Sri Lanka OKs oil exploration rules, seeking investment

Market: Condensate, Crude oil
13/01/23

Sri Lanka has finalised a new regulation to allow foreign firms to explore for oil and gas in the country, as it tries to recover from one of the worst energy crises in its history.

The country's power and energy minister Kanchana Wijesekera said on 13 January that he has signed a legal framework for offshore oil and gas exploration investment in Sri Lanka. The regulation aims to invite global investment in the country's oil and gas exploration sector.

The new exploration rules follow the passing of a bill to liberalise the domestic energy sector in October 2022.

The Petroleum Development Authority of Sri Lanka (PDASL) has identified about 900 offshore blocks that it hopes to explore with suitable investors, Wijesekera said.

The PDSAL may call for expressions of interest (EOI) for joint studies on the 900 offshore blocks, according to a notification in Sri Lanka's official gazette. If a joint study partner finds commercial oil or gas within an acreage covered by the study, it can negotiate a resource-sharing contract with PDSAL and any contract discussions will have to be concluded within one year unless an extension is decided mutually, the notification showed.

Foreign exchange crisis

Sri Lanka has been dealing with its worst foreign exchange crisis since gaining independence in 1948, resulting in fuel, food and power shortages. It halted sales of retail fuels, except for essential services, for two weeks in late June 2022 as a severe cash shortage left the country unable to finance its energy needs. The IMF approved a $2.9bn loan to the island nation in September last year.

Sri Lanka is completely dependent on crude imports, and its inability to pay for these during the foreign exchange crisis led to frequent shutdowns at its sole 50,000 b/d Kelaniya refinery and fuel shortages. Sri Lanka typically consumes around 110,000 b/d of oil products but Kelaniya produces only 35,000 b/d. It imported 3.8mn bl or 10,000 b/d of crude oil last year, which is less than half of the 36,000 b/d of crude it imported in 2019, data from oil analytics firm Vortexa show.

Sri Lanka's cabinet has also given the green signal to invite EOIs from investors to set up a new refinery in Hambantota, Wijesekera said on 10 January without going into details.

Sri Lanka announced in 2019 that Indian private-sector firm Accord, through its Singapore-registered investment firm Silver Park International, was building a 200,000 b/d refinery in Hambantota in partnership with Oman's oil and gas ministry. The refinery was targeted to start up last year, but there have been no updates and its status is unclear.

The cabinet also gave its nod to call for proposals from "new suppliers" to supply lubricants to the domestic market and evaluate a renewal of supply agreements every three years, Wijesekera said without giving more details.

By Chiranjivi Chakraborty

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