Lanka to have its own gas : Further oil exploration in Mannar basin

by Rohana Jayalal

Petroleum gas is available in two of the four blocks which have been explored in the Mannar basin, Petroleum and Petroleum Gas Minister, Chandima Weerakkody said.

Oil well pump

Sri Lankans can use their own petroleum gas within the next five years, he said.

The exploration was done by an Indian company at a cost of US $ 300 million. The Petroleum Ministry was planning to call for global tenders for oil exploration in another block by the end of this month or in March.

The ministry has sought Cabinet approval in this regard. A Cabinet paper has been submitted seeking approval for a revaluation of oil exploration and an aerial survey, the Minister said. Weerakkody said the ministry would enter into an agreement with a French company to launch a joint study. The agreement would benefit both parties.

The Minister said many leading petroleum companies in the world including Petronas and Mobil have expressed interest in oil exploration in Sri Lanka.

All top oil companies feel that Sri Lanka is blessed with gas and oil and the government hadn’t considered offering incentives for exploration. Total SA, Europe’s third-largest explorer, is seeking a joint study in two blocks on Sri Lanka’s eastern front, Two other companies are also interested in conducting seismic studies in the northern belt, Weerakkody said, without naming them.

Oil prices have been extremely volatile since the beginning of the year, and in particular this week, as a string of bullish indicators like a slump in the dollar and potential talks on output cuts clashed with bearish reports of record US crude inventories, higher output and a slowing global economy.

‘Super major’ oil and gas firms, will sign an agreement by the end of this month with the Government to explore offshore oil and gas, he said.

Cabinet approval was granted to the Petroleum Resources Development Secretariat to ink the deal in early February which could see Total begin offshore exploration off the eastern coast in April or May this year.

They will invest about US $ 10 million to acquire seismic data, off the east coast of Sri Lanka, Weerakkody said

Oil companies are cutting costs and jobs with oil prices down 70 percent from 2014 highs.

Total’s earnings for the first nine months of 2015 fell 40 percent from a year earlier.British Petroleum has lost 4.5 billion sterling (6.5 billion dollars) and US-based Exxon Mobil unveiled plans to slash spending by 25 percent this year. Weerakkody said Total will use the slump to invest in new assets.With the global oil industry in a slump Total will use the lower prices for services and equipment to get more done, he said.Halliburton, a company that provides oilfield services, lost $ 666 million dollars in 2015, and plans to cut 4,000 jobs.

Sri Lanka will sign a ‘joint-study agreement’ with Total, where the firm will get three years of exclusivity for the data it acquires after which it can be viewed by other oil companies.

The government will own the data from the point of acquisition.If it finds a commercially viable oil or gas reserve Total has the right to negotiate a production-sharing agreement.

If the discussions are unsuccessful within a stipulated period, the Government may open the reserve to other bidders and here again Total has the right to match the highest bidder for a specified period.All residual rights will lapse after 51 months.After signing the agreement with Total, Sri Lanka will launch a marketing campaign for the gas reserves that Cairn India had discovered and abandoned.

Gas was found in two wells sunk in the Mannar basin but the firm was trying to sell the gas to Sri Lanka’s domestic market and could not finalise a price.

“The opportunity we are offering is not only in exploration but in the links that follow from the emergence of an entire natural gas industry in Sri Lanka, which decouples risk with the rest of the world,” Weerakkody said.Japan and Korea have expressed interest in Sri Lanka’s potential to develop a domestic gas industry.

Cairn India had invested $ 240 million on exploration with around 10 percent of this spent on Sri Lankan companies for support services.

A national gas policy is being drafted to feed the domestic energy and transport sectors.

The Minister said that ministry is taking steps to reduce petrol and diesel prices.Oil prices dropped to 26 dollars and 19 cents, the lowest figure since 2003.The price of a barrel of crude oil in the world market is now between US $ 28 – 30. In mid-2014, the price of a barrel of crude oil rose to almost US $ 115, and slumped to US $ 47 in 2015. Weerakkody said that the global price of fuel at present, is the lowest recorded in the past twelve years.The fuel prices were reduced twice in 2014, he said and added that at a time when world market fuel prices were high, steps were taken to bear the loss and provide fuel at low rates.

However, by the end of this week, oil prices unexpectedly rose to US $ 32 dollars and 7 cents a barrel.