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The long delayed Mannar Basin M2 block (exploration and production) tender and the commencement of exploration work by the selected bidder for the M1 and C1 July 2019 tender could cost Sri Lanka over a billion dollars in foreign direct investment. Moreover, delays in conducting a marketing campaign to attract further investment while oil and gas prices have been at historically high levels could be foregoing billions more.
Cairn India drilled three completed exploratory wells between 2011 and 2013. Two of the wells, Barracuda and Dorado contain gas estimated to be 1.8TCF and 300 BCF respectively as presented by the Petroleum Resources Development Secretariat (PRDS) at the PUCSL Stakeholders Meeting on September 25, 2015. While they were not commercially viable when oil and gas prices collapsed in 2014, there is a strong possibility they will be at today’s prices. There are technologies that have reduced capital expenditure such as gas-to-wire power generation that help make the economic case for production of these gas finds.
Cairn India has invested nearly $200 million in Sri Lanka, according to Dr. Sunil Bharati, Cairn India’s head of corporate affairs and communication at the time. Bharati was quoted by a news agency on January 31, 2013 stating “Cairn has spent $150 million for the first phase, more than the estimated $112 million, Bharati said, adding that investment in the second phase could be greater than the first.”
It would require an investment of over $1 billion to build production infrastructure. Therefore, it is vital to urgently attract as many investors as possible for exploration and production in the remaining 873 blocks to maximise benefits to Sri Lanka – especially in light of the global energy crisis and the concomitant energy price increases which have enhanced investor appetite. While one must drill to ascertain the actual existence and quantity of resources, Seismic studies estimate nine TCF of gas and five billion barrels of oil in the Mannar Basinaccording to the 2015 PRDS presentation to the PUCSL.
This could fulfill several decades of the country’s energy needs while potentiallysaving $6-7 billion p.a. in expenditure on energy. This is based on Power and Energy Minister’s statement in Parliament in May: “For June 2022, Sri Lanka needs USD 530 million for fuel imports”.It also opens opportunities for Sri Lanka to earn revenue through Production Sharing Agreements with investors who take 100% of the risk.
The industry holds the potential to contribute crucial foreign exchange, in terms of investment and possible future revenue from production. It is imperative that Sri Lanka does not miss the small window of opportunity available with high prices and supply pressures, fast disappearing internal combustion engines, as well as the displacement of fossil fuels with the advent of “Net Zero”.
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