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Saturday October 23rd, 2021

Sri Lanka ups oil resource claims to US$267bn

ECONOMYNEXT – Sri Lanka’s energy minister Udaya Gammapila had claimed the existence of 267 billion US dollars of oil and gas resources under the country’s seas at a parliamentary hearing, up 27 billon dollars from earlier reported claims.

The 267 billion dollar claim had been made at Energy Consultative Committee meeting of Sri Lanka’s parliament.

“The Minister further stated that although investors who invest in these oil and gas drills are given 50 percent, USD 133.5 billion is Government owned and it is almost three times the total (foreign) debt value of the country which is a total of USD 47 billion,” a statement from the parliament said.

Traces of natural gas was repoted in an exploratory well by a unit of Cairn India in 2013, in Sri Lanka’s Mannar basin.

But commercial development was abandoned as the firm did not find the discovery profitable enough to extract also easing.

LNG prices have risen sharply in recent months as the US Federal Reserve printed money firing a so-called Powell Bubble, weakening the US dollar.

In mid-July, participating in a discussion with privately owned Derana TV just ahead of a no-confidence vote against him, Minister Gammanpila said Sri Lanka will become a crude oil producing nation before his tenure ended.

“We have unearthed resources of 150 billion US dollar worth (crude) oil and 90 billion US dollar worth gas, altogether 240 billion US dollars at the moment,” Gammanpila said.

Minister Gammanpila did not respond to a query on reason for the increase of 27 billion US dollars on the estimated value between mid-July and September 7, 2021.

Sri Lanka is facing severe forex troubles as the central bank prints money and Minister Gammanpila has asked motorists to use fuel sparingly.

The Petroleum Ministry had drafted two a new Petroleum Resources Bill to be tabled in Parliament. The Bill was approved by the Consultative Committee to be presented “as a matter of priority”.

The Minister has stated that the new Bill seeks to regulate and manage the exploration of petroleum resources, including the establishment of the Petroleum Development Authority of Sri Lanka.

Sri Lanka has a Petroleum Development Secretariat under the existing law.

“The Bill will also introduce a strong legal framework to protect these large investments and appoint a special committee to advise the minister, as billions of dollars will have to be invested in the industry,” the statement quoting the Minister Gammanpila said.

The minister has said that the Norochcholai power plant (which has steam turbines fired by coal) could operate for 120 years only from the gas in the Mannar Basin and a state run oil refinery in the capital Colombo could operate for 143 years with the oil alone.

Natural gas is usually used on combined cycle power plants.

Better than Norway

He said Sri Lanka had better luck than Norway.

“The Norwegian government had to dig 31 wells for one success story whilst 3 out of 4 wells drilled in Sri Lanka were successful,” the Minister had said.

Sri Lanka has made various claims about oil in the Mannar basin and elsewhere. Across the border in the nearby Cauvery basis and its environs India has several commercially producing well.

Petroleum prospecting in Sri Lanka began in late 1960s and French-based Compaigne Generale de Geophysique collected approximately 420 km of onshore and 75 km of offshore seismic data for the state-run Ceylon Petroleum Corporation (CPC).

In 1974, a Russian company explored Pesalai 1 and Pesalai 2 in the Mannar Island but both failed.

But while the Russian company started exploring Pesalai area, ministers in the government of Sirimavo Bandaranailke, the world’s first woman prime minister claimed that they have found oil and the sample was used in election campaigns.

From 1975-1984, US-based Pexamin Pacific and Marathon Petroleum, and Oklahoma-based Cities Services drilled several exploratory wells but never found oil and gas.

Then in 1984, under a tripartite agreement between Phoenix Canada Oil Company, Petro-Canada and CPC, Petro-Canada acquired seismic data in the Mannar Basin.

However, no further work was done and by 1984 petroleum exploration work, offshore came to a halt and remained dormant till 2001 due to prolonged civil war in Sri Lanka.

During Sri Lanka’s long-running civil war which ended in 2009, some government have told the media that the Western nations were supporting the Tamil Tiger separatists in their quest for an independent state because they were interested in the Mannar basin crude.

From 2002 to 2006 Sri Lankan Government and Norway-based TGS NOPEC attempted to draw exploration companies to Sri Lanka through road shows at various venues.

In 2007, the Government bought the Mannar Basin 2D data from TGS NOPEC and cancelled the exclusive rights that TGS NOPEC had to collect seismic data in the territorial waters of Sri Lanka.

The then administration led by current Prime Minister Mahinda Rajapaksa as President said the reason behind cancelling the deal was due to Scandinavian country’s soft approach towards Tamil Tigers.

Based on TGS NOPEC data, the Cabinet decided to offer three out of nine blocks for petroleum exploration on an international licensing round.

In 2008 the Sri Lanka signed a Petroleum Resources Agreement with Cairn Lanka (Private) Limited, a unit of Cairn India, marking the beginning of petroleum exploration in Sri Lanka after 25 years.

Cairn began searching in 2011 reported the discovery of hydrocarbons in an offshore prompting the then president Mahinda Rajapaksa to declare that Sri Lanka has found gas in Mannar basin.

During this time, Russia’s Gazprom and Malaysia;s Petronas held talks with Sri Lanka on potential exploration, and Vietnam and Sri Lanka signed a deal on oil and gas cooperation.

However, nothing has taken off the ground so far.

In 2015, Cairn gave up its block saying that after the assessment, they found it unviable due to a price slump.

There were attempts to lock the state-run power company to higher than world prices which also came to nothing.

Sri Lankan authorities have since said seismic data shows the potential for more than 1 billion barrels of oil under Sri Lanka’s seas.

Offshore oil blocks in Mannar and elsewhere are intermittently offered and bids evaluated, though no development has since been made.

Since the Cairn discovery, claims about oil potential resurface from time to time. (Colombo/Sept09/2021)

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