Sinopec Can Offer Guaranteed Energy Security and Supply Stability to Sri Lanka
Ceylon Petroleum Corporation, commonly known as CEYPETCO (CPC), is a Sri Lankan oil and gas company established in 1962 and wholly owned by the Government of Sri Lanka. The CPC commenced business in competition with other Oil Companies who were operating in the country at that time. In 1964, CPC took over the entire business of import, sale, and distribution of petroleum products within the country. CPC has long been a monopoly provider of petroleum products to the local market. However, Lanka IOC (LIOC), a subsidiary of Indian Oil was added to create a duopoly in the petroleum product distribution market in 2003. LIOC is the only private oil company that operates retail petrol and diesel stations in Sri Lanka. At present, LIOC operates 202 petrol and diesel stations in Sri Lanka with an oil terminal, a lubricant blending plant of 18,000 tonnes per annum capacity and a fuels and lubricants testing laboratory at Trincomalee harbour which is a large natural harbour situated on the north-eastern coast of Sri Lanka.
LIOC also entered into a Memorandum of Understanding (MoU) with the CPC for a 35-year lease to operate the entire oil tank farm at Trincomalee in 2003 for development, which consists of 99 tanks. However, the LIOC used only 16 tanks while others were forgotten in the jungles. In 2017, Sri Lanka had discussions on a joint development project with India however Sri Lanka was unsuccessful in taking some tanks as a “sub-lease” from LIOC. Later, on the 6th of January 2022 CPC succeeded to sign an agreement with LIOC, to jointly develop the Trincomalee oil tank farm and terminated the lease agreement signed in 2013. With this new agreement, Sri Lanka managed to take control of 85 of the 99 oil tanks under Indian control. According to the deal, 14 tanks which were already developed by LIOC since 2003 leased to LIOC, 24 oil tanks will be allocated to CPC for business activities and the remaining 61 tanks will be leased to the joint venture company named Trinco Petroleum Terminal Pvt. Ltd, of which 51% will be owned by Ceylon Petroleum Corporation and 49% by LIOC.
As of now, CPC contributes around 90% of the total fuel supply to the country while the remaining 10% is supplied by the LIOC. However, CPC and LIOC failed to provide the island nation with energy security and supply stability. If LIOC developed all 99 tanks as per the 2003 agreement, Sri Lanka could have had the opportunity to store an astonishing total capacity of over 1.2 million tonnes of oil in the Trincomalee oil tank farm, which could have saved Sri Lanka from the current surge in oil prices and severe foreign exchange crisis. It is embarrassing to see that LIOC also imports fuel by opening letters of credits (LCs) at Sri Lankan banks and using the dollars available in Sri Lanka, which is not helpful to Sri Lanka. Therefore, the way forward for Sri Lanka is to open up petroleum imports, storage, distribution and retailing to other private sector enterprises who can import using their own country’s dollars and supply fuel to Sri Lanka in competition with the CPC and LIOC.
Surprisingly, on 27th June 2022, the Sri Lankan Cabinet approved opening up the fuel import and retail sales market to enterprises from oil-producing nations to import, distribute and market the fuel to Sri Lanka from selected outlets of the existing 1,190 CPC outlets, as well as new outlets. This decision can become a game-changer for Sri Lanka to become a petroleum hub in the Bay of Bengal if the Trincomalee oil tank farm is developed, but this is only possible if the government manage to allow new players to develop and store.
At the time that a share of the domestic fuel market was handed over to the LIOC, the Sri Lankan government failed to act within the specified timeframe to permit the entering of the third player China Petrochemical Corporation, known as Sinopec Corp into the market, which is unfortunate. Beijing-based Sinopec Corp is a super-large petroleum and petrochemical group which has a registered capital of 326.5 billion yuan. Sinopec Corp is the largest oil and petrochemical products supplier and the second-largest oil and gas producer in China and the largest refining company in the world. Its total number of gas stations ranks second place in the world. It ranked 2nd on Fortune’s Global 500 List in 2020. By the end of 2020, Sinopec Corp. had 46 overseas oil and gas exploration and production projects in 24 countries. Sinopec Corp principal operations include the exploration and production, pipeline transportation and sale of petroleum and natural gas; the production, sale, storage and transportation of refinery products, petrochemical products, coal chemical products, synthetic fibre, and other chemical products; the import and export, including an import and export agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information; hydrogen energy business and related services such as hydrogen production, storage, transportation and sales; battery charging and swaping, solar energy, wind energy and other new energy business and related services.
In July 2019, The Hambantota International Port (HIP) entered into a strategic partnership with Sinopec Fuel Oil Sales Co. Limited, a unit of China’s Sinopec Corp for bunkering services and the operation and maintenance of their oil tank terminal along with associated facilities. HIP saw a “sharp increase” in bunkering operations in 2021. In 2022, HIP begun Marine Gas Oil (MGO) fuel bunkering services as well. Sinopec with their vast resources guarantees the supply of Very Low Sulphur Fuel Oil (VLSFO) and MGO in HIP, enabling the port to service all vessels pass by every day a mere 10 to 12 nautical miles away in the major East-West shipping route. The partnership between SINOPEC Corp and HIP, is definitely a boost for Sri Lankan oil and gas industry.
The Hambantota Port is located in southern Sri Lanka close to the east-west sea route. The tank farm at Hambantota consists of 14 tanks with a total storage capacity of 80,000 m3. This includes individual storage capacities of 51,000 m3 for bunker fuel, 23,000 m3 for aviation fuel and 6,000 m3 for LPG. As Hambantota has ample space to build additional oil storage facilities and oil refineries if needed. Therefore, this is the time for Sri Lankan government to invite Sinopec Corp to import and supply fuel to Sri Lanka and develop the Trincomalee oil tanks which were forgotten in the jungles, and build additional oil storage facilities and oil refineries, to provide guaranteed energy security and supply stability to Sri Lanka in the future and make Sri Lanka as a petroleum hub in Bay of Bengal.
Maya Majueran currently serves as a Director of BRISL, an independent & pioneering Sri Lankan-led organization, with strong expertise in BRI advice and support. Maya can be contacted at: mayalk2000@gmail.com
