Offshore Promise Could Reduce Import Burden

BMI View: Cairn India has revealed that commercial production of gas from its discoveries offshore Sri Lanka could begin as soon as 2017/18 given negotiations for development were underway. Depending upon the ultimate volumes, this could greatly reduce the nation's import bill and shift Sri Lanka away from a reliance on expensive oil based imports . The news comes as the country is reportedly receiving strong interest in ongoing licensing rounds and putting the finishing touches to an overhaul of licensing terms.

On the sidelines of the 19 th Asia Oil Week conference in Singapore, officials from Cairn India revealed gas production in Sri Lank a could begin as soon as 2017/18. Talks on a sales agreement for gas from the SL 2007-01-001 offshore block in the Mannar Basin have already begun. With no domestic production of oil or gas in Sri Lanka , first gas from Cairn's pair of discoveries of f the East Coast would be of great significance to th e country's energy mix. However the extent of the benefits to the local economy will be determined by the sales and production costs.

Currently, Sri Lanka depends heavily on fuel oil and diesel imports, in addition to expensive renewables ( including increasingly volatile hydropower) to meet its power generation needs . These two source s have proven to be a major drag on the finances of state owned utilities and the country as a whole ( see, 'Offshore Hopes Afloat With Licensing Round Underway,' July 25 ). The depreciation of the rupee has only exacerbated the pressure from the nations' energy import burden, which hit some US$6bn in 2012 and is project by the government to continue rising as it seeks to meet growing demand for electricity to continue , which is set to expand at an average rate of 6.5% over the next two decades.

Hopes Offshore In The Face Of High Import Costs
Sri Lanka Oil Consumption ('000b/d) & % chg y-o-y

Offshore Promise Could Reduce Import Burden

BMI View: Cairn India has revealed that commercial production of gas from its discoveries offshore Sri Lanka could begin as soon as 2017/18 given negotiations for development were underway. Depending upon the ultimate volumes, this could greatly reduce the nation's import bill and shift Sri Lanka away from a reliance on expensive oil based imports . The news comes as the country is reportedly receiving strong interest in ongoing licensing rounds and putting the finishing touches to an overhaul of licensing terms.

On the sidelines of the 19 th Asia Oil Week conference in Singapore, officials from Cairn India revealed gas production in Sri Lank a could begin as soon as 2017/18. Talks on a sales agreement for gas from the SL 2007-01-001 offshore block in the Mannar Basin have already begun. With no domestic production of oil or gas in Sri Lanka , first gas from Cairn's pair of discoveries of f the East Coast would be of great significance to th e country's energy mix. However the extent of the benefits to the local economy will be determined by the sales and production costs.

Currently, Sri Lanka depends heavily on fuel oil and diesel imports, in addition to expensive renewables ( including increasingly volatile hydropower) to meet its power generation needs . These two source s have proven to be a major drag on the finances of state owned utilities and the country as a whole ( see, 'Offshore Hopes Afloat With Licensing Round Underway,' July 25 ). The depreciation of the rupee has only exacerbated the pressure from the nations' energy import burden, which hit some US$6bn in 2012 and is project by the government to continue rising as it seeks to meet growing demand for electricity to continue , which is set to expand at an average rate of 6.5% over the next two decades.

Bringing online indigenous production could help to cut the nations import bill and reduce the need for a proposed liquefied natural gas (LNG) import terminal and power plan t that Hong Kong based Energy World International is hoping to develop at the Port of Hambantao . The firm estimates demand for LNG in Sri Lanka could be in the area 2.8bn cubi c meters, however pricing will be an issue as the government may consider selling the gas to the domestic market at below global market prices.

Hopes Offshore In The Face Of High Import Costs
Sri Lanka Oil Consumption ('000b/d) & % chg y-o-y

Confronted with the costs associated with imports, Sri Lanka is pressing ahead with plans to develop its domestic resources which are increasingly attracting attention from international oil companies. Total , Eni , Exxon Mobil, Royal Dutch Shell and India's Oil & Natural gas Corp (ONGC) are reportedly among the players who have expressed interest in either the current licensing round or in some six ultra-deepwater blocks where Sri Lanka is also seeking exploration commitments ( see, 'Offshore Hopes Afloat With Licensing Round Underway,' July 25 ).

In order to manage the country's emerging status as an exploration hotspot, Sri Lanka is finalising a new petroleum licensing bill which it plans to enact before the end of 2013. The new laws includes provision to :

  • Simpl if y the pre-qualification process;

  • Simplify the purchase of data;

  • Speed up the evaluation of bids;

  • Offer more attractive fiscal terms;

  • Introduce a new upstream regulator;

However the new terms will apply only to future blocks awarded, not to those currently up for award . Overall the new framework, developed in consultation with international partners, will help Sri Lanka build the capacity to manage the new wave of investment that is set to be directed toward the country's frontier but increasingly prospective upstream .

×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.