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
"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)