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Route clear for Mannar basin gas; in the interim, India’s LNG for Kerwalapitiya power plants
An Indian proposal to sell liquefied natural gas (LNG) for Sri Lanka’s gas-powered generation plants is an “interim solution” until gas production finally starts in the Mannar Basin, a plan long-delayed by incomplete regulatory frameworks and political wavering.
Those requirements are all now in place. The final set of laws—the Petroleum Resources (Joint Study Agreements) Regulations No. 3 of 2024—was gazetted last week. It defines the procedure by which companies could conduct one or more joint studies with Sri Lanka’s Petroleum Development Authority (PDA) in any of the areas contained in the country’s Petroleum Resources Exploration and Development Block Map. The Petroleum Resources (Exploration and Development Block Map) regulations No. 1 of 2024 were also published in March.
Since the production of local gas will take several more years, however, the Indian government made an offer last year for the New Delhi-headquartered Petronet LNG Ltd. (PLL) to export gas to Sri Lanka in liquid form, to regasify it and to transport it to the gas-powered generation plants run by LTL Holdings (Pvt) Ltd. in Kerawalapitiya. This will be a direct procurement contract between PLL and LTL. Sri Lanka’s cabinet has approved the arrangement.
Geopolitical compromise
The arrangement with India has a strong geopolitical flavour. In the past, Sri Lanka has twice reneged on agreements reached with India. For instance, in 2019, it signed a memorandum of cooperation with India and Japan to develop the Colombo Port’s East Container Terminal. It pulled out of the deal two years later, citing worker dissatisfaction and trade union unrest.
Separately, in 2017, Sri Lanka approved an India-Japan joint venture for a US$ 250 million LNG import terminal to supply gas to Kerawalapitiya. The state-owned PLL and Japan’s Mitsubishi and Sojitz struck a deal to build the terminal, which was even approved by the Public Utilities Commission of Sri Lanka. In 2022, the Sri Lankan government cancelled this project.
Sri Lanka then awarded a tender to China Harbour Engineering Company (CHEC) and Pakistan’s Engro Corporation to develop a floating storage and regasification unit (FSRU) at Kerawalapitiya and an offshore and onshore regasification LNG transmission pipeline network. It later deemed that project to be unfeasible amidst worsened economic conditions and pulled out before awarding PLL the latest LNG supply contract.
Earlier, two other LNG projects were also shelved. One was an unsolicited bid in 2019 from Korea’s SK E&S Co. Ltd. for an FSRU, a pipeline, and an LNG supply deal. It was opened to a Swiss Challenge (where other bidders were invited to compete on its terms) and subsequently dropped. In 2021, there was an agreement that a United States company, New Fortress Energy, would buy a 40 percent stake in Sri Lanka’s Yugadhanavi power plant, develop an FSRU and supply gas to the plant. This also didn’t make the cut.
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