Interview: Strength of potential partners key to LNG negotiations, says PRDS DG

Nov 08, 2016 (LBO) – The reputation and financial strength of potential partners is key to developing Sri Lanka’s LNG infrastructure, according to the head of the Petroleum Resources Development Secretariat (PRDS).

“Introducing a new energy form of LNG and building up end-user dependency on it requires a low-risk approach to supply assurance,” Saliya Wickramasuriya, director general of the PRDS, told Lanka Business Online.

“It is not a project that can be allowed to fail, and therefore the lowest cost solutions may not necessarily be the best in the nascent stages.”

Sri Lanka is currently in negotiations with international firms such as Gazprom, TOTAL, BonaVista, Gexcon and Petronet after adopting a policy to “go gas.”

Although low international prices reduce the return on investment in Sri Lanka’s natural gas reserves, investment in production infrastructure will increase the island’s energy security.

The current global supply overhang provides an opportunity to create and expand gas infrastructure based on imported LNG, Wickramasuriya said.

“Such a (gassification) strategy will both advance economic benefit to the citizens of Sri Lanka, as well as reduce the unit cost of eventual domestic gas production by spreading the infrastructure expenditure over a larger demand spectrum in time,” he said.

LNG can be used for power generation as well in transport, industry and domestic sectors, and is cleaner than coal. However, “gassifying” a country is a significant project.

It involves import, storage and regassification of LNG; developing procurement strategies; transmission of gas to consumption centres such as power, fertilizer, cement, steel and ceramic plants; distribution of city gas, CNG to consumers; and integrating domestic gas when economically viable.

Short-term strategy for power, transport

“In view of the predicted power shortages in the next few years, a short term solution focused primarily on power generation seems sensible.”

The generation of gas-fired power to reduce cost of electricity, and the availability of CNG to motorists to reduce the cost of transport should be the core focus at an initial stage, in Wickramsuriya’s opinion.

“Power generation should not necessarily be tied to LNG import contracts and terminal infrastructure, since this needs to be scalable. Since a country of Sri Lanka’s size may not require more than one or two import facilities ever, the location of these facilities also needs to be well planned.”

The Ministry of Petroleum Resources Development (MPRD) by Extraordinary Gazette Notification 1993/13 of September 2015, has been mandated “to undertake the import, refining, storage, distribution and sale of petroleum based products and natural gas.”

MPRD would implement procurement strategies to supply the nation LNG/NG at a long term stable pricing formula, he said.

In terms of terminal infrastructure, the short-term solution may be a Floating Storage and Regassification Unit (FSRU) or a combination of Floating Storage Unit (FSU) with land-based modular Regas unit, Wickramasuriya added.

“As the demand increases past the 1.5 MTPA limit, the better economies of scale of a land-based terminal start to emerge.”