Govt. hoping to grant new oil, gas exploration licences before Oct.

Govt. hoping to grant new oil, gas exploration licences before Oct. - National Domestic Gas Policy planned -n French oil major to establish presence here soon

March 19, 2014 2:05 am

By Devan Daniel


Ceylon FT: The government is hoping to finalize the evaluation of bids submitted by two oil exploration companies by April and grant licences so that exploration activities could commence by October, an official said.


"The government is hoping to finalize the evaluations of bids made by Cairn India and Bonavista Energy Corporation for oil exploration blocks in April. If approved, this would give them room to exploit the weather window to commence oil exploration activities by around October," Petroleum Resources Development Secretariat Director General Saliya Wickramasuriya told Ceylon FT.


Bonavista Energy Corp has bid for two blocks in the Cauvery basin located offshore Jaffna in the North.
Cairn India, which has already made two discoveries in the Mannar Basin, has bid for another block. It hopes to engage another oil major as a partner for hydrocarbon exploratory activities, sources said.


The bids were made after the country concluded the second international bidding round last November.
The government is in the process of formulating a National Domestic Gas Policy as discussions continue with Cairn India to monetize gas deposits already made.


A collective memorandum of understanding has been formulated, bringing together Cairn India, Ceylon Electricity Board, Ceylon Petroleum Corporation and Department of National Planning,which would eventually lead to the commercialization of natural gas.Meanwhile, France's oil major Total has bid for two joint study blocks and Cabinet approval is expected within a few weeks, which would establish the presence of a second international oil and gas company in the country after Cairn.

Exploiting Natural Gas Bonanza: Let us get it ‘Right this Time Around’
Pathfinder Energy Alert
View(s):

The Pathfinder Foundation’s (PF) previous Energy Alert (published in the Business Times) concluded that the key challenge for Sri Lanka’s energy security was to reduce its dependence on imported oil while containing energy costs in the economy. These twin objectives can best be achieved by maximising the benefits from the natural gas discoveries in the Mannar basin.

Cairns (Lanka) has discovered commercial quantities of natural gas deposits in two locations in the Mannar basin. One contains potentially in excess of 2 Trillion Cubic Feet (TCF) of natural gas, while the other has 300 Billion Cubic Feet (BCF). High priority should now be given to proactive measures to take advantage of these discoveries. The mistakes of the past should not be repeated. The inordinate delay in bringing coal-powered generating capacity on stream more than 20 years ago when coal was much cheaper has cost the country very dearly. Access to cheaper coal at that time would also have meant more money would have been available for measures to mitigate the carbon imprint. Let us get it right this time around.

It is important to examine the benefits and challenges associated with these natural gas discoveries. This article draws from a presentation made by Dr. Janaka Rathnasiri (former Chief Technical Advisor, Ministry of Environment). The following are some of the benefits that can be generated from them.

What are the benefits for Sri Lanka?

- The quantities of natural gas already discovered are sufficient to meet domestic consumption for 20-25 years. This would bring about energy independence and enhance Sri Lanka’s energy security.

- The foreign exchange currently spent on oil imports (about 25 per cent of the total import bill amounting to US$4.3 billion in 2013) can be reduced by about 20 per cent. (Power generation accounts for 20 per cent of oil imports. The rest is used for transport.)
- There are encouraging prospects for exporting natural gas, particularly at times when good rainfall boosts the capacity for hydro- power generation.

- The combined effects of the savings on the oil import bill and any export earnings would have a significant positive impact on the country’s structural trade deficit. This would, in turn, strengthen the current account of the balance of payments thereby alleviating the current over-dependence on foreign commercial borrowings.
- The unit cost of power generation will be reduced. Natural gas is significantly cheaper than diesel, heavy fuel and naptha. Over time the direct cost of natural gas-based electricity generation will be less than coal. However, when indirect costs (the externalities associated with the impact on the environment) are taken into account natural gas would be cheaper than coal from the very outset.
- Reducing the dependence on coal will have a positive environmental impact. Power generation, which is increasingly based on hydro and natural gas with reduced dependence on oil and coal, will generate not only financial savings but also support a greener growth trajectory. Natural gas does not emit any particulates or sulphur dioxide like coal. This will have favourable health impacts as well, particularly in terms of respiratory ailments.
- Natural gas is a versatile fuel as it is able to generate both base load as well as peak load.
- The quantities of natural gas already discovered are sufficient to reduce the dependence on hydro-power. This can also yield benefits, if the opportunity costs of water used for power generation are taken into account. Hydro generation is very flexible as it can achieve stable capacity within an hour compared with gas: 24 hours and coal: 3 days. This enables hydro-based generation to be used during the peak load. At other times, more water can be released for agriculture, industry and households thereby addressing the high opportunity costs associated with hydro- power generation at present. The benefits of this will increase over time as the effects of climate change are expected to reduce the availability of water in parts of the country in the future.
One may conclude that the natural gas discoveries will generate significant balance of payments benefits; reduce the unit cost of power generation; and bring about favourable environmental impacts.

Uses of Natural Gas

- Electricity generation: fuel for power plants.
- Fertiliser industry: feed stock to produce ammonia and urea.
- Industrial usage: boiler fuel in furnaces and other heating applications.
- Commercial: heating water and business/housing space as well as cooking.
- Automotive fuel: compressed natural gas can be used to run spark-ignited vehicles.
- Motor vehicles: can be used as a source of hydrogen for use in fuel – cell vehicles being developed as non-polluting vehicles.
- Petro chemicals: methanol and its derivatives.

No gains without meeting the challenges

- The two locations, where natural gas have been discovered, are classified as “marginal fields”. They are deep and the topography is such that extraction will be expensive. Despite this, it will be still cheaper than power based on oil and coal imports –( see above.)
- The high costs of extraction means that legislation will have to provide a policy framework which creates sufficient incentives for the producer, while ensuring that the interests of the national economy are optimised as much as possible. This requires a careful balancing of competing interests. Lessons should be drawn from comparable experience elsewhere in the world and world class expertise should be mobilised.

- Pricing policy is another challenge. Crude oil can be easily stored and transported. As a result, its price is globally determined. However, in contrast, natural gas is difficult to store and transport. Hence, its price is locally determined. For instance, the unit cost will be higher in Sri Lanka than neighbouring India because the cost of extraction will be more expensive and economies of scale come into play. One would, therefore, need to be cautious in formulating the pricing policy.
- Cairn has the first-mover advantage of negotiating a comparatively high gas price per MMBTU for the first two discoveries for the duration of time it will take to displace more expensive alternatives (e.g. oil and coal). The price will subsequently decline as economies of scale kick-in and the high opportunity costs of alternative energy sources fall out of the equation.
- The other disadvantage for second and third tier runners is that once the first two MMBTU have found a home locally, the cost of setting up infrastructure for them to consider exporting out of Sri Lanka can be prohibitive. It is important for the Government to look into this aspect of the GAS chain as well.
- The gestation period is 4-6 years and the natural gas discovery is going to benefit households and businesses directly through lower energy costs that will boost disposable incomes and profits. The Consolidated Fund (government) will benefit indirectly through the improved financial viability of the Ceylon Electricity Board and increased taxes from higher levels of economic activity generated by lower costs of power. It is important that the government remains focused on creating the enabling environment necessary to expedite the bringing-on stream of the benefits of the natural gas discoveries.
- Decisions also need to be taken regarding the following:
- The optimal generation mix. It is important to have diversification to mitigate any disruption to the natural gas supply even if the supplies that have been discovered are sufficient to meet domestic needs for 20-25 years.
- The optimal generation capacity would depend on decisions taken regarding the export of energy. The government has attached priority to developing Sri Lanka as an energy hub. Important decisions would have to be made regarding the future use of existing and planned generation capacity (hydro, oil, coal and natural gas). In this connection, consideration would also need to be given to the role of LNG in any future energy strategy. It is easier to store and transport than natural gas. However, liquefaction is an extremely expensive process.
- A related issue is the energy based relationship with India. For Sri Lanka to be a viable energy hub, exports to India will have to feature prominently. This raises the question as to whether it would be advantageous to connect directly to the Indian grid through an underwater pipeline. This would also have a positive impact on managing the energy supply.
- The two discoveries of natural gas are situated in one ‘Lot’ in the Mannar basin. High priority should be attached to accelerating exploration in the other ‘Lots’ in both the Mannar and Cauvery basins.
- Priority needs to be attached to capacity-building in energy sector policy-making and the technical aspects of energy management.
- In the natural gas sector, supplies need to be pre-sold before exploration companies are willing to undertake the extremely costly investment in infrastructure. Hence, the highest priority should be attached to expeditious decision making on issues such as pricing policy, exports, etc.

One may conclude that it is important to move expeditiously and decisively to create the policy framework and infrastructure to harness the benefits from the natural gas discoveries. Furthermore, the necessary infrastructure for an energy hub cannot be created without large-scale foreign participation. The terms and conditions for enabling this would also need to be worked out.
Experts, academics and the public at large: Let all join the discourse

The PF has now produced two Energy Alerts which constitute a preliminary effort to initiate a serious discourse on issues related to the country’s energy security, energy policy and energy management. The discovery of natural gas is clearly a game-changer. Informed public opinion needs to be part of the process of making the correct choices in this crucial sector which is arguably the lifeblood of a modernising economy. This is the best way to avoid the “resource curse” that has been experienced by other countries, following natural resource discoveries.

Cairn: Discussions on to monetize gas finds, govt. needs to take holistic view

0 April 25, 2014 2:04 am

Ceylon FT: Cairn India yesterday (24) said discussions with the Sri Lankan Government to commercialize gas deposits in Mannar Basin were ongoing.


"In 2013, we concluded appraisal and commercial studies to determine the next steps for the gas discoveries made on the block (SL 2007-01-001). We continue discussions with the Sri Lankan Government regarding commercial terms necessary to monetize the discovered gas resources on the block, urging the policy makers to take a holistic view to maximize benefits from the maiden natural gas discoveries in the Mannar Basin," Cairn India said releasing its annual financial results for the year ended March 2014.


The government is in the process of compiling a national gas policy seeking to exploit two trillion standard cubic feet natural gas reservoirs discovered by Cairn India.


The National Domestic Gas Policy is expected to be placed before Cabinet in the second quarter so that evaluations of bids for oil exploration blocks made by Cairn India (Mannar Basin) and Bonavista Energy Corporation (two blocks in Cauvery Basin in the North) can be concluded in time to exploit the weather window to commence oil exploration activities by around October, an official told Ceylon FT.


A collective Memorandum of Understanding has already been Dr. afted, bringing together Cairn India, the Ceylon Electricity Board, Ceylon Petroleum Corporation and the Department of National Planning of the Treasury, which would eventually lead to the production of natural gas initially for power generation once the National Domestic Gas Policy is in place.


Cairn India would then be required to Dr. ill another exploratory well and conduct other tests by 2015.


Petroleum Resources Development Secretariat Director General Saliya Wickramasuriya told Ceylon FT: "There is tremendous potential for natural gas usage in the country. Energy, transport, industrial heat, household and commercial sector can make use of natural gas and this would translate into significant foreign exchange savings in addition to a much lower environmental footprint".

Cairn India urges Sri Lanka to maximize benefits from natural gas discoveries made in Mannar Basin
Mon, Apr 28, 2014, 09:58 am SL Time, ColomboPage News Desk, Sri Lanka.

Apr 28, Colombo: Cairn India says they are continuing discussions with the Sri Lankan government regarding commercial terms necessary to monetize the discovered gas resources on the block in Mannar Basin.

The Company in its Annual financial report for the period ended 31st March, 2014 said that they in 2013, concluded appraisal and commercial studies to determine the next steps for the gas discoveries made on the block SL 2007-01-001.

Cairn India urged the Sri Lankan policy makers to take a holistic view to maximize benefits from the maiden natural gas discoveries in the Mannar Basin.

The Company said in November 2013 it also participated in Sri Lanka's offshore bidding round for M-5 block, south of their current block in the Mannar Basin which is located in the Gulf of Mannar, situated on the north east shallow continental shelf of Sri Lanka.

Cairn India has a world-class resource base, with interest in seven blocks in India, one in Sri Lanka and one in South Africa.

Cairn made gas discoveries in two of the four exploration wells it was awarded. It successfully discovered two successive gas and condensate deposits in the wells Dorado and Barracuda in the offshore Block SL 2007-01-001 in the Mannar Basin.

The company expects production from the Sri Lanka's offshore gas fields starting as early as 2016.

The Dorado discovery is up for development with first gas officially expected in 2017-18 while Barracuda is being further assessed, according to Cairn. The Company estimates reserves of 74 million barrels of oil equivalent at the two sites.

Thanks a lot Backstage.

Glad that somebodies interested. IMO this is much bigger than the casinos. I am shocked at the lack of interest /commentary by the economist. (in general, not on the forum.)

Casino related to religious, which is sensitive - and most of the third world country politicians capitalised this to come to power or over throw someone in the power.

French oil giant to explore N-E seas
Sunday Times 18/5

A French multinational oil and gas consortium is to jointly explore with Sri Lanka for petroleum resources in the strategic seas east of Jaffna extending southwards through Trincomalee and Batticaloa. For this purpose, the Petroleum Resources Development Committee (PRDC) which functions under President Mahinda Rajapaksa, wants to enter into a Joint Study Agreement with Total E & P Activities Petrolieres of Paris.

The French multinational integrated oil and natural gas company is identified as one of “six majors” in the world in terms of revenue. The firm responded to a call for proposals by the Sri Lanka Government. This is to determine ‘hydrocarbon potential of ultra-deep offshore blocks’ of Sri Lanka waters that are not covered by current licensing rounds.

In the event of confirmation of hydrocarbon potential, President Rajapaksa has told his ministers, the French company would submit a proposal and negotiate with the Government for a Petroleum Resources Agreement. This is to carry out further exploration and development, he has said. Mr. Rajapaksa has said the French multinational would be wholly responsible to meet the cost for the conduct of the Joint Study Programme. Technically the blocks assigned to the French company are JS5 and JS 6.

Sri Lanka includes natural gas in power planning studies

June 5, 2014 (LBO) - Sri Lanka's state-run power utility has included natural gas in power generation planning studies for the first time, with prospects of gas being found in the country.
Sri Lanka includes natural gas in power planning studies June 5, 2014 (LBO) - Sri Lanka's state-run power utility has included natural gas in power generation planning studies for the first time, with prospects of gas being found in the country. In one study scenario where no coal plants after the current ones being planned for Trincomallee, the Ceylon Electricity Board's long term generation plan considered a 250MegaWatt liquefied natural gas plant with a terminal from 2024.

It would be followed by a 250MW plant every year until 2032. The 2013-2032 long term generation plan also included nuclear power for the first time.

The CEB has earlier not used natural gas or imported liquefied natural gas (LNG) as it was considered too expensive compared to its least cost plan with coal.

The simulation found that the present value of the capital cost with no coal after 2019 will be 15.06 billion US dollars compared to the least plan meeting least cost regulations of 13.6 billion in discounted dollars.

LNG is still not in the base case planning scenario.

Special interest groups have been pushing for LNG as a power source in Sri Lanka for several years with high level political pressure but CEB planners had resisted the pressure successfully, instead focusing on getting some cheap coal in to the system as a priority.

Clean Fuel

Though expensive, LNG is a cleaner fuel.

Sri Lanka now has some prospects of generating its own natural gas and the import of liquefied natural gas would not be required.

But if natural gas is sold to the power utility at a subsidized price, it means potential export revenues from direct LNG sales would be lost.

Existing combined cycle plants running liquid fuel could also potentially be converted to LNG.

"LNG fuel prices are not economically competitive with the current coal prices," the study said.

But the cost would come down if carbon credits could be sold, which was also considered.

Carbon credit prices however have been coming down from their highs.

Recently due to shale gas and 'fracking' technology in the US, natural gas prices in North America has plummeted, partly helping the US economy recover despite deficit spending and banking restrictions which has delayed a recovery.

Unlike in Europe and other countries where state intervention is entrenched, in the US rulers have not been able to prevent cheap shale gas extraction partly because citizen's property rights are stronger and mineral rights are theirs, economists have pointed out.

China, where environmental concerns are weak, is also expected to move in to shale gas extraction.

The US is expected to become a petroleum exporter soon.

In another development, with the Federal Reserve cutting down its deadly money printing activities (tapering of quantity easing) global energy commodity prices are also easing. Coal prices are also coming down.

In Asia however natural gas prices are still high.

"If the US starts exporting natural gas prices elsewhere may start to fall faster," Tilak Siyambalapitiya, a senior power sector analyst and former generation planner said.

"Today there is much more LNG being transported than 10 or 20 years ago."

Siyambalapitiya says if Sri Lanka generates its own LNG the costs would be more favourable. But with coal prices also coming down, there still be a gap between coal and gas.

"The comparative economics would remain the same," Siyambalapitiya points out.

In Singapore, where almost all power is produced from natural gas electricity is sold at about 27 Sri Lanka rupees (26.66 Singapore dollar cents). Singapore also does not use power prices as a back-door taxation measure to fulfil income re-distribution desires of interventionists.

In Sri Lanka large households now pay close to 60 rupees per unit, perhaps the highest price in the world, in a back-door taxation measure.

Lesson from Nigeria: Discovery of a natural resource by a country without good governance is a curse
Published : 12:00 am September 22, 2014

The Nigerian news that shocked the world
During the last 12 month period, three pieces of news coming from Nigeria shocked the world.
The first was the sacking of the Nigeria’s Central Bank Governor, Lamido Sanusi, by Nigeria’s President Goodluck Jonathan in February 2014 (available at: http://www.nytimes.com/2014/02/21/world/africa/governor-of-nigerias-central-bank-is-fired-after-warning-of-missing-oil-revenue.html?_r=0 ). His crime: Warning the government that billions of dollars in oil revenue due to the Treasury had been stolen at the Nigerian National Petroleum Corporation or NNPC. Thus, his hint was that culprits who had committed this theft had been associates of the incumbent President.


But the charge on which Sanusi was sacked by President was something else: that is, Sanusi’s financial recklessness and not those NNPC whilst being the Governor of the Nigerian Central Bank (available at: http://www.cknnigeria.com/2014/02/poserdo-you-support-lamido-sanusis-sack.html).
The second was related to the first from a different side. The first was the theft of the revenue from the legally exported oil. The second was the theft of the oil produced in Nigeria, the largest oil producer in Africa, before it is being exported. While this had been in the news for some time, no action had been taken by the Nigerian government to prevent it. As early as October 2013, Nigeria’s President Jonathan himself had admitted that the theft of oil had cost the country in the region of £ 1 billion or $ 1.65 billion a month (available at: http://www.theguardian.com/global-development/2013/oct/06/oil-theft-costs-nigeria). This is about 20% of the country’s annual earnings from petroleum exports and about 4% of its now rebased GDP.
The third had been undertaken by Nigeria disregarding the negative impact which the first two had exerted on Nigerian economy. That it had done by changing the base year of calculating its GDP to 2013, a revision which it had done after 23 years. This rebasing of GDP has crowned the country as the biggest economy in Africa and the 26th largest economy in the world. Consequently, it has pushed South Africa – the champion who had held the title of being the largest African economy so far – to the second place. Thus, Nigeria’s GDP increased overnight from $ 270 billion in 2012 to $ 510 billion in 2013. A consequential change was that its per capita GDP too increased dramatically from $ 1555 in 2012 to $ 2688 in 2013 (available at: http://www.theguardian.com/global-development/2013/oct/06/oil-theft-costs-nigeria).


Nigeria is at the bottom of good governance practices in the world
All these three events are related to good governance and in the case of Nigeria, they relate to the absence of good governance.
According to the Worldwide Governance Indicators compiled by the World Bank, Nigeria is ranked within the worst 30% and in some cases within the worst 10% of the countries with respect to all the six indicators of governance (available at: http://info.worldbank.org/governance/wgi/index.aspx#reports ). According to these indicators, a country’s governance score ranges from minus 2.5 (worst) to plus 2.5 (best). The most recent indicators relating to 2012, gives the following values in the minus range for Nigeria: For Voice and Accountability, minus 0.73; For Political Stability, Absence of Violence and Terrorism, minus 2.05; For Government Effectiveness, minus 1.00; For Regulatory Quality, minus 0.72; For Rule of Law, minus 1.18; and for Control of Corruption, minus 1.18. According to a summary tabulation of different aspects of governance, corruption and rule of law, Nigeria is ranked within the world’s 10 worst countries (available at: http://ends.ng/nigeria-ranks-bottom-10-in-the-world-in-almost-everything-to-act-or-give-up/).


Discovery of oil boosted hopes but it has killed Nigeria’s economy over the years
Nigeria’s oil history is a pathetic story right from the beginning. It also shows how the disregard of good governance could destroy a country even when it has discovered a vast deposit of a natural resource. Normally, when such a resource is discovered, it is natural for everyone to feel that it would end all its economic and social woes and lay a firm foundation for a new beginning. In fact, Nigeria’s politicians, like those in Sri Lanka and elsewhere, heavily capitalised on the discovery and marketed it to the people as ‘dawning of a new era’. This was in early 1960s. Fifty years since then, the story is different with a brutal shattering of all those hopes. In February, 2013, Nigeria’s Association of Chambers of Commerce, Industry, Mines and Agriculture, known as NACCIMA, came out with the charge that the oil sector was killing the whole Nigerian economy silently (available at: http://allafrica.com/stories/201302130929.html).
The reason was the prominent place acquired by newly earned Petro-dollars – dollars earned by exporting petroleum resources – in the country’s public policy causing a decline in agricultural exports and industrial production since mid 1960s. Economists call this situation Dutch Disease, a term coined by reference to the displacement of traditional economic activities in the Netherland after that country had discovered a vast natural gas resource in the North Sea in 1970s.


The double hazards: Stealing oil revenue and stealing oil
Thus, what has happened in Nigeria is the replication of Dutch Disease after its petroleum resource discovery. Prior to this, Nigeria was a typical agriculture based developing country which had depended mainly on earnings from exporting primary agricultural commodities. With oil, both commercial agriculture and industry were neglected and as a result by 2000, about 98% of Nigeria’s export earnings were derived from exporting oil products. Initially, oil sector was controlled by two giant international oil companies, namely, Shell and British Petroleum, which had got concessions from the Nigerian government.
However, in 1971, the Nigerian Federal Government nationalised the oil industry by creating ‘Nigerian National Oil Corporation’. With an authoritarian military government in power, the government’s, and hence those in the government, power over the oil sector was consolidated within the next decade. It thus gave an opportunity for politically powerful elite groups at both federal and state levels to siphon off the oil revenue for their personal benefits.
Accordingly, the profits from the oil sector were appropriated by these groups leaving no benefit to the Nigerians at large. On top of this, the very same group was engaged in stealing oil produced in oil wells thereby denying a substantial amount of oil revenue to the country.
Lamido Sanusi comes to the picture as the Governor of the Central Bank of Nigeria when the country had been hit by these double hazards.


Lamido Sanusi: The so called non-conventional practical central banker
Sanusi was a career banker picked up for the job in 2009 in the height of the financial crisis. He took pleasure in calling himself a ‘non-conventional practical man not infected by non-working economic theories’. What he meant was that he was a rebel and ready to try any experiment if it worked for the country. This non-conventional wisdom was shown by him when IMF advised to depreciate the Nigerian currency, Naira, in 2009. Sanusi refused the suggestion claiming that Nigeria’s balance of payments depended on export of oil products and the change in the exchange rate has no bearing on such exports.
Further, he claimed that if Naira is depreciated it will push up the costs of imported products thereby accelerating inflation in the country (available at: http://www.africanreview.com/financial/banking-a-finance/banking-reforms-embrace-best-practices).
However, those who are conversant with economic policy practices would know that both these reasons adduced by Sanusi are not non-conventional. They simply reflect the conventional wisdom of the man in the street who believes that the depreciation of a currency is a loss of national pride and a way to increase inflation. However, his so called non-conventional policies rewarded him well. He was awarded the Best Central Bank of Governor of Africa and the Central Bank Governor of the Year by London based Banker Magazine in 2011.


Sanusi reveals that oil revenue has been stolen at government Oil Corporation
Sanusi of course raised the oil theft issue with good intentions. He explained this in an address he delivered at an investors’ conference organised by one of Nigeria’s largest banks, namely, The Standard Bank, in February 2014 (available at: http://allafrica.com/stories/201402060099.html). About 80% of the revenue of the Nigerian Federal Government comes from the oil sector. If oil money is stolen midway, it affects the government budget adversely.
Sanusi claims that he was able to bring Nigeria’s inflation to a single digit level – that is, below 10% per annum – since early 2012. The tight monetary policy which the Central Bank of Nigeria has taken had delivered this good result to the country. This will be compromised if the government budget goes haywire due to an insufficiency of revenue. The theft of oil revenue has been one of the reasons for the insufficiency of government revenue. In this regard, Nigerian National Petroleum Corporation, NNPC, has failed to remit $ 20 billion to the Federal Treasury and this has caused a serious concern about the governance practices in public enterprises.


The good-intentioned report to President by Sanusi
Sanusi, as a responsible central banker, brought to the notice of President Jonathan the continuing theft of oil revenue by an apparent fraudulent activity at NNPC. This has amounted to $ 1 billion per month according to his estimates (available at: http://www.ft.com/cms/s/0/6c4aea72-93cd-11e3-a0e1-00144feab7de.html#axzz3DmYo488F). Nigeria had had the benefit of high oil prices but its oil revenue, and consequently the revenue of the government, had continuously declined. His memo to the President had claimed that this anomaly cannot be explained by the partial fluctuations in the oil production. As a result of declining oil revenue, government budget had not got the required revenue; it added pressure for Nigerian Naira to depreciate in the market.
Hence, his advice to the President was to put a stop to the continuing theft of oil revenue by those in NNPC. The implication was that if it is not done promptly, the country will have to sacrifice the hard-earned low inflation regime.


The good report is badly taken by the government
In any country with good governance practices, such a memo from the central bank governor would have been welcome and acted upon. But it was not the case with Nigeria. The Managing Director of NNPC immediately issued a counter-charge that Sanusi did not understand the technicalities of oil production and sales. He further charged that the Central Bank of Nigeria has ventured into auditing government corporations which was not its duty.
However, after Sanusi’s revelations, several private analysts who tried to reconcile the reported revenue by NNPC with the import of oil by Nigeria’s trading partners found that NNPC revenue was much lower than what had been paid by foreign importers of Nigerian oil. The shortfalls are assumed to have been retained outside the country by an elite group belonging to President Jonathan’s inner circles.
President Jonathan, instead of initiating an investigation into the charges made by Sanusi, hit back by asking Sanusi to resign from Governor’s post. But Sanusi had refused to do so claiming that such a directive should come not from the President but from the Senate according to the constitution.


Authoritarian rulers don’t respect constitutional provisions
But such a constitutional nicety would be observed only in a country where there is good governance in practice and the observance of the rule of law by the government. Nigeria was not such a country. Hence, Jonathan acting on his powers suspended Sanusi from the post of the Central Bank Governor in February 2014 and informed the Senate of his decision. The Senate did not come to rescue Sanusi as required but silently approved of the measure taken by Jonathan. Those are the powers exercised by authoritarian rulers everywhere in the world. Even the elected representatives offer a yielding hand to such powerful authoritarian rules to violate the provisions of the laws of the country.
Another example for such authoritarian action was the removal of the Governor of Bank Indonesia, Sudradjad Djiwandono, by President Suharto in 1997 when the good intentioned Governor tried to close down 16 bankrupt banks in the country. The sin committed by Governor was that he tried to interfere in banks which had been owned either by close family members of President Suharto or by his close associates.
This story was discussed by this writer in a previous article titled ‘Bank Capital is not a panacea: Good governance and regulatory wisdom more important’ in this series (available at: http://www.ft.lk/2014/08/11/bank-capital-is-not-a-panacea/). Both Sanusi and Djiwandono would have survived had they not ventured into challenging the powers of those who are close to the topmost powerful man in the country.


Rebasing should not necessarily increase the size of the economy
In the midst of allegations against the theft of oil revenue and sacking of the Central Bank Governor, Nigeria has rebased its GDP calculations to 2013 increasing the size of the economy also by about 89% as mentioned above. Rebasing of GDP calculations periodically is a normal activity but in other countries it does not increase the size of the economy dramatically as has been done in Nigeria.
For instance, when GDP numbers were calculated by the Central Bank of Sri Lanka prior to 2007, on several occasions, GDP calculations were rebased without increasing the size of the economy dramatically. In 1982, the previous GDP series which was based on the base year 1970 was rebased after 12 years. The total size of the economy was increased only from Rs. 85 billion to Rs. 99 billion or from $ 4.4 billion to $ 4.8 billion.
Again, the data series was rebased in 1996 after another 14 years. This resulted in increasing GDP from Rs. 668 billion in 1995 to Rs. 768 billion in 1996 or from $ 13.0 billion to $ 13.9 billion. The third revision was done by the Department of Census and Statistics in 2002 after six years. The GDP increased from Rs. 1,407 billion in 2001 to Rs. 1,582 billion in 2002 or from $ 15.8 billion to $ 16.5 billion. Thus, there is no necessity for a country to dramatically increase the size of the economy simply because it has rebased its GDP calculations.


Sri Lanka’s dreams about discovering oil in Mannar Basin
Sri Lanka is set to prospecting its oil and gas resources in Mannar Basin by 2020. This is expected to make Sri Lanka energy self sufficient and it is the hope of every Sri Lankan citizen. The top policy makers of the government have projected that this discovery will eliminate the country’s gaping trade deficit entirely and generate a surplus in the current account of its balance of payments. When Sri Lanka has a surplus in the current account, it means that the country is transformed from a borrower nation in the international markets to a lender nation. Hence, these are high hopes entertained by all and sundry.


The need: good governance and a non-yielding central bank
But all these high hopes will evaporate into thin air if the country will not have good governance practices in place and the country’s central bank does not perform its statutory duty, respected by those in power as was announced by Dr. N.M. Perera, Finance Minister during 1970-75 at a meeting with Central Bank officers in 1971 (available at: http://www.ft.lk/2013/11/18/central-bank-as-advisor-to-the-govt-how-and-what-it-should-advise/).
This is the lesson which Sri Lanka has to learn from Nigeria. This writer has repeatedly pointed this out in this series of articles. One such article is the experience of Venezuela which has become economically bankrupt despite its huge oil resources, like Nigeria (available at: http://www.ft.lk/2014/01/27/lessons-from-venezuela-rich-oil-income-is-not-an-insurance-against-bad-economic-policies/).

(W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com)

Forum to highlight opportunities in oil and ocean for business
Published : 1:16 am September 29, 2014 | 312

Two eminent speakers and policy drivers from the Government of Sri Lanka will present and discuss economic prospects of petroleum and the extended continental shelf of Sri Lanka on 2 October 2014 at the Sri Lanka Foundation, Colombo 7, from 3 p.m. to 5 p.m.
The forum is organised by the Shippers’ Academy Colombo, an academic organisation focused on capacity and knowledge building of the industry.
The two hot topics discussed are current issues and will have long term impact for the Sri Lankan economy and its maritime activity.
Saliya Wickramasuriya the former Chairman of the Sri Lanka Ports Authority and also a former Chairman and Director General of the Board of Investment (BOI) and the current Chairman, Petroleum Resources Development Secretariat (PRDS) – President’s office will make a presentation on ‘Sri Lanka petroleum resources, where are we and what next?’
The Petroleum Resources Development Secretariat (PRDS) was established under the Petroleum Resources Act, No 26 of 2003. The mandate of the Secretariat includes discharge of such functions as are to be assigned to it from time to time, by the Cabinet of Ministers. The PRDS has also been assigned much of the functions of the Petroleum Resources Development Committee which it is directed to assist through the Act.
Chris Dharmakirti currently sits on the board of the largest state-owned enterprise reform entity, the Strategic Enterprise Management Agency (SEMA) in Sri Lanka. He is also the Chairman of the National Ocean Affairs Committee (NOAC), a cabinet appointed position that puts him in overall charge of steering the Continental Shelf Margin Claim before the UN, under Convention of the Law of the Sea as well as the overall policy for ocean affairs in Sri Lanka
Dharmakirti will talk on the subject: ‘Is Sri Lanka ready to exploit the biggest economic asset the country will possess once the claim for the vast Bay of Bengal seabed resources is awarded by the United Nations?’
Interested parties could register by contacting the Shippers’ Academy Colombo on 3560844 or 0773820703 and on email enquiries@shippersacademy.lk. Register online at www.shippersacademy.lk.

Natural gas in Sri Lanka: Unprecedented opportunities with issues to be addressed
Published : 5:32 am October 3, 2014

The Pathfinder Foundation (PF), which has played a pioneering role in taking issues of national interest to key stakeholders and the general public, is organising a public discussion on ‘Natural Gas and Optimising the Economic Utility’. The event is scheduled for 14 October 2014 from 2 p.m. to 5 p.m. at the Auditorium, Bandaranaike Center for International Studies (BCIS), BMICH. The PF seminar has lined up Sri Lanka’s most prominent experts in the power, energy and regulatory sectors. Professor Rohan Samarajiva will be chairing and moderating the session. He is an internationally renowned expert in Infrastructure & ICT Regulation. Among the other speakers is Raja Amarathunga from the Petroleum Sector, who currently functions as a consultant to the Public Utilities Commission of Sri Lanka. Secretary-General of the Petroleum Resources Development Secretariat, Saliya Wickramasuriya, will be a key speaker enriching the dialog with his international expertise in the Oil and Gas Industry.
Sri Lanka’s well-known Electricity Sector expert and consultant, Dr. Tilak Siyambalapitiya, will be discussing the critical issue of pricing of Natural Gas in the local market to create internationally competitive industries and services in Sri Lanka. The Private Sector Perspective on Opportunities and Challenges is the theme of Chas Charles, Director/CEO of Hayleys Energy Services. His presentation is likely to attract the interest of the wider spectrum of stakeholders.
Debobroto Banerjee, Commercial Director, South Asia & Country Incharge Sri Lanka, GE Global Organisation, South Asia will bring with him his vast experience and knowledge from an international perspective to the participants of the seminar. The complex but interesting relationship between LNG and Renewable Energy will be the subject of the presentation by young and emerging expert Niro Cooke.
Broader issues related to the negotiations of the Natural Gas Agreements between the host country and the exploration company, which is probably a new subject for the Sri Lankan audience, will be brought to the attention of the participants by a young PF intern, Deepthika Appuhamy, a Law graduate. Professor Rohan Samarjiva, in addition to moderating the session, is expected to bring in a new perspective particularly on regulation of the Natural Gas sector in Sri Lanka.
The seminar will be open for the public free of charge. Please register well in advance by e-mail to pm@pathfinderfoundation.org or call 0112372895/6 for participation in this seminar.

This is to satisfy the public. Just before the presidential election people will be joyed and forget major problems. They did this in last presidential election

sapumal wrote:This is to satisfy the public. Just before the presidential election people will be joyed and forget major problems. They did this in last presidential election

True, but there is gas, and its going to be the biggest thing that's going to happen in the SL economy. Bigger than casino's and FTA's. And its round the corner. Dont much like Pathfinder Foundation ,but I feel like going down to the BMICH on the 14th.

Backstage wrote:

sapumal wrote:This is to satisfy the public. Just before the presidential election people will be joyed and forget major problems. They did this in last presidential election

True, but there is gas, and its going to be the biggest thing that's going to happen in the SL economy. Bigger than casino's and FTA's. And its round the corner. Dont much like Pathfinder Foundation ,but I feel like going down to the BMICH on the 14th.

Agreed Backs.
May i have the previlege of nominating Backs as the official representative of our forum to this event.

sapumal wrote:This is to satisfy the public. Just before the presidential election people will be joyed and forget major problems. They did this in last presidential election

Coal-gasification on the cards?

By Azhar Razak
Sunday, 23 November 2014 00:00




Ranali Perera Ranali Perera (Pic by Ravidra Dharmathilake)

As electricity demand expected to triple in 15 years

Sri Lanka needs major capital injections in the energy sector as a recent study suggests it will be viable for coal power plants to convert to gas in the longer term, opines expert. According to Ranali Perera, a Petroleum Analyst at the Petroleum Resources Development Secretariat (PRDS) the timely need is to transform and re-define the Petroleum Exploratory Sector as a growth engine of the national economy “With the recent natural gas discoveries in two blocks in Mannar basins, we will need to invite more private players to get involved in offshore grilling operations. We know even today, energy generated from gas is very clean comparative to both oil and coal while price might be the aspect for consideration,” Ms. Perera said speaking at a seminar organized by the Ceylon Chamber of Commerce on the topic of ‘Oil exploration: Current status’ last week.

Noting that coal and gas are going to be the dominant players in the aspect of power generation in the next few years, Ranali said as carbon emissions for coal are very high compared to natural gas which is comparatively cleaner the benefits and both sources of energy have to ascertained.

“In the absence of higher emissions, only fierce pricing could write down the demand for coal from gas. Most of the countries who have enough coal reserves are trying to go for coal-gasification where there is a new technology to convert to natural gas,” the Petroleum expert said.

She added that based on a study done by Carbon Fund in collaboration with PRDS, two main scenarios have been arrived at purely based on gas consumption patterns i.e if the gas discovery is made available to the end consumer.

“The first scenario is that estimated quantity of the discoveries would be 2 TCF & by 2018 if we are to commence production and if we are to convert some of the power plants to natural gas to meet a demand which is relatively less. But there will always be a shortage of 3.8 TCF,” Ranali said.

Explaining the second scenario, she noted that by 2024 if Sri Lanka could convert all the power plants to natural gas, there will still be a shortage of 6.8 TCF given that there will be an excess demand.

“However, since the total basin potential is of 9 TCF, if the total potential is commercially viable and rightly tapped, even after meeting the demand in the domestic market there will be an excess amount which can be exported,” she highlighted noting that the Carbon Fund report, which is still in the draft stage will be released by early next year.

“The next aspect to be considered is how much natural gas will cost as the price for gas will depend on various economic and domestic market conditions as well as the interests and expectations of the state and the operator,” she however pointed out.

Meanwhile, Additional General Manager (Corporate Strategy) at the Ceylon Electricity Board (CEB) Bandula Tilakasena said according to Long-term Generation Expansion modeling by the CEB to determine the future electricity generation capacity, based on
consumption patterns, it has been estimated that Sri Lanka need to fulfill a total demand of about 30,000 GWh by the year 2032. The present annual electricity demand of Sri Lanka is around 11,000 GWh.

“CEB’s generation expansion plans have identified 6,025 MW of capacity additions by the year 2032 to meet the annual electricity consumption demand increases over the next 15 years. CEB will continue to invest in these additional capacity needs,” Tilakasena explained.

Sri Lanka gas production "continues to present challenges": Cairn
Jan 22, 2015 17:23 PM GMT+0530 |

EconomyNext - Cairn India has hinted at difficulties in starting natural gas production from Sri Lanka's offshore Mannar Basin with more seismic data processing planned to further refine the block's potential.

The company, releasing its results for the third quarter ended 31st December, 2014, has spoken of "challenges" in starting gas production, an apparent reference to long-drawn talks with Sri Lanka on agreeing on a price and how to sell the gas.

"Commercialization of the gas discoveries made on the block continues to present challenges," the company said in a statement.

"The company is refining the technical evaluation of the remaining exploration prospects on the block that could ultimately add to the discovered resource base," it said.

"Toward that end, Cairn plans to commence 3D seismic reprocessing in the current quarter to further investigate the potential."

Cairns' statement did not say what the challenges were in starting Mannar Basin gas production.

Months have passed since its last announcement that it was working to commercialise the discovery with talks with the former regime of ousted president Mahinda Rajapaksa.

The previous government had delayed approving a natural gas policy that would have spelt out how gas produced by Cairn would be sold and at what price and how profits would be shared between the two.

Government officials have said the Mannar Basin gas deposits could be used initially for thermal power plants and later for other uses like transport and making fertiliser.

Oil Search Stalls on the Road to Nowhere
Sri Lanka did everything right in the search for oil and gas, but soon lost its way as top officials stifled the regulator

By devan daniel.

Published on February 16, 2015


Sri Lanka’s petroleum exploration regulator and energy ministry have calculated the risk-based Mannar Basin potential to be 9 trillion cubic feet for gas and 5 billion barrels of oil. Their conservative estimate is that the gas alone would bring a direct benefit of US$ 200 billion by 2040. Top global oil and gas companies with revenue streams several times bigger than Sri Lanka’s GDP, are interested in investing. Sri Lanka stands to earn valuable foreign exchange in the exploration stage alone before even production can commence. To politicians and their cronies (adept at destroying institutional oversight to freely build their wealth at the expense of the public), any attempt to bring in laws and regulations is a threat, and they will destroy institutions and use public fears, paranoia and ignorance to veil their intent.

Geophysicists at Sri Lanka’s petroleum exploration agency pore over data on a computer screen displaying tightly stacked hazy lines. The patterns that these dark, thick and curvy lines form make sense to geophysicists. This is seismic data.

Seismic data replicates a picture of the physical characteristic of an area below the earth’s contours. It’s like a sliced fruit revealing the insides. One slice gives only a two dimensional (2D) view. A few slices of the fruit provides a more complete view of the innards, akin to a three dimensional (3D) view.

Acquiring 2D and 3D seismic data costs millions of dollars when the contours of the earth’s subsurface being scanned is thousands of metres below sea level. Seismic data is acquired by discharging sound waves (seismic waves) with several air guns submerged below the waterline. These waves are powerful enough to travel through the seabed and depending on how they are discharged bounce off various subsurface layers creating a view of the geography below the seabed. They can reveal subterranean rock formations that experienced geophysicists can identify. Two dimensional data isoil5 acquired by air guns towed behind a vessel in a straight line, and for 3D views they are laid closer together in a grid formation, enabling geophysicists to construct a three dimensional model of the subterranean landscape several kilometres below the seabed. Enhancing this with gravity and magnetic tests can provide remarkable insights in to geophysical features below the surface. Data identifying subterranean layers several kilometres below the earth’s contours turns back the clock for providing a picture of the earth from millions of years ago. It could provide clues on where petroleum resources can also lie.

They dump dollars in the sea, millions
Sri Lanka’s continental shelf ranges in deep waters 200 to 1,800 metres below sea level and seismic data acquisition costs between 8 and 20 million US dollars, beyond Sri Lanka’s means because if there were nothing, the loss would be too great for a US$71 billion economy to absorb.

But what is the point of all this money and expertise? It’s for the grand prize – Oil.

Cairn India however has discovered there could be gas which has encouraged other international oil majors to also risk millions of dollars, to make billions. Success outweighs failures and international oil companies such as Total and Cairn continue to engage Sri Lanka.

In 2012, French oil major Total SA made a unique gesture. It’s offered the Petroleum Resources Development Secretariat (PRDS – set up in 2005 to regulate exploration activity) via the French embassy in Colombo to undertake a joint study programme to acquire data offshore to the East of the island, where little is known of prospects. Under the joint study model, Total would fund the project and earn the right to be the first to use the new data exclusively for three years, and make a bid for an exploration block. If an agreement is not reached for an exploration license, then Sri Lanka could use the data to call for bids from other oil and gas companies.

“This model is commonly used in other parts of the world. It’s a good opportunity because the project is funded by others and we would own the new data. What is particularly interesting about joint study programmes is that local academics such as geophysicists would be roped into studying the data. This would give us an opportunity to develop local human resources as well,” a PRDS official explained.

Total’s offer coincided with the second exploration bid round launched in 2013 and PRDS officials were optimistic that Total’s entry to Sri Lanka would boost the country’s profile. A paper seeking approval to negotiate a deal with Total was prepared and presented to Cabinet. It got the green light. But nothing happened.

Parallel to the 2013 bid round launch, the PRDS was also in talks with several oil majors to update the seismic data of the Mannar Basin on the West coast.

“We had data that was 20 to 30 years old and these were almost obsolete. We needed new data and we promised prospective bidders that they would have this,” an official of the PRDS said.Top service providers in the global oil and gas industry such as Schlumberger/Western Geco, CGG (a French geophysical service provider), Petroleum Geo Services (Norway), Spectrum (USA), Ion Geophysical (USA) had submitted proposals to PRDS to conduct multi-client data acquisition surveys covering almost the entire offshore territory of Sri Lanka, not just the Mannar Basin.


Unlike, the Total joint study programme proposal, these companies would have the right to sell the data to oil and gas companies interested in exploring, for which Sri Lanka would receive royalties and then own the data outright after specific period of time. The PRDS submitted a proposal seeking Cabinet approval to begin negotiations.

Sri Lanka also committed itself at 2013 oil exploration roadshows in London, Singapore and the US that it would pass legislation to regulate the oil and gas industry and protect investments. The PRDS was set up under the Petroleum Resources Development Act that had not taken into account the possibilities of oil and gas production and industry regulation. “We did not have to reinvent the wheel. We looked at countries with strong laws and regulations and with good track records of delivering petroleum wealth to its citizens. A draft amendment to the Petroleum Resources Development Act was prepared. This got stuck at the Attorney General’s office,” an official said.

DSC00421BP, ExxonMobil, Royal Dutch Shell, Eni and Total were among several oil companies expected to bid for blocks at the 2013 bid round. But when bidding closed in December 2013, only Cairn India had submitted a bid for one block in the Mannar Basin and Bonavista Energy of Singapore for two blocks in the Cauvery Basin; an anticlimax for a hyped up campaign.

Officially, PRDS maintained that global oil majors were distracted by Myanmar’s offer for oil exploration, where around 30 oil companies bid for 64 blocks. Bangladesh, like Sri Lanka timed its bid round too close to Myanmar’s bid round but was worst off without a single bid.

“We kept in touch and hosted them several times to our data room in Colombo where their geophysicists would create basin models to understand the potential. Some companies made multiple visits and when we launched the bid round they were quite optimistic,” one official said. The lukewarm response to the bid round, although securing investment commitments worth US$200 million from Cairn India and Bonavista, was a bitter pill. To this day, these bids remain unopened. The PRDS didn’t require an autopsy. It was obvious. Slow strangulation of a public institution by those in power.

“The PRDS came under the Petroleum Resources Development Committee which reported directly to (former) president Mahinda Rajapaksa. There were too many things in the former president’s plate, and certain officials were trying to carve out control over to themselves. We could not keep the promises to prospective bidders of new seismic data and laws and regulations. There was no focus and lack of leadership was the biggest drawback. This is perhaps why the 2013 bid round ended in disappointment,” an official of the PRDS said. Four members of the PRDS shared these views. The PRDS was also swimming against strong bureaucratic currents to formulate a national gas policy with legislation covering both the downstream and upstream oil and gas industry.

Cairn India in 2012 announced two gas reserve discoveries which sparked off global oil industry interest in Sri Lanka. But Sri Lanka was unprepared for this. An oil discovery would have been far more convenient. Oil extraction and distribution is not as complicated as for gas. Natural gas can be liquefied but is an expensive process.

“Oil companies would go to the Arctic looking for oil but not for gas,” a PRDS official said. ”Cairn India’s discoveries were significant and we had to create opportunities for the country. Finalizing an agreement with Cairn India on natural gas would have done wonders for our 2013 bid round. But sadly this did not happen.”

The energy ministry formulated a National Gas Policy with input from the PRDS which like it did with the draft amendments to the Petroleum Resources Development Act, looked at policies of successful countries. The Sri Lanka Carbon Fund of the energy ministry conducted a study on the applications for natural gas.

At low cost, some of CPC’s electricity generation plants could be converted to gas and transport was another sector red-flagged as a ready beneficiary of gas along with industrial heating. Exporting the excess to India was identified as a major opportunity, a PRDS official said. The revenue from both gas fields were estimated at around US$12 billion.

According to the PRDS, a domestic gas pipe network would have cost US$ 1.7 billion to set up.

oil3Sri Lanka’s energy needs are expected to increase six fold by 2040. Although the previous regime identified coal as a cheaper energy source around this problem, its own energy authority warned that 10-20% of the coal burnt ends up as ash, depositing ‘tonnes of toxic heavy metals in the soil and water table’.

However, the Treasury kept calling for greater oversight over the pricing and gas policy, although lacking the expertise in the gas and oil sector. This was PRDS’s mandate for which it had the expertise. “For some reason, the Treasury kept stalling,” a PRDS official said.

Cairn India’s quarterly financial reports maintain that monetizing and commercialization discussions were a challenge.

PRDS officials had to also battle perceptions and prejudices of public officials in its search for beneficial commercial ties with global oil companies.

The 2013 Cabinet nod for the PRDS to enter into negotiations with French oil giant Total was scuttled by the Treasury.“We heard that the Treasury Secretary did not like the idea of a French company because the west had sided against Sri Lanka at the UNHRC,” a PRDS official said. “Total kept making inquiries for over two years and we were in an embarrassing situation because this was unprofessional behaviour on our part. We could not tell them ‘yes it was going ahead’. We could not tell them ‘no it was not’, either.” This cost Sri Lanka two opportunities. One, it lost an opportunity to raise its profile considerably during the 2013 bid round. Two, it lost an opportunity to acquire seismic data off the East coast. Similarly, the multi-client data acquisition did not progress.

PRDS officials said the former Treasury Secretary Dr.Jayasundera’s policy was to shun oil companies all together, especially from the west, and promote governmentto-government deals. Dr.Jayasundera could not be contacted for comment.

“What we need is proper laws and regulation to safeguard the country’s interests and also guarantee the safety of investments. Oil companies have the expertise and the money. Governments are inefficient in these aspects and are clouded in more secrecy,” a PRDS official said.

For all Iran’s western-phobia (vice-versa) it has a willingness to work with oil majors based in France (Total), Netherlands (Shell), Italy (Eni) and even the US (ExxonMobil and ConocoPhilips) because the demarcation between commercial interests and politics is understood. Iran is planning a major international conference on petroleum exploration hoping to attract the oil majors because the second largest oil producing member of OPEC needs more investment, and the conference will be held this September in, of all places, London, a great ally of the US.

“The previous government comprised a close-knit few and this was a problem in pushing for updated laws and regulations. We could not reach former President Mahinda Rajapaksa even though the PRDS operated under his direct authority. Lalith Weeratunga (head of the Petroleum Resources Development Committee) had trouble getting through to the president and Dr.Jayasundera kept blocking essential decisions every step of the way,” a PRDS official said. “Lalith Weeratunga did manage to get through to president Rajapaksa and in late 2014 we decided to stick with our decisions and push for Cabinet approval on several outstanding matters. Dr.Jayasundera was not happy with this and he sent his resignation from the Petroleum Resources Development Committee. It was an ex-officio position as Secretary of the Treasury, so how he could resign was puzzling to us. We could not do anything however, because the Presidential election was called,” a PRDS official said. The PRDS forecast earnings from oil and gas is US$200 billion by 2040 and is a tempting prize for anyone holding power in the country.

“Individuals were trying to control the industry here and preventing it from becoming a sector regulated by robust laws, good governance and transparency crucial to ensuring people benefitted the most,” a PRDS official said. Elsewhere, countries have taken stock of the value of sound laws and regulations. When Narendra Modi swept into power in India, one of the first things he did was to engage the oil and gas industry. He placed energy on the top of his agenda. Top global players had complained of policy paralysis and delays in India with one player leaving the country. Modi vowed to introduce a new petroleum exploration policy with transparent procedures to woo heavyweights such as Chevron, ExxonMobil and BHP Billiton and Santos. He planned to expedite exploration in blocks already awarded.

A 2013 report prepared by the ministry of energy and the petroleum exploration agency, Petroleum Resources Development Secretariat (PRDS), estimates Sri Lanka’s potential net earnings from offshore gas in the Mannar Basin of US$200 billion by 2040 based on analysis of seismic and other data.

Comparing Sri Lanka’s offshore seismic data with data from across the world of locations with proven oil and natural gas fields, geophysicists since the 1960s have concluded that Sri Lanka has oil and gas potential.

International oil companies have kept an eye on Sri Lanka since the late 1950s (see timeline) because the country’s continental shelf is made up of sedimentary rock. Sedimentary rock is the first clue geophysicists look for. It is saturated with particles of prehistoric plants and animals, and depending on the heat and pressure levels they have been cooking in for millions of years becomes oil or gas.

Between 1957 to 1981 French, Russian and Canadian oil companies have drilled seven exploratory oil wells on land and offshore but no oil and gas was found. Geophysicists learned early on that Sri Lanka’s sedimentary rock formations hugging the northern-west and north-east coastal belt did not have other characteristics for an oil or gas reserve such as a thick volcanic rock layer to naturally trap the hydrocarbon particles in the sedimentary rock which would otherwise escape through the sedimentary rock pores to lower pressures of the sea-level atmosphere.

So the focus shifted offshore.

oil2Six seismic surveys have been carried out in the Mannar Basin in the West and Cauvery basin in the north before 2001 with Norway’s TGS NOPEC carrying out the last survey. In 2007, Sri Lanka launched its first licensing round and called for bids for six blocks, with two separate blocks offered to the governments of India and China. Neither country has responded to this gesture. Cairn India bid for three of these blocks, ONGC Vaidesh bid for two and Niko Resources (Cyprus) for one block. Cairn India won its bid for one block and the country’s first petroleum resources license was issued. Cairn India (now part of the Vedanta Group listed on the London Stock Exchange) had committed to a minimum investment of US$110 million and signature bonus of US$1 million was paid to the government.

In 2012, Cairn India made two discoveries after drilling four exploratory wells. One reserve is measured at 2 trillion cubic feet and the other 300 billion cubic feet. Sri Lanka was lucky to find natural gas in such a short time.

“The Santos Basin in Brazil is among the biggest oil and gas fields in the world, but oil companies had to drill close to a hundred exploratory wells before they struck oil and today it’s one of the biggest fields in the world,” a geophysicist at the PRDS said. “Cairn India’s gas finds are exciting because it proves the Mannar Basin’s petroleum potential.”

There is more to be excited about.

“Our seismic data shows a thick volcanic rock layer that can be dated 60 to 95 million years ago to the Cretaceous period. Such volcanic rock can act much like natural caps to trap the oil and gas saturated in seismic rock, called a source, underneath. Oil companies struck oil in the Santos Basin only after they drilled below the volcanic layer. We have source rock and caps in Mannar, and we believe there is oil, but we would still have to drill to make sure,” the geophysicist said.

Sri Lanka was in the heart of super continent Gondwanaland 200 million years ago and countries that share this history have found oil and gas including India, Tanzania and Mozambique which made the biggest natural gas find in the century at 100 trillion cubic feet.

Cairn India and the government commenced discussions to monetize the reserves and commence commercial production. At this point, it was expected that production would commence by 2018. The Company had invested US$214 million on exploration activities with around 10% of this spent on Sri Lankan companies for support services, a PRDS report said.

No sooner Cairn India announced two discoveries in 2012, several international oil companies visited Colombo looking for prospects. “Geophysicists from global oil majors such as Exxon Mobil (US$ 346 billion in assets in 2013), Chevron (US$253 billion), BP (US$ 306 billion), Total (US$ 150 billion), Eni (US$ 124 billion) visited the country many times to study our data and also to seek opportunities in the exploration field. Gazprom from Russia, ONGC and around 25 other companies made inquiries from PRDS or visited us in Colombo,” a senior official of the PRDS said.

Sri Lanka’s offshore potential oil and gas fields are 200 to 1,800 metres below sea level which makes exploration and production an expensive affair, with costs increasing by US$ 40-50 million more than for drilling in shallower waters. Offshore drilling is twenty times more costlier than in land. This is why Sri Lanka must deal professionally and transparently with probably the only ones with enough money to risk in the search for gas and oil – the multinational petroleum majors.

But PRDS staff point out that oil prices tend to follow a cycle and that current low prices would not last indefinitely and that commercializing our gas reserves should be a matter of priority.

“Taking the natural gas industry forward is crucial, because it would attract more investors to the search for oil. The national gas policy, Total joint study programme, unopened bids received by Cairn India and Bonavista, multi-client data acquisition programmes and amendments to the Act have all been presented to the Cabinet of the previous regime. These must be reviewed by the present government and taken forward in a transparent manner for the sake of all the people of this country,” a PRDS official said.

Oil and gas companies went into Nigeria and enriched themselves and its rulers and cronies at the expense of the people. They are learning the hard way because no one wins at the end of the day and now Nigeria is scrambling to establish laws and regulations and the people and oil companies themselves are now asking for these.

Nigeria is often cited as a bad example. Without laws and regulations and public oversight in parliament, Sri Lanka runs the risk of going down the same road. The regulator has everything in place to protect the interests of the Sri Lankan people and the investors. What has been lacking is political leadership to introduce and enforce laws that would guarantee transparency, good governance and fairness to all.

Sri Lanka to look for new partner to drill for natural gas: minister
Apr 06, 2015 12:28 PM

COLOMBO (EconomyNext) - Sri Lanka will set up a national oil company and look for another partner to drill offshore natural gas deposits with the withdrawal of Cairn, Power and Energy Minister Patali Champika Ranawaka said.

The new government has take a policy decision to exploit the gas reserves found by Cairn in the Mannar Basin to pump it ashore at Kerawalapitiya on the north-west coast to initially feed government and private power stations, he said.

"We will form a national oil company and find a suitable partner to get this gas to Kerawalapitiya," he told a form on energy organized by Ceylon Chamber of Commerce Monday.

"That’s our ambitious plan."

Ranawaka said the new government's national energy plan unveiled last week aims to achieve energy self-sufficiency by 2025.

Ranawaka said the local private sector could also engage in the risky business of exploration which if successful could yield high returns as well.

"If the private sectors invests and explores, despite the huge risks, in the Mannar and Cauvery basins and off eastern Sri Lanka.

"There are 20 blocks. You can be the next Asian Rockefeller or Rothschild.

"We're trying to find a suitable partner to explore these deposits and to achieve self-sufficiency in oil and gas."

Cairn an Indian company had done their research to evaluate whether there is Oil available. Though here is some oil available they have decided that it is not worthwhile
continue drilling  may be due to the oil reserves are too small or too deep.

So the cost of investment is higher than actual crude which can be taken out.

RPPA wrote:Cairn an Indian company had done their research to evaluate whether there is Oil available. Though here is some oil available they have decided that it is not worthwhile
continue drilling  may be due to the oil reserves are too small or too deep.

So the cost of investment is higher than actual crude which can be taken out.

The above article says that Cairns is stopping exploration work world wide and focusing on the production in the Rajasthan fields. The previous article gives you a fair idea of the feasibility and current status. Read it if you have the time, its pretty detailed.

Sorry, I thought I had posted this too'



by Rohan Gunasekera

COLOMBO (EconomyNext) -

Cairn India has withdrawn from Mannar Basin natural gas exploration following the global petroleum price slump, and Sri Lanka is to look for other oil companies to drill deposits found by the firm.

Cairn made known their stance on the Mannar Basin gas during talks with the government in Colombo last month, industry sources said.

"Cairn had indicated they are pulling back from exploration worldwide and want to focus on enhancing oil production from their field in Rajasthan, India," an industry source said.

"Because of the current pressure the oil industry is under, Mannar Basin gas production is not a priority for them."

Oil prices have slumped in recent months prompting oil and gas multi nationals to scale back exploration efforts and postpone investments.

The industry sources said the government was still keen on commercializing the natural gas deposits found by Cairn and had in fact included it in the new 10-year national energy plan of the Ministry of Power and Energy.

"But for us it’s a priority and the Sri Lankan government is exploring ways to make that happen," an industry source said.

 The government is holding talks with other oil companies to produce gas from the Mannar Basin.

Cairn India itself has offered to help the government find another producer.

In this case it will be able to recover the money it has spent so far on exploration. If not, that spending will likely be considered a write-off by the company.

There was no immediate comment from the company.

Cairn Lanka, the Cairn subsidiary registered in Sri Lanka, has not renewed their lease on a warehouse in Colombo Port, a Sri Lanka Ports Authority official said.

The SLPA aims to get the warehouse at Bandaranaike Quay back for use for cargo storage since they have a shortage of warehouse space, he told a forum on the new round-the-clock operations by Customs organized by the Ceylon Chamber of Commerce.

Sri Lanka to go for more petroleum seismic studies
Apr 07, 2015

COLOMBO (EconomyNext) - Sri Lanka is to go for more offshore seismic studies for oil and gas deposits in the Mannar Basin, having got interest from foreign companies, a government official said.

Saliya Wickramasuriya, Director General of the Petroleum Resources Development Secretariat said the government was keen to make up for a lack of data on the island's offshore petroleum potential.

"We got six proposals from petroleum sector service companies interested in acquiring seismic data on a speculative basis," he told a forum on energy organized by Ceylon Chamber of Commerce Monday.
.
"The proposals have been forward to the Cabinet of ministers to evaluate and take action,"

Wickramasuriya was responding to a question on lack of data being a deterrent to government efforts to attract multinational oil and gas companies for exploration and production.

The sole firm which did recent exploration, Cairn India, had decided to withdraw from further exploration efforts and not commercialise two gas deposits found in the Mannar Basin.

The move follows a slump in oil and gas prices which make it unattractive to drill in deep-water deposits.

Interview a day before his arrest.

National gas policy critical to market exploration blocks: PRDS
2015-05-08 09:28:49


By Chandeepa Wettasinghe
A national gas policy would be required to effectively market Sri Lanka’s offshore hydrocarbon fields to potential players, according to a top official of Sri Lanka’s state-controlled oil exploration agency.
“The gas policy is essential, as we cannot market the blocks without it,” Petroleum Resource Development Secretariat (PRDS) Director General Saliya Wickramasuriya said in a recent interview with Upstream, a widely read oil and gas industry newspaper.

Quoting industry experts, Upstream noted that a gas policy would increase the credibility and attractiveness of the Sri Lankan oil and gas industry.
Cairn Lanka, a subsidiary of Cairn India, struck gas on October, 2011 in a well they dug in Sri Lanka’s Mannar basin. The initial discovery was followed by another in November. But the gas fields are yet to be developed.
Wickramasuriya told a recent forum in Colombo that Cairn had expressed its intention to withdraw from Sri Lanka to focus on their Rajasthan oil fields.
Sri Lanka’s Petroleum Minister stated that they were actively looking for partners to develop and commercialize the gas fields discovered.
Cairn India incurred a US $ 80 million impairment loss originating from its oil exploration activities in Sri Lanka, its fourth quarter results showed.
Meanwhile, Sri Lanka’s second round of bidding for 13 blocks in Mannar and Cauvery basins had drawn just three bids by Calgary-based Bona Vista Energy and Cairn India, which have yet to be awarded.
Wickramasuriya expressed disappointment over the results but said it was a learning experience, and that it gave Sri Lanka some exposure in the international arena.
He added that seismic data, the lack of which had also caused setbacks during the bidding process, would be gathered following Cabinet approval, as compelling proposals were received from leading international companies. “We are hoping that with the new government in place, the process of awarding two offshore blocks from the bid round, Cairn’s conditional gas purchase agreement, the gathering of speculative seismic data and shaping up of the new Petroleum Bill would start to gather pace,” Wickramasuriya was quoted as saying.
Quoting unnamed industry sources, Upstream said the lack of interest during the 2013 bidding round was due to the previous regime’s desire to have more Chinese involvement in the country.
Meanwhile, the draft Petroleum Bill which has clearly defined the powers and functions of each stakeholder and make the approval processes simpler could be approved by the Cabinet soon.
Industry sources had told Upstream that the previous regime had completely ignored the Bill which would provide stability in contracts and protection for investors.