Timor Sea agreement does not end Timor Sea dispute
It’s about Greater Sunrise. It was always about Greater Sunrise. The Timor Sea boundary agreement has now been signed in New York, but the key to the dispute – the $50 billion Greater Sunrise liquid natural gas field – remains unresolved.
Timor-Leste has argued for many years that the agreement which saw the joint exploitation of the Timor Sea’s oil resources was unfair and illegal under the Convention of the Law of the Sea (UNCLOS). It has made this argument based on the ‘median line’ principle in which, under UNCLOS, the sea boundary between two countries should be drawn at the median point.
Has this happened, virtually all of the Timor Sea oil and gas resources would have accrued to East Timor. Moreover, under UNCLOS principles, the largest proportion of the huge Greater Sunrise LNG field would have also fallen within East Timor’s waters. Under the 2006 agreement with Australia, it did not, although Australia had offered to split revenue from the field 50-50 with East Timor.
East Timor’s then Prime Minister, Xanana Gusmao, argued that East Timor should not have to settle for half of what it should rightly own all of. At bottom of his position, however, was much less a question of territorial sovereignty and much more his vision for processing the LNG on an as yet built facility on East Timor’s south coast.
This was in contrast to processing the LNG at a plant near Darwin. Backfilling the depleting oil pipelines from the Timor Sea would have been the quickest and easiest option.
This south coast facility was intended to kick-start East Timor’s petro-chemical industry and provide the tiny half island nation with an alternative economic source into its longer term future. The lead partner in the Greater Sunrise development program, Woodside, objected to the south coast facility, noting that a pipeline would have to cross a deep sea trench.
Other also pointed to the cost of developing such a facility – around $4-5 billion – and the lack of infrastructure and suitably trained people in East Timor. Some also noted the possibility of sovereign risk should East Timor’s politics take a more nationalist turn.
Woodside responded by saying it would build a floating LNG processing platform. Gusmao responded by saying that if Woodside did not agree to the south coast development proposal, East Timor would tear up its 2006 agreement with Australia and seek a permanent maritime boundary to resolve the issue.
The Permanent Court of Arbitration eventually ruled in East Timor’s favor and a median line boundary between the two countries has now been agreed. However, because the ‘lateral’ boundaries – those at either margin of the agreed area – were decided in an agreement between Australia and Indonesia in 1972, these have not altered.
As a result, the majority of the Greater Sunrise field still lies within Australian waters. If East Timor was to claim Greater Sunrise, Indonesia would also have to agree to alter its sea boundary with Australia, which to date has not been a part of the negotiations.
The agreement signed in New York overnight was to have finalized the whole of the Timor Sea issue. But parts of the agreement had not previously been seen by the East Timorese delegation, including a decision to, in effect, process the Greater Sunrise LNG near Darwin. The most important part of the agreement, and that which precipitated a bitter dispute with Australia, has still not been signed and remains contested.
East Timor might now seek to bring Indonesia into discussions to redraw its own boundary. This could see the re-drawing of the Australia-Indonesia sea boundary very much more in Indonesia’s favor, given it currently disproportionately favors Australia.
But, in the end, the issue was and remains about access to the Greater Sunrise revenues to prop up East Timor’s economy for more than the next decade which, under current spending, will exhaust savings from the Timor Sea oil. The problem is that, under any arrangement, the royalties from the Greater Sunrise field will only amount to around $8 billion, which will only stave off the inevitable for a few years.
Developing a south coast refinery could give East Timor a new lease of economic life. Or, as suggested by East Timor’s government, it could finance the facility itself and risk blowing all but the last of its savings on a white elephant.
So, East Timor’s economic position has not altered and the Timor Sea agreement has not produced the results that East Timor desired of it. How East Timor now proceeds may be determined by the outcome of the forthcoming 12 May elections. One suspects the two main coalitions competing in the elections could have different views on how to finally settle the issue of Greater Sunrise.