- New plant to run on diesel until LNG becomes available
With the construction of the Liquefied Natural Gas (LNG) power plant in Kerawalapitiya nearing completion, concerns have been raised over the Government’s failure to finalise the awarding of the contract for the setting up of a Floating Storage Regasification Unit (FSRU) and LNG pipeline.
The Sunday Morning reliably learns that the construction work of the 300 MW LNG power plant in Kerawalapitiya is expected to be completed by the end of December and that the plant will have to run on diesel until the LNG supply is connected. However, as per the current environment licence obtained by the power plant, the plant can be run on diesel only for about a year.
At present, a finalised tender for the FSRU is waiting to be awarded to a China-Pakistan joint company, while there is a tripartite agreement between Japan, India, and Sri Lanka signed several years ago for the setting up of the FSRU. On the other hand, another Memorandum of Understanding (MoU) has been reached between the Government and New Fortress Energy (NFE), a US-based energy company.
However, there has been no development initiated by any of the concerned parties involved in the FSRU project, The Sunday Morning learns from a source close to the matter.
Furthermore, as per diplomatic sources, there had been strong opposition from India on awarding the construction contract to the China-Pakistan joint company. However, no proper communication had been received from India as of yet (26) showing interest in the development of Sri Lanka’s LNG regasification unit.
Energy security at stake
In such a backdrop, concerns have been raised by local energy experts as to whether the country would allow geopolitics to unfold without interference or without solving the national issue.
As they stressed, should the infrastructure development be delayed further, the existing power crisis would be further aggravated and the country and its citizens would have to face the consequences.
A senior engineer attached to the Ceylon Electricity Board (CEB), who wished to remain anonymous, told The Sunday Morning that the tender could be awarded as soon as concurrence was received from the Attorney General’s Department for the already finalised tender for the setting up of an FSRU and the pipeline.
The official stressed that Sri Lanka was currently spending nearly Rs. 1 billion daily for thermal oil, which could be avoided. He also stated that the country would be able to save nearly Rs. 50 billion per year if it could switch to LNG as soon as possible.
The more the supply was delayed, the more Sri Lanka would have to spend, the official stressed. He also stated that along with the geopolitical interference, local politics and corruption may also have contributed to the unexplained delays.
The LNG requirement
As per the CEB, the feasibility study for introducing LNG to Sri Lanka was conducted in 2014 and the Colombo North Port has been identified as the best site for development of an LNG terminal, from amongst several other promising candidate sites including Hambantota and Trincomalee.
The LNG requirement of Sri Lanka was determined considering the fuel conversion possibilities of the existing combined cycle power plants located in Colombo. The study has also identified Kerawalapitiya as the most suitable location for the development of new LNG-fired power plants by considering the technical, economic, social, and environmental aspects.
As identified therein, an LNG facility suitable for Sri Lanka would have land-based storage, a regasification unit, and necessary piping structures with a properly established LNG importing mechanism (via tanker ships).
As highlighted in the CEB Long Term Generation Expansion Plan (LTGEP) 2023-2042, the recent development of an FSRU which can be moored at sea has faster implementation possibility than a land-based storage structure and is found to be less capital intensive.
Considering the initial requirements identified in previous planning studies, the CEB has initiated the procurement process for the deployment of an FSRU and mooring system, offshore of Kerawalapitiya with a regasification capacity of 375 Million Standard Cubic Feet Per Day (MMSCFD) and LNG storage capacity of a minimum of 156,000 cubic metres.
The terminal is expected to operate for a period of 10 years on Build-Own-Operate (BOO) basis with the mooring system on a Build-Own-Operate-Transfer (BOOT) basis. Pipeline infrastructure up to the boundaries of the power plants will be established by the Ceylon Petroleum Corporation (CPC) on BOOT basis.
The pricing
LNG prices are categorised based on long-term, medium-term, and short-term contracts and spot prices, as per the CEB.
There are different LNG pricing mechanisms adopted in different regions of the world. The long-term contracts are often linked with oil price and in the Asian market, Japanese Crude Oil Cocktail (JCC) and Brent Crude Oil Index is used for this purpose. Platts Japanese Korean Marker (JKM) is another benchmark price for the Asian region. In addition, LNG contracts based on Henry Hub prices are also considered for long-term and medium-term contracts.
The LNG price from 2018 to 2021 based on the Brent Crude Oil Index is $ 7.53 per Million British Thermal Units (MMBtu) (weighted average value with 12.5% proportional linkage to Brent Crude Oil Index). The Henry Hub Index based weighted average LNG price for the same period is $ 7.45 per MMBtu (linked to Henry Hub Crude Oil Index with formula 1.15%*HH+ 4).
During the initial four months of 2022, Asian natural gas prices increased up to $ 15.99 per MMBtu due to global economic factors. Due to the high uncertainty in predicting future gas prices, weighted average of last three-year actual prices and future three-year projections by the World Bank was considered for LTGEP 2023-2042. The CIF price of LNG, based on this, is $ 11.6 per MMBtu.
In addition to the CIF price, the price of fuel delivered to the power plant is calculated with an estimated handling charge of $ 2 per MMBtu, which relates to the cost of regasification and transportation of fuel through pipeline network. Hence, the price of regasified LNG delivered to the power plant terminal is taken as $ 13.6 per MMBtu in the analysis.
Yugadanavi supply
In July 2021, New Fortress announced the signing of a framework agreement with the Government of Sri Lanka to build an offshore LNG receiving, storage, and regasification terminal located off the coast of Colombo and for rights to supply gas to the existing 300 MW Yugadanavi Power Plant. New Fortress will utilise this same LNG terminal to also supply natural gas to this new 350 MW power plant.
According to the agreement, NFE will build a floating storage in the sea to store LNG and it will also build a pipeline to transfer LNG in the form of a gas from that storage to Yugadanavi.
Yugadanavi, which has a capacity of 300 MW, was constructed by Lanka Transformers Ltd. (LTL – a joint venture between CEB and Bonar Long of Scotland) and is owned by West Coast Power Ltd., of which the owners are the Treasury (51%), EPF (27%) Lanka Electricity Company (18%), and LTL (4%).
In September 2021, Cabinet approved the controversial share transfer of 300 MW of the Yugadanavi Power Plant to NFE. Accordingly, the Finance Ministry had agreed to transfer 40% of shares of the power plant owned by the Treasury to New Fortress together with the rights to supply natural gas to Sri Lanka.
However, as of now (26), none of the committees appointed to investigate the said agreement signed between the two parties are functioning, The Sunday Morning learns.
However, in May it was revealed that the information on the minimum required LNG had been sought from the CEB to support the NFE committee in concluding the negotiations of the proposed gas supply agreement and amendments to the existing project agreements of West Coast Power (Pvt) Ltd. with the CEB.
The information had been sought in a backdrop where the Government had officially announced its Renewable Energy (RE) target of 70% by 2030.
It was further revealed that the Government was trying to reach a ‘take or pay’ agreement with the US company by deciding the minimum required LNG for the next 10 years.
Meanwhile, when The Sunday Morning sought an explanation from the CEB, no official comment could be obtained. However, a senior official told The Sunday Morning that the matter was currently being discussed within the Government and that it would soon be expedited.
“There has been a delay and we should finalise it soon to avoid negative consequences in the future,” the official said.
No proposals yet
Last December, Power and Energy Minister Kanchana Wijesekera said that Sri Lanka was expecting companies from India, Japan, and the US’s New Fortress Energy to jointly come up with a proposal to supply an LNG terminal.
“The combined cycle of Yugadanavi is already capable of running on LNG. Another 300 MW plant known as Sobadanavi will be available from November 2023. But the issue is that the CEB unions and others went to court regarding the LNG supply. We will execute a plan speedily in January for infrastructure and supply of LNG,” he said in December.
“The tender for the terminal has not been given. Before that, there are two proposals. In 2017 a tripartite agreement between India, Japan, and Sri Lanka was signed. In addition, there is another agreement with a company called New Fortress Energy. We are looking to see what can be implemented practically.
“The next steps will be taken accordingly. As far as I know, those companies are discussing among themselves to operate jointly. We will have to do this with all the companies after those discussions are over,” Wijesekera added.
Nevertheless, it has been nearly six months since the Minister made this statement and there has been no new development regarding the matter. Nor has there been any discussion for it to be expedited, it is learnt.
Sri Lanka is building two LNG-capable 300 MW-sized combined cycle power plants, but has no terminal to unload the fuel.
Attempts to contact the Power and Energy Minister and Ministry Secretary M.P.D.U.K. Mapa Pathirana on the progress of the supply issue proved futile.