On March 6, Australia and Timor-Leste signed a landmark treaty delimiting their maritime boundaries in the Timor Sea.
The Timor Sea disputes comprise three distinct but overlapping components. The first is whether maritime boundaries should be delimited and where. The second concerns the upstream revenue split of the lucrative but contested Greater Sunrise oil and gas field. And the third, and most important, relates to where the gas from Greater Sunrise should be piped; that is, which state should benefit from the downstream revenues that come from processing.
Much of the media has presented the March agreement as resolving the long-running disputes between Australia and Timor-Leste over maritime boundaries and resources. This is inaccurate, largely because the most difficult issue—the development of Greater Sunrise—remains ongoing.
In 2006, Australia and Timor-Leste signed the Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS) that aimed to resolve the contest over the development of Greater Sunrise. In it, they agreed to split the upstream revenues 50:50, and put a moratorium on permanent maritime boundaries until after 2050. Importantly, the agreement put aside a crucial dispute over how resources from Greater Sunrise would be carried away and processed. Timor-Leste’s leaders wanted a pipeline to be constructed to its south coast so the country could build an oil industrialisation plant. The commercial venture partners, headed by Australia’s Woodside Energy, preferred a floating liquefied natural gas platform. Under the terms of an earlier 2003 agreement, Canberra and Dili had agreed to develop the field according to the best commercial option, and Woodside’s refusal to agree to Timor-Leste’s demand for a pipeline left the development of Greater Sunrise in limbo.
By 2012, Timor-Leste was making legal and political moves to extricate itself from the CMATS agreement. Leaders began agitating for the delimitation of maritime boundaries, co-opting narratives within Timorese civil society that the settlement of maritime boundaries was essential to complete national sovereignty, as part of a public diplomacy campaign to push Australia back to the negotiating table.
In 2016, Timor-Leste initiated United Nations Compulsory Conciliation (UNCC) proceedings—the first time this dispute resolution clause in the United Nations Convention on the Law of the Sea (UNCLOS) has been used. By 2017, Australia had agreed to dissolve CMATS, which reinvigorated its obligations to delimit maritime boundaries.
Permanent Maritime Boundaries
The treaty that Australia and Timor-Leste signed in March reflects a pragmatic approach to boundary delimitation. Timor-Leste argued that the maritime boundary in the Timor Sea should be based on the principle of equidistance, or “the median line” between the two countries, which is well-established in contemporary international law as codified in UNCLOS. In contrast, Australia’s claims that the line should be drawn closer to Timor-Leste’s coast were based on more antiquated principles of the “natural prolongation” of its continental shelf. These two positions were the basis for the northern and southern boundaries of the joint development area under the CMATS agreement. Most of the new boundary delimitation is based on Timor-Leste’s equidistance argument.
But the key issue in the negotiations was the eastern lateral boundary. The interim eastern lateral used in the CMATS agreement was drawn based on the principle of simple equidistance. But for the delimitation of a permanent boundary, Timor-Leste claimed that the eastern lateral should be drawn according to adjusted equidistance (by which a median line is shifted based on factors including the relative length and predominant direction of opposing or adjacent coastlines) which would move the line farther east and put most of the Greater Sunrise field in its maritime zone.
The eastern lateral boundary in the final agreement includes an unusual dogleg bend that does not appear to conform to UNCLOS equidistance principles. This reflects a practical decision by Timor-Leste and Australia to draw a line that would not require drawing Indonesia into the negotiations and potentially allowing it a share of the Greater Sunrise resources. Any shift from the terminus of the 1972 Australia-Indonesia seabed boundary (point A16 in the map above) would have necessitated Indonesia’s involvement. In order to expand Timor-Leste’s maritime area, the parties have creatively carved out space in what was nominally Australia’s claim under CMATS without affecting the Australia-Indonesia boundary.
This is a central reason why formal arbitration (in the International Court of Justice, for instance) may have worked against Timor-Leste’s interests, particularly if Indonesia became involved in the dispute. The implication here is that negotiated settlements—such as that undertaken through the facilitated UNCC process—are, in some circumstances, preferable to binding tribunals.
The 2018 treaty allows for future adjustment of the boundary, subject to negotiations between Timor-Leste and Indonesia, but only after the resources have been exhausted.
The Revenue Split and Development Plan
While the maritime boundary aspect of the dispute appears to be resolved, the question of how upstream revenues from Greater Sunrise will be shared has only been partly negotiated.
The Joint Petroleum Development Area (JPDA) established in 2006 now falls entirely within Timor-Leste’s continental shelf, and as a result the country has secured 100 percent of upstream revenues from the area. While this sounds like a significant material gain, in reality Timor-Leste already receives 90 per cent of the upstream revenues and the existing Bayu-Undan field is very nearly depleted anyway. The economic benefits to Australia continue in the form of downstream revenues as the oil and gas is processed in Darwin.
That the JPDA is running dry is a significant problem for Timor-Leste, which draws over 90 percent of its state budget from petroleum revenues. The lack of economic diversification in Timor-Leste means that the hasty development of Greater Sunrise is an urgent economic priority. Regarding the revenue split from Greater Sunrise, the parties decided that if Timor-Leste wins the pipeline argument, it will get 70 percent of upstream revenues. If it does not get its pipeline, it will receive an 80 percent share.
Essentially, the revenue split is dependent upon Timor-Leste striking a deal regarding the pipeline. Yet this is not a straightforward bilateral dispute – it involves the commercial consortium led by Woodside which has licensee rights under the 2003 Greater Sunrise unitisation agreement. Timor-Leste’s boundary win has not, in fact, given it control over its share of Greater Sunrise as the field continues to be subject to a joint development agreement.
Australia declares itself pipeline “neutral,” positioning itself as a mediating force and deferring the most challenging dispute to Timor-Leste and the oil companies. And while Timor-Leste describes the pipeline as “non-negotiable,” oil industry experts are highly skeptical of its development concept. The non-binding report from the UNCC panel is expected to be handed down in mid-April. This will hopefully provide more information about the progress of those negotiations and the panel’s recommendations on the development concept.
Ultimately, while Timor-Leste’s largely symbolic concerns about maritime boundaries have been addressed, the substantive material aspects of the dispute have not been resolved. A prolonged dispute over the development concept of Greater Sunrise will have serious implications for Timor-Leste’s economic future.
Header image courtesy of Silvestre Pires Castro, used with Creative Commons license