TIMOR SEA FACT SHEET V
Timor Sea Office November 2002
What does the Timor Sea Treaty say about a gas pipeline to Timor-Leste?
The Treaty explicitly allows for a pipeline to Timor-Leste.
Who decides to which country the pipeline should go?
Under the Treaty, the decision on a pipeline destination is left to the investing companies and subject to the approval of a Joint Commission, established under the Treaty. The companies – who are experts in petroleum development – are in the best position to determine which pipeline option will maximize the revenues for the project overall (and thereby maximise tax and royalty revenues for Timor-Leste).
What factors affect pipeline decisions?
Investing companies, when evaluating alternatives will look at technical feasibility, risk and costs.
Based on these factors, is a pipeline to Timor-Leste possible?
Most reports received by the Government of Timor-Leste so far indicate that, a pipeline to Timor-Leste is technically possible. However, there are some serious challenges. For example, the depth of the Timor Trough is 1500m to 3200m, potentially subjecting any pipeline to very high pressure. It is likely that any pipeline to Timor-Leste would require the use of expensive new technology. Reports also indicate that there is seismic activity in the Timor Trough, and strong currents. These factors indicate that a pipeline to Timor-Leste would be relatively expensive to install, maintain, repair and insure.
On the other hand, the ocean between the Bayu-Undan field and Australia is only 160m at its deepest point. Reports indicate that the seabed is stable. The cost of building, maintenance and insurance appears to be much lower.. Where the options for an investing company are i) a high risk, costly and technically challenging operation, or ii) a low risk, much less costly and technically easy operation, the likely investment decision is obvious.
Why doesn’t Timor-Leste push for a pipeline to Timor-Leste? Surely this will be where most of the economic benefit will be for Timor-Leste?
As mentioned above, a pipeline to Australia is much less expensive than a pipeline to Timor-Leste. Therefore, the only way Timor-Leste would be able to persuade a company to build a pipeline to Timor-Leste is for Timor-Leste to subsidize the pipeline. This means in effect that Timor-Leste will have to pay the company to cover the extra cost of the pipeline to Timor-Leste. It also means, therefore, that overall revenues to Timor-Leste would be significantly lower because the project would be less profitable.
It is important to remember that, as of now, there has been no final decision made on the destination of any pipeline from the Treaty area. For the Bayu-Undan field, for example, ConocoPhillips (the developer of the field) has not yet submitted its gas development plan and therefore, the Joint Commission has not yet approved any pipeline for the project. Development concepts for other possible pipelines (for instance, from the Greater Sunrise field) also remain undecided.
Anticipating the likelihood of a Darwin pipeline from Bayu-Undan, UNTAET insisted that the Treaty prevent Australia from vetoing any subsequent proposal for a pipeline to Timor-Leste (see Article 8 of the Timor Sea Treaty).
What feasibility studies have been done and by whom?
ConocoPhillips: In 1996, ConocoPhillips (then called Phillips Petroleum) conducted an extensive feasibility study of a pipeline from the Bayu-Undan field to Timor-Leste. The decision of ConocoPhillips to build a pipeline to Australia is based on the results of this study. The study recognised that a pipeline to Timor-Leste was technically feasible, but found that a Timor-Leste pipeline was not economic. The ConocoPhillips assessment was based on market demand for gas, seismic activity in the Timor Trough, subsequent pressure on the pipeline, the risk of the pipeline breaking, and the high cost of insurance for high risk operations.
Woodside Energy: Woodside Energy have investigated the possibility of a gas pipeline from the Greater Sunrise field to Timor-Leste. Their findings indicate that the depth of the Timor Trough, and seismic activity in the Trough, make it impossible for a pipeline to be built from Greater Sunrise to Timor-Leste.
Petrotimor: Finally, Petrotimor, a Portuguese-registered company owned by US-based General Atomics, and which holds no interests in the Timor Sea, paid for another study into the feasibility of a pipeline to Timor-Leste from the Bayu-Undan field. The study was conducted by another company called INTEC. The study found that because the distance between the Bayu-Undan oil field and Timor-Leste is much shorter than between Bayu-Undan and Australia, the cost of building a pipeline to Timor-Leste is lower. However, this study examined the cost of the piping alone, and did not consider the existence of the Timor Trough and the difficulties posed by it. These include for example, higher insurance and maintenance costs and higher risk that the pipeline could be damaged or broken. The report also did not take into account the fact that there are not enough buyers in East Timor for the gas.
Why doesn’t Timor-Leste have an independent study done?
It is possible that Timor-Leste may commission its own study into the feasibility of pipelines to Timor-Leste. However, pipeline feasibility reports are expensive. With regard to Bayu-Undan, in any event, independent petroleum fiscal experts and technical experts have already confirmed that a pipeline to Darwin is the most sensible way in which the first Timor Sea gas deposits can be exploited.