East Timor Wants to Tap Oil and Gas Near Australia, So Why is it Courting China?
Canberra has provided support but not enough to ensure its neighbours can stand on their own two feet.
The young Southeast-AsianPacific boarder nation of East Timor is almost entirely dependent on oil and gas revenue as well as aid from richer neighbours.
But international energy firms have left the country in the lurch by pulling out of a critical offshore project near Darwin, leaving Dili with only one place to turn.
Geopolitical tremors were felt in the region when reports surfaced that East Timor’s state-owned energy company was considering a US$16 billion loan from China to develop an offshore oil and gas field.
Many saw it as the latest example of China’s growing diplomatic and economic clout in the 17-year-old nation, which lies just 500kilometres off the north coast of Australia.
Report
Timor Gap was swift in denying the reports, which had claimed the Export-Import Bank of China would help finance its US$50 billion Greater Sunrise project, following the withdrawal of international fuel companies Royal Dutch Shell and ConocoPhillips.
But despite the denial, experts say the country has few options other than to turn to China for a project which is vital to its struggling economy.
The oil and gas field is worth an estimated US$50 billion – more than twice the US$22 billion East Timor says it has generated since 2005 from its Bayu-Undan and Kitan fields.
The Greater Sunrise site, located about 150km southeast of Beaço in East Timor and 450km northwest of Darwin in northern Australia, holds estimated gas reserves of 5.1 trillion cubic feet and up to US$12 billion worth of oil.
Econimic Struggles
NGO La’o Hamutuk, which monitors East Timor’s economic development, says the nation’s sovereign wealth fund currently foots the bill for about 90 per cent of the state budget.
The fund has stagnated at US$16 billion for the past four years, and over the same period the country’s revenue from existing petroleum projects has tanked – from nearly US$4 billion in 2012 to less than half a billion in 2017. Tapping Greater Sunrise could mean draining the entire remaining sovereign wealth fund, La’o Hamutuk estimates.
Shell and ConocoPhillips recently sold their stakes in Greater Sunrise back to Timor Gap – partly due to the state’s inability to compromise on the logistics involved in getting the project off the ground. La’o Hamutuk says international financial institutions are reluctant to bankroll the work, which they see as risky and challenging. This has left East Timor in search of support, and Timor Gap has reportedly been talking to investors from China, the United States and Australia.
Who else but China?
China has already spent millions on new infrastructure projects in East Timor, and the two nations have drawn closer under the auspices of Beijing’s Belt and Road Initiative, the country’s global trade strategy. Observers suggest China is the only likely partner for the project.
Tao Duanfang, an analyst at the Centre for China and Globalisation in Beijing, agrees.
“Who could fund this kind of project other than China?” he says. Timor’s national development strategy is “highly compatible” with the Belt and Road Initiative, believes Xiao Jianguo, Beijing’s ambassador to East Timor. Xiao last month said the prospects for future economic cooperation were “expected to be great”. China is the most active foreign investor in East Timor, and has been involved in the nation’s oil and gas industry since its independence in 2002, according to Tao. Last year, East Timor imported US$160 million of goods from Hong Kong and mainland China, more than from any other partner except Indonesia.
Chinese firms have also helped build a high-voltage electricity grid, which is already operating. They have had a hand in constructing the nation’s presidential offices, army barracks, and buildings housing the ministries of defence and foreign affairs.
Problems with the neighbour
At the same time, Timor Gap has been unable to agree with potential partners on arrangements for the Greater Sunrise project. Development has been stalled by the insistence of the Timor government, led by former president and independence movement leader Xanana Gusmão, that the necessary gas liquefaction and export facilities be built on the southern coast, rather than allowing the gas to be processed in existing facilities at Darwin and sent in from there.
Australia’s Woodside Energy, which remains the operator of the project, would prefer sending it through a new 210km pipeline to another one already running from the Bayu-Undan field to the ConocoPhillips LNG plant in Darwin.
Canberra
Meanwhile, Canberra has been dragging its feet on ratifying a maritime boundary treaty with Dili.
Australian officials have even been charged by the East Timor authorities with engaging in espionage during the treaty negotiations, and Dili alleges that despite the deal having finally been signed last year.
Its neighbour persisted in siphoning millions of dollars’ worth of gas off fields in East Timor’s territory before Australia’s parliament ratified the agreement last week.
Australia is East Timor’s biggest source of aid, having sent more than US$800 million between 2006 and 2014.
But Tao at the Centre for China and Globalisation says the relationship remains one of dependency.
Canberra has provided support but not enough to ensure its neighbours can stand on their own two feet.
This, he says, is a recipe for resentment.