Sri Lanka lacks foreign direct investment in oil and gas

The long awaited Mannar Basin M2 (Exploration and Production) tender and start-up of exploration work by the bidder selected for the M1 and C1 tender July 2019 could cost Sri Lanka more than $1 billion in foreign direct investment. Moreover, the delay in conducting a marketing campaign to attract more investment while oil and gas prices have been at historically high levels could shed billions more.

Cairn India drilled three completed exploration wells between 2011 and 2013. Two of the wells, Barracuda and Dorado, are estimated to contain gas of 1.8TF and 300 BCF respectively as presented by the Petroleum Resources Development Secretariat (PRDS) at a stakeholder meeting PUCSL on September 25, 2015. While it was not commercially viable when oil and gas prices collapsed in 2014, there is a strong possibility that it will be at today’s prices. There are techniques that have reduced capital spending such as gas-to-wire power generation that help create the economic case for producing these gas discoveries.

Cairn India invested nearly $200 million in Sri Lanka, according to Dr Sunil Bharati, Cairn India’s head of corporate and communications at the time. “Keran has spent $150 million for the first phase, more than the estimated $112 million, Bharati said, adding that the investment in the second phase could be greater than the first,” Bharati news agency quoted Bharati as saying on January 31, 2013.

It would require an investment of more than $1 billion to build the production infrastructure. Therefore, it is necessary to urgently attract as many investors as possible for exploration and production in the remaining 873 blocks to maximize the benefits for Sri Lanka – particularly in light of the global energy crisis and accompanying increases in energy prices that have boosted investor appetite. While one must drill to ascertain the actual presence and quantity of resources, seismic studies estimate nine trillion cubic feet of gas and five billion barrels of oil in the Mannar Basin according to a 2015 PRDS submission to PUCSL.

This could meet several decades of the country’s energy needs while saving $6-7 billion annually in energy spending. This is based on the May statement by the Minister of Energy and Energy in Parliament: “For June 2022, Sri Lanka needs US$530 million for fuel imports” and it also opens up opportunities for Sri Lanka to earn revenue through production sharing agreements with investors who take 100% of the risk.

The industry has the potential to contribute significant foreign exchange, in terms of investment and potential future revenue from production. It is imperative that Sri Lanka not miss the small opportunity available with rising prices and supply pressures, the rapid disappearance of internal combustion engines, as well as the displacement of fossil fuels with the advent of “net zero”.

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