The Rising Influence of Rising Affluence

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East Timor Calls Floating-LNG Plans ‘Arrogant’

http://online.wsj.com/article/SB10001424052748704302304575215230332086118.html

›By ROSS KELLY
APRIL 30, 2010

SYDNEY—East Timor on Friday accused Woodside Petroleum Ltd. of exhibiting "an unacceptable level of arrogance" in a dispute that could complicate the Australian energy producer's ambitions in the natural gas market.

The focus of the dispute is the Greater Sunrise gas field lying offshore between the island nation of East Timor and Australia. Woodside and its Sunrise joint venture partners, including Royal Dutch Shell PLC and ConocoPhillips, on Thursday said they had chosen to build a floating liquefied natural gas facility that would cool the gas into liquid form to make it more easily transportable.

East Timor, also known as Timor-Leste and which jointly administers the field with Australia, is pushing to process the gas into LNG for export on its own shore. On Friday, East Timor officials protested against Woodside's disregard for their wishes.

"The floating LNG concept for Greater Sunrise is neither in the best interests of the people of Timor-Leste nor technically and commercially sensible," Secretary of State for the Council of Ministers H.E. Agio Pereira said in a statement. He added, ""The approach has significantly compromised future relations with the government of Timor-Leste."

On Friday, Woodside Chief Executive Don Voelte said that East Timor's response was "premature." "We haven't even given them the proposal, or the very thick book of detail behind why we came to the decision," he said at the company's annual general meeting, adding that the new floating LNG technology is practical.

Whether the Sunrise floating LNG concept is now dead depends on how well Woodside and its partners can negotiate with East Timorese officials. Some in the government have already suggested that a floating LNG vessel could work, although they're also concerned about the untried nature of the technology.

Woodside has said cooling the gas into LNG on a floating platform is more practical than an onshore LNG plant fed by a pipeline that would have to cross a deep ocean trench to get to East Timor. East Timor believes it will reap greater economic benefits if the gas is processed onshore, while Woodside argues offshore processing will provide more revenue to the citizens of East Timor than any other option.

Mr. Voelte Friday described the floating LNG option as a "phenomenal proposal" that is "almost like manna from heaven" for the people of East Timor.

Greater Sunrise has roughly 226 million barrels of natural-gas condensate and 5.1 trillion cubic feet of natural gas.

So far, no floating LNG processing plants have been used anywhere in the world. But Shell has placed an order with Samsung Heavy Industries Co. to build one, at an estimated cost of about US$5 billion, with an agreement to possibly build another nine. Shell is already planning to use a floating LNG platform to develop its separate Prelude field offshore Western Australia state by 2016.

Floating LNG is increasingly being considered as an effective way to commercialize stranded gas resources too small to support the construction of onshore LNG terminals and their associated pipeline infrastructure.

Woodside is targeting first gas from Sunrise in 2016. Analysts, however, aren't sure it will be constructed so quickly, given the East Timorese government's stance and Woodside's involvement in other, more immediate prospects like the expansion of its Pluto LNG project and construction of the Browse LNG project.

The project is part of Woodside’s ambition to become one of the world's largest producers of LNG by 2020.‹