- Energy Sec. justifies LNG deal as short-term solution
- Committee to review previously suspended tender
The Government is revisiting the Petronet LNG deal, with Energy Ministry Secretary Prof. Udayanga Hemapala confirming that the agreement is still on the table despite earlier statements to the contrary by the Ceylon Electricity Board (CEB) Spokesperson, The Sunday Morning learns.
Prof. Hemapala cited the pressing need for a short-term solution to the energy sector’s challenges as justification for reconsidering the arrangement.
Petronet LNG Ltd., an Indian company specialising in Liquefied Natural Gas (LNG) imports and terminal construction, was originally considered during the tenure of former Power and Energy Minister Kanchana Wijesekera.
However, Prof. Hemapala noted that a new evaluation of Petronet’s proposal was underway.
The Petronet LNG proposal is a Government-to-Government arrangement, with plans to entrust LNG procurement and infrastructure development to Lakdhanavi Ltd., a subsidiary of LTL Transformers Ltd.
Lakdhanavi would manage its own LNG fuelling needs. However, the Power Purchase Agreement (PPA) will undergo review under the new administration.
Speaking to The Sunday Morning, Prof. Hemapala said that if Petronet commenced construction, the supply infrastructure could be completed within two years. He emphasised that Sri Lanka’s urgent need for LNG made the project difficult to abandon.
Sri Lanka’s LNG procurement has faced significant controversy. A 2021 Framework Agreement with New Fortress Energy was aimed at developing an offshore LNG terminal and gas supply to power plants. The agreement, which involved transferring 40% of Yugadanavi Power Plant shares, stalled after a Government change in 2022.
LNG discussions resumed in July 2023, when former President Ranil Wickremesinghe and Indian Prime Minister Narendra Modi agreed to fast-track LNG infrastructure and the Sampur solar power project.
The proposed Petronet LNG deal with India could reshape Sri Lanka’s electricity supply, alongside two other major initiatives: a PPA with Adani Green Energy for 484 MW wind power projects in Mannar and Pooneryn and the Indo-Lanka electricity grid connectivity Memorandum of Understanding (MOU).
Last year, the Cabinet suspended the development of a Floating Storage Regasification Unit (FSRU) and associated LNG pipeline offshore Kerawalapitiya on a Build, Own, Operate, and Transfer (BOOT) basis, along with a mooring system.
This decision was made pending assessment and input from the Gas Utilisation Master Plan Committee to evaluate the project’s scope, necessity, and underlying assumptions in alignment with national energy plans.
Cabinet Memorandum No.28/2023/PE, dated 14 July 2023, submitted by then Power and Energy Minister Wijesekera, had emphasised the need for a systematic reanalysis of the LNG procurement process. This reanalysis aimed to tailor the process to meet electricity sector requirements amidst global environmental challenges.
The memorandum had also outlined the country’s transition plan from furnace oil and diesel-based power plants to LNG, aiming to reduce infrastructure costs and enhance energy efficiency.
Furthermore, it had highlighted deficiencies in Sri Lanka’s multi-sectoral energy strategy, citing inconsistent demand analysis as a significant obstacle in previous efforts. It had also proposed policy shifts toward green harbours and underscored the need for LNG infrastructure development to support broader national energy demands beyond electricity generation.
Responding to the LNG tender, Prof. Hemapala said that the ministry had already appointed a committee comprising ministry officials, CEB representatives, and other relevant stakeholders. The committee has been tasked with exploring the possibility of reinitiating the tender.
“If we go for a new tender, it will take another two years to complete the process. Therefore, we are exploring the option of reinitiating the tender. Even if we do, the Petronet proposal will still be considered, as we need a short-term plan,” he explained.
Sri Lanka’s Long-Term Generation Expansion Plan (LTGEP) 2023-2042 highlights the conversion of the 300 MW Yugadanavi and 165 MW Kelanitissa power plants to natural gas by 2025, with initial operations on diesel until LNG infrastructure is established.
The LTGEP stresses the need to develop LNG facilities and distribution networks as a national priority while avoiding ‘take-or-pay’ risks in procurement contracts, which could impact economic benefits and renewable energy targets.
A 2014 feasibility study identified the Colombo North Port as the best site for an LNG terminal and Kerawalapitiya as being ideal for natural gas power plants. The proposed facility will include land-based storage, regasification units, and piping infrastructure.
Currently, Sri Lanka spends over Rs. 1 billion daily on diesel power, with the Kerawalapitiya LNG plant expected to save Rs. 50 billion annually by leveraging lower LNG prices.
Global LNG demand is projected to grow over 50% by 2040, driven by coal-to-gas transitions in Asia, according to Shell’s ‘LNG Outlook 2024’ report. Despite supply constraints keeping prices above historical averages, LNG trade rose to 404 million tonnes in 2023, with demand expected to reach 625-685 million tonnes annually by 2040.
Meanwhile, senior CEB engineers have raised concerns over the absence of competitive bidding in the LNG procurement process, arguing that unsolicited proposals should be avoided to ensure transparency and fairness.