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Timor-Leste: A country positioned to supply South-East Asia

Situated in the strategically important Timor Sea, a narrow body of water between itself and Australia just 480km wide, Asia’s newest nation of Timor-Leste is in a prime position for supplying south east Asia, not only with its own resources but as a hub for the region. With many thousands of islands and difficult-to-reach communities across many sovereign countries, Timor-Leste can be the next major development in the world’s logistics sector.

In an era where neighbouring countries’ hydrocarbon production has been marked by declines – Indonesia produced 87 billion cubic metres of gas in 2010, which had fallen to 63.2 bcm by 2020 – the optimism surrounding the upstream possibilities in Timor-Leste is all the more remarkable.

There is a similar picture painted in the region for oil production as well, with Indonesia and Malaysia showing declines in their production over the same period. For Timor-Leste, however, the May 2021 investment by Santos, an Australian independent, into a drilling programme called Phase 3C is illustrative of positive steps to come. In July 2021, oilfield services company McDermott was chosen to deliver EPCI subsea systems of Santos’ of equipment at the Bayu-Undan Infill Well Phase 3C Project, all part of a USD 325 million programme. Managing director of Santos, Kevin Gallagher, described the project as adding “20 million barrels of oil equivalent gross reserves and production at a low cost of supply and importantly extending the life of Bayu-Undan and the jobs and investment that rely on it.”

The late-July 2021 news that the Phase 3C infill drilling programme’s first well coming fielding results described by Santos as "a better than anticipated outcome" translates to 178 million scf per day of gas and 11,350 barrels per day of liquids, showing Timor-Leste’s untapped potential. Wood Mackenzie analysis expects that the three wells – Santos has already started drilling the second of the three wells – would add another three years of production to Bayu-Undan. The three wells, whose resources will be used to supply Santos’ Darwin LNG plant, are indicative of how Timor-Leste can and will play a major role in the region’s energy needs.

Timor Resources, an Australian firm founded with the sole purpose of exploring for oil and gas in Timor-Leste, is drilling several wells across Blocks A and C in 2020/21. These are some of the first onshore wells drilled in Timor-Leste in the past 40 years. The company has acquired two new 2D seismic surveys across both blocks that has dramatically changed the understanding of the prospectivity of the petroleum potential of onshore Timor-Leste. Both it and Santos are key components in a long term goal of improving quality of life for the Timorese and for growing Timor Leste’s influence in the Southeast Asian space. These projects, and others, have the potential to support and sustain LNG, power generation and methanol industries. Wood Group Kenny is currently carrying out a six month feasibility study into an LNG import terminal. This would allow oil-fired power plants run by Wärtsilä generators to be converted to natural gas, decreasing electricity costs for Timorese.

Timor-Leste, ANPM, Timor Gap, Tibar Bay Port, Bollore Logistics
The Tibar Bay Port construction work has surpassed 50%

Furthermore, with a keen eye on the future, Timor-Leste has invested USD 490 million on a new container port in Dili, built by Bolloré Logistics and China Harbour Engineering Company. This is one of the largest investments in Timor-Leste’s history. It will have a total wharf length of 630m and its draft of 15m and TEU handling capability of 226,000 per year in 2020 expandable up to 1 million per year should the need arise and will truly be a shot in the arm for Timor-Leste’s economy. The Asian Development Bank, meanwhile, had invested up to USD 500 million by 2017 in Timor-Leste, improving road connectivity between the different regions of the country.

The recently appointed Antonio de Sousa as the head of Timor GAP should also herald signs of Timor-Leste’s increasing ability to supply the region. He has promised to spearhead a new strategic vision for the petroleum sector and it is expected that he will seek to revisit an annex written into Timor-Leste’s production sharing contract with Australia. This stipulates that if gas from the Greater Sunrise field be processed as backfill at Australia’s existing Darwin LNG export plant, or Ichthys LNG plant, Timor-Leste may be entitled to an additional 10% of upstream revenue, which would equate to 80% in total. Fitch Solutions estimates that this could be worth ‘between USD3.13bn and USD3.54bn in additional revenue to Timor-Leste over the life of the project.’ These funds have been earmarked for infrastructure and industrial development initiatives on the south coast. This would also have the advantageous effect of reducing the need for Timor-Leste to draw down on its petroleum fund.

Timor-Leste is well positioned to supply Australia with its upstream resources, a mutually beneficial arrangement. The success of Australian firms investing in Timor-Leste is as well as testament to the rich opportunities on offer from the country. It is in every regional country’s interest to facilitate the successful development of Timor-Leste and all parties are on the same page and poised to do just that.


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