Neil Sands, Sydney – Australia and East Timor are locked in a David and Goliath struggle over spoils from Timor Sea gas fields, which analysts warn could jeopardise the entire project.

Despite their aim to ratify the Timor Sea Treaty by the end of the year, little progress has been made by either country, causing growing impatience among oil companies keen to tap into the liquefied natural gas (LNG).

One of them, Phillips Petroleum, has said work needs to begin on the Bayu-Undan gas field early next year to meet contracts to supply Japanese customers by 2006.

The company recently expressed fears that delays would cause its contracts to default, saying "in the worst case, the gas may not be sold for years, if at all."

At stake is what East Timorese Prime Minister Mari Alkatiri has described as his country's passport from poverty following 24 years of Indonesian occupation that ended in 1999 – the revenue from Timor Sea gasfields called Bayu-Undan and Greater Sunrise.

East Timor stands to earn an estimated 3.5 billion US dollars from Bayu-Undan over 20 years and even more from the larger Sunrise field.

"This is the money we will use to treat tuberculosis, for education," a spokeswoman for the East Timor government's Timor Sea Treaty office said.

With aid from the United Nations set to dry up in 2004, the oil and gas revenue is vital to East Timor, one of the world's newest, and poorest, nations.

John Colnan of Shaw Stockbroking said there was a real risk oil companies could abandon both gas fields if political problems continued to delay development.

"With any resource you have a window of opportunity to sell into the market and LNG is going strong globally right now, particularly with developments in northern Asia," he said.

"But if the Timor Gap issues aren't resolved before that window closes if could be five or six years before conditions in the market improve. International companies will move on elsewhere, that's how capitalism works."

A treaty signed in May gave East Timor 90 percent of revenue from a 62,000 square-kilometre joint petroleum development zone that encompasses the Bayu-Undan field.

But how to divide revenue for Sunrise, which straddles the development zone and Australian maritime territory, remains a sticking point preventing the treaty's ratification.

The Australian government will not ratify the treaty until the so-called "unitisation" is resolved, despite East Timor's requests for the issue to be handled separately.

East Timor has asked for a greater percentage of potential Sunrise revenues, but Australia has refused to budge, opting instead to withdraw from the jurisdiction of the International Court of Justice for the arbitration of maritime boundaries to forestall any East Timorese claim to the Sunrise land.

Australia-East Timor Association convenor Andrew McNaughton accused Australia of abusing its power to try to force the East Timorese into an unfair deal.

"The concern is that Australia will use its disproportionate power over East Timor, will use the fact that East Timor desperately needs money coming into its treasury to get them to accept a deal that runs the risk of being disadvantageous in the long term," he said.

Talks on the treaty's ratification were to resume next month.