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.

For a list of background papers on LNG on this CD-ROM, click here.

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

"Through a combination of denial, obfuscation and misleading statements, the media, senior officials and the public were deliberately and systematically deceived".

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:

"Mr Godlove, you have said that your future planning is to put infrastructure -- particularly with respect to the treatment of gas, LNG and other areas of petrochemicals-into the Northern Territory. It is around Darwin somewhere, one assumes, where you could have perhaps hundreds of millions of dollars-or perhaps billions, if the field were big enough. Notwithstanding the associated geological problems undersea, where most of the gas at least would come from, is there a possibility that infrastructure could be transferred to East Timor and away from the Northern Territory?"

To which Mr Godlove replied:

"From an engineering standpoint, no; it is not possible for us to take gas by pipeline from the Bayu-Undan field to Timor. The trench is too deep and too seismically active, and the limits of technology simply prevent that. Phillips funded a very significant engineering study into this, and we presented those results to the Indonesian authorities as well as to the Australian authorities. It is acknowledged that indeed, for engineering reasons, it is just not possible to take the gas to the north. So the only logical destination for this gas would be the Northern Territory".

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:

"The eventual export of petroleum by pipeline from the Timor Gap to Darwin would bring considerable benefits in terms of Australian regional development. It is very important that there is a seamless transition or arrangements governing petroleum exploitation in the Timor Gap" said the Foreign Minister.40

Within a few months East Timor’s negotiators began echoing Mr. Godlove’s advice, not realizing that it was incorrect advice:

"Alkatiri said downstream projects requiring Timor Sea gas to be piped ashore could only be developed in Australia as a deep underwater trench prevented pipelines to East Timor."41

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

Robert King’s submission to the Committee contained a reference to the economic and social downside for developing countries that are almost totally dependent on resource revenue.48

Sarah Cliffe, head of the World Bank's Mission in East Timor, warned of some dangers:

"Over-reliance on one or two exports-whether coffee or oil - makes the country too vulnerable if the price falls". She referred to the possible uses of oil and gas revenues, warning that this "windfall" brings with it some risks. Economies that have had high revenues from oil and have spent these immediately have often raised urban wages and incomes so fast that other industries cannot afford to operate and go out of business. Later, when the oil has run out, the economy has no sustainable alternative to provide incomes and employment" 49

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.

"On the assumption that both Sunrise and Bayu-Undan would come onshore, the benefits to Australia, including the Northern Territory, on a net present value basis, discounted at six per cent over 26 years—that is, six years for construction, 20 years for operation—would increase Australian gross domestic product by $56 billion. It would be an increase in net exports of $33 billion, an increase in Commonwealth revenue of approximately $10 billion and create indirectly and directly 11,900 jobs. This is Australia-wide, including the Northern Territory".50

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:

"We need to bear in mind that a pipe of any volume coming 435 kilometers to Darwin from Sunrise or 484 kilometers from Bayu-Undan has never been done anywhere in the world at that length and at the volumes that have been talked about by the NT government".

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:

"If I were an investor, I would want the pipeline to go to Australia for two reasons," he explains. "Firstly because Australia will buy gas – you could bathe Timor in gas but there is no market. Secondly, the sea to Australia is not so deep, but the sea to Timor is extremely deep. Technically it is possible to send a pipeline to Timor, but one meter of pipeline costs much more in deeper waters. An investor would lose money." 55

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).

"Although I am sure you have probably seen maps like these ad nauseam, to set the context I would like to point out: the land mass of Australia, the international boundary, the JPDA, the Timor trough which is 2,000 to 3,000 metres deep on an active zone where the Australia geological plate is moving to the north-west, and the Democratic Republic of East Timor.

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 Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
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P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
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