Sri Lanka sets up top-level Committee on LNG : controversy over the commercial viability of LNG continues

Sri Lankan government in a bid to exploit eco-friendly fuels and to ensure energy security has set up a high-level Committee on Liquefied Natural Gas (LNG).

“The committee is represented by officials of Treasury, Ministries of Power and Energy and Petroleum Resources and Petroleum Resources Development, Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), and Westcoast Power (Pvt) Ltd, who were entrusted with the task of exploring possibilities of using LNG and report back,” high-ranking Petroleum Resources and Petroleum Resources Development Ministry official told the Asian Tribune.

He added that government had identified the potential of LNG and understood that it was very beneficial in the long term. The LNG Committee is to conduct a presentation on its findings to the Cabinet of Ministers in the very near future.

LNG, is natural gas (predominantly methane – CH4) which has been converted into liquid form for ease of storage and transport, as it takes up only about 1/600th the volume of natural gas in its gaseous state. The biggest and most costly operation in an LNG process is the liquidation process before storage or transportation and re-gasification at the end-point.

Earlier government accepted a proposal from a private party to set up a 1,000 Mega Watt LNG power plant in Kerwalapitiya, located in close proximity to CEB’s privately owned combined cycle power plant-Lakdanavi.

The plant which was to be one of the largest plants ever to be built in the country, sought to generate 500 MW under Phase One by 2011 while the remaining 500 MW was scheduled to be added to the national grid by 2012 under Phase Two.

The Rs. 660mn (US $ 600mn) project was to be constructed in a record time period of 18 months, two months lesser than the time taken by 200MW Lakdhanavi Plant also located at Kerawalapitiya. However so far the company has failed to kick-off construction due to struggles with its Australia-based lead developer.

LNG commercially viable for Sri Lanka?

However, as it was a green-field project and as the CEB-commissioned feasibility study on LNG’s commercial viability in the country was not concluded by that time, energy experts were skeptical on the long-term viability of LNG.

“LNG trades are done on long-term contracts which may run over 20 or 25 years. So, it’s imperative that you ascertain its commercial viability first. Also, constructing a re-gasification facility for LNG costs nearly US$ 100, so how long the company is willing to wait in order to recover its capital and how far can the customer bear to pay for a unit of electricity generated, have to be considered,” an energy expert said on grounds of anonymity.

Three separate studies by USAID in 2002, the World Bank, in 2004, and Japan International Cooperation Agency (JICA) in 2006 found that LNG was “not an economical source for power generation for Sri Lanka”, which was reportedly confirmed by research conducted by CEB.

External pressure

Despite this, moves are being made “over the past several months by external agencies to push an LNG terminal and power plants on CEB,” a source told Asian Tribune.

LNG facilities have long construction times with the average construction time for such a plant in line with international standards, was known to be roughly four years, though Arc anticipates completing the project in 18 months.

More than any other factor, the construction of an LNG plant is said to be very expensive costing a staggering Rs 166.5 bn or US$ 1.5 bn for every one mmtpa (million metric tons per annum) capacity of the plant with the receiving terminal costing another Rs. 111bn or US $ 1 bn per every 1 billion cubic feet per day (bcf/day) throughput capacity.

Another energy expert, on grounds of anonymity said that he believes that although the ideal energy source for Sri Lanka should have been a combination of hydro and coal, high-cost diesel had been promoted due to ‘commercial pressure’ with LNG being the latest of such move.

Still too costly

According to him, five units can be generated by using a litre of diesel costing Rs. 70 a litre, which means that a Unit would be almost Rs 14. Hydro power costs Rs five to six a Unit (one kilo Watt hour – kWh) but after 20 years the cost is just Rs 1 a Unit as the operating cost is very low. A Unit can be generated at Rs. 4 by while a Unit produced from LNG would cost Rs 10, which was still 150 percent expensive than coal power.

“Although LNG projects are among the most expensive energy projects, precise data on LNG plant costs are difficult to pinpoint, since costs vary widely depending on location and whether a project is greenfield, i.e., newly built, or an expansion of an existing plant,” he added.

- Asian Tribune -