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

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This article is tagged to:
Sector: Oil & Gas
Geography: Sri Lanka

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