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The La'o Hamutuk Bulletin
Vol. 3, No. 5: July 2002

English PDF Format  |    Bahasa Indonesian PDF Format

Issue focus: Timor Oil, Solidarity

Table of contents:

Part 1 Timor Sea 

Part 2 Timor Sea  (cont.)

Part 3

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With Money, Oil Also Brings Problems

All over the world, governments with oil and gas deposits under the land and sea have contracted with international petroleum companies to find, extract, process and export these petroleum resources. In many of these countries, the people hope that money from the oil and gas will improve their lives, enabling their government to provide better health care, education, employment and other vital services. As in East Timor, people expect oil revenues to facilitate the development of their infrastructure and to improve the quality of their lives.

Artist’s conception of the drilling rig at Bayu-Undan gas field in the Timor Sea.

But oil development does not come without a price. Around the world, the activities of petroleum companies have negative impacts on democracy, the local and global environment, peace, and economic equality. As East Timor travels the road to becoming one of the most oil-dependent countries in the world, we must be careful to minimize these impacts. We must learn from the experiences of other countries, and closely monitor and guide the oil industry here to ensure that we do not repeat bad experiences.

At the end of May, La’o Hamutuk hosted two environmental activists who work with the Oilwatch Network. Oilwatch was formed in Ecuador in 1996 by people from tropical forest, oil-producing countries in Latin America, Africa, and Asia. It includes NGOs from nearly every such country affected by oil and gas development who work to monitor and resist the negative effects of the petroleum industry. Esperanza Martinez from Ecuador and Hemantha Withenage from Sri Lanka shared experiences of people around the world with international petroleum companies. They also described what Oilwatch and its partner groups are doing to monitor and resist the problems which come with oil development. Most of the information in this article comes from their presentation.

As Esperanza said, “The tropics are the richest part of the world. We have water, biodiversity and culture, as well as oil and gas. But we are the poorest economically – just like Timor Lorosa’e. The World Bank says our problem is extreme poverty – but we say the problem is the wealthy countries.”

The Process of Petroleum Exploitation

Crude oil, gas, and “formation water” (very salty water) lie mixed together in the ground or under the sea. The process of finding and extracting petroleum products is the same on land as under water, but under the sea it is more difficult to observe or monitor what’s being extracted or discarded. These are the steps: (see clarification)
  1.  Seismic exploration to find where the oil and gas is under the ground. The companies explode dynamite to measure waves in the earth. The explosions disturb animals and plants which live in and under the sea.
  2. Exploratory drilling of test wells to determine the amount of oil present. In the sea, this can be done from platforms or ships. It creates waste sand and stones.
  3. If enough oil and gas is found, the companies build extraction wells to remove it.
  4. The extracted materials are separated into oil, gas and formation water. The companies use only what they want – if it’s oil, they burn off the gas; if it’s gas, they discard the oil. Sometimes (as at Bayu-Undan over the next few years), the oil and other useful liquids (“condensate”) are extracted and the gas is pumped back into the ground for later re-extraction and use.
  5. The oil and gas must be transported (by pipelines, tankers or trucks) to where it is refined and used for fuel or chemicals. If gas is to be moved by ship (as from the Timor Sea to customers in Japan), it must first be liquified, which is usually done on land, although Shell is proposing to build the world’s first floating liquefaction plant in the Timor Sea.
  6. The great majority of the world’s oil and gas is consumed in the United States, Europe, and Japan. It’s used mostly for cars, to generate electricity, and for other industrial processes.

The negative effects of oil development
Oil is found in nearly all tropical areas: in the Middle East, Latin America, Africa and Asia. Among the forest countries where oil has had the greatest impact are Ecuador, Venezuela, Colombia, Brazil and Mexico in Latin America; Nigeria, Gabon, and Cameroon in Africa; Thailand, Indonesia, Malaysia and Burma in Asia.

In most of these places, greed for the oil money has caused foreign invasion, civil war, dictatorship and/or repression. Oil causes and sustains major conflicts, especially where the United States military is involved, such as in Colombia, Iraq and Afghanistan. During the last ten years, there have been civil wars in many oil-dependent areas, including Algeria, Angola, Congo, Indonesia (Aceh), Iraq, Nigeria, Sudan, and Yemen. In 1997, the governments of these countries, which depend on oil for a large fraction of their national income, spent an average of 12.5% of their budgets on the military. For every 5 percent rise in oil dependence, they spent an additional 1.6% on the military. In one example, Peru offered the foreign oil companies more favorable conditions than neighboring Ecuador. In the late 1990s the companies provoked a war between the two countries, and Peru now controls oil-bearing Amazon territory that was formerly part of Ecuador.

Oil development causes major environmental destruction, both local and global. Two hectares of forest is cut down for each well build on land. Exploration and exploitation produce seismic shock, pollution and waste. For every barrel extracted, at least one barrel is spilled. The oil industry has negative consequences for forest and marine animals, and also for human beings, including cancer, leukemia and miscarriages. In countries which produce more oil, child mortality is higher and life expectancy at birth is lower than in other countries. The tropics are more ecologically fragile than the countries where oil is consumed, so we need to take extra measures to protect our forests and seas.

Globally, burning fossil fuels (coal, oil and gas) adds carbon dioxide (CO2) to the atmosphere, causing worldwide climate change which leads to extreme weather (storms, floods, droughts, etc.), rising sea levels, and other disasters. Most scientists and many governments have now recognized this problem, and are gradually shifting from fossil fuels to renewable energy sources. Nearly every government has signed the Climate Change Convention (“Kyoto Protocol”) to protect the global environment. This agreement includes economic incentives for oil consumers and producers to reduce their use of fossil fuels, and provides special compensation for islands like East Timor which will be most affected by rising sea levels. Unfortunately, a few of the main energy-consuming countries, including the United States and Australia, continue to oppose these agreements.

Choosing Wealth Instead of Oil

In May, the Central American country of Costa Rica decided not to develop its recently discovered oil resources. In his inaugural address, President Dr. Abel Pacheco de la Espriella said

“We will compete without destroying nature because, beyond the events of the moment, our rich biodiversity will always be a great wealth and we will preserve it. Before becoming an oil enclave, before becoming a land of open pit mining, I plan to initiate a sustained effort to transform Costa Rica into an ecological power. The true fuel and the true gold of the future will be water and oxygen; they will be our aquifers and our forests. Before we declare peace among ourselves and we declare peace among all nations; now we should declare a peace with nature.”

Costa Rica is requesting that the international community pay for its contribution to reducing global climate change. This new market mechanism could be an opportunity for East Timor; under the Climate Change Convention, it may be possible for East Timor to be paid to delay or not to develop its oil and gas. La’o Hamutuk will explore this concept further in a future Bulletin.

Petroleum Development and Poverty
In nations which depend on oil, poverty is often widespread. Countries which get most of their income from oil and gas often rank lowest on the “Human Development Index” (HDI) which includes income, health and education measures. The most oil-dependent nations are Angola, Yemen, the Congo and Nigeria, with at least 40% of their national budgets coming from oil. Their HDIs are all in the lowest quarter of the world’s nations.

Having oil does not mean the people of a country become rich. On the contrary, oil and mineral dependence has often damaged public welfare and reduced the rate of economic growth. Oil brings debt as money is borrowed to pay for oil development, and then oil must be exploited to pay off the debt, creating a vicious circle. Furthermore, the oil companies have the power to blackmail governments, demanding tax exemptions, other financial subsidies, and/or military support. In Ecuador, one U.S. company forced the government to pay them $72 for every barrel of oil, although the government could only sell it for $15 per barrel.

Oil and gas dependent countries are characterized by high child mortality, malnutrition and disease, poor education and illiteracy, corruption, authoritarianism, vulnerability to economic shocks, and high military spending. East Timor already has some of these problems as a result of colonialism, occupation and war – but oil money alone will not solve them. In fact, the experience of other countries show that it often makes them worse.

Because of highly-paid foreign workers, oil disrupts indigenous cultures and can bring inflation, prostitution, HIV/AIDS and other problems. East Timor has had a similar experience with UNTAET international staff and contractors. If many foreign oil workers come here, they will probably stay longer and be less considerate of the local population.

The Power of the Oil Companies
Petroleum corporations are often much more powerful than governments, especially when large companies like Phillips or Shell come into small countries like East Timor (See graph, page 5). The companies often determine the choice of the Ministers of Energy, dictate the governments’ environmental policies, and use the military to protect their investments. It is impossible for a small government, even a democracy, to get a fair deal from huge multinational oil companies.

The companies in the Timor Sea prefer to deal with Australia, with whom they have worked for a long time, rather than East Timor. To the companies, East Timor looks revolutionary or unstable. When East Timor negotiates with Australia, the companies will usually support Canberra and use their power to push for a quick, unfair settlement. East Timor must use public support here, in Australia and worldwide to try to balance the negotiations – and perhaps even ask for oil development to be suspended until the boundaries are resolved. Since the boundary question could be settled quickly if the Australia government negotiated fairly and legally, slowing the development could encourage the companies to pressure Australia to seriously discuss the issue.

Once oil exploitation starts, it’s more difficult to control. It is better to act now, and to insist on transparency, democracy and environmental responsibility. But even after exploitation is underway, monitoring and advocacy can help reduce its negative effects.

What Can be Done
Although the companies claim they are environmentally and socially responsible, they often lie. They say serious problems are in the past, and that the company has improved – but in reality the problems persist and are repeated. We can learn much from the experiences of other countries – both about the routine (normal) activities of the companies, and about the consequences of accidents or other extreme situations.

One way we can help understand and respond to the companies’ procedures is by monitoring their activities. Monitoring is a tool which can help achieve goals like empowering the people, ensuring the wealth is shared, preserving democracy, and protecting the environment. In a future La’o Hamutuk Bulletin, we will discuss how East Timor’s Constitution and national laws, as well as international law, documents, reports from the companies and other agencies, observation and testing, can be used to monitor what they are doing.

Around the world, local indigenous, environmental and grassroots communities and activists are dealing with these same issues, and often the same companies. They have developed the Oilwatch Network to learn from each other’s experiences and strengthen each other’s campaigns. By using monitoring, advocacy, the courts, and public exposure of information, Oilwatch members have averted environmental disasters and forced oil companies to be more responsible to the people of the countries they work in.

As East Timor enters the community of oil-producing nations, we can benefit from their expertise and experience. Just as the oil companies work globally to maximize their profits, people can cooperate globally to minimize the negative effects of oil company operations. 

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Oil and Gas Fields in the Timor Sea

On 20 May, Australia and East Timor signed a treaty to share the Timor Sea oil and gas. It is not yet in effect, awaiting ratification by both parliaments. This treaty gives Australia revenues which would probably go to East Timor under the Law of the Sea (UNCLOS), which became international law in 1982. (See LH Bulletin Vol. 3 No. 4.)

The map below shows the main oil and gas fields in the Timor Sea belonging to East Timor, Australia and Indonesia.

Maritime economic zones are shown in dashed boxes:

Australian Zones which belong to a particular country without question are labelled as such.

Producing and future oil and gas fields are shown as circles, next to the underlined field name or connected by an arrow. Larger circles have more resources.

The heavy solid line is the Australia-Indonesian seabed boundary, negotiated in 1972. Although this line is based on outdated principles and closer to Indonesia than to Australia, it is still in effect.

The lighter dashed line is the median line, halfway between the shorelines of Australia and Indonesia or East Timor. If current Law of the Sea principles applied, this would be the seabed boundary.

There are many oil and gas fields in the Browse Basin south of West Timor. Because of the 1972 treaty, these belong to Australia, although some are closer to Indonesia. Since 1931, Australia has controlled four tiny uninhabited islands called Ashmore Reef. As a result, Australia’s economic zone extends close to Roti and West Timor, including many oil and gas fields.

Oil and Gas Fields

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Four-Fifths of Australia’s Gas is Outside the Timor Sea

The oil and gas in the Timor Sea are the only significant petroleum resources available to East Timor, and East Timor’s future depends on these revenues.

Australia, on the other hand, has four times as much gas in other parts of its territory, as shown on the map below. Circles show the location of Australia’s “Proven and Probable” (2P) reserves of natural gas, where gas underground or undersea could be extracted and sold. The size of each circle represents the amount of gas in Trillions of Cubic Feet (Tcf). Oil reserves are not shown.

Australia has about 110 Trillion cubic feet (Tcf) of natural gas, with a value of approximately U.S. $850 billion ($850,000,000,000).

This could produce about $400 billion in government revenues. Australia has much more gas than it can consume domestically, so most Timor Sea gas will be exported to Japan.

One-fifth of Australia’s gas, 22 Tcf, lies under the Timor Sea. Some is in Australian territory and some in the “Joint Petroleum Development Area” shared between East Timor (90%) and Australia (10%) under the Timor Sea Treaty. The Treaty gives revenue from 4.7 Tcf of Timor Sea Gas to East Timor and 17.5 Tcf to Australia. If East Timor’s full maritime boundaries were applied instead, 7.9 Tcf of this 17.5 could belong to East Timor.

Four-Fifths of Australia’s Gas is Outside the Timor Sea

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Part 2

La’o Hamutuk, The East Timor Institute for Reconstruction Monitoring and Analysis
P.O. Box 340, Dili, East Timor (via Darwin, Australia)
Mobile: +61(408)811373; Land phone: +670(390)325-013
Baucau office: +61(438)143724; lhbaucau@easttimor.minihub.org
Email: laohamutuk@easttimor.minihub.org 
Web: http://www.etan.org/lh

International contact: +1-510-643-4507, lh@etan.org