OIL

Mistrust leads to Timor Sea development delays

Development of the Timor Sea gas fields will be delayed by at least two years due to bickering over how to best develop the vast gas reserves.

No doubt last week's meeting between the partners would have done little to increase trust.

After the meeting, Royal Dutch/Shell claimed that the Sunrise partners effectively endorsed its floating LNG facility. Woodside responded it said nothing of the sort. "The joint venture came to the view that the floating LNG proposal may be the most economically attractive option," Woodside's Darwin area manager Mr Mike Lane said. However, he added "there are some technical issues to be sorted out."

The major sore point seems to be the level of equity participation in the LNG project. While equity in most facilities around the world is shared equally by the owners of the gas field, in the case of the Greater Sunrise region fields Shell wants to retain 100 per cent of LNG plant, which would dramatically reduce the role and profit for owners of the gas reserve.

"There is a desire to go forward with the floating option, however, only if they offer equity or some other value showing the mechanism that reflects the ownership of the gasfield," a Woodside spokesman said.

Shell also said the "endorsement" meant that Phillips Petroleum's Darwin-based LNG facility was now off the agenda. However, Phillips said its onshore LNG proposal is still alive and kicking. Phillips' Darwin manager Mr Jim Godlove said Shell's floating proposal may be more economical but "you can't make a decision until you have the details that Shell has not yet provided to the JV to make that judgement."

Mr Godlove said Phillips was still planning to develop its separate Bayu-Undan project in the Timor Sea, but had to resolve uncertainties surrounding the new Timor Gap treaty.

In a new twist to the Timor Sea politics, Phillips Petroleum and Conoco Inc announced a $US35 billion merger that could alter the balance between the major partners in the Timor Sea gas province.

An enlarged ConocoPhillips will have access to larger markets in the US and globally and might find it easier to find alternative buyers for the Timor Sea-based LNG rather than rely on the offer by Shell. "We're doing this so we can compete with the biggest oil companies," Phillips' CEO Mr Jim Mulva said. "For Conoco and Phillips, joining forces is the ideal way to be competitive in the reshaped energy industry."

Phillips had already signed a deal with El Paso Energy of the US to supply Timor Sea LNG to a terminal on the US west coast although the deal could collapse due to delays in the developing the Timor Sea fields.

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