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Country Risk

Permanent maritime boundary negotiations between East Timor and Australia likely to further delay key gas project

16 January 2017
Protesters marching towards the Australian embassy in Jakarta, Indonesia, in March 2016 in support of East Timor in its dispute with Australia. Source: PA

Key Points

  • East Timor believes that a permanent maritime boundary settlement would place the Greater Sunrise fields entirely within its territory, providing it with total control of potential revenue from the fields.
  • East Timor will be under pressure to ensure a timely resolution of the boundary negotiations as its currently productive oil and gas fields are expected to run dry by mid-2020s, and the government relies on hydrocarbon revenue for 90% of its budget expenditure.
  • The permanent boundary talks raise the possibility of Indonesia demanding participation, as its exclusive economic zone overlaps with those of East Timor and Australia, potentially further complicating the issue.

EVENT

East Timor on 9 January informed Australia that it will terminate a maritime treaty that governs the major Greater Sunrise oil and gas fields.

The East Timor and Australian governments on 9 January issued a joint statement announcing East Timor's notification to terminate the Certain Maritime Arrangements in the Timor Sea (CMATS), a key treaty governing a major, undeveloped hydrocarbon reserve called Greater Sunrise. Greater Sunrise's fields are estimated to hold 9 trillion cubic feet (Tcf) of gas and approximately 300 million barrels (MMbbl) of condensate and liquefied petroleum gas (LPG) and worth around USD40 billion over its lifetime. As a comparison, East Timor's GDP in 2015 was USD1.4 billion. Both countries agree that the treaty will be invalidated after a three-month transition period and that they will negotiate a permanent maritime boundary. Under CMATS, both countries agreed to a 50:50 revenue split, while the status of the permanent maritime boundary was deferred for 50 years.

East Timor's unilateral decision follows other steps it has taken in recent years to invalidate the treaty. In 2013, East Timor took Australia to the Permanent Court of Arbitration in The Hague, The Netherlands, to ask for CMATS to be terminated on the grounds that Australia negotiated in bad faith by intercepting the communications of East Timor's delegation during treaty negotiations.

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