Sri Lanka’s prospects for LNG investment high, especially from Japan: advisory firm

japan-lng-jetty

Nov 16, 2016 (LBO) – Sri Lanka’s prospects for attracting investments in LNG, power plants, and natural gas infrastructure are good, especially if the island looks towards Japan, a global advisory firm said.

Sri Lanka enjoys “Comprehensive Partnership” status with Japan, supported by close ties between Prime Minister Ranil Wickremesinghe and Japanese Premier Shinzo Abe, and this is the right time to build on that relationship, John Schroder, director of US-based Steelhead Global Advisors told Lanka Business Online.

“If you look at the story of Sri Lanka’s recent false starts around the development of energy infrastructure, it becomes clear that the best path forward features three key elements,” he said.

“These elements are, technically proficient international partners, a transparent process that takes into account Sri Lanka’s well-founded environmental concerns, and an appealing project finance package that will serve Sri Lanka in the long term rather than bury it in debt.”

All three can be achieved by partnering with Japan, he said by email.

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

Low international prices have reduced the return on investment in the island’s natural gas reserves, but the global over supply provides an opportunity to create infrastructure based on imported LNG.

“In view of the predicted power shortages in the next few years, a short term solution focused primarily on power generation seems sensible,” Saliya Wickramasuriya, director general of the Petroleum Resources Development Secretariat, said recently.

The generation of gas-fired power to reduce cost of electricity, and the availability of CNG to motorists to reduce the cost of transport could be the core focus at an initial stage, he added.

Jason Nye, a director at Steelhead Global Advisors, said a strength of their firm was relationships in Japan at senior government and industry level.

U.S. companies too would be interested in Sri Lanka, although familiarity with Asian markets and investment thresholds would be factors.

JBIC financing, negative interest rates

“We have been very successful in managing relationships and projects that export Japanese infrastructure technology backed by Japan Bank for International Cooperation (JBIC) financing, and we see an excellent fit for Sri Lanka,” Nye said.

Japan currently has a negative interest rate domestically, making international investment attractive.

“JBIC would likely finance the project at extremely favorable rates. There is a threshold for Japanese participation in JBIC-financed projects of about 30-35%, which is very achievable in the case of Sri Lanka.”

Without significant petroleum resources of its own, Japan is the largest importer of LNG. The nation has become a world leader in LNG infrastructure, and has developed advanced technology for it.

“Companies like Toshiba, Hitachi, and Tokyo Gas have offered to build power plants, LNG plants, LNG receiving terminals, and other associated infrastructure,” Nye said.

These investments lead to spin offs in other industries and sectors, he added.

“Japan has forged purchasing alliances for LNG with friendly governments to increase the collective volumes and leverage it for better pricing and terms.” In particular, this is the case between Japan and India, he said.

In terms of terminal infrastructure for Sri Lanka, the short-term solution may be a Floating Storage and Regassification Unit or a combination of Floating Storage Unit with land-based modular Regas unit, Wickramasuriya said. As demand increases, a land-based terminal would provide better economies of scale.

Schroder notes that all forms of investment require a driving force within the country.

“There needs to be a driving force that must come from within Sri Lanka. There must be a center of gravity that includes all the relevant stakeholders.”