Sunrise LNG in Timor-Leste: Dreams, Realities and Challenges
A Report by La’o Hamutuk
Petroleum will be the most important factor in Timor-Leste’s economy and government budget for the foreseeable future. Revenues from oil and gas already comprise 50% of the country’s Gross National Income (GNI) and supply more than 90% of its government revenues. To date, this is entirely from offshore, upstream development, with downstream processing done in other countries. It is the hope of many Timorese, including the Timor-Leste government, that Timor-Leste will soon receive revenues from downstream (refining, processing and gas liquefaction). The most likely near-term possibility for this is an undersea pipeline from the Greater Sunrise gas field to the shore of Timor-Leste, with a liquefaction plant and Liquefied Natural Gas (LNG) tanker port to process the gas and ship it overseas.
People are imagining the wonderful things that will happen if the pipeline comes onshore in Timor-Leste: it will stimulate local economic development, spin off to boost the local and national economy, and create employment opportunities for Timorese workers. However those dreams and expectations will be difficult to realize in Timor-Leste in the current context of the new nation.
The government’s Petroleum Act and Petroleum Fund Act set out a legal framework outlining the transparent and prudent management of petroleum revenue and currently Timor-Leste has more than one billion U.S. dollars in the Federal Reserve Bank of the United States. Despite this, over half of the population continues to live in poverty, unemployment is widespread, infrastructure is weak, trust in security has broken and the laws that should protect human rights, land, economy and environment are not yet in place. The causes of these problems – fragility and inexperience of state institutions, lack of human resources, inability to execute the budget – must be overcome before a project like the Sunrise LNG plant can be used safely and effectively to benefit current and future generations.
In 2006, La’o Hamutuk began to research the implications of the development of an LNG processing plant in Timor-Leste. The research was conducted over four months and involved interviews with communities, traditional and local government leaders, oil companies and key government and civil society players in the petroleum sector. With the assistance of outside technical and economics experts, we reviewed relevant documents to conduct an environmental and social analysis of the proposed project, learning from similar projects in other countries, and their people’s experiences with oil and gas development.
The purpose of this report is to explore the benefits and costs, the risks and opportunities that a pipeline and LNG plant could bring to Timor-Leste, so that our citizens and leaders will be better informed as they consider whether such development would be beneficial for the country. We tried to identify specific actions to maximize benefits and minimize risks to ensure that Timor-Leste gains more from this project than it will lose. We do not attempt to predict what the development decision will be. Rather, we hypothesize that Australia, Timor-Leste, and the companies decide to build a pipeline to Timor-Leste and an on-shore LNG plant on the south coast. If this were to happen, Timor-Leste’s people need to know the advantages and disadvantages of such a project, and our government needs to take actions now to maximize the gains and minimize the dangers.
In order to make this report useful and understandable by people with limited technical knowledge of the oil and gas industry, we have included an extensive glossary of technical and economic terms used in this report in Appendix 7.
The consequences of landing natural gas and constructing and operating a gas liquefaction and LNG shipping facility in Timor-Leste depend largely on a number of factors. Firstly, to land natural gas from the Greater Sunrise field in Timor-Leste, the government will have to secure the agreement of Australia’s government and the Sunrise joint venture companies, and find companies that are willing and able to construct, operate, and responsibly decommission the pipeline and LNG facility.
In a best case scenario, such a plant could provide employment and training to Timorese employees, boost the economy of the country and the region where it is located, and provide increased tax revenues for the government, which can in turn be used for the benefit of all Timor-Leste’s people. However, the outcome could also be much bleaker. The facility could become an enclave, physically situated on the coast of Timor-Leste, but with few or no jobs for Timorese citizens, no money going into the local community, and indeed no integration at all with the rest of society— neither economically, socially, or in terms of infrastructure such as road connections. In short, it could be “in” Timor-Leste, but not “with” Timor-Leste. The worst scenario is a plant that displaces the local population, impinges on their sacred places and harms the natural environment, and is staffed by foreigners who live in self-contained living quarters near the plant, without any positive interaction with the rest of the country. It is easy to see that this would cause deep grievances and frustrations in a population that is already struggling with poverty and a history of colonialism and violence.
Which scenario prevails will depend on the actions of all parties involved in preparing for the arrival of the pipeline, plant, and port; during the construction of the facilities; and throughout the life of the project. The government, petroleum companies, local authorities, local communities, traditional leaders, and civil society, including non-governmental organizations and individual Timorese citizens will each have a role in this. To ensure that this project maximally benefits the people of Timor-Leste, and that the negative impacts are minimized, we must all be prepared for the opportunities and challenges that an LNG project will bring.
Timor-Leste’s people have high expectations that petroleum revenue will improve their lives and that the processing of petroleum will provide them with employment opportunities, attract local economic development and extract investment. In informal and formal discussions with communities, people expressed their hopes that petroleum revenues should be used for national development: improving agriculture, improving the health system, improving the quality of education, and improving the infrastructure so their children can go to school, receive adequate health care, have access to media and have better opportunities than they themselves had.
However, if we look around the world, petroleum development is often not a blessing, but a curse. The global record shows that many countries rich in petroleum wealth are low in Human Development index, have high poverty levels, authoritarian systems, environmental degradation, militarism, human rights violations and corruption. Although oil can bring money, it also brings problems. In countries like Timor-Leste, where our economy and government are dependent on petroleum income (90% of GDP and 95% of government revenues come from oil and gas), these dangers are even harder to avoid. It is critical to manage both the money and the industry well, and good models are hard to find.
Timor-Leste’s leaders have often stated their commitment to learn from the experiences of other countries to avoid the “resource curse.” However, this commitment needs to be more than only a political statement, and should be implemented in laws and regulations, and with strong public institutions. So far, the Government appears to have been successful in petroleum development, by establishing some basic legal foundations, However it is too early to be know if such steps will ensure prosperity for future generations of Timorese and much work is still to be done in order to realize the dreams and expectations. Since the Government has committed to bringing the pipeline onshore to Timor-Leste, there are several steps which should be taken now:
La’o Hamutuk believes that it would be to Timor-Leste’s advantage to extend the period of Sunrise production by reducing the rate at which gas is extracted and liquefied. Timor-Leste will get more spin-offs from operating than from construction, and a longer project lifetime allows for more “Timorization.” Timor-Leste would also benefit if the project started later, giving us more time to prepare to receive its benefits.
An LNG plant could potentially be of major fiscal and economic benefit for Timor-Leste. In addition to significant downstream tax revenues and some employment, we could receive secondary economic effects in local and national business booms through sub-contracts for construction, and a general increase in economic activity. However, under the current circumstances, Timor-Leste will not gain as much as many people are expecting. The project runs a risk of becoming an enclave, with no spin-off benefits to Timor-Leste, and therefore several measures are needed to maximize fiscal and economic impact:
Employment opportunities created by an LNG plant could assist Timorese people in shifting from subsistence agricultural work into more lucrative agricultural production and stimulate employment in other sectors including manufacturing and public sector projects such as health, education and infrastructure. This would serve to stimulate the economy and develop corporate and individual skills for Timorese people.
However the dreams of many people that bringing the pipeline to Timor-Leste will provide job opportunities for many Timorese workers may be illusory as most of the well-paying jobs require a level of technical expertise that currently doesn’t exist in Timor-Leste. During the two to four year construction phase, there will be opportunities for short-term work for local people, but during the following 40 years of operation, the plant will require very few people, mostly with specialized skills. Indirect employment opportunities through demand for goods and services would also be limited by the localized demand for these goods and services and the localized current capacity to meet this demand. As Timor-Leste has experienced under UNTAET administration, a high international presence does not ensure economic growth if wages are spent overseas and products consumed are imported. In addition, Timor-Leste’s current labor laws do not ensure the rights and protection of those employed to adequately protect workers from exploitation.
Whether Timorese get jobs at the LNG plant will depend very much on the training policies the government manages to implement before the construction period, as well as the extent to which contractors are required to utilize local resources. Ideally, the expertise of foreign contractors should be used not just to construct the facility but also to train local workers, and this could be made part of company contractual requirements.
Although the project promises positive effects, it also carries risks of negatively affecting Timor-Leste’s people. A national-interest endeavor, such as the LNG project, endangers local community land rights, threatens livelihoods of communities, and could destroy existing sacred places and infrastructure reflecting traditional values of the community. A huge influx of foreign workers further threatens local economies such as fisheries and agriculture, and could increase the vulnerability of women, elders, and children.
Women in Timor-Leste stand to gain less from the positive impacts of possible LNG development and suffer more from the negative. Timorese women play a crucial role in the economic and social management of the family and comprise a significant proportion of subsistence farmers. Although women’s rights as equal to men are enshrined in the constitution, women continue to face challenges in accessing these rights including limited rights to land tenure, livelihoods, health services, and education.
An LNG Project will introduce many new environmental problems. The project could double Timor-Leste’s carbon dioxide emissions to the atmosphere and will generate significant amounts of polluting materials, such as hydrogen sulfide, oils, garbage, sanitary water, and other waste.
Although an LNG plant would be less harmful to the environment than a processing plant for oil or coal, pollution impacts of the plant include the release of increased greenhouse emissions from burning gas, possible methane leakages and waste discharge polluting Timor’s oceans and rivers. The RDTL has drafted a Protection Control Law which would mitigate the risk of pollution through the issuing of licenses requiring companies to conduct Environmental Management Plans however to date; this legislation has not been passed.
In addition to pollution, LNG development will also impact on the environmental stocks present in Timor. Use of land and waters for construction, operation and the needs of an influx of laborers will lead to the loss of vegetation cover and habitats for animals. The associated increase in demand for water can also reduce the water table, leading to the degradation of environmental resources for future generations of Timorese.
The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)