A DIPLOMATIC darkness continues to set firm on Woodside Petroleum's plans to invest upwards of $14 billion on the novel Greater Sunrise liquefied natural gas project, with East Timor this week threatening to walk away from the international treaty that apportions sovereignty over the petroleum territory it shares with Australia.
On the same day the market got first sight of Woodside's Tokyo-option for progress on another of its contentious projects, the Browse development on the North West Shelf of WA, The Australian reported that East Timor would abandon the royalty sharing treaty with Australia rather than accept Woodside's proposal to build a floating LNG processing plant on top of Greater Sunrise.
The treaty in question is called CMATS (or the Treaty on Certain Maritime Arrangements in the Timor Sea . . . no I am not kidding!) and it sets the rules by which development of Greater Sunrise can proceed and enshrines a 50-50 split between Australia and East Timor on royalty flows.
Under the terms of CMATS, East Timor can conclude the treaty as early as February 2013. And that, according to our near neighbour's chief negotiator, Francisco da Costa Monteiro, is exactly what it will do if Woodside continues to ignore Dili's development preferences.
The reality here is that Monteiro and just about anyone else involved in East Timor's Greater Sunrise negotiations have seen and heard all they want to from Woodside's current boss, Don Voelte.
They know Voelte is leaving and they are patently attempting to filibuster the Greater Sunrise process in the hope that his replacement might be more amenable to their ideas of the way forward for the project and, barring that, that they might be able to lure the federal government into more active engagement in the current dispute.
The issue before Woodside and our federal government is that East Timor wants the Greater Sunrise gas landed and processed on its south coast at a spot called Beacu.
Woodside says that option would add at least $5bn to the cost of a project and it would increase the overall project risk because it would require the construction of a pipeline across the Timor Trench and the construction and operation of an LNG facility in a country poor in both infrastructure and skilled labour.
The federal government, at least so far, is sticking to its mantra, which is that the operator of the Greater Sunrise lease, Woodside, should be free to proceed with the most commercially sensible option, as proscribed by the CMATS arrangements.
According to Woodside, landing gas in East Timor would sit at the very edge of pipeline technology both in its construction and operation. But East Timor is insisting that it must be done.
The root of the problem here is essentially topographical. The Greater Sunrise fields were discovered in the Timor Sea by Woodside in 1974 and within 12 months Indonesia had invaded East Timor.
Two subsequent agreements over the sovereignty of the waters of the Timor Sea, the first with Indonesia, the second with East Timor, have left Greater Sunrise straddling Australian territory and what is now called the Joint Petroleum Development Area.
The JPDA was affirmed in 2002 by the Timor Sea Treaty and its effect is that East Timor gets 90 per cent of any royalties that flow from petroleum production in the zone. But the real irritation right now is that the combination of the CMATS and JPDA treaties leaves East Timor with a call over Woodside's options that is quite disproportionate to its actual entitlement to the Greater Sunrise gas.
In the end, only about 20 per cent of the gas sits within the JPDA. The rest is Australian. And the distinction between what gas sits where might well become important as this dispute develops.
Speaking recently about Greater Sunrise, Woodside boss Don Voelte said: "If we run into a little bit of a brick wall here and we can't get around it or go through it, well, we'll go over it." And one way over the wall might be to extract Australia's share of the Greater Sunrise gas and leave East Timor to its own devices. And, to that end, the suspension of the CMATS treaty might come as a blessing in disguise.