Mark Colvin: Australia and East Timor appear to be on a potential collision course over the future of a seabed boundary between the two countries.

Officials from both countries are in Dili today for the start of new talks to resolve what's shaping up as a major thorn in bilateral relations.

East Timor is now threatening to delay ratification of a crucial oil and gas agreement, unless Australia offers it a fairer deal and a bigger share of the spoils.

And as Anne Barker reports, the $8-billion project to develop the Greater Sunrise field could be scrapped if the agreement isn't ratified soon.

Anne Barker: About the only thing East Timor and Australia can agree on in today's talks is that they're likely to drag on for years. Border talks can famously take decades, and Australia's in no hurry to speed up the process because the current arrangement already gives it majority control over vast oil and gas fields, and it's precisely because of those oil fields that East Timor's Prime Minister, Mari Alkatiri, is suddenly taking a much harder line in his dealings with Australia.

Mari Alkatiri: My first concern is to defend the interests of my people and to get better resources that belong to my people.

Anne Barker: East Timor's wish for a boundary half way between the two countries would force Australia to surrender control of the most lucrative oil fields to Dili, including the Greater Sunrise field.

East Timor has already signed an agreement that would give 80 per cent of the Greater Sunrise revenue to Australia, but it's now threatening to delay ratification in the hope of getting a better deal.

Mari Alkatiri: Timor Leste is a sovereign country. It's not Indonesia.

It's not Papua New Guinea, and as the newest countries we would like to apply the current international law. This is our right to do it.

Anne Barker: But East Timor's gamble carries an $8-billion risk. That's how much it would stand to gain if Australia agreed to the midway boundary, in accordance with international law. But if the Greater Sunrise agreement isn't ratified by the end of the year, it could fall through altogether.

Woodside Petroleum, the leading partner in the joint venture, says without the legal and fiscal certainty the agreement brings, the whole project could be scrapped.

Don Rothwell is a professor of international law at Sydney University who has a keen interest in the Timor Sea negotiations.

Don Rothwell: Given the uncertainty that now exists over this area, the fact that there's been longstanding uncertainty over a number of years about these matters, there will clearly have to become a point in time when the operators have to conclude whether they wish to stick with it, or whether they wish to withdraw for the time being, until such time as the political and legal issues are finally solved.

Anne Barker: What sort of leverage does this threat give East Timor though over Australia, if any, especially if it does jeopardise the Greater Sunrise project?

Don Rothwell: Well, legally it doesn't give East Timor any leverage at all because Australia has removed one of the major options available to East Timor to take this case before the International Court of Justice for example.

But I think it's a very important negotiating ploy, and politically it will place some pressure on Australia because now this is going to be some economic and political disadvantage for Australia because of the failure to get the unitisation agreement concluded.

It will force Australia to go back and rethink the unitisation agreement negotiations, but also in the broader sense, the issues that East Timor has raised in terms of the long term viability of the joint development zone in the Timor Sea between Australia and East Timor.

Mark Colvin: Don Rothwell, Professor of International Law at Sydney University, with Anne Barker.