Nigel Wilson – Government-level talks in East Timor next week are seen as the last chance of early development of vast Timor Sea gas reserves.

Senior officials from the departments of Foreign Affairs and Trade, Industry, Science and Resources and Attorney-General are to hold talks with the East Timorese government in Dili in what is described as a visit "to conclude gas pipeline negotiations".

"We welcome the progress that has been made in recent talks between East Timor and representatives of petroleum companies on the outstanding fiscal issues relating to the implementation of the Timor Sea Arrangement signed in Dili on July 5," the ministers said.

But the statement's reference to technical issues that have to be resolved has Timor Sea licence holders demanding the discussions include fiscal and legal issues.

Despite talks in the past month in Dili between companies and the new administration, led by Dr Mari Alkatiri, companies claim there has been little progress on either taxation matters or security of the resource. It was these issues that led to the "indefinite" deferment of a large-diameter pipeline between Phillips Petroleum's Bayu-Undan project, now under construction, and Darwin in August.

Since then it has become clear also there is little enthusiasm from Woodside and Shell for bringing gas onshore at Darwin from the Greater Sunrise fields. Without gas either from Bayu-Undan or Sunrise the concept of building an internationally focused industrial hub in Darwin will be stillborn as will the idea of bringing Timor Sea gas to major Eastern States markets before the end of the decade.

Government officials conceded yesterday that the question of pipelines from the Timor Sea gas reserves and Darwin could not be resolved until the fiscal and legal uncertainties were settled.

The end of December is regarded as the deadline for converting a letter of intent from US energy giant El Paso to a sales and purchase agreement to buy 4.8 million tonnes a year of liquefied natural gas from the Timor Sea.Already, the exclusive nature of the LOI with the Greater Sunrise project has lapsed and Phillips Petroleum, the company that arranged the LOI, fears that El Paso will walk away by the end of the year unless difficulties with the East Timorese are settled.

Phillips, Shell and Woodside are also no closer to deciding between an onshore LNG plant in Darwin and Shell's ambitious floating LNG proposal, with Canberra under pressure from the Northern Territory administration to insist on an onshore development.Meanwhile, Australian Pipeline Trust is to increase capacity of the Carpentaria pipeline from Ballera