Insights
Asustralia should back Timor Lesteʼs LNG drea-m and head off China
Last Updated:2022-08-31
The China card is being played against Australia everywhere in the Pacific.
What does the fight over LNG processing in Timor Leste tell us about how to
deal with it?
Columnist
It was just a matter of time. East Timorʼs President Jose Ramos-Horta has
warned that if Woodside does not cave in to the long-standing demand to
process Greater Sunrise gas onshore in that country, he will ask China to
develop the project.
Of course, that is easier said than done. China has showed little interest in
the project and Woodside holds about 33 per cent of the lease. Woodside
insists the gas be piped to Darwin for processing.
Gas is piped to Darwin from the Bayu-Undan field in the Timor Sea. The Ramos-Horta government wants the gas to
be processed in East Timor.
Other than ownership arrangements for the project, little else has changed
since I led negotiations on the Greater Sunrise unitisation agreement for the
Howard government in 2001-03. At the time, the Anglo-Dutch petroleum
giant Shell was the majority shareholder, and the approval of its board was
required for the project to proceed. Although East Timorʼs National Oil
Company now holds a 56 per cent share, the issue of where to process the
commercially valuable downstream gas still remains.
While piping the gas to East Timor for processing involves substantial
technical challenges, especially crossing the 3300-metre deep Timor
Trough, commercially viable technical solutions did exist then and are likely
to be more readily available now.
Shellʼs objection was not so much technical or commercial but political.
Sovereign risk in the then newly independent country was deemed far too
high for a multibillion, multi-year investment.
At the time, we were told by company officials that there was no way a
board in the distant Netherlands would approve exposing the company to
such a level of political risk. Woodsideʼs board is much closer to the region
and East Timor has now had 20 years of political stability. Political risk is still
likely to be the main barrier to processing the gas onshore in the country,
although neither Woodside nor the Australian government will say so.
East Timorʼs government would know this for a fact; hence the threat of
inviting China to build the project. If it were not technically or commercially
viable, it would be an empty threat. Foreign Minister Penny Wong is in East
Timor this week, attempting to resolve the standoff with Woodside.
Shock among the strategic policy community
China Incʼs view of sovereign risk is far removed from corporate boards in
the West. In part, China legitimately evaluates political risk in different ways
than international corporations – but in part non-commercial considerations
such as foreign policy objectives come into play.
Australia, having talked up the China threat in the region, finds itself on a
cleft stick. Smaller states have always sought to play bigger powers off
against each other, to their advantage. Not surprisingly, most Pacific Island
states have been doing this for decades. East Timor has been late to the
party.
In the 2000s, Taiwan and China pursued dollar diplomacy, each attempting
to outbid the other for influence and recognition. When challenged over this,
a Chinese foreign ministry colleague boasted that if China really wanted to
play that game, it could outbid Taiwan on every occasion. Perhaps it might
have, but it was less interested in the contest in those days than it is now.
China is now a much more formidable presence both economically and
politically in the Pacific. Its most recent diplomatic success was attracting a
switch in recognition by Solomon Islands from Taipei to Beijing.
The China card is being played against Australia at every turn. But
our hand is weak and we have not been particularly adept at the
game.
The fear of China having access to port facilities in the Solomons has
shocked the strategic policy community, leading to heated commentary
during Mayʼs election in Australia, and a flurry of visits and activity
subsequently. Promises of climate action and infrastructure funding did not
stop the Solomons granting key telecommunications licences to Huawei.
From the Pacific, through Papua New Guinea and now to East Timor,
Australia finds itself in a game for influence. The China card is being played
against Australia at every turn. But our hand is a weak one and the history of
our relations with these states demonstrates that we have not been
particularly adept at it.
The key questions to ask are: does it matter much, if at all, to Australian
security – and if it does, how can we avoid being played like this?
Although we are deafened by the crescendo of those asserting that some
Chinese access to port facilities in the Solomons, more than 2000
kilometres from Australia, would be a clear and present danger, it does seem
a rather long way away. It should allow plenty of time for the Royal Australian
Navy fleet to sail from Sydney.
Of course, it has never been established that China wants or sees
advantage in having a naval presence in the Solomons.
We need hard-headed analysis of how this detracts from Australiaʼs
security. Of course, we would all want to go back to a period when a
Chinese presence in the Pacific was impossible to imagine, but those days
are long gone and this is the reality Australia must confront, and then work
out best how to respond.
Possibility of a Chinese presence in East Timor
More concerning would be a presence in East Timor, in view of its proximity.
Funding a few sports stadiums and government buildings, and possibly
funding the onshore processing of gas in Timor, do not necessarily beget
some military presence.
East Timor has one major foreign policy sensitivity, and that is its relations
with Indonesia. Jakarta would no doubt have its own serious reservations
about an East Timor that allowed itself to become too close to China. For its
part, China would be hugely sensitive to any Indonesian concerns over an
outsized, let alone military, presence in East Timor.
Small states have agency and wish to preserve their independence, and
thus keep their distance from all major players, including Australia, while
seeking to maximise benefits. It is a clever optimisation strategy for them to
adopt.
Australia should avoid exaggerating the security threat posed by Beijingʼs
activities, judging each on the facts and not as some generalised Chinese
takeover of the Pacific. Given Chinaʼs weight and size, its appetite for
imported resources and protein, it is inevitable its activities and influence in
the region will grow. It is also inevitable that China will seek to protect its
interests in the region.
Australiaʼs best defence will be the quality of its relations with each state
and every political leader, based on respect for their sovereignty – and
accepting, without arrogance, that small states wish to protect their
independence and are the best judges of their national self-interest.
In the short term, panicked reactions – such as bidding against China, or
trying to have certain investments or activities blocked – will only invite
rejection, increasing the price for Australia, to no avail. Deep, long-term, and
above all consistent engagement will be well received and more likely to
secure and anchor Australiaʼs influence.
As for Greater Sunrise, the Australian government should support in
principle the processing of the gas in East Timor. It should work with both
the East Timor government and Woodside to make this can happen.
This would be the most effective way to ensure Australia has a prosperous
and stable neighbour, and to minimise Chinaʼs influence.
