Timor Sea Office                                         November 2002

Gas Pipelines from the Timor Sea

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?

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.


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