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"the debate over the technical and economic feasibility of a pipeline to East Timor has been re-activated by PetroTimor’s claim that they can construct such a pipeline. It is known that the East Timorese leadership are aware of the benefits of a small diameter pipeline ... to bring gas from Bayu-Undan to the East Timor domestic market. This potential project would enable the small country to have a secure and clean source of energy ... " G A McKee, oil industry consultant
See also: BD: TIMOR OIL - A collection of recent reports, position statements, petitions, articles and news


 

From ABC Radio Australia News  22/06/01 8:11:59

American company’s claims stall Timor Sea negotiations

Negotiations regarding oil and gas resources in the Timor Sea, off the north coast of Australia, have stalled again, with a U-S- company claiming the rights to mine the region.

The U-S company PetroTimor says it was granted the mining concessions before Indonesia’s invasion of East Timor.

The company says it can lay a pipeline to Timor rather than Darwin, which would see Australia miss out on millions of dollars in royalties.

The U-N negotiator on the case says if the company’s proposal is possible, it would be a far better outcome for the East Timorese since it would provide them with infrastructure, employment and revenue.


Pipeline to East Timor?

Comment

by G A McKee
Email: gamckee@ozemail.com.au

Ambassador Peter Galbraith’s interview on ABC national television news last night may turn out to be more of a bombshell than his 9 April APPEA (Australian Petroleum Production & Exploration Association) address in Hobart, Tasmania.  On that occasion, Galbraith and economics minister Dr. Mari Alkatiri reminded the Australian oil industry that if Australia did not recognise East Timor’s legitimate rights under international law, this could lead to a delay in project development.  What followed was quite a reaction in the Australian media.

It is interesting to observe that the East Timorese now appear to be ‘raising the stakes’ in the negotiations, bringing up two controversial issues in one hit.

Firstly, Australia is reminded of the very shaky legal validity of all exploration permits issued under the now defunct Timor Gap Treaty.  Entering this arena may be an outcome which all participants may really wish to avoid.  Hopefully being reminded of the existence of this legal quagmire will act as a ‘deterrent’ and focus the minds of the Australian negotiators on how it can avoided.

Secondly, the debate over the technical and economic feasibility of a pipeline to East Timor has been re-activated by PetroTimor’s claim that they can construct such a pipeline.   It is known that the East Timorese leadership are aware of the benefits of a small diameter pipeline - or alternative LNG or CNG transportation scheme - to bring gas from Bayu-Undan to the East Timor domestic market. This potential project would enable the small country to have a secure and clean source of energy amounting to only about 7% of Bayu-Undan’s gas reserves over a 30 year project life.  The alternative is continuing reliance on imported diesel, estimated consumption of which is in the order of 5 million tonnes during the next 30 years, costing the country over US$1.1 billion in hard currency.  Natural gas could be considered as a part of Timor Gap royalties, as ‘part payment-in-kind’.   A diesel based economy incurs other costs including environmental deficits and lost opportunities for industrial development based on a cheap, secure and clean energy source.
 

Pipe dreams

There is no reason why there could not be two pipelines, one heading south from Bayu-Undan to Darwin, and a smaller one heading north. It could be seen as a case of “both/and” rather than “either/or”.  Political stability is a pre-requisite for capital-intensive LNG export projects, and this is clearly the main reason why international banks would favour Darwin for large-scale infrastructure developments.  The other argument for Darwin is access to the larger Australian domestic gas market, without which a large-diameter pipeline could not be economically justified.  Maybe if Phillips Petroleum supported the idea of investigating the supply of gas to East Timor - in addition to LNG exports via Darwin - then they would make a valuable contribution towards resolving the current impasse.

Phillips Petroleum effectively killed the pipeline debate 12 months ago when Mr. Jim Mulva, chief executive, made public statements to the effect that it is “impossible” to construct a pipeline across the Timor Trough (Dow Jones Newswires, 25 June 2000).  Ten months earlier, on 8 September, 1999, Phillips Petroleum’s Mr Jim Godlove was asked at the Senate East Timor Enquiry to comment on the northern pipeline route from Bayu-Undan. He stated that such route is impossible because “the trench is too deep and too seismically active”.  Mr Godlove mentioned that Phillips funded “a very significant engineering study” in order to come to these conclusions, and the study had been issued to the Joint Authority.  Mr. Robert Mollah, Australian Executive Director of the Timor Gap Joint Authority stated to the undersigned on 20 July, 2000 that he “is not in a position to release such a study at this time”.

When the President of INTEC Engineering of Houston, USA - one or the world leaders in offshore deepwater gas pipeline technology - was asked to comment on the feasibility of crossing the Timor Trough, he replied:
“Our deepwater pipeline experience indeed gives us the confidence that a pipeline in several thousand meter water depth is feasible even in rough terrain. We found acceptable routes for the Black Sea crossing and the Oman-India pipeline, both of which had severe shore approach problems. As far as seismic risks are concerned, we did a large amount of work on the Malampaya pipeline in the Philippines which crosses coral areas, active faults, slopes of underwater volcanoes and areas of potential turbidity flows”
 

In the shoes of Oceanic Exploration............

Following Mr Galbraith’s interview on yesterday’s national news, a worried looking Mr Jim Godlove, spokesman for Phillips Petroleum, intimated that Phillip’s rights in the Timor Gap were “enforceable”.  This is very strong language.  East Timorese rights are not based on economic clout but on international law.   Unfortunately, at this time in the world’s history, international law is practically unenforceable.  The implication of Mr Godlove’s comment is that “might is right”.  It can be argued that Phillips Petroleum accepted certain risks when it was prepared to invest exploration dollars under the framework of a Treaty which did not have the support of the international community.  It was a treaty that relied for it’s very existence on military aggression aimed at suppressing the right of East Timorese self-determination.

José Ramos-Horta’s warnings were not heeded when he wrote in1990 following the signing of the Timor Gap Treaty:
“Australian oil companies would be well advised not to jump into the Timor Gap area. A future government of an independent East Timor would certainly review all oil exploration agreements in the area and will not be bound by any agreement signed by third parties. Australian oil companies that join in the violation of the Timorese maritime resources might see their licences revoked and the exploration and drilling rights transferred to American companies such as Oceanic Exploration of Denver, Colorado. A good advice to Australian business: wait and see how things develop in the next 5 to 10 years.” (in Sasha Stepan, Credibility Gap, ACFOA Development Dossier No.28, October 1990,  Preface p.iv.)

Legal experts within the Australian oil & gas industry have always been aware of the rights of fellow oil explorer Oceanic Exploration of Denver, Colorado. The oil industry takes a very dim view - with much justification - of governments which expropriate legitimately acquired oil exploration rights .  If Mr Jim Godlove was an employee of Oceanic Exploration rather than Phillips Petroleum, his arguments for the ‘enforceability of these rights would probably be unchanged.  Seven years ago, Mr Peter Reid, one of the Australian oil industry’s foremost legal experts on northern maritime border issues, in an address to the APPEA conference held in Sydney, dwelt at length on the legal status of the Oceanic Exploration permit issued by Portugal and covering most of what is now called ‘ZOCA’.  “The status of this permit is unclear even today” he then concluded (see APPEA Journal, 1994, Part 2, p188)
The Timor Gap Treaty, being a significant obstacle to East Timorese self determination, had to be treated with ‘kid gloves’ by the East Timorese side in the critical and politically sensitive 1998 / 1999 period.   The ‘successor state’ approach was welcomed by Australian interests when it became clear that the East Timorese would achieve independence.  However, now, faced with building a new nation state from a country ruined, circumstances are very different.  It is hoped that East Timor’s negotiating strategy will be successful in bringing about a mutually agreed framework for project development.  I am optimistic that a win-win outcome will eventually be achieved, although the problem seems to be how this can be bought about in a short time-frame so as not to delay existing project developments.


See also:
BD: TIMOR OIL - A collection of recent reports, position statements, petitions, articles and news


BACK DOOR Newsletter on East Timor      home    June news
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