Financial Times [UK] November 2, 2001

E Timor gas hopes dealt setback

By Virginia Marsh in Sydney

Efforts to commercialise the substantial gas fields between Australia and East Timor suffered a significant setback on Thursday when Methanex, a cornerstone customer, said it was taking its business elsewhere.

The decision by the Canadian chemicals company - which had been planning to build the world's biggest methanol plant in Darwin, in Australia's Northern Territory - follows a dispute between East Timor and the oil companies developing the deep-sea gas fields.

Against Canberra's wishes, the fledgling state has announced plans to raise up to an extra US$500m in taxes from oil companies operating in an area of the Timor Gap shared with Australia, where it has taken over from Indonesia.

The dispute has caused Phillips Petroleum of the US, operator of the first field due to be developed, to delay construction of a pipeline to Darwin that would have brought gas for the methanol plant on shore.

The impasse could also cause El Paso of the US, the other key long-term customer, to scrap an agreement made last year to buy up to A$7bn (US$3.5bn) of liquefied natural gas from the fields over 20 years to help ease California's energy shortages. The US energy group has already begun to look for alternative supplies.

Methanex will now build its plant in Western Australia using gas, under a 25-year contract, from the North West Shelf, the vast LNG project operated by Woodside Petroleum, the Australian oil and gas group.

The A$1.5bn plant is due to begin operations in 2005 and, with capacity of 2m tonnes a year, is expected to generate export revenues of some A$600m a year.

Methanex's decision to relocate the plant is a blow to Australia's efforts to create an industrial base around Darwin, a city of 80,000, whose development has been hindered by the lack of local energy supplies.

However, the new Labor government in the Northern Territory has pledged to use its good relations with the East Timorese to help resolve the tax dispute.

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