Sri Lanka is planning to join the ranks of Asian LNG importers by 2023, with its Energy Minister Udaya Gammanpila highlighting at the ongoing Gastech 2021 conference his country’s lateness in switching away from dirtier coal and crude oil towards LNG as a transition fuel. As part of a gas switch, Sri Lanka is also keen on restarting stalled offshore exploration activities, with plans to invite E&P players to reassess the Mannar Basin deepwater blocks by the end of the year.
Sri Lanka is determined to continue with plans to import LNG within the next few years, a global supply crunch that has resulted in a price rally notwithstanding.
Regular imports from 2023
New York-based New Fortress Energy Inc. has agreed with the Sri Lankan government to build an LNG import terminal near Colombo, Sri Lanka’s capital.
The facility is scheduled to start in 2023 and will have an initially planned throughput of c. 0.24 million tonnes, according to our calculations.
New Fortress Energy’s LNG plans tie in with its investment in West Coast Power Limited (WCP), which is the owner of the 310MW Yugadanavi Power Plant that supplies Colombo.
The Yugadanavi plant has a long-term power purchase agreement to provide electricity to the national grid until 2035. New Fortress Energy acquired a 40 per cent ownership stake in WCP.
The deal also imparts the potential to build an additional 700MW of power capacity in the future. New Fortress Energy will be in charge of procuring LNG and will also charge a regasification fee.
“This is a significant milestone for Sri Lanka’s transition to cleaner fuels and more reliable, affordable power,” said Wes Edens, Chairman and CEO of New Fortress Energy in a statement.
“We are pleased to partner with Sri Lanka by investing in modern energy infrastructure that will support sustainable economic development and environmental gains.”
The agreement has attracted criticism due to this year’s LNG price rally. Asian spot prices have soared to above US$27/mmBtu, which in terms of energy equivalence equates to an oil price of roughly US$155/bbl.
However, Sri Lanka’s Energy Minister Udaya Gammanpila has said in a Bloomberg interview he expects gas prices to have declined from record highs by the time the terminal becomes operational.
He also highlighted the agreed pricing mechanism will provide Sri Lanka with the cheapest of either Asian LNG or a US gas hub pricing formula.
Sri Lanka is the latest Asian nation seeking to turn to LNG for power generation to curb the use of crude oil and coal.
At the ongoing Gastech 2021 conference in Dubai, Gammanpila highlighted the island nation’s need to implement LNG as a transitional fuel, stressing his country was ‘late’ when it comes to moving away from dirtier fuels and required LNG as a ‘first measure’.
South Asian demand growth
South Asian LNG imports have remained broadly steady this year to date compared to the same period last year. Robust demand growth in Bangladesh, Indonesia and Thailand was only tempered by India, where a strict lockdown at the beginning of summer weighed on energy demand.
Restart offshore exploration
The Minister also pointed out that Sri Lanka will endeavour to produce its own gas from deepwater offshore resources within the Mannar Basin.
Notably, the area was relinquished by Cairn India Ltd in 2015, some initial finds notwithstanding. Nevertheless, Gammanpila plans to invite E&P players to reassess the Mannar Basin blocks by the end of the year.