SL moves closer to policy on natural gas for power generation

• Petroleum Act to be replaced, single natural oil and gas company mooted
• Natural gas cheaper and scalable, project of any scale will impact economy in longer-term

By Darshana Abayasingha

Ministry of Energy Advisor Saliya Wickramasuriya

Sri Lanka’s draft Natural Gas Policy, which went through several versions, has been rewritten in certain parts, especially its policy objectives and framework, and is now more aligned with the original intent,

reveals Ministry of Energy Advisor Saliya Wickramasuriya. 

The draft policy began its journey in 2013 and has been “on a long and winding road” and is an essential part of the above ground factors for oil and gas companies to consider to invest in the region, he added. 

Two natural gas deposits were discovered during exploration in the Gulf of Mannar, potentially containing over one trillion cubic feet of natural gas. The news of the discovery brought excitement to the island nation and its energy sector, but since then progress has been hampered by the lack of a recognised Government policy on natural gas. The deposits are estimated to be adequate to fulfil Sri Lanka’s energy needs for well over three decades. 

Recently, the Board of Investment of Sri Lanka said it signed a $ 97.2 million agreement with Pearl Energy to allow the setting up of a floating liquefied natural gas storage unit off Hambantota, with plans to re-export fuel to the Maldives and other South Asian nations. Sri Lanka does not possess any Liquefied Natural Gas power (LNG) plants as yet. 

Wickramasuriya was speaking during a web forum hosted by policy.lk on Sri Lanka’s potential future with natural gas. 

There the question was posed as to what steps Sri Lanka would take until such time it develops LNG generation capabilities, plus formalising action with respect to offshore drilling. Wickramasuriya responded: “It all depends on how it is sequenced and managed. Government intervention at this stage is important in terms of coordination and we have had several discussions with several actors. My view is that any project of any scale that will break down the barrier of having no gas consumption in Sri Lanka will make an impact on our economy in the longer-term. Because there is a lot of potential gas demand it could unlock. Natural gas is becoming more scalable and cheaper in terms of infrastructure, so it’s not unfeasible to have a short-term gas project based on some form of temporary import infrastructure like small barges or gas bullets. There is a variety of technology solutions available that can come in at different price points.”

LNG has grown as an important fuel over the past couple of decades, providing diversity to a nation’s fuel mix. With many countries looking to curb usage of hydro carbons – essentially coal and oil – natural gas is the cleanest fossil fuel available for consumption and power generation. 

Sri Lanka’s energy mix is mostly coal and oil, and countries like India and China are already looking at natural gas to replace oil and coal in transportation and industrial sectors in particular. Natural gas is however extremely difficult to transport long distances in its natural state, therefore it is cooled to (-)162 degrees where it becomes a liquid state (LNG). 

Accordingly, to import LNG a country needs to have significant regasification infrastructure, tanks and piping that do not come cheap. However, relatively new technology could help countries like Sri Lanka which is a small market. Small-scale LNG is an alternative to very large infrastructure fixed on land, such as floating storage that is cheaper and uses less space. 

However, given that Sri Lanka will soon have access to its own offshore deposits to power a considerable period of time, Wickramasuriya opines that not all projects that have expressed interest in importing LNG to Sri Lanka will succeed. 

He feels that the very first one will automatically remove those who haven’t started yet – so there is strategic interest in moving fast. Sri Lanka has projects being proposed in different places at various levels of approval from India, South Korea, China and the US, and it becomes a matter of seizing the most viable and earliest to market project, he said. 

But why consider LNG, which is in effect another hydro carbon with relative price volatility, and how does Sri Lanka develop demand for a fuel that has no customer base at all in the country, it was posed.

“One of the objectives of the policy is to create a formalised market for the gas, which we will eventually produce. The end game is to economically produce gas from Sri Lanka’s domestic reserves, assuming we are using gas by then. LNG has become a transition fuel in most parts of the world because of the rapid advance of renewable energy technology. Here in Sri Lanka where there is coal and oil, there is room for gas. We are a long way away from the renewable power target of 80% in Sri Lanka, but that still does put pressure on the gas market. We don’t want to lose out on the end game, because having gas-based power generation is better than coal and oil. One of the objectives of the LNG project is to create demand that will leverage the market, reduce prices and bring down barriers to entry for our gas produced offshore. Wherever we are using a form of energy for power generation which is fuel based there is still room for gas in that discussion,” Wickramasuriya asserted. 

A former Chairman of the Board of Investment of Sri Lanka, the Ports Authority and Director General of the Petroleum Resources Development Secretariat, Wickramasuriya said consumers would be the biggest stakeholder in the process, as the expectation with the introduction of gas to the power generation mix is to reduce cost, carbon emissions and lessen socio-economic impacts. LNG ticks all those boxes. 

The resource costs should eventually be zero, he adds, notwithstanding capital expenditure, and the real focus should be on the economic value it brings to Sri Lanka over the next 25 years. “The larger you scale up domestic supply the bigger the price comes down.” 

Upstream supply regulations have already been updated in the draft policy, which is useless unless it is supported by law. To meet this end the Government is looking at replacing the petroleum act with one that clearly defines related questions on regulations, Wickramasuriya added. 

The act will look after the upstream regulations and producers, whilst the Public Utilities Commission will be the regulator on the downstream side. These will all be centred to a ministry and a single natural oil and gas company where all transactions will happen, he revealed. 

But the question persists with much of the world moving aggressively towards renewable energy, does it make economic and environmental sense to pursue LNG when renewable is the way forward?

“That’s true, the world is moving towards renewable energy, but I don’t see the same rush in Sri Lanka. The moment we have our policy aligned towards moving for renewable energy, I believe the gas we have around us can stay in the ground. Until such time a clear direction is established, we will be using coal and fuel. Sri Lanka is still not aligning with global trends; we look at them closely but we haven’t still succeeded in harnessing their benefit for our economy.”

“If we use gas at all, let it be our gas. The whole power generation picture is changing. Coal power plants that chug along day-in day-out at same load factors are being replaced by smart grids and coordination of virtual power plants, which include renewable energy. We haven’t seen that transition in Sri Lanka yet. We still need to do well in the old paradigm. So, if we are using fossil fuel let it be gas and then let the end game be domestic gas so we can use that as import substitution,” Wickramasuriya stated.  

He added that the feasibility of projects proposing to import LNG to Sri Lanka needed to be very thoroughly examined before we took them seriously. “I have not seen anything personally which convinces me that they are ready for the green light and go,” he said.