Oil and Gas in Sri Lanka: Are we on Track?

 By Prof. Lalith Edirisinghe, CMILT, MNI

 Preamble

• Petroleum exploration in Sri Lanka began approximately 40 years ago in late 1960s[1]
• Refreshing the oil and gas exploration work, 2D seismic surveys were conducted in Mannar basin by TGS NOPEC, a Norwegian seismic contractor with a regional office in Perth, Australia in 2001 and 2005 [2].
• The first international licensing round was held in 2007 for three exploration blocks (M1, M2 and M3) in 2007 and one exploration block was awarded to Cairn Lanka Pvt Ltd, subsidiary of Cairn India in 2008.
• For the first time, two natural gas discoveries were made in two wells out of the three wells drilled in Block M2 by Cairn in 2011.
• Sri Lanka will become a country which produces natural gas during 2024- 2025, and it will transform the country’s energy mix subjected to securing potential investors by 2020. [1].
• Sri Lanka’s Petroleum Resources Development Secretariat (PRDS) with the assistance of regional experts has estimated that the Mannar basin alone could have has the potential to generate over two billion barrels of oil and over nine trillion cubic feet of natural gas(9 TCF), which would be sufficient to fulfil a substantial portion of Sri Lanka’s energy needs for the next 60 years [2].  
• PRDS was planning to call bids for the next major licensing round, for exploration and development work in the remaining blocks in Mannar and Cauvery basins after legislating the National Policy on Natural Gas (NPNG) in 2019 with an aim to drill natural gas before 2025[1].
• The oil and gas drillship “Aban Abraham” arrived for a warm lay-up to the Hambantota International Port in late 2018 [4].
• Sri Lanka’s government has called for international competitive bids in 2019 for exploration and development activities in Blocks M1, M2 and C1, in Mannar and Cauvery Basins including appraisal and development of natural gas discoveries in Block M2. [3]
• There will be opportunities to supply equipment and services needed for oil and gas exploration projects[2].

Oil and Gas

As global population grows, our energy demand grows as well. Liquid crude oil and natural gas occur together in nature, and so are collectively called “petroleum.” The word derives from the Greek words “petra” and “oleum,” meaning “rock” and “oil,” respectively. Another term for petroleum is hydrocarbons. it is called this because petroleum primarily consists of hydrocarbon molecules, and these molecules are the reason for petroleum’s value as a fuel source [4]. Exploration is the process of trying to find accumulations of oil and natural gas trapped under the Earth’s surface. Production is the process of recovering those hidden resources for processing, marketing and use.

Almost all geochemists believe petroleum results from a few million years of decay of once-living organisms. Oil is a fossil fuel that has been formed from a large amount tiny plants and animals such as algae and zooplankton. These organisms fall to the bottom of the sea once they die and over time, get trapped under multiple layers of sand and mud. These steps are shown in Figure 1,

Fig.01: Formation Process [4]

Panel A

Both phytoplankton and zooplankton - as well as algae and bacteria sink to the bottom of an ancient ocean and mix with inorganic, clay-like materials that enter these oceans from streams and rivers. This creates an organic-rich mud. This mud can only form in still water environments.

Panel B

This mud cannot be exposed to too much oxygen, or else the organic matter in the mud would be decomposed by bacteria and disappear quickly. Therefore, environments where oil can form are known as anoxic environments. Before this organic matter is destroyed, it is buried by more sediment and lithifies (becomes sedimentary rock), creating organic shale.

Panel C

Geological changes in the Earth's crust bring these deposits up closer to the surface, making them somewhat easier to access.

Oil is one of the top money-making commodities in the world today. Ever since the year 2016, the world has experienced a serious climb in terms of oil prices as well as the ever-increasing demand for oil. The production of oil is a process that only stops if there is no more oil to extract.

Fig. 02: The History of oil and gas [5]

Inflation and the ratio of supply-and-demand in the oil industry has kept the rates of oil at an all-time high, and this has forced oil extraction rates to skyrocket too. When retrieving the oil pockets, they must drill through the sediment and rock. Once the oil is retrieved, it is mixed with sand, gas, and water. The oil is emulsified with the water and must be separated out along with the gas and sand. Without separation, you cannot just simply take the oil out of the ground and be ready for use. Once oil has been treated and separated, it can be used for a variety of uses [7].

Oil and Gas exploration in Sri Lanka

In Sri Lanka the oil and gas exploration are administered by Petroleum Resources Development Secretariat, popularly known as PRDS. It comes under the Ministry of Highways & Road Development and Petroleum Resources Development.

Table 01: History of Sri Lanka oil and gas exploration - timelines

Source: PRSD,2013 [7]

According to the following information gathered from PRDS, the oil and gas exploration activities are in progress with encouraging outcomes.

In 2011 two natural gas deposits were discovered in exploration block M2 in the Mannar Basin named Dorado and Barracuda. The volumetric analysis of the two discoveries has indicated a combined natural gas potential more than 1 TCF (trillion cubic feet) of natural gas and 10 million BBL (barrels) of condensate. Of the two discoveries, 350 BCF (billion cubic feet) natural gas and 2 million barrels of condensate are situated within the smaller, simpler, Dorado reservoir, which lends itself to early production after appraisal. The larger Barracuda discovery needs further appraisal built with extensive reservoir studies and evaluation for optimal production design. These two discoveries proved an active petroleum system in the Mannar Basin.

Subsequent to Carin’s decision to pull out from the exploration block M2 due to petroleum market downturn, government authorities commenced a campaign to market the remaining blocks in Mannar, Cauvery and Lanka basins.  In 2016 Government entered into a joint exploration study agreement with Total of France for the two ultra-deep water bloks JS-05 and JS-06 off the eastern coast. This agreement was amended and restated in August 2019 incorporating Equinor of Norway as an additional joint study partner to continue exploration activities jointly with TOTAL.  Morever, two mini bid rounds were held in 2019 :  to appraise & develop the gas discoveries and the  additional prospects  in the Block M2 (ex-Cairn block in the Mannar Basin) and exploration and production of oil and gas in blocks M1 and C1in the Cauvery and Mannar basins.     

In addition to the above bid rounds, PRDS was mainly focused on acquiring more petroleum data on multi-client basis to de-risk the sedimentary basins. In support of that, in February 2018 government entered into an umbrella multi-client data acquisition, processing, marketing and licensing Agreement executable on service orders with a subsidiary of Schlumberger company.  This company conducted the ever largest 2D seismic operations covering 5000-line kms in the JS-5 &JS-06 joint study areas and 3000-line kms in selected areas off the South-east and Mannar Basin. 

The PRDS is planning to conduct more oil and gas exploration in identified areas of offshore as well as onshore. It is planned to conduct a multi-client gravity, gravity gradiometry and magnetic data acquisition, processing, marketing and licensing by early 2020 followed by more seismic surveys. In the meantime, PRDS is getting prepared to award more exploration blocks after identifying the prospects of those surveys.

The undiscovered hydrocarbon potential in 42,000 square kilometres in the Mannar basin is estimated to exceed 9 TCF natural gas and over 2 billion barrels of oil. It is reported that the nature of offtake commitment of the government to investors (for in-house use or export options) and gas sales contractual terms will play a crucial role in attracting gas and oil firms to invest in Sri Lanka and commence production of NG.

Fig. 03: Exploration Block Map

Fig. 04: The geographic location [7]

However, as reported in the Daily mirror, 2013 bid rounds for the blocks in Mannar Basin failed mainly due to the absence of a recognised government policy document on the natural gas industry. With this experience PRDS has taken the initiative to formulate a National Policy of Natural gas. This policy has already been prepared in consultation with key stakeholders and in the pipeline for approval process. This policy expects that the share of natural gas will reach at least one third of the mix of total fossil fuel consumption by 2030, while reducing the dependency on imported fossil fuels to at least half of the present level in terms of physical quantity by 2030. Policy expects a progressive penetration of natural gas in all sectors (power, transport, industry, household and commerce), maintaining a minimum 30 percent of the total energy mix.  [3].  

The presence of oil and gas deposits in Sri Lanka have long been speculated given Sri Lanka’s position at the core of the African Rift System in pre-historic times. Geologically, the Mannar Basin sedimentary history is found to be contiguous with that of Mozambique during the Jurassic Age, thereby indicating the likelihood of similar oil and gas deposits being present in the basin. The speculation that oil and gas deposits of similar potential may exist in Sri Lanka was confirmed by the discovery of gas by Cairn Lanka (Pvt) Limited in two exploration wells. Two events substantially de-risked Sri Lanka as a potential oil and gas province – the end of the war in 2009 and the discovery of multiple hydrocarbon systems in the Mannar basin in 2011

Sri Lanka’s only refinery and the main port-to-refinery pipeline are in urgent need of upgrading and expansion.  The state-owned Ceylon Petroleum Corporation (CPC), runs the Sapugaskanda refinery and has stated it will invite bids to modernize the existing refinery and to build a new refinery [2].  [9]

Way Forward

Venezuela has the largest oil reserves of any country in the world, with more than 300 billion barrels of proven reserves. Though the Kingdom of Saudi Arabia held the world’s largest oil reserves for several decades, the country has slipped to second spot and has 269 billion barrels of proven oil reserves as of January 2016. This follows by Canada, Iran, and Kuwait with 171, 158, and 104 billion barrels. Other oil producing countries records less than 100 billion [9].

Oil and gas are the best prospect industry sectors for Sri Lanka. The geographic location of being closer to the main East -to-West sea route provides huge logistics advantages. The way forward for Sri Lanka appears to be in taking ensuring that we do not delay facilitating the exploration of oil and gas in the country as “delay has a cost and a little extra expenditure in the early days is not going to compromise the integrity of the long-term economics” [9]. With the successive governments’ intention of making Sri Lanka a logistics hub and an education hub, the social awareness about this sector need to be improved. Irrespective of when Sri Lanka produce oil and gas the systematic education in related disciplines could be the key to overall success. If the higher education institutes can develop undergraduate and postgraduate degree programs targeting international job market the country will not have to import oil and gas experts to the country to explore our own oil and gas. However, this is easier said that done given the challenge of finding necessary resource persons in Sri Lanka. This is where the government intervention may be vital as to find initial funds for such projects. Now the state sector higher education authorities have realised the vital contribution of non-state higher education institutes in taking the government’s education agenda forward. Taking the present private public partnership in higher education as the positive step in right direction, initial investments should be done to commence education programs in oil and gas industry.

Thanks to all this labour demand, the average pay for an oil and gas worker in the United States is comparatively very high. As good as the pay in the U.S. is, however, skilled oilfield workers can make much more overseas where the labour pool is tighter [10]. Currently the oil and gas industry are booming. Those with the proper education, training and experience stand to make a substantial living in today’s economy. Having an insight into working offshore is a fundamental requirement of oil and gas professionals. Given the positive contribution to the worlds maritime manpower supply Sri Lanka could easily become a country that produces worlds’ best experts in oil and gas sector.

References