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Woodside gas deal could redraw Australia-East Timor borders

Woodside and the East Timorese government have just 10 days to strike a deal on a lucrative gas project — or the controversial sea boundary between Australia and East Timor will be redrawn. Billions of dollars are at stake.

Australia’s relationship with East Timor is at risk as the deadline looms on a hotly disputed and lucrative liquid natural gas project — with no resolution in sight.

West Australian-based Woodside Petroleum has until February 23 to reach an agreement with the government of East Timor over the site of processing LNG or else the arrangement between the two is likely to be stopped. This would then trigger the cancellation of Australia’s sea boundary agreements with East Timor.

At this late stage it’s unlikely Woodside will change its long-held position and accede to East Timor’s demand that the LNG be processed on East Timor’s south coast. Woodside’s preferred option is a floating processing platform at the Greater Sunrise LNG field in the Timor Sea.

The East Timorese government can cancel Woodside’s involvement in the project, valued at $20 billion, if no agreement is reached on processing by February 23. But more critically, the termination of Woodside’s contract would end Australia-East Timor agreements on the Timor Sea boundary between the two countries.

The bilateral treaty (the Timor Sea Treaty), the Certain Maritime Arrangements in the Timor Sea (CMATS) and a third document — all imposed by Australia on East Timor in 2002-3 — allocate revenues from the Joint Petroleum Development Area (JPDA) in the Timor Sea. Within the shared, now largely exhausted JPDA, East Timor receives 90% of revenues, Australia receives 10%.

However, 80% of the more important Greater Sunrise field lies outside the JPDA, where the benefits are divided evenly under the Sunrise International Unitisation Agreement (IUA).

East Timor points out the imposition of the boundary contravenes the UN Convention on the Law of the Sea, which Australia withdrew from recognising just before negotiations with East Timor. Under this convention, all of the Greater Sunrise field should be within East Timor’s exclusive economic zone.

East Timor reluctantly signed the Timor Sea Treaty, CMATS and the IUA in 2002-3 with a metaphorical gun to its head. Australia’s position, led by then foreign minister Alexander Downer, was that if East Timor did not sign the treaty Australia would simply allow the pre-existing boundary agreement with Indonesia to remain in place, East Timor would be starved of revenue from the fields and the new state would collapse just after it had gained independence.

There are still 10 days remaining for an agreement between Woodside and East Timor, but the indications are that neither side will budge sufficiently to allow the project to proceed. This will then allow the East Timorese government to cancel the agreement with Woodside and trigger the right of the East Timorese government to terminate the CMATS treaty, throwing open the issue of boundaries between the two countries.

Assuming the agreement is cancelled, East Timor is hoping for two outcomes: it can quarantine the issue of the sea boundary within the bilateral relationship, and it can renegotiate the boundary, following international convention, at the median point between Australia and East Timor.

Despite criticism of Australia in 2010, East Timor’s Prime Minister Xanana Gusmao wants a continuation of the currently close relations between the two countries. This includes Australia’s $116.7 million aid program, diplomatic support and future security arrangements. But Australia showed in 2002 that it can be brutal in its dealings with its smaller neighbours so, assuming the treaty is cancelled, the decision on whether the sea boundary issue is quarantined from the wider bilateral relationship will sit firmly with Australia.

When in 2004 Australia negotiated its sea boundary with New Zealand, it opted for the UN Convention’s median point. East Timor is hoping that, if the Timor Sea Treaty is renegotiated — presumably after the next federal election — Australia will revert to the UN Convention. Doing so, however, would mark an ethical consistency in Australia’s regional relations that has to date been absent.

*Professor Damien Kingsbury is director of the Centre for Citizenship, Development and Human Rights at Deakin University. He is co-editor, with Michael Leach, of The Politics of East Timor: Democratic Consolidation After Intervention, Cornell University Press, 2013.

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  • 1
    Roger Clifton
    Posted Tuesday, 12 February 2013 at 4:15 pm | Permalink

    The Greater Sunrise field is on the Australian Shelf in water 100-600 m deep. Pipelines could be laid from there to the Australian mainland, or to other pipelines along the Shelf.

    However, the Timor Trench between the Shelf and Timor plunges down more than 4000 m. As a subduction zone, it is seismically active, with occasional turbidity flows (landslides) scouring the downslope. A pipeline that survived that environment would be an engineering marvel.

    The median line of the Timor Trench would be more logical boundary than a line halfway up the Australian Shelf. The line of the current zone of cooperation is generous.

  • 2
    Madison
    Posted Tuesday, 12 February 2013 at 4:55 pm | Permalink

    I seem to remember an ABC 4 corners report where what you are saying Roger was a fiction in a glossy Woodside document.The behaviour of Woodside is shameful as depicted by the 4 corners,dropping of a document then running away to get past legal considerations.The report disputed everything you have just posted.Do you work for woodside or are you just another WA cowboy?
    http://www.abc.net.au/4corners/stories/2012/09/27/3599022.htm

  • 3
    Peter Ward
    Posted Tuesday, 12 February 2013 at 7:46 pm | Permalink

    Comments were disabled on this article earlier today, so I posted the following against the covering editorial. Reposting now to the correct story (with an edit) -

    Damien Kingsbury suggests in his article today (for which comments are disabled) that under UNCLOS, all of the Greater Sunrise field would fall within East Timor’s EEZ, and that the boundary, if drawn in accordance with UNCLOS, would be the median point between Australia and East Timor. That’s not strictly correct.

    The median point method is just one of three potential methods applicable to define the boundary under international law. The other two methods are the limit of Australia’s continental shelf (i.e. the point at which the continental shelf drops off into the Timor Trough) and the natural sea-bed boundary at the bottom of the Timor Trough.

    The problem for East Timor in these two methods is that Australia’s continental shelf is very broad and the Timor Trough lies close to the coast of East Timor. The Greater Sunrise field actually lies on Australia’s continental shelf.

    The previous agreement between Australia and Indonesia, and the agreements between Australia and East Timor, recognised all three of these methods. The 90/10 zone to which Damien refers is the zone between the bottom of the Timor Trough and the edge of the Australian continental shelf (i.e. the Australian side of the trough). The 50/50 zone is that part of the Australian continental shelf outside of the median line. In the earlier agreement with Indonesia there was also a 10/90 zone further in toward Australia, bounded by the median line and the boundary claimed by Indonesia.

    Short of a ruling by the International Court of Justice, the correct boundary may never be determined. In the interim, some may say that giving East Timor 50% of the royalties derived from oil and gas extracted from the Australian continental shelf is a fair compromise.

  • 4
    Paddy Forsayeth
    Posted Tuesday, 12 February 2013 at 8:56 pm | Permalink

    I think that the Howard Gov. exhibited an interesting dichotomy: the military aid to Timor and then screwing it (East Timor) over the oil exploitation/revenues. What you say Roger is a good explanatory point. By your comment that “the line of the current zone of cooperation is generous” do you mean towards East Timor?

  • 5
    wbddrss
    Posted Tuesday, 12 February 2013 at 9:13 pm | Permalink

    ” and it can renegotiate the boundary, following international convention, at the median point between Australia and East Timor.”

    This so called international convention I suspect follows precedent between Europe & Africa over Sicily & Libya.
    They are both small countries as part of much bigger continents. I consider this may be less relevant in Australia’s case where we literally control all of our continental shelf & more. So this precedent may be overturned or at best Australia may become the exception to the rule.

    Otherwise who cares as Australia is in top ten in area of EEZ. In fact from memory we are third.

    wbddrss

  • 6
    Scott
    Posted Tuesday, 12 February 2013 at 10:07 pm | Permalink

    I think east timor have to be a bit careful here..Going up against a large, rich nation like Australia, with powerful allies Iike the US in it’s corner, as well as being a UN security council member now in it’s own right, is not something to be taken lightly. They not negotiating from a position of strength. When you are a small nation, with few friends, sometimes you need to accept that your aren’t going to get it all your own way in international affairs.

  • 7
    Charlie Scheiner
    Posted Wednesday, 13 February 2013 at 2:09 pm | Permalink

    Although the conclusion of this article – that Australia should respect the international legal principle of a median line maritime boundary with Timor-Leste – is laudable, many of the facts are incorrect. Unfortunately, inaccuracy and misinterpretation are becoming common in reporting on the imminent possible end of the CMATS gag rule. La’o Hamutuk just published a comprehensive article on CMATS basics (http://www.laohamutuk.org/Oil/Boundary/2013/CMATSImplications11Feb2013.htm), and we have written in more detail at http://www.laohamutuk.org/Oil/Boundary/CMATSindex.htm (overview, current developments and links), http://www.laohamutuk.org/Bulletin/2007/Jun/bulletinv8n2.html#50year (ratification) and http://www.laohamutuk.org/Bulletin/2006/Apr/bulletinv7n1.html (analysis and history). This posting, therefore, tries only to correct the errors in the referenced article, and does not address the comments.
    1. There are no “borders” to “redraw.” The underlying obstacle to this process is that Australia has NEVER agreed on a maritime boundary with Timor-Leste. The three agreements signed thus far relate to managing petroleum development and sharing its revenues. Many people in Timor-Leste and elsewhere feel that this country’s struggle for independence is incomplete until its actual borders (which involve many more issues than oil and gas) are defined. In effect, Australia continues to occupy maritime territory which would be part of Timor-Leste under a fair, legal boundary determination – prolonging illegal territorial domination gained during Indonesia’s illegal occupant of Timor-Leste’s land.
    2. There is no chance that a Sunrise development plan will be approved before 23 February 2013. Even if Woodside or Timor-Leste were to change their position today on where the gas should be liquefied, a development plan requires extensive engineering and design. It could not be finished and approved by both governments (Australia also has to approve it) in ten days.
    3. This disagreement does not threaten Australia’s relationship with Timor-Leste. The controversy, with different views, began long before Timor-Leste voters ousted Indonesia in 1999. Although bilateral negotiations over Timor Sea issues have had their ups and downs over the last twelve years, ties between the two neighbors remain strong – notwithstanding Timor-Leste’s repeatedly ignored wish to be treated fairly as an equally sovereign nation.
    4. The currently applicable contracts between Woodside and its partners and the Governments of Timor-Leste and Australia to develop the Sunrise field were signed in 2003 (replacing earlier contracts with Australia and Indonesia during the illegal Indonesian occupation). The CMATS Treaty was signed in 2006 and came into force on 23 February 2007. Its termination would not have any effect on the contracts with Woodside and its partners signed five years earlier. Although those contracts are unfortunately secret, we believe that they will be in effect until 2037 or later, unless the four companies and two governments agree to amend them.
    5. Although the Bayu-Undan field (which contains most of the resources in the JPDA) has passed its peak of production, it will not be exhausted until around 2024. Gas and oil fields in the JPDA currently provide more than 90% of Timor-Leste Government revenues.
    6. Although the Sunrise field may be “more important” to Australia, it is less clear from a Timor-Leste perspective. Timor-Leste will receive only 50% of Sunrise extraction revenues, and Sunrise’s value may decline as new sources of natural gas enter the world market. Bayu-Undan, which is carrying Timor-Leste during this critical period before our non-oil economy has developed, is essential to this nation today. By the time Sunrise production begins (about five years after a development plan is agreed), we hope that Timor-Leste will have income from sources other than petroleum, and the annual receipts from Sunrise (which will be smaller than those from Bayu-Undan today) will be less indispensable.
    7. The relationship between the Timor Sea Treaty (TST, signed in 2002, ratified in 2003), the Sunrise International Unitization Agreement (IUA, signed in 2003, ratified in 2007) and CMATS (signed in 2006, ratified in 2007) is more complex than the article indicates. In brief, Timor-Leste needed the TST so that Bayu-Undan could go ahead, but Australia refused to ratify the TST until Timor-Leste signed the IUA – which Senator Bob Brown termed “blackmail.” Timor-Leste then declined to ratify the IUA, which it had signed under duress. In the CMATS compromise four years later, Timor-Leste ratified the IUA and acquiesced in a gag rule on boundary discussions in return for 50% of the Sunrise upstream revenues.
    8. If Timor-Leste or Australia exercises their right under CMATS Article 12 to terminate the treaty at any time after February 23, processes to settle the maritime boundary could resume. The CMATS treaty will automatically would come back into force (restoring the 50-50 Sunrise revenue sharing) if and when Sunrise production begins in the future.
    9. Under international treaty law, two signers to a bilateral treaty can always decide to cancel or modify the treaty. In other words, if Australia had been willing to discuss maritime boundaries at any time since 2006, both governments would have agreed to revoke the CMATS gag rule. Articles 24 of the TST (“This Treaty may be amended at any time by written agreement between Australia and East Timor”) and 27.2 in the IUA (“This Agreement may be amended or terminated at any time by written agreement between Timor-Leste and Australia”) are in fact redundant – that principle applies to all agreements between governments.
    We hope that Australia is finally prepared to deal fairly and openly with its northern neighbor, without imposing a gag rule on Timor-Leste not to explicitly bar discussion on particular topics. And we hope that Australia is ready to comply with the rule of law – allowing courts or arbitration to settle the boundary issue when inherently unbalanced negotiations (due to the relative size, wealth, power and experience of the parties) are unable to. Law exists to protect the weak from the strong, and to ensure the everybody’s basic rights are respected. Do some of the “Rule of Law” trainers and advisors that AusAID pays to work in Dili need to build capacity in Canberra?

  • 8
    Mike Flanagan
    Posted Wednesday, 13 February 2013 at 3:53 pm | Permalink

    Thanks to Charlie for further definitive coverage of these facts.
    There are two points that should be brought to the fore when these negotiations resume
    1. Respect for the historic ties between the Timorese and Australians. Although it is ignored in commercial argee bargee we should remember these peoples’ alliance during the Jap advance of WW11. These people put themselves and their families lives on the line to protect large elements of our retreating forces in the ’40s.
    2. We are perhaps the wealthiest nation in the world on a per capita basis and the honest generosity of spirit is a measure of nations greatness.
    Furthermore our defense posture and capability is recognised as a fundamental occupation and responsibility of the government and the nation.
    To not maintain and foster the historic close fraternal relationship with the Timorese is a contradiction to those ends.
    And finally I would like to observe that the diplomatic mess that is the current state of play puts the lie to the mythology that surrounds Downer’s tenure as Foriegn Minister.

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