John Phaceas, Perth – Woodside Petroleum might have to defer its Sunrise gas project for at least five years – costing it billions in delayed revenue – if the impasse over Timor Sea production rights was not resolved by Christmas, the company warned yesterday.
Woodside said it had to start detailed design for the $7 billion Sunrise project by the end of the year if it was to capitalise on a window in the gas market it believed would open in 2010.
If Sunrise was not in production by 2010, the development would have to be delayed until the next suitable marketing opportunity arose, Woodside said. Industry experts predicted that could be as late as 2015.
Such a postponement would have a big effect on Woodside's long-term profit projections, based on the Greater Sunrise fields' expected output of 5 million tonnes of liquefied natural gas a year, and substantial quantities of condensate.
The fields, 400 kilometres north-west of Darwin, contain almost 8 trillion cubic feet of gas and 300 million barrels of condensate, and are tipped to generate up to $12 billion in royalties.
An interim revenue-sharing agreement between Australia and East Timor was signed last year, granting the fledgling nation 90 per cent of all royalties from projects within the zone, including the $4 billion Bayu-Undan project operated by US group ConocoPhillips.
But 80 per cent of the Sunrise fields lie inside Australia's maritime border, which is now being challenged by East Timor.
The two nations have been at loggerheads since March, when East Timor President Mari Alkatiri warned that the interim agreement would not be ratified unless the maritime boundary was redrawn.
East Timor wants the boundary shifted from the edge of the Australian continental shelf to the midpoint between the two countries, giving it total jurisdiction over the Sunrise project.
A delay would have a big effect on Woodside's long-term profit projections based on Sunrise's expected output.
In Darwin yesterday, Woodside's gas business chief, David Maxwell, said the Sunrise partners would be unable to meet their tight development schedule unless the impasse was broken over the next few months.
"Securing foundation LNG customers and the Timor-Leste Government's ratification of the International Unitisation Agreement ... are the prerequisites for Sunrise to enter the detailed engineering and design phase," Mr Maxwell told the South-East Asia Australia Offshore Conference.
Mr Maxwell said Sunrise had to be in production by 2010, when several major LNG supply contracts in Asia were due to expire and demand from China and the US was forecast to take off.
Any delay would cause Sunrise to lose out to a raft of other bigger projects slated for development in Russia and the Middle East, many of which could later be expanded at significantly lower cost than Sunrise.
"It is a compelling piece of logic that reminds us of the importance of getting the jump on them," Mr Maxwell said.