Tooling up for Timor gas bonanza

By Christian Mahne Bayu-Undan gas field, East Timor

A tug tows a platform to the Bayu-Undan field

Australia ratified the Timor Sea Gas Treaty earlier this year after months of delay and acrimonious negotiations.

Under the treaty, both Australia and the new nation of East Timor, which got independence from Indonesia in 2002, will get income from the gas finds.

Signs are already emerging of huge potential earnings.

Offshore gas explorers have to lay out massive investments to build rigs out in the sea, costs which mean buyers for the gas have to be found before the rig building starts.

Long-term commitment

In the Bayu-Undan field, 500 kilometres off the North Coast of Australia, building is finally underway as project operator ConocoPhillips has at last found a customer for liquefied natural gas (LNG) from the field.

"What happens in the LNG market is that people don't make investments until they find a buyer," says Conoco's Darwin Vice President Blair Murphy.

"So we need to find a buyer to commit to these projects for 17, 20, 30 years before we commit to the project," he explains.

The ratification of the Timor Sea Gas Treaty enabled ConocoPhillips to sign on the dotted line to confirm supply contracts with Tokyo Electric Gas.

Well-head platforms are now being towed into place, the first step towards extracting some of the 3.5 trillion cubic feet of natural gas stranded here.

Giant investment

The scale of the Bayu-Undan project is considerable.

At least $1bn (£600m) has already gone into building gas rigs for the Timor Sea.

Stage two is a pipeline to Darwin. And then there's the mainland infrastructure to think about.

East Timor hopes gas earnings can ease poverty

In three years time the muddy peninsula of Wickham Point will have been transformed into a $1.5bn dollar LNG processing plant.

At the moment all you see at the site is a road to nowhere.

The $4m transport corridor being pushed through the mangrove swamp will be the backbone of Darwin's gas development project.

But that is not the end of the story. There's another gas field in the Timor Sea.

Sunrise is three times the size of Bayu-Undan but in 25 years nobody has yet worked out how to make its development viable.

Clare Martin, Chief Minister of Australia's Northern Territory, hopes that is about to change.

More to come?

"My belief is that Sunrise and how it will be developed will be greatly influenced by the first gas coming onshore from Bayu-Undan," she says.

"Once the pipe is built from Bayu-Undan I do believe that it changes the way that joint ventures in Sunrise will look at how you exploit the resource."

The issue of how to split Sunrise's future royalties was the major sticking point holding up ratification of the Timor Sea Treaty.

With that now resolved, the way is clear for gas explorers to look again at Sunrise's potential.