The Pipeline Controversy
For both the Sunrise and the Bayu-Undan fields, the transportation of the natural gas from under the sea to its eventual customer is fraught with controversy. Some advocate one or more pipelines to Darwin, where the gas could be sold to the Australian domestic market or liquefied for shipment by tanker or truck. Others support processing the gas at sea, on the world's first floating liquefied natural gas (FLNG) processing plant. And others recommend piping the gas to East Timor for processing, so that the new country can benefit from the jobs and infrastructure which would come with the "downstream" facility.
The map shows that pipelines to East Timor would be shorter than to Australia, but the issue is complicated.
La’o Hamutuk researched this topic in depth between 2006 and 2008, publishing "Sunrise LNG in Timor-Leste: Dreams, Realities and Challenges." That report includes a reference list far more expensive than the following list, which was compiled in 2003.
Pipeline technical issues
G A McKee & Associates Pty Ltd, in his October 2002 submission (PDF) to the Australian Parliamentary Joint Standing Committee on Treaties, summarized the current state of the pipeline controversy thusly:
5.3.1 Peddling the myth of impossibility – 1999 to 2002
This statement was taken from the recent Senate Enquiry report on a certain maritime incident to our north, during the last election campaign.37 It will serve to demonstrate that such behavior is not unthinkable in Australia. By some standards this sort of mendacity may even be considered praiseworthy if it achieves what is seen to be the greater good.
It is argued that Phillips Petroleum and associated interested parties have behaved in a similar manner to undermine the vision of LNG export industry located in East Timor. It was important for the company to achieve this goal in order to facilitate the realization of the less economically attractive but also less politically risky Darwin LNG export project alternative.38
The process of manufacturing consent in East Timor in favor of Darwin-based Timor Sea infrastructure can be traced back to Mr. Jim Godlove’s statements at the Senate Enquiry public hearings in Darwin on 8 September 1999.39 This interview took place only shortly after the historic ballot in East Timor. At that time 250,000 East Timorese were being herded into West Timor by the Indonesian military and the systematic destruction of East Timor’s infrastructure was about to commence. It was not until October 25 1999 that UNTAET took over the administration in East Timor.
The transcripts of the interview are copied below for the Committee’s reference.
Senator Lightfoot, the chairman, asked:
To which Mr Godlove replied:
Ten days after Mr. Godlove’s Senate Enquiry statements, when East Timor was still burning, a media release from the Department of Foreign Affairs and Trade confirmed the government’s desire for a pipeline to Darwin:
Within a few months East Timor’s negotiators began echoing Mr. Godlove’s advice, not realizing that it was incorrect advice:
5.3.2 The "significant engineering study" – why still a secret?
Over two years ago the writer sought to discover the contents of the engineering study referred to by Mr. Godlove at the Senate Enquiry.
On July 3, 2000 we asked Mr. Godlove if he could advise who conducted the engineering study, whether the Joint Authority had approved the Darwin pipeline proposal, and whether he personally believed it was "impossible" to construct a pipeline across the Timor Trough.42 We had been in occasional correspondence with Mr. Godlove since April 1999, and had already had technical discussions with INTEC Engineering43 regarding the feasibility of a Timor Trough crossing. Mr. Godlove confirmed "the study concluded that routing a pipeline to the north was neither technically or economically feasible at this time due to depth and seismic activity in the trough. This conclusion was accepted by the Joint Authority". Mr. Godlove advised however that he was not at liberty to discuss the details of the study or advise who carried out the study.44
We wrote to Mr. Robert Mollah, Australian Executive Director of the Joint Authority, asking whether it was possible for access to the engineering study.45 Mr. Mollah replied on August 1, 2000 that "the Joint Authority is not in a position to release such a study at this time".46
We therefore commenced to seek "inside information" from oil industry contacts. On July 26, 2000 a source advised "J P Kenny did a study in 1996 that basically assessed a few routes and put budgetary costs together. Phillips Petroleum were putting a case for the Darwin line to the Indonesian government at the time. The bottom line is that a Timor Trough pipeline is feasible. From memory, diameter was an issue, and dual lines would be required if the single preferred line size was above 26-inch".
Based on this lead we were able to discover from other reliable oil industry sources the specific details of the engineering study undertaken by international pipeline consultants J P Kenny.47
In summary, the J P Kenny study commissioned by Phillips Petroleum examined three northern routes (all from Bayu-Undan). These were to Oesu on the east coast of Roti; direct to Suai; and direct to Viqueque. Estimated capital cost was, respectively, US$700 million; US$580 million; and US$610 million for dual 26-inch pipelines. These estimates were in dollars of the day (1996). It was found that pipelay tension exceeded practical limits for a single 36" pipeline above depths of about 1500m. Therefore the dual 26" pipeline option was used.
This reliable but unofficial information revealed, two years ago, that the subject engineering study in fact concluded the opposite to what the Senate Enquiry was advised.
5.3.3 Revenue alone versus fixed direct investment
Sarah Cliffe, head of the World Bank's Mission in East Timor, warned of some dangers:
The NT government’s submission refers to infrastructure benefits as "other genuine national interest considerations that may well outweigh royalty and tax revenue benefits".
"Australia might get royalties under the floating LNG scheme, but no value added. It would be a reversion to the old days where developers saw Australia just as a mine or a quarry" said Ms. Claire Martin.
Mr. Andrew Andrejewskis described the potential value added benefits at the public hearings on 3 October, 2002.
The Committee will understand that these "value added" arguments are of more relevance and importance to East Timor than they are to Australia, due to the disparity in living standards between the two countries.
The case for the necessity of fixed direct investment in East Timor – bringing jobs, education, training and spin-off industries - hardly needs to be made. It has not been strongly made by the East Timorese Timor Sea negotiators, apparently because they were led to believe a pipeline across the Timor Trough was not possible.
5.3.4 Are there sufficient domestic gas markets in Australia for Timor Sea gas?
It is concluded that Australian domestic gas supply is not a consideration for Timor Sea gas in the foreseeable future.
According to the latest ABARE gas supply/demand study, the demand for gas in New South Wales, South Australia, Tasmania and Victoria is expected to continue to be met by existing sources up until 2019-20 in combination with increased production of coal seam methane in New South Wales.51
What this means is that domestic gas supply from Timor Sea gas is not likely in the foreseeable future.
Mr. Matthew Coffey from Darwin made a good point to the Committee when he said:
If piping gas to Darwin for domestic supply is ever economically justified, then there are currently stranded gas resources that could be bought to Darwin more economically and these are in Australian territorial waters. These fields are namely Petrel, Tern, and Blacktip with combined reserves in the order of about 2 trillion cubic feet.
Shell and Woodside commenced a major study in 1999 to investigate gas supplies from Greater Sunrise to the Northern Territory and Queensland, with a long term objective to supply the Eastern states.52
A Shell spokesman said recently "After a commitment of nearly $200 million on extensive engineering and marketing efforts aimed at securing onshore domestic gas customers, we cannot find customers who are able to secure volume or price commitments which are needed to get Sunrise up and running."53
Phillips Petroleum have also initiated a similar study aimed at the domestic Australian market.54
The Committee will understand that due to adequate existing and potential new supplies of gas in the Eastern States it will be very difficult to justify the pipeline infrastructure to transport Timor Sea gas to these destinations in the short term. Indeed, this is why Phillips Petroleum and its co-venturers have currently committed the entire Bayu-Undan gas reserves for export to Japan, with nothing remaining for domestic supply.
Woodside, as the Greater Sunrise field operator, similarly favors LNG export (by means of a floating production facility) rather that domestic supply for lack of Australian gas markets.
The argument made by the Northern Territory government that the Darwin is the logical destination for a Timor Sea pipeline due to the availability of a domestic gas market is therefore very problematic.
This domestic gas argument favoring Darwin appeared to be made recently by East Timor’s Prime Minister:
What is apparent here is the dubious quality of advice on which East Timor’s Prime Minister must act. Besides being inaccurate on the domestic gas aspect, this statement is mistaken on the pipeline capital cost issue (based on the J P Kenny engineering study and the more recent INTEC study). Further, it overlooks the subsidies and concessions that must be made by both East Timor and Australia to create an acceptable return for the investors in a Darwin pipeline and associated LNG export facility. An LNG export project for East Timor is not dependent on there being any gas markets that country. However, if gas were exported from East Timor, then a source of cheap and clean energy would be available for local industries and domestic supplies.
Coal Seam Gas (CSG) has enormous potential to replace existing reserves in Australia and this gas is located close to existing pipeline infrastructure in Queensland and NSW, making it potentially less costly than gas requiring a new 2000 km pipeline from Darwin to Moomba. Already over 20% of Queensland’s supply is from CSG.56 Sydney Gas Company alone claims it has over 60 trillion cubic feet (tcf) of potential recoverable reserves of CSG, compared to about 3.4 tcf for Bayu-Undan and 8.6 tcf for Greater Sunrise.57
5.3.5 Is the Timor Trough too seismically risky for a submarine pipeline?
At the public hearings on 3 October Mr. Andrew Andrejewskis, the NT governments director of petroleum, described a map of the Timor Sea area to the Committee in a curious manner, as follows (italics mine).
The Committee may have noticed Mr. Andrejewkis’ departure into the scholarly subject of Timor Trough seismicity. The idea that a pipeline to Timor is technically and economically feasible is troubling to the Northern Territory government for obvious reasons. Therefore to subvert the very idea is tantamount to supporting the Northern Territory’s "vital interests" to secure the Timor Sea LNG export infrastructure.
It appears that, after the recent failure of the argument that a Timor Trough pipeline is "impossible" due to water depth, the only argument remaining for the NT government is the risk of geo-hazards in the Timor Trough i.e., earthquakes.
But the deepwater pipeline experts tell us that geo-hazards represent a low level of risk compared with normal, conventional hazards such as material defects or corrosion.58
Dr. Tim Charlton, a world authority on the tectonics of the Timor Trough,59 advised the writer that the risk of geo-hazards in the Timor Trough will be no greater or less than those effecting the pipeline that was planned to hook up Greater Sunrise. This conclusion is supported by the pictorial representation of earthquake history in the area, published in Woodside's recent Environmental Impact Statement for the Sunrise development.60
One post graduate geologist, currently studying the seismicity of the Timor Trough, explained "Yes, you are right in quoting the Timor Trough as seismically inactive. There are few references on the matter, one of them by Robert McCaffrey (1996) who analyzed the GPS and seismicity data around Banda Arc and concluded that there has been no subduction in the Timor Trough. In other words, there is a very low possibility of seismicity."
5.3.6 Is the Timor Trough too deep for a submarine pipeline?
It was announced only this week, on October 21, 2002, that construction of the Black Sea pipeline had been successfully completed.61 62 This existing deepwater pipeline, laid at 2,150 meters water depth, is living proof that a pipeline across the Timor Trough is well within present pipelaying capabilities. The Black Sea area has very steep shore approaches, is seismically active, prone to mud volcanoes, mud and rock fall and has an aggressive H2S-rich sediment. 63 By comparison the Timor Trough is much more favorable for pipelaying. There now should be no debate about the technical feasibility of a pipeline across the Timor Trough.
The figure below show the depth comparisons of a Timor Trough pipeline and the Black Sea pipeline. Also shown is the Oman-India pipeline proposal that was fully engineered but did not proceed.64
The significantly easier shore approaches for a Timor Trough crossing, are evident although water depth is slightly greater in the center section compared to the Black Sea pipeline.
5.3.7 Timor Trough pipeline economics
The currently planned pipeline from Bayu-Undan to Darwin is reported to cost US$500 million dollars and the LNG Export facility a further US$1 billion.65 This planned 480 km pipeline is believed to be of size 24-inch diameter and have a capacity of 0.5 billion cubic feet of gas per day (bcf/d), suitable for a ‘single train’ 3 million tonne/year (mtpa) LNG plant.
The recent INTEC study indicates that the capital cost of a 230 kilometer 28-inch pipeline from Bayu-Undan across the Timor Trough to East Timor, capable of transporting twice this capacity (i.e., 1 bcf/d for a 2-train 6 mtpa LNG plant) is US$343 million. This is 70% of the cost of the currently planned pipeline to Darwin. For purposes of comparison, the capital cost of a pipeline from Bayu-Undan across the Timor Trough for a 3mtpa LNG plant in East Timor is estimated to be only about 60% of the reported cost of the currently planned pipeline of the same capacity to Darwin.
5.3.8 Political risk is the perceived problem for foreign investment in East Timor
Woodside’s view is that "it will be many years before East Timor demonstrate its sovereign risk credentials".
As mentioned in earlier comments, the international community has an interest in reducing political risk levels in East Timor. It is a "chicken and egg" situation, with fixed direct investment at the start-up of the new nation reducing political risk, but a lack of foreign investment increasing political risk with time if it results in unemployment and civil unrest.
37 Sydney Morning Herald, October 24, 2002, "Inquiry damns Reith’s ‘deliberate distortion’
38 "World Risk: exclusive survey 2002", Resources Stocks, May/June 2002, www.miningnews.net. Cover story titled "Australia shines again amid time of terror. For the second year in a row Australia has won the gong as best place in the world to invest in resources according to the annual RESOURCESTOCKS/AIG investment risk survey. By Stephen Bell"
39 Commonwealth of Australia, Proof Committee Hansard, Senate Foreign Affairs, Defense and Trade References Committee, Reference: Economic, social and political conditions in East Timor. Wednesday, 8 September 1999, Darwin.
40 Minister for Foreign Affairs, ‘Timor Gap Treaty Negotiations to Begin’, media release, 18 September 2000; ‘Renegotiation of Timor Gap treaty to begin’, AAP, 18 September 2000.
41 Reuters, 26 June 2000
42 Private communication. E-mail from: "Geoff McKee" <email@example.com> To: "Jim Godlove (Phillips Petroleum)" <firstname.lastname@example.org> Subject: questions Date: Mon, 3 Jul 2000 07:27:19
43 The services that INTEC offers in relation to marine pipelines encompass the full cycle of project development and execution. This includes research and development, data gathering and route selection, feasibility and cost studies, design engineering, geohazard analysis, procurement and contracting. For further information refer to their website at http://www.intec-hou.com/
45 Private communication. E-mail From: "Geoff McKee" <email@example.com> To: "Timor Gap Joint Authority" <firstname.lastname@example.org> Subject: ATTN: Mr Robert Mollah Date: Thu, 20 Jul 2000 17:10:17
46 Private communication. E-mail From: Eunice Cashmore <DarwinOffice@timorgap.org.au> To: Geoff McKee <email@example.com> Subject: RE: ATTN: MR ROBERT MOLLAR Date: Mon, 24 Jul 2000 07:45:36
47 For information on J P Kenny Worldwide Deepwater Pipelines and Subsea Facilities Experience, see http://www.jpkenny.com/DeepwaterExp.htm
48 See extensive quotes on page 37 of Mr. Robert King’s submission, from the Far Eastern Economic Review, a 30 November 2000, ‘East Timor's Resource Curse?’
49 S. Cliffe's address to the CNRT Congress in Dili, August 2000.
51 "Australian gas supply and demand balance to 2019-20". ABARE report for the Commonwealth Department of Industry, Tourism and Resources, published August 2002.
52 News Release, Woodside Petroleum Ltd, Shell Development (Australia) Pty Ltd, Duke Energy International & Subsidiaries, June 21, 1999 "Shell, Woodside and Duke Energy International Announce a Joint Study of the Infrastructure Requirements for the Delivery of Timor Sea Gas to the Northern Territory and Queensland"
53 "Shell maintains floating LNG the way to go ",AAP Newsfeed report, May 1, 2002
54 Phillips news by e-mail, November 11, 1999 "New Alliance for Bayu-Undan Gas". Perth, WA, 23 November 1999. An Australian subsidiary of Phillips Petroleum Company ("Phillips") and Epic Energy have entered into an alliance to conduct market development activities to commercialize gas from the Timor Sea throughout Australia, it was announced today.
55 Interview with Mari Alkatiri, Source: GTNews - www.gtnews.com - ©2002, http://www.gtnews.com/articles_se/4609.html visited September 18, 2002. Mr. Alkatiri was quoted as supporting a pipeline to Darwin based on the same incorrect technical arguments as put forward by the Northern Territory government.
56 See "Flowline", magazine of the Australian Petroleum Production & Exploration Association, most recent issue.
57 See Sydney Gas Company’s web site at www.sydneygas.com
58 "Risk Assessment of Deepwater Gas Trunklines" by Peter Carr (Peter Carr Consultants Ltd) and Robert Preston (JP Kenny Ltd), 2nd International Deepwater Pipeline Technology Conference, March 1999. The authors conclude: "The primary areas of risk and uncertainty for deepwater gas trunklines are perceived to be buckling during construction and geo-hazards during operation. The development of risk models to address these issues has been described. Application of the geo-hazard risk models to a 500-km 24-inch gas trunkline in a seismic deepwater region has shown that the geo-hazards represent a low level of risk compared with normal, conventional hazards such as material defects or corrosion".
59 Charlton completed a doctoral thesis on this subject. Refer Charlton, T. R. 1987 "The tectonic evolution of the Kolbano-Timor Trough accretionary complex, Timor, Indonesia". (Ph.D. Thesis) http://www.gl.rhbnc.ac.uk/seasia/html/body_theses.html
60 "Earthquake History in the Sunrise Gas Field Area Since 1900", Figure 6-4, Project No.: DE2090.100, Figure prepared by T.Lee, Date Prepared: 16/10/01, Sinclair Knight Merz. Draft Environmental Impact Statement for Woodside Energy Ltd, December 2001.
61 "World's deepest undersea gas pipeline completed" Ankara, 21 October, OGT—Two pipes were welded together yesterday to finish construction of US$3.2 billion Blue Stream, the world's deepest undersea gas pipeline that will bring Russian gas to Turkey under the Black Sea. The 360-km underwater segment of the 446-km dual pipeline was laid at a record depth of 2,100 m below the surface of the Black Sea by the Italian engineering company Saipem. Turkey's energy Minister Zeki Cakan welded the end of the pipeline, stretching from the Russian port of Dzhubga to Turkey's Black Sea port of Samsun, to a separate 501-km pipeline running from Samsun to the capital Ankara. The line is expected to begin test deliveries of natural gas to Turkey within a month. Turkey will receive an annual 3 billion m3 of natural gas in 2003. This will increase to 16 billion m3 a year in 2008.
62 On 3rd February, 1999 the large Italian construction conglomerate ENI and the Russian company Gazprom, the world's biggest producer of natural gas, signed a memorandum of understanding on 50/50 participation in the implementation of a project called Blue Stream. This provides for the construction of a 376 km gas pipeline from the Russian to the Turkish coast, across the Black Sea. See http://www.eni.it/english/notizie/riviste/ecos1_99/ec1_99_p06.html and http://www.eni.it/snam/english/infogas/archivio/maggio00/07.html for further information about this deepwater pipeline.
63 "H2S Challenge for Black Sea Pipeline", CAPSIS, 1999, from http://www.capcis.co.uk/maininfo/news0604.html, visited July 24, 2000.
64 The Oman - India Gas Pipeline detailed design was based on export of 1 bcf/day of gas with an inlet delivery of 6000 psi, through an offshore pipeline that crosses through water depths down to 3,500 meters. The project included onshore compression facilities in Oman with export through a land pipeline of between 34-inch and 28-inch diameter, the offshore section (approximately 1,100 kilometers of 24-inch diameter pipe), the onshore India facilities and SCADA system. Both J P Kenny and INTEC were involved in the design of the Oman-India pipline (not constructed). See http://www.jpkenny.com.au/resumes/data/res068.htm visited 24 July, 2000. See also "Oman-India Pipeline Route Survey", J.E. Mullee, INTEC Engineering, Inc. presented at the 27th Annual Offshore Technology Conference in Houston, Texas, U.S.A., 1-4 May 1995, at http://www.intechou.com/OTC/OTC_7676.shtm 7/24/00
65 Mr. Mike Nazroo. Vice-President, Commercial, Phillips Petroleum Co. Australia Pty Ltd, Comments at public hearing of Joint Standing committee on Treaties, October 2, 2002, Perth.
The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)