Why Tiny Timor-Leste Is Defying Global Energy Giants

(Bloomberg) -- When Timor-Leste became a country in 2002, it did so with a built-in advantage: the Bayu-Undan oil and gas field. It’s generated billions of dollars that helped develop the Southeast Asian country’s infrastructure, but it hasn’t brought much in the way of jobs for Timor-Leste’s 1.2 million people. The government in Dili is looking to change that as it turns to developing a new field, with grand plans that include an oil refinery and petrochemical complex to maximize employment and boost exports. A three-kilometer (two-mile) deep gulch in the ocean floor has scared off some global oil giants. The country is out recruiting potential new partners, including some from China.

1. What’s the new project?

It involves the Greater Sunrise fields, which lie between Timor-Leste and Australia and are estimated to hold more than 5 trillion cubic feet of natural gas and 200 million barrels of a light crude oil known as condensate. Discovered in 1974, development was delayed for decades by maritime boundary disputes that were resolved last year. The Timor-Leste government wants to use gas from those fields to underpin a new $12 billion liquefied natural gas (LNG) plant as part of the industrial complex, called Tasi Mane, to be built over the next decade or so along the southern coast.

2. Has anyone signed on?

Not exactly. The leaseholders of the so-called Greater Sunrise project -- ConocoPhillips, Royal Dutch Shell, Woodside Energy and Osaka Gas -- had two proposals: Either pipe the gas to an existing, Conoco-operated LNG plant in Darwin, Australia, or build a floating plant offshore. They wanted to avoid the cost of building a brand-new LNG plant as well as laying pipeline across the Timor Trough, where the sea floor plunges from an average depth of about 200 meters (650 feet) to more than 3,300 meters. Timor-Leste’s insistence on the Tasi Mane plan prompted Conoco to sell its 30% stake to the government for $350 million. Shell followed suit, selling its 26.56% portion to the state for $300 million. Woodside, the operator of the project with a 33% share, has suggested splitting it into an upstream portion (drilling and operating wells), which it could invest in, and a pipeline and downstream portion, for which the government could find other backers. Osaka said it supports Woodside’s position and constantly reviews its asset portfolio, including Sunrise.

3. What’s Timor-Leste’s aim?

Proceeds from the Bayu-Undan field have filled a $16 billion sovereign wealth fund, which provides 95% of Timor-Leste’s revenue. But natural gas reserves are being depleted and could run dry as soon as 2021. Currently gas is extracted from beneath the Timor Sea and piped directly to the export plant in Australia. With Tasi Mane, the government is looking to shift away from an extraction-only model to a more diversified one that would help attract other service and manufacturing activities -- and create more jobs at home. In addition to the energy plants, Tasi Mane would also include a renovated airport and supply base, as well as a 160-kilometer highway to connect it all.

4. What’s the status?

State-owned energy company Timor Gap is pressing ahead, aiming to make a final investment decision as soon as late 2020, with first production expected by early 2026. It’s engaging with potential partners from countries including China, Australia and the U.S. about helping fund the project, for which the government itself is currently on the hook for about $9 billion. In early 2019, Timor Gap signed a $943 million construction contract with China Civil Engineering Construction Corp., a unit of China Railway Construction Corp., to build facilities at the port of Beaco to support an LNG plant.

The Reference Shelf

• Timor-Leste denies borrowing $16 billion from China for the project.
• Conoco’s web page on the Bayu-Undan field, and Woodside’s on Greater Sunrise.
• The March 2018 maritime treaty between Australia and Timor-Leste.

--With assistance from Adrian Leung.

To contact the reporter on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Paul Geitner

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