results briefing last week, Woodside put Sunrise at the end of a list of around 10 developments, with initial design work for the project beginning of 2016.
In the last year, Woodside has cast a wide net for new projects, committing to buying a 30 percent stake in Israel's Leviathan gas development, joining an exploration venture with South Korea's Daewoo International Corp in Myanmar, and buying into a project in Ireland.
Woodside has already invested several hundreds of millions of dollars in drilling exploration at Sunrise but some analysts doubt it will spend more.
"Woodside's not going to spend another dollar on it," said Peter Strachan, an analyst with Stock Analysis in Perth.
East Timor's insistence on bringing gas to shore has bewildered some industry watchers who say that the benefits of an onshore site would be marginal for fields estimated to contain more than 5 trillion cubic feet of gas.
"From a strictly financial point of view, it's hard for us to understand why the government is so determined to bring the pipeline here," Charles Scheiner, a researcher with La'o Hamutuk, an independent Dili-based research firm.
But an onshore plant has become a unifying cause in Asia's youngest nation, with consensus across political parties.
In past years, East Timor has threatened to pursue other development partners, such as Malaysia's state oil firm Petronas, and Pires says that there remains plenty of interest.
"We'll have no shortage of interest if anyone wants to leave. There will be others who will jump in," Pires said. (Editing by Ed Davies)