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Route clear for Mannar basin gas; in the interim, India’s LNG for Kerwalapitiya power plants
View(s):By Namini Wijedasa
An Indian proposal to sell liquefied natural gas (LNG) for Sri Lanka’s gas-powered generation plants is an “interim solution” until gas production finally starts in the Mannar Basin, a plan long-delayed by incomplete regulatory frameworks and political wavering.
Those requirements are all now in place. The final set of laws—the Petroleum Resources (Joint Study Agreements) Regulations No. 3 of 2024—was gazetted last week. It defines the procedure by which companies could conduct one or more joint studies with Sri Lanka’s Petroleum Development Authority (PDA) in any of the areas contained in the country’s Petroleum Resources Exploration and Development Block Map. The Petroleum Resources (Exploration and Development Block Map) regulations No. 1 of 2024 were also published in March.
Since the production of local gas will take several more years, however, the Indian government made an offer last year for the New Delhi-headquartered Petronet LNG Ltd. (PLL) to export gas to Sri Lanka in liquid form, to regasify it and to transport it to the gas-powered generation plants run by LTL Holdings (Pvt) Ltd. in Kerawalapitiya. This will be a direct procurement contract between PLL and LTL. Sri Lanka’s cabinet has approved the arrangement.
A Kerawalapitiay power plant run by LTL Holdings
Geopolitical compromise
The arrangement with India has a strong geopolitical flavour. In the past, Sri Lanka has twice reneged on agreements reached with India. For instance, in 2019, it signed a memorandum of cooperation with India and Japan to develop the Colombo Port’s East Container Terminal. It pulled out of the deal two years later, citing worker dissatisfaction and trade union unrest.
Separately, in 2017, Sri Lanka approved an India-Japan joint venture for a US$ 250 million LNG import terminal to supply gas to Kerawalapitiya. The state-owned PLL and Japan’s Mitsubishi and Sojitz struck a deal to build the terminal, which was even approved by the Public Utilities Commission of Sri Lanka. In 2022, the Sri Lankan government cancelled this project.
Sri Lanka then awarded a tender to China Harbour Engineering Company (CHEC) and Pakistan’s Engro Corporation to develop a floating storage and regasification unit (FSRU) at Kerawalapitiya and an offshore and onshore regasification LNG transmission pipeline network. It later deemed that project to be unfeasible amidst worsened economic conditions and pulled out before awarding PLL the latest LNG supply contract.
Earlier, two other LNG projects were also shelved. One was an unsolicited bid in 2019 from Korea’s SK E&S Co. Ltd. for an FSRU, a pipeline, and an LNG supply deal. It was opened to a Swiss Challenge (where other bidders were invited to compete on its terms) and subsequently dropped. In 2021, there was an agreement that a United States company, New Fortress Energy, would buy a 40 percent stake in Sri Lanka’s Yugadhanavi power plant, develop an FSRU and supply gas to the plant. This also didn’t make the cut.
The future
The Ceylon Electricity Board’s (CEB) Long-Term Generation Expansion Plan (LTGEP) 2023-2042 envisages 70 percent share of the country’s total energy mix to be from renewable energy by 2030. There will be no more coal power plants. Instead, the LTGEP focuses on incorporating natural gas/LNG into electricity generation.
According to the Finance Ministry’s Department of National Planning, the country will need LNG/natural gas for identified power plants with a total installed capacity of 665 MW from 2024–26 “as an immediate requirement.” It is for this that an interim solution is required—and it was offered by India after a high-level Indian delegation (led by Pankaj Jain, Secretary, Ministry of Petroleum and Natural Gas) held talks in Colombo in March last year on energy cooperation between the two nations.
Meanwhile, Sri Lanka had set up the Gas Utilisation Master Plan Preparation Committee (GUMP) to evaluate the best options to meet the country’s needs, headed by Ceylon Petroleum Corporation Chairman Saliya Wickramasuriya, an oil and gas expert. He pointed out that running the LTL power plants—one is operational, another is being built, and the tender awarded for a third—on gas will be cheaper by between 25 and 50 percent when compared with diesel or heavy fuel.
Using Sri Lankan natural gas was the best option, but exploration alone will take two to three years (during which time gas will be imported from PLL for the generation plants). “But when production of domestic natural gas does start, it will be the cheapest form of gas we can buy,” he said. “So, whatever we do as a government, we must have space for that in the policy framework.”
Sri Lanka now has gas reserves and an enabling legal environment. “We just need a little bit of country risk to subside and investor confidence to increase,” Mr. Wickramasuriya said. There is already confirmed interest from companies to carry out joint exploration studies in 150-200 of the 900 blocks on offer. With all the regulations now in place, these applications can be processed.
“The PDA has been instructed by the Minister (Power and Energy) to formally start processing the many inquiries for acreage on a joint study basis that we have received,” he said. “So I would say the first agreements will be signed this year.”
Why this focus on fossil fuels?
LTL’s three turbines in Kerawalapitiya together can produce, at full capacity, around one gigawatt of power.
Mr. Wickramasuriya maintains that the main advantage of this interim solution was an intangible one—“and that is that we have been trying to get into the business of burning gas for the longest time. We have been unable to because people don’t want us to.”
“The most important thing is that getting gas to Sri Lanka will set us free,” he insisted. “Why do I say that? Because even on a small scale, even bowser by bowser, it creates a dependency on gas. Then it will give us the basis to tell our investor, ‘there is demand creation now; we will buy our own gas’. Otherwise, they come here and find that they can’t sell our gas to anybody.”
But Vidhura Ralapanawe, an energy analyst and committed campaigner for renewable energy, pointed out that Sri Lanka was “still building massive fossil fuel capacity.” “We are still focusing on fossil fuel, including LNG supply,” he said. “There are no new tenders for renewable energy on the horizon. On top of that, the government has reduced the rooftop solar and non-conventional renewable energy (NCRE) tariff to discourage local investors who contract in rupees.”
The CEB had been purchasing a unit of rooftop solar power for Rs. 37 when the Cabinet on July 2 approved a reduction of this price to Rs. 27 per unit—a ten-rupee drop. This is despite President Ranil Wickremesinghe, in his capacity as Finance Minister, making strong observations on Power and Energy Minister Kanchana Wijesekera’s Cabinet memorandum that if the rooftop solar tariff is reduced, “the rooftop solar developers may be discouraged from investing in the rooftop solar projects.”
Dr. Ralapanawe agreed that cancelling the various LNG projects that were “floating around” was a good idea. But he questioned the rationale for a third LNG plant—which is now being tendered. “This is a big problem, as we are not even utilising the existing plants, unless we close one unit of Norochcholai,” he warned. “We speak so much about renewables, but keep building fossil fuel plants.”
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