NT: S-E Australia faces gas supply problems

AAP General News (Australia)
08-01-2001
NT: S-E Australia faces gas supply problems

By Rod McGuirk and Ben Ready

DARWIN, Aug 1 AAP - South-East Australia faces gas supply problems after Phillips Petroleum
today shelved plans to build a $1.5 billion Timor Sea gas pipeline to Darwin.

Australian Petroleum Production and Exploration Association (APPEA) executive director
Barry Jones said the decision by the US energy giant left the country's south east with
medium term gas supply issues.

The pipeline had underpinned $13 billion in on-shore gas projects in Australia and
its indefinite deferment put as many as 3,000 jobs at risk.

Phillips cited unresolved legal, fiscal and tax issues from the new Timor Gap agreement
signed with fanfare last month between Australia, the United Nations and East Timor's
interim leaders.

Mr Jones said all Australian governments had assumed Timor Sea gas would flow.

"What they don't understand is that gas projects are very capital intensive, they are
very risky, they have a low rate of return and when you have governments who have big
uncertainties in their taxation system, investors walk elsewhere," Mr Jones said.

"We have the PNG pipeline on hold, we now have this pipeline on hold and while there
are some new developments in the Otway basin (off Victoria) which will carry us over the
short term, in the medium term the south-east Australian gas market has a real supply
issue that needs to be addressed."

Queensland Premier Peter Beattie now had a problem in keeping his promise to have 13
per cent of electricity generation gas-fired by 2010, Mr Jones said.

And the Sydney gas market had lost one of its competitive forces, he said.

Phillips Darwin area manager Jim Godlove said stakeholders including the federal government
and UN secretary general Kofi Annan were told on Thursday last week that the pipeline
would be shelved today if there was no breakthrough in negotiations with East Timor over
tax arrangements.

"Obviously, we were hopeful that might have produced some sort of more favourable response,"

Mr Godlove said.

"It did not produce such a response and so we took the decision that we had mooted
with them late last week and announced today."

The federal government today urged East Timor to live up to its earlier commitments
to maintain existing tax arrangements for Timor Sea oil and gas developments.

A spokesman for Foreign Minister Alexander Downer said Australia was disappointed by
Phillips's decision but East Timor had the sovereign right to make its own tax arrangements.

East Timor is proposing to recover an additional $A1 billion in tax from companies
engaged in developing oil and gas resources in the Timor Gap.

But that goes against a written commitment signed in Darwin in October 1999 by East
Timorese leaders Xanana Gusmao, Jose Ramos Horta and Mari Alkatiri, that production-sharing
arrangements and taxation would be no more onerous under a new agreement than under the
previous Timor Gap Treaty between Australia and Indonesia.

Opposition Leader Kim Beazley said the pipeline was an important national project which
the government had mucked up.

But Phillips' partner in the Bayu Undan-Greater Sunrise gas developments, Woodside
Petroleum, remained confident the pipeline could be salvaged.

"The key thing now is to get some clarity over how these issues are going to be resolved
and on a basis that has no more onerous outcomes to companies," Woodside's business manager
Paul Kitson said.

"We're certainly confident we will resolve them in due course."

AAP rmg/cjh/mo

KEYWORD: TIMOR GAP NIGHTLEAD

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