The East Timor-Australia maritime boundary issue is in the news again, with the Financial Times running an article quoting Timor Leste Prime Minister Mari Alkatiri as hoping that an agreement might be able to be reached by July. Apparently Australia has increased its offer for a share of royalties in the huge Greater Sunrise gas field from $3 billion to $4 billion, in return for East Timor agreeing to leave the overall issue of the maritime boundary unresolved for another 100 years.
The Greater Sunrise field is estimated to have reserves of a bit over $6 billion (although it isn’t unusual for reserves to be found to be larger than first estimates). Thus the Australian offer is on its face attractive, given that the great bulk of the Greater Sunrise field is within Australia’s maritime boundary under the agreement negotiated with Indonesia in 1989. However, downstream processing is much more valuable than mere royalties, so a deal which just gives East Timor the lion’s share of royalties but leaves effective control of the field with Australia and which results in the gas being piped to Darwin, would in fact be a good outcome for Australia.
But is the 1989 agreement with Indonesia a fair one? I blogged at some length about the maritime boundary issue in two posts (here and here). Together I think they provide a reasonably detailed (and accurate AFAIK) overview of the issues.
The issue has also provoked a guest post from Stan of South Pacific Federation Project over at The Currency Lad’s blog. With due respect to Stan, his post is a bit simplistic and credulous, mostly accepting the spin put out by DFAT and therefore concluding that Australia’s position in international law is “strong”. In fact it’s much more complicated than that, although I don’t really disagree with a conclusion that Australia’s position is probably fairly strong in a realpolitik (if not international law) sense.
As I concluded in this post, East Timor in fact probably has quite a strong case for a new maritime boundary at the mid-point between the two countries. But that doesn’t really do East Timor all that much good in net financial terms, as the accompanying map clearly shows. It’s really the position of the lateral (or perpendicular) boundary that will determine who gets the lion’s share of royalties. The Greater Sunrise field is the green patch at top right of the “Timor Box” (or Timor Gap), overlapping only slightly into the Box, while the much smaller Bayu Undan field (currently being developed and piped to Darwin) is wholly within the Box and roughly at its centre left side.
The result of agreeing to fix the horizontal boundary at the mid-point between Australia and East Timor (for which there is a strong case in international law) rather than at the edge of Australia’s continental shelf which is much closer to East Timor, would be that East Timor would be entitled to control the whole of the smaller Bayu Undan field. But Australia has already agreed to cede 90% of royalties for Bayu Undan. Agreeing to a mid-point boundary would do nothing at all to increase East Timor’s share of Greater Sunrise royalties beyond the earlier Australian offer of an 18% share. Hence the current Australian offer of a $4 billion total payment still looks generous (although it’s a payment for postponing territorial claims for a century as well as a share of immediate royalties).
So why is East Timor still arguing? Essentially because they also assert that the lateral/perpendicular boundaries should be shifted sideways to give them more maritime territory. But there are some major problems with this stance:
(1) Indonesia would inevitably re-open the maritime boundary issue for adjacent areas and would also claim a mid-point horizontal boundary. At the moment Indonesia is taking the view that it did a deal back in 1989 and that both parties should stick to it. Indonesia’s claim to a horizontal mid-point boundary would be just as strong as East Timor’s.
(2) East Timor’s claim to adjustment of the perpendicular/lateral boundary does not appear to be very strong. Generally the principles (in my fairly non-expert understanding) are that such a boundary would be drawn at right angles to East Timor’s coastline unless there are very exceptional major irregular geographical features (e.g. huge bays or peninsulas) which suggest some different angle. It isn’t at all obvious that East Timor has any such exceptional geographical features, so that the current lateral boundary negotiated with Indonesia seems a very fair one. In fact arguably it’s more than fair, in that it includes in the Box a part of Greater Sunrise that would have been excluded had the lines been drawn at right angles.
(3) Thus, it simply wouldn’t make sense for either Australia or East Timor to proceed to international arbitration on the maritime boundary. The most probable outcome of such an arbitration would be that the horizontal boundary would be fixed at the mid-point between Australia and both East Timor and Indonesia, while the lateral boundaries would be left where they are. The net practical result would be that Australia would lose out completely on any share of both Greater Sunrise and Bayu Undan, while East Timor would gain an additional 10% of the smaller Bayu Undan field, but would be only be entitled to around 18% of Greater Sunrise royalties with Indonesia retaining the lion’s share. It’s extremely unlikely that Indonesia would make the sort of generous offer to East Timor over Greater Sunrise that Australia has put on the table (no doubt because Australia is aware of the dangers from Indonesia inherent in the situation).
(4) Australia can afford to leave Greater Sunrise undeveloped for as long as it takes to achieve an outcome it can live with. East Timor can’t. It is one of the world’s poorest nations and is totally dependent for its survival on achieving a solution to the maritime oil and gas issues. Australian negotiators know this very well, and aren’t going to concede much more than they’ve already put on the table.