By Anusha Ondaatjie and Winnie Zhu, Bloomberg
Colombo: China National Offshore Oil Corp., and Oil & Natural Gas Corp., state oil companies of China and India, are set to complete two contracts worth $10 million each to develop oil blocks off Sri Lanka’s western coast.
“We will finalize the two contracts with the Chinese and Indian companies in the next two to three months,” Petroleum Minister A.H.M. Fowzie said today in a phone interview from the capital Colombo. “Other companies from China and India have also shown interest in the remaining three blocks,” he said, without giving their names.
Sri Lanka, a country that imports all its oil, will next month invite international companies to develop a field that may contain 1 billion barrels of crude, 17 % of neighbouring India’s reserves.
China and India, Asia’s two fastest-growing economies, are competing for overseas oil and gas reserves to meet soaring energy demand. Sri Lanka needs to secure its own petroleum supplies as costlier oil imports and military purchases to combat separatist Tamil Tiger rebels have fanned consumer prices, curbing growth in the island’s $26 billion economy.
Sri Lanka will seek bids to develop three remaining areas out of the total five in the Mannar basin on 1 May, said Neil De Silva, director general of petroleum resources development. Licenses will be awarded in early 2008, he said yesterday in the capital Colombo.
Local demand for fuel is rising in line with economic expansion, projected at 7.5 % this year. Oil prices in New York have risen 5.4 % this year to trade at $64.35 a barrel today. Sri Lanka imports about 15 million barrels of crude each year, and also buys about 15 million barrels of oil products from abroad annually, according to central bank records.
“Escalating oil and gas prices have not only led to the increase in the cost of living but also the reduction of competitiveness of Sri Lankan exports,” the Ceylon Chamber of Commerce, the island’s biggest industry grouping, said in a release. “The oil and gas industry has the potential to change the destiny of Sri Lanka.”
The auction for the three remaining blocks in the basin off Sri Lanka’s west coast will be conducted at an offshore technology conference in Houston on May 1, De Silva said in a phone interview yesterday. Bids will be open until early November, he said.
Interest may be tempered by the recent escalation of violence that threatens a February 2002 cease-fire in the civil war between Tamil Tiger rebels and Sri Lankan government forces. The Liberation Tigers of Tamil Eelam controls parts of the island’s north and east. The exploration areas are off the northern coast of the island.
“Security is a real issue, and with there being so much exploration activity happening elsewhere, major international players could prioritize in safer areas,” said Tony Regan, consultant with Nexant Inc. in Singapore. “There’s also probably questions on how much oil is available and has been proved up.”
The Mannar basin contains the equivalent of one billion barrels of oil, Fowzie said March 1. The Beijing-based China National Offshore Oil Corp., parent of overseas-listed Cnooc Ltd., may start exploration off the Sri Lankan coast by 2008, Fowzie said in March.
“A block will also be going to the government of India,” De Silva had said in yesterday’s interview. India had proved oil reserves of 5.9 billion barrels at the end of 2005, according to BP Plc’s Statistical Review of World Energy.
The Chinese government is helping Sri Lanka build its first coal-fired power plant at Norocholai, north of capital Colombo, as the island seeks cheaper electricity. The plant will produce 300 megawatts by 2010 and as much as 900 megawatts as demand rises. The electricity will cost half that of an oil-fired unit.
NTPC Ltd., India’s largest power company, in December signed an agreement to build a 500 megawatt coal-fired power plant in the Sri Lankan port town of Trincomalee. The plant is expected to commence operations in 2011.
Surging crude oil prices raised Sri Lanka’s oil import bill by 25 % last year to $2.07 billion. Import costs have been boosted by a depreciating currency.
The Central Bank of Sri Lanka’s last week maintained its 2007 growth forecast even as renewed fighting in the island’s civil war and the highest interest rates in Asia slowed the pace of expansion in the fourth quarter.