A high stakes dispute between Australian Oil and Gas company Woodside and East Timor's Government has come to a head. Woodside operates the Greater Sunrise gas field, but negotiations over its development have been deadlocked over a disagreement about where a plant to process the gas should be based. Today Woodside announced its preferred option, a platform floating above the field rather than piping the gas for processing in Darwin. But East Timor has said before that it wouldn't accept such a plan.

Presenter: Sara Everingham

Speakers: Peter Strachan, Resources Analyst; Charles Scheiner, La'o Hamutuk Association; Paul Henderson, Northern Territory Chief Minister

Sara Everingham: It was back in 2006 when Australia and East Timor agreed to equally split field royalties from the lucrative Greater Sunrise fields. But it was only today that the Greater Sunrise operator Woodside announced its plans for processing the gas.

It wants to use a platform floating above the field rather than piping the gas to Darwin. The resources analyst Peter Strachan says floating LNG is new technology but is clearly the best option.

Peter Strachan: I think that the industry was really expecting that the floating solution would come out trumps over the solution of piping the gas all the way to Darwin; I think that was really the logical, technical and financial solution for the partners.

Sara Everingham: Is this floating platform, this is new technology is it?

Peter Strachan: It is new technology.

Sara Everingham: Is it the first time it's been done?

Peter Strachan: It will be the first time it's been done but Shell is looking at a similar process at their Prelude project in the Carnarvon basin. It's coming; there are a number of projects in the wing that will develop floating liquefied natural gas.

Sara Everingham: Woodside says that under an agreement between Australia and East Timor it had to choose the most commercially viable plan. The chief executive officer Don Voelte says the Darwin option was rigorously assessed, as was a proposal to pipe the gas to East Timor to be processed at an onshore facility there.

But some time ago Woodside ruled out the East Timor option. Peter Strachan again.

Peter Strachan: If they're going to build this project, it's going to be a five or six billion dollar, at a minimum expenditure and Woodside's not going to pluck that money out of the air, they'll have to go to a bank and for the bank to approve the financing, the bank is going to look at the political risk and the political risk is going to play very highly on their ability to lend funds to this project.

And clearly a floating facility, or a facility in fact that went to Darwin would have a much lower political risk than one which would see billions of dollars worth of the bank's money, being spent in East Timor.

Sara Everingham: But East Timor's Government argues Woodside never properly considered processing the gas in East Timor. In January the Government stepped up its rhetoric and said it wouldn't accept Woodside's development plan.

Charles Scheiner is a researcher at a development monitoring NGO in East Timor.

Charles Scheiner: It's a very widely held view among the people and among the political leaders of all parties that the Greater Sunrise gas and oil field is Timor-Leste's largest natural resource and that that resource needs to be used to the maximum benefit of this country.

Sara Everingham: Under the Greater Sunrise Treaty both Australia and East Timor have to approve the plan for processing the gas. In a statement Australia's Resources Minister Martin Ferguson says Australia will consider Woodside's plan. The Northern Territory chief minister Paul Henderson is disappointed.

Paul Henderson: I've had a discussion with Don Voelte this morning, the chairman or the CEO of Woodside Australia and Don Voelte has said to me very strongly today there will be significant economic and business benefits and opportunities for Territory business.

Sara Everingham: East Timor's Government is yet to respond to today's announcement by Woodside. It remains to be seen if the country's Government will match its words with actions.

The analyst Peter Strachan says East Timor might decide to leave the gas in the ground in a bid to find a better deal, but will have to put up a good argument to do that.

Peter Strachan: It may well be that the East Timorese will dig their feet in and want to have processing onshore in East Timor and I'm not sure whether they can actually do that under the terms of the treaty that East Timor has with Australia.

Sara Everingham: If all the parties don't agree on a location for processing the gas by 2013, the treaty on Greater Sunrise, between Australia and East Timor could collapse.