Liquefied Natural Gas Export and the Engagement of Treaty Law and Foreign Relations
Energy law is a heavily legislated and regulated area of law in Australia, by virtue of its complex structural framework and the extensive impact it has on both the domestic and foreign policies of the nation. Activating the full scope of international relations and providing a practical and politically-charged reflection on the dynamic interplay between energy law and international treaty law is the relationship between Australia and Timor-Leste. Oil and gas processing produce prominent trade resources that engage both the legal and political spheres, as well as public and private industries involved in the global market.
II Energy Production: Liquefied Natural Gas
The demand for Liquefied Natural Gas (LNG) is increasing exponentially every day, and problematically this demand exists in an environment that is seeing rising energy costs. This demand for natural gas has been seen on a global level, as it has become a key fossil fuel for the power sector on account of its ease of use and environmental friendliness. In the act of creating regulatory models and policies that seek to regulate and predict well into the future, uncertainty is unfortunately inherent in a system that operates on a case-by-case basis, and adds extraneous pressures on decision-makers and established accountability arrangements. Thus, balancing resource demand with domestic regulatory frameworks becomes an incredibly difficult task, but is necessary as part of Australia’s trade industry.
III Maritime Territorialisation: Australia and the Timor Sea
Of central geographic importance in LNG processing and distribution is the Timor Sea. Historic sovereignty discourses between Australia and Timor-Leste have involved maritime boundaries and hydrocarbon resources in the Timor Sea. In 2002, the two countries signed the Timor Sea Treaty between the Government of East Timor and the Government of Australia (‘TST’). This piece of legislation established what was demarked as the Joint Petroleum Development Area (‘JPDA’), which is located on Timor-Leste’s side of the equidistant line (but it is Australia’s geologic continental shelf that actually extends into the area). The TST provides that 10% of the petroleum produced from the JPDA belongs to Australia, and the remaining 90% belongs to Timor-Leste. However, Timor-Leste and Australia have concluded two other treaties relating to the Greater Sunrise Oil and Gas Field (‘GSOGF’), with 20% lying within the JPDA and the remaining 80% lying within the exclusive jurisdiction of Australia.
The current Treaty Between Australia and the Democratic Republic of Timor-Leste Establishing Their Maritime Boundaries in the Timor Sea was signed by the Hon Julie Bishop and His Excellency Mr Hermenegildo Pereira in March 2018, and not only establishes permanent maritime boundaries, but also addresses the legal status of the Greater Sunrise gas fields by creating the Greater Sunrise Special Regime. This regime is designed to develop LNG processing operations, as well as to share the upstream revenue between Timor-Leste and Australia. The two countries have agreed to certain ratios of revenue sharing, dependent upon the method of development of the Greater Sunrise Fields:
In the ratio of 30 per cent to Australia and 70 per cent to Timor-Leste in the event that the Greater Sunrise Fields are developed by means of a pipeline to an LNG processing plant in Timor-Leste…In the ratio of 20 per cent to Australia and 80 per cent to Timor-Leste in the event that the Greater Sunrise Fields are developed by means of a pipeline to an LNG processing plant in Australia.
The economic and political regionalism issues captured by the activity of LNG drilling are extremely far-reaching and continue to engage policymakers and large oil and gas companies as they struggle to compromise to still reap the benefits of resource production.
IV Current Concerns in LNG Trading
Japan is in fact the single largest buyer of Australian LNG. Japan levies an import tax and will receive $2.9 billion over the next few years, a sum which reflects the concerning reality that Japan actually collects more tax revenue from LNG than our federal government, placing Australians at a disadvantage. In the next few years, Australia will not receive any money in petroleum resource rent tax, an extreme contrast to Japan’s financial gain. The overall impact that this will have on Australia’s economy is yet to be seen.
This is happening in a context where “profitability in the LNG market continues to be squeezed as prices remain low in a market awash with capacity”. Indeed, the global LNG is in the midst of a period of uncertainty; “The depressed price of oil, which continues to be a key factor in securing finance, paired with oversupply, has seen the price of LNG fall”. Nevertheless, this is not the end of the road for LNG trading in Australia, and our large companies still retain a critical role in the production of this natural resource. However, what is required is some modification of existing structures and processes to ensure that profits do not drop too low, whilst still acting in accordance with international and domestic laws and treaties. Indeed, “The growing sustainable relationship between large scale and small scale LNG, paired with increasingly tougher regulations on emissions, continues to promote LNG as the hydrocarbon of choice”. This will be a space to watch in the coming years, as governments and policymakers will need to adapt to changing markets while still ensuring that any actions taken are in line with existing domestic, international and treaty laws. Thus, balancing commercial and social motives (notably economic stimulation plans in Timor-Leste) is a key tenet to be considered in future LNG processing and exportation activities.
By Macy Gregson
Macy Gregson is a Penultimate Graduate Entry Law Student from the University of Notre Dame Australia
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