East Timor Floats Cambodia’s LNG Options

By Luke Hunt

AsiaWATCH — A push towards using massive offshore refining pontoons for processing crude oil and LNG is gaining momentum and forcing governments, including Cambodia, to rethink their growth strategies after pinning their economic hopes on traditional oil and gas jobs.

It’s a global phenomena but one that is finding its mark in Southeast Asia where high crude prices had improved the economic viability of offshore oil and gas fields in areas once difficult to reach and hamstrung by a lack of development such as ports and sometimes difficult politics.

This was the case with Indonesia, Cambodia, The Philippines and East Timor.

As the boom in oil prices gathered pace, less economical fields became viable and governments were hastily opening their doors and exposing their workforce to companies that had previously preferred to remain with established sources for oil and gas, places like the Middle East.

But infrastructure – roads, ports, railways, refining, storage, and a trained workforce — is costly and engineering realities of building a pipeline across deep sea trenches – sometimes thousands of metres deep – are prohibitive, particularly as oil prices fell dramatically off record highs.

Some governments, like Australia and Indonesia, are accepting the realities and experimenting with the use of offshore refining which eliminates the need for pipelines and is ideal for accessing resources in remote areas. Its technology that deserves to be considered by Cambodia, Malaysia, The Philippines and Brunei but some like East Timor are not keen.

Built on barges, the floating pontoon is bigger than an aircraft carrier and capable of refining oil and freezing liquefied natural gas (LNG) at below minus 162 degrees celsius needed for export. Shell is constructing the world’s first for use at its operations at the Prelude/Concerto field in Australia’s North West Shelf. Other contractors are also coming on board.

Escalating costs have forced Woodside Petroleum to abandoned $100 billion worth of projects including plans to build a $50 billion LNG export facility near Broome while BHP Billiton has cancelled two plans worth a combined $50 billion at Olympic Dam in South Australia and Port Hedland in West Australia.

Woodisde is now considering its floating LNG (FLNG) options. Another FLNG operation is being planned by Inpex Corp for development of its Abadi field in Indonesia’s Arafura Sea. Its geographical make-up is similar to the Greater Sunrise field in East Timor where Woodside has to overcome the enormous depths of the Timor Trough.

Woodside also wants FLNG deployed here but East Timorese officials have baulked and remain keen on constructing traditional onshore operations and providing well trained jobs for its population. It’s an argument that would win some sympathy in Phnom Penh but the Cambodian government has to date failed to develop any of the infrastructure required to access its touted oil reserves in the Gulf of Siam.

FLNG technology would speed up that process. For companies, the potential financial benefits of FLNG far outweigh the initial outlays. FLNG also substantially lowers lead times, pose much less of an environmental risk or impose upon indigenous people living ashore.

“This is likely to position floating LNG well as the market becomes increasingly competitive and could ultimately crowd out some conventional developments,” a Macquarie Research paper on the Australian energy sector noted.

But it’s not the type of development wanted where politicians have promised an El Dorado of downstream industries would prosper off the back of the offshore ventures. This has put East Timor and its future earnings on an edge.

Last week Dili alleged Australia had engaged in espionage and did not act in good faith during 2004 negotiations on a treaty for Sunrise’s development. It was the latest twist in efforts to have the royalty sharing treaty between Australia and East Timor invalidated. Dili wants fresh arbitration but Australia insists the treaty still stands.

That, plus differences over the use of FLNG and the advent of fracking – where liquid is pumped into wells forcing the release of gas from difficult to get to areas – is making East Timor a less desirable destination for the oil and gas industry. Cambodia and other countries from around the region which have pinned their hopes to developing an oil and gas industry are no doubt watching this closely.

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