INTERNATIONAL FRAME &
THE STRUGGLE for Tamil Eelam

The Oil Dimension
[see also Tamil Eelam Struggle for Freedom
- Some Aspects of the International Dimension ]
 

Sri Lanka Minister Amunugama claims that Britain based Petroleum companies  said "Sri Lanka is the most stable country out of all places where untapped petroleum deposits are known to exist" - Walter Jayawardhana, 14 September 2007

[see also comment at To The Center.com "Given the proximity of the Tamil Tigers, describing Sri Lanka as stable is like living on Vesuvius and commenting on it being safer than living on the slopes of St Helens."]

Sri Lanka launches Mannar Basin License Round - OilOnline, 11 September 2007

Oil exploration; the battle begins -  Natasha Gunaratne, Sri Lanka Sunday Times, 9 September 2007

Sri Lanka’s Mannar basin has significant petroleum accumulations - Walter Jayawardhana, 6 September 2007

Sri Lanka chases after fresh oil reserves, Lanka Business Online , 5 September 2007

Offshore oil and production sharing contracts - Dulip Jayawardena in the Sri Lanka Sunday Times, 2 September 2007

Maritime boundary agreements, off shore oil exploration -  Dulip Jayawardena in the Sri Lanka Sunday Times, 26 August 2007

"In breach of provisions of the Petroleum Resources Act No. 26 of 2003, two off shore blocks (1 and 8) in the Mannar Basin have been awarded to Indian and Chinese state oil companies on a preferential nomination basis for oil exploration..."

Boosting Maritime Capabilities in the Indian Ocean, Dipanjan Roy Chaudhury, New Delhi, India,  23 August 2007

Sri Lanka to allow India, China to explore oil along its coast, Associated Press, 7 July 2007

China's Oil Quest Across India's Cauvery Basin  - B. Raman 26 March 2007

Sri Lanka Will Seek Bids for Oil Exploration Licenses - Anusha Ondaatjie, Bloomberg News,  5 April 2007

US grants Sri Lanka $474,000 to develop upstream licensing rules -  Platts, Singapore, 23 March 2007

Offshore back on agenda after Mannar basin rethink - Dr. Ray Shaw, Asian Oil & Gas, 26 April 2002 

Sri Lanka Minister Amunugama claims that Britain based Petroleum companies  said "Sri Lanka is the most stable country out of all places where untapped petroleum deposits are known to exist"  - Walter Jayawardhana, 14 September 2007

Sri Lanka Says Response to Government’s Road Show in London to Distribute Oil Exploring Data Was Good

Sri Lanka’s Minister of Enterprise Development and Investment Promotion Dr. Sarath Amunugama said that his country has received good positive responses from Britain based Petroleum exploring companies to drill for the Indian Ocean island’s untapped Mannar Basin petroleum deposits.

“They said Sri Lanka is the most stable country out of all places where untapped petroleum deposits are known to exist ,” Amunugama told a BBC Sinhala language interviewer in London where he and the country’s Petroleum Minister A.H.M.Fowzie are holding a road show to present data on three blocks of the basin which are offered to prospective explorers.

[see also comment at To The Center.com "Given the proximity of the Tamil Tigers, describing Sri Lanka as stable is like living on Vesuvius and commenting on it being safer than living on the slopes of St Helens."]

Amunugama said Sri Lanka’s Mannar Basin seismic data has indicated that the basin has significant potential for hydrocarbon deposits.

Earlier announcements by the Ceylon petroleum Corporation said about one billion barrels of crude lie under the sea off Sri Lanka’s North West Coast, which is known as the Mannar Basin.

After London two more road shows are scheduled to be held in Houston and Kula Lumpur.

Amunugama said the government expected to call tenders by January and actually start exploring after another six months.

The Minister said the prospective explorers whom they met in London have expressed their satisfaction about the government’s method of offering these Mannar basin blocks for oil prospecting .They appreciated the efficient and transparent tender process, he said.

Amunugama said , all over the world , where untapped petroleum deposits have been found , the countries have been found torn with various political conflicts and out of all places Sri Lanka is the most stable place. He said that fact should be an added reason to lure investors.

In the 1960’s under the premiership of Prime Minister Sirimavo Bandaranaike the Russians were invited to drill test wells at Pesalai, Mannar . Although, the equipment then were unable to indicate accurately , experts say, the oil prospecting technology is far more advanced today.

Ceylon Petroleum Corporation said, “however, recent seismic data have indicated that the basin has significant potential for hydrocarbon accumulations. According to the reports by the Government, seismic data shows more than 1.0 billion barrels of oil lie under the sea off Sri Lanka's northwest coast, though no reserves have yet been proven. If proven, the reserves would be a major boost for the country, which produces no oil and imported $2.1 billion worth in 2006.” (EOM)

Oil Exploration Website says Sri Lanka’s Mannar Basin has Significant Petroleum Accumulations - Walter Jayawardhana

A leading Oil Exploration industry website Rigzone.com said that Sri Lanka’s Mannar Basin seismic data have indicated that the basin has significant potential for petroleum accumulations.

“Seismic data shows one billion barrels lie under the sea off Sri Lanka’s North West Coast,” said the website announcing the island nation’s road shows to be held in London, Houston and Kula Lumpur to present data on three blocks of the basin in the month of September which will be offered for exploration after receiving tenders.

“The Mannar Basin has seen relatively minor exploration activity in the past;” said the website, “however, recent seismic data have indicated that the basin has significant potential for hydrocarbon accumulations. According to the reports by the Government, seismic data shows more than 1.0 billion barrels of oil lie under the sea off Sri Lanka's northwest coast, though no reserves have yet been proven. If proven, the reserves would be a major boost for the country, which produces no oil and imported $2.1 billion worth in 2006.”

The Rigzone.com said, Sri Lanka's Ministry of Petroleum and Petroleum Resources Development will be calling for tenders beginning next month for oil exploration in the Mannar Basin. According to the Minister of Petroleum and Petroleum Resources Development A.H.M Fawzie, three road shows will be launched in September to present data on three blocks in the offshore Mannar basin. The road shows will be held at London, Houston and Kuala Lumpur.

Quoting Minister Fawzie the website added that more than 20 countries including India and China who already own two blocks at the Mannar Basin have agreed to participate in the bid round. The Minister further stated that the Government is committed to conduct a transparent and efficient tender process with exploration licenses being awarded in early 2008.

However, report said that the applicants will have to pay signature bonds and production bonds to the Sri Lankan government. Also they will have to pay a 10% loyalty fee to Sri Lanka during the exploration period.

The permits will be for a period of eight years and will consist of three phases. The permit will be broken up as follows: three years for the first phase, two years for the second phase and three years for the third phase. If additional exploration is needed, a two year extension could be granted.

Sri Lanka chases after fresh oil reserves, Lanka Business Online , 5 September 2007

Sept 05, 2007 (LBO) – Sri Lanka will shortly tender for two-dimensional seismic surveys off the southern tip of the island to look for new oil deposits, officials said. Three out of eight off-shore oil exploration blocks in the Northwestern Mannar basin which have already been surveyed by Norway's TGS NORPEC would be offered to foreign petroleum firms next month.

But the government believes there is more oil and natural gas off the southern tip of the island. "We want to survey the Southern seas and would be calling for tenders shortly," Petroleum Minister A H M Fowzie said. "Sri Lanka is straddling oil bearing formations in the Middle East on one side and Indonesia on the other."

Though Sri Lanka is yet to conduct more expensive three-dimensional seismic surveys officials estimate that the Mannar basin to hold about one billion barrels of oil.

Surveys were done in 2003 and 2005. The TGS-NORPEC data was bought by Sri Lanka for about 10 million US dollars.

"We want to conduct surveys in the South, South West and South East of the island," the head of Sri Lanka's petroleum resources development secretariat Neil de Silva told LBO. "The tenders will be for two-dimensional surveys." 

Sri Lanka is holding three road shows this month in London on September 10, Houston on September 17 and Kuala Lumpur on September 24. Bids for the blocks are expected to close in January.

Sri Lanka says companies would be given an 8-year license, and a 10 percent royalty would be charged on extracted oil, and profits would be subjected to 35 percent corporate tax.  They would also have to pay a signature bonus on winning the tender and a production bonus after hitting oil which could be as early as 2010.

Two blocks have been assigned to India and China on government-to-government deals. The remaining three blocks are expected to be sold after oil is found in any of the first round blocks. "Then we can get better terms for the remaining blocks," Fowzie said.
 

Sri Lanka launches Mannar Basin License Round - OilOnline, 11 September 2007

The government of Sri Lanka today launched the Mannar Basin License Round 2007 in London. The Honourable Mr Fowzie , The Minister of Petroleum and Petroleum Resources Development, together with Dr Amunugama, Minister of Enterprise Development and Investment Promotion, accompanied by Dr Neil de Silva, the Director General of Petroleum Resources Development Secretariat, took part in the first of a series of presentations scheduled over the coming weeks.

Following in excess of 50,000 website visitors, 31 International Oil and Gas companies are pre-registered or represented for this event. Companies ranging from major multinational to independents will be represented at these presentations, which will be followed by data rooms enabling companies to review the technical data available for this unexplored basin.

 The strongest interest is being clearly seen from the Asian presentation scheduled for Kuala Lumpur where it has been necessary to extend the data rooms to accommodate the increased level of interest being shown in this opportunity.

The Houston presentation will be held on the 17th September with the Kuala Lumpur presentation following a week later on the 24th September 2007. Interest in this licensing round is matching the Sri Lankan government expectations.

With the recent discovery announcements of the finds in the East Coast of India and particularly the probable extension of plays from the Cauvery Basin to the Mannar Basin, along with the potential for large discoveries as indicated on the pre-existing seismic, this is viewed as an area of interest.

Further details are available at www.prds-srilanka.com 
 

Offshore oil and production sharing contracts - Dulip Jayawardena (The author is a retired Economic Affairs Officer of United Nations ESCAP who was in charge of the Marine Affairs Programme from 1990 to 2003) in the Sri Lanka Sunday Times, 2 September 2007

Oil exploration in Sri Lanka has a history which dates between 1966 and 1984, when the Soviet and Western entities concentrated on land and shallow offshore areas of the Cauvery Basin in the Gulf of Mannar.

During this period 18,000 kms of seismic data and seven exploratory wells were drilled. All the wells were dry, except the three wells drilled in Mannar Island by the Soviets, which encountered wet gas at several depths.

However, interest was again shown by US and Canadian companies after a flow of 1488 barrels/day were recorded from a test hole drilled in cretaceous sands on the Indian side 30 kms from one of the holes drilled on the Sri Lankan side.

In 2001, a license was awarded by the Ceylon Petroleum Corporation (CPC) to carry out off shore 2D seismic surveys in the Mannar Basin to TGS NOPEC. Between June- July 2001, 1100 kms of seismic data was recorded and processed by Western Geco.

Further analysis of the data by Dr Ray Shaw, team leader from the University of New South Wales (UNSW), which was awarded a contract by the ADB, concluded that the Gulf of Mannar Basin represents a new deep-water frontier region, which had promising indications of having significant oil and gas accumulations.

Further, the findings were presented by CPC at the South Asian Petroleum Society (SEPEX) Conference in December 2001 and with the confirmation of the findings of UNSW, TGS NOPEC carried out a further 7000 –8000 kms of seismic lines in the Gulf of Mannar Basin purchased by the government for US $ 8 million in 2006. However it is not clear as to the details of the data and the areas covered and whether TGS NOPEC is still holding to some of the data even after the agreement signed by CPC was annulled.

In 2003 the Petroleum Resources Act No. 26 of 2003 was legislated and the Petroleum Resources Development Committee (PRDC) and the Petroleum Resources Development Secretariat (PRDS) established that the PRDC had representation from relevant ministries and other agencies and chaired by the Secretary to the Ministry of Petroleum Resources.

The Director General heads the PRDS. It has been reported that eight off shore blocks have been demarcated and Block 1 in the north and Block 8 in the south have been awarded to India and China. Blocks 2, 3, and 4 will be subject to International Bidding.

It is also reported that the government has finalized a Production Sharing Contract (PSC) and a Taxation Regime for the award of the Blocks and it is not clear what the arrangements are for the Indian and Chinese Blocks.

Production Sharing Contracts (PSC)

A PSC is an arrangement between a contractor and the government whereby the contractor bears all the exploration costs, risks, development and production costs in return for an agreed share of production.

Such a contractual framework has three major areas that are paramount namely the constitution (ownership vested in the State Part 1 of the Act) tax law and petroleum legislation.

There is also Joint Operating Agreements (JOA) where the government agrees to share costs with a number of contractors.
Petroleum legislation in many countries is known to be too archaic and a comparison of the Petroleum Acts especially from developing countries will help to make appropriate amendments.

I shall very briefly give an overview of the relevant components of a PSC. It must be kept in mind the off shore areas of the Gulf of Mannar are in deep water with depths varying from 1000 to 3000 meters (3200 to 10000 feet) with no records of near shore prospects. Accordingly when PSCs are negotiated the risk factor has to be taken to serious consideration.

In a PSC, an Outline of the Scope that will include the parties and Definitions such as production date, commercial discovery etc has to be included as in a normal contract.

The Purchase of Data will define the data package (TGS NOPEC) the government purchased. Such costs could vary from US $ 10,000 to 100,000 depending on the quality.

The Duration, Relinquishment and Surrender will include the contract period and the percentage of area to be relinquished after a specific period. In Timor Leste it is 25 percent after 3 years and another 25 per cent after 6 years. And exploration is 6 years with a 4-year extension.

Work Programmes and Expenditures are important. The contractor is bound to carry out an agreed work programme with minimum expenditure levels. It is important that there should be a specific time period to start exploration that is usually under 12 months.For example in Timor during the one year an expenditure of US $ 1 –4 million has to be spent which would include 3 D Seismic survey. During the 2-year costing US $ 0.5 to 8 million has to be for drilling. And in the third year 1-3 wells with a cost of US $ 20 million and the fourth year 1-4 wells costing US $ 6 – 30 million should be completed. Some of these holes may strike productive oil reservoirs.

Once a discovery is made the productive limits of the oil field have to be mapped and identified. This is important as the cost recovery of exploration and development are subject to “Ring Fencing” where such costs are confined to only one area and cannot be extended to another area within the same block or another license area where exploration was not successful. However development costs of more than one field may not be subject to “Ring Fencing”

Signature bonus is very unpopular with the oil industry but could be a part of competitive bidding.

Production bonus will stipulate a period and an amount of 10,000 barrels of oil per day (BOPD) if exceeded the government is entitled to US $ 2 million. However it will vary depending on the production and reserves together with the depletion rate.

The rights and obligations of the government (PRDC) have to be clearly spelled out and include access to data, monitor contractor’s work programme, right to appoint representatives to the management team if it is a JV, right to remove contractor’s employees and in certain instances use of equipment.

The rights and obligations of the contractor are also included such as fulfillment of all technical requirements, funds for the work programme, rights to sell or transfer its rights and interests to third parties, payment of taxes, submit weekly or monthly reports to PRDC, give preference to goods and services in host countries, provide access to operating areas to representatives of PRDC.

The other components that should be included in a PSC are valuation of petroleum exported by contractor for Production Sharing on an agreed split after recouping expenditure, payments in foreign currency, and net sales proceeds allocation. In this case some countries allow 100 per cent cost recovery for production but some allow anything between 80 –40 per cent depending on the prospectivity of the area. Exploration costs invariably are recovered in full.

Employment and training of local personnel are given in most PSCs. Another issue is that some PSCs stipulate that all equipment brought by the contractor become the property of the state oil company after the expiry of the contract

Common clauses such as “force majure” are also included. The most important clause in a PSC is arbitration on dispute settlement and includes non-judicial dispute resolution mechanisms such as ICSID (International Centre for Settlement of Investment Disputes) ICC (International Chamber of Commerce) UNCITRAL (United Nations Committee on International Trade Law) and AAA (American Arbitration Association). The government should be a party to such agreements.

The other components of a PSC are insurance, termination; provision for contract modification and abandonment. It is customary for the host government to bear the cost of removal and disposal of off shore oil platforms and structures. However UN ESCAP had initiated a removal regime for East and South East Asia where the contractor and the host government share the costs and includes legal, technical and financial guidelines. The cost of removal of a small oil platform will exceed US $ 3 million.

The normal exhibits of a PSC will include Description of Contract Area, Map of Contract Area, Accounting Procedure and Management Procedure.

It must be stated that PSCs will vary from country to country and also from known oil and gas bearing areas to unknown territories such as the Mannar Basin. It is up to the PRDC with the advice of its consultants to evolve a model PSC that would adequately address the challenges posed such as unknown territory, deep water and the absence of adequate data specially 3 D seismics. It must also be stated that only a few countries such as Norway have the technology to explore and operate oil and gas fields in deep water.

Finally I would also draw the attention of the government, that the PSC that is supposed to have been finalized and not in the public domain should be compatible with the Petroleum Resources Act No. 26 of 2003 specially Part V that spells out the Fiscal Provisions. I am not aware whether Regulations under this Act have been legislated and if so most of the fiscal and other arrangements in the PSC could have been included.
 

Maritime boundary agreements, off shore oil exploration -  Dulip Jayawardena (The author is a Retired Economic Affairs who was in charge of the Marine Affairs Programme at United Nations ESCAP from 1990 to 2003) in the Sri Lanka Sunday Times, 26 August 2007

In breach of provisions of the Petroleum Resources Act No. 26 of 2003, two off shore blocks (1 and 8) in the Mannar Basin have been awarded to Indian and Chinese state oil companies on a preferential nomination basis for oil exploration.

More specifically, sections 4 (2), 7, 8 and 9 of the Act have been violated where there are clear guidelines on the issuance of licence for government blocks. Furthermore, recent press reports have indicated that the government of Sri Lanka has finalized arrangements calling for international offers for oil exploration in three off shore blocks in the Mannar Basin.

Three blocks on offer are:

Block 2, 1338 sq kms Lat 8 deg. 10' and 8 deg 30' north Sri Lanka maritime boundary to 4 kms from low water mark Block 3, 3572.08 sq kms Lat 7 deg 50' and 8deg 10' north – Indian Sri Lanka maritime boundary to 4 kms from low water mark Block 4, 4126.51 sq kms Lat 7 deg 30 'and 7 deg 50' north – Indian Sri Lanka maritime boundary to 4 kms from low water mark Blocks 5, 6 and 7 are presumed to be offered during the second licensing round after road shows. This is a replication of efforts and expenses as all blocks could have been offered at the same time.

It is also interesting to know whether the government is meeting the expenses for such promotional activities as an offer for US$1 million by the Asian Development Bank (ADB) was rejected. It is also relevant to find out what the total contract value is with Furgo Geoteam a Norwegian company appointed as consultants to the Petroleum Resources Development Secretariat (PRDS).

The PRDS website is being maintained by Fugro Data Solutions, an affiliated company of Fugro Geoteam that was associated with TGS NOPEC, another Norwegian company, on Phase II of the 2D seismic survey on a cost sharing basis. The website further states that oil exploration will start in 2008. The site gives a background on the functions of the Ministry of Petroleum, new opportunities in the Cauvery and Mannar Basins and the advantages of investing in Sri Lanka. It also gives a countdown for the upstream development.

The Director General of the PRDS, Dr. Neil De Silva, addressed the European Association of Geologists and Engineers (EAGE) in London in a Poster Talk on June 13 to 14, 2007. Three road shows are scheduled to be held in London, Houston Texas and Kuala Lumpur during August and September 2007 as well as a presentation to the American Association of Petroleum Geologists (AAPG) in November 2007.

The website does not contain the Petroleum Resources Act No. 26 of 2003 or the regulations under the Act if they have been legislated. It also does not give a model Production Sharing Contract (PRC) and the relevant Taxation Regime. These deficiencies will undoubtedly prevent reputed upstream oil exploration companies from sending any serious bids.

Maritime boundaries

I shall make an attempt to elaborate on the relevant Maritime Boundaries between India and Sri Lanka. The Maritime Zones Law No 22 of 1976 and the Presidential Proclamation of January 1977 implementing the Law defines a Territorial Sea of 12 nautical miles (nm) historic claims between Palk Strait and Gulf of Mannar, a Contiguous Zone of 24 (nm) as well as an Exclusive Economic Zone of 200 (nm). The delimitation of the continental shelf is now in progress in accordance to Annex 11 of the Final Act of the United Nations Convention on the Law of the Sea. This delimitation is in respect of the southern part of the Bay of Bengal where India too has a claim.

I now refer to the oil exploration blocks. The demarcation of the three blocks has taken the southwestern maritime boundary in the Gulf of Manner with India as the western limit. The boundary in this area consists of 12 turning points defined by Latitude North and Longitude East and varies from 9 deg 6' to 5 deg 53.9' latitude north and 79 deg 32' to 77 deg 50.7 ' longitude east.

The maritime boundary from the 13m turning points to the tri-junction point (T) between the maritime boundary of India, the Maldives and Sri Lanka (4 deg 47' 04" latitude north and 77 deg 01' 40" longitude east) according to my knowledge has not been established. The Point T was established through an agreement between India, the Maldives and Sri Lanka on 31 July 1976.

I also draw your attention to the blocks that have been offered by Sri Lanka located in the Gulf of Mannar as well as the Mannar Basin. Block 1, offered to India is adjoining the Indian Block CY-DWN-2001/1 in the deep water off shore Cauvery Basin, Gulf of Mannar. This Block was offered to the Oil and Natural Gas Corporation (ONGC) under the New Exploration Licensing Policy (NELP). The Production Sharing Contract (PSC) was signed by ONGC and OIL (Oil India) on 4 February 2003 on an equity split of 80: 20 respectively.

This is the time that TGS NOPEC sold Sri Lankan seismic data and earned US$2 million. It is reliably learnt that a western oil company has now joined this consortium on undisclosed terms. It will be interesting to know what progress has been made on this block that is on the Indian side and whether any exploratory drill holes were done.

I would also like to point out that there are a number of oil producing wells north of the boundary between India and Sri Lanka in the Bay of Bengal. The Block CY-OS- 90/1 (PY3) Field operated by Hindustan Oil Exploration Company (HOEC) produced 6269 BOPD (Barrels of Oil Per Day) in 2004 to 2005 and all the crude oil was sold to Chennai Petroleum Corporation Ltd.

I would now draw the attention of the government of Sri Lanka to the Maritime Boundary Agreements signed with India for the Gulf of Mannar and the Bay of Bengal and the ratifications exchanged on 10 May 1976.

Special attention is drawn to Article VI of the Agreement that states as follows:"If any geological petroleum or natural gas structure or field, or any single geological structure or field of any mineral deposit, including sand or gravel extends across the boundary referred to in Articles I and II and the part of such structure or field which is situated on one side of the boundary is exploited, in whole or in part, from the other side of the boundary, the two countries shall seek to reach agreement as to the manner in which the structure or field shall be most effectively exploited and the manner in which the proceeds deriving there from shall be apportioned."

I wish to draw the attention of the experts on the relevance of the above Article to the Gulf of Mannar and also the Bay of Bengal where India is carrying out a vigorous offshore oil exploration programs. Particularly in the Bay of Bengal, there are already productive oil wells and there is also the likelihood of such oil fields in the deep water of the Gulf of Mannar. These fields will straddle the maritime boundaries. What action will the government take in relation to the treaties already in force with India?

I would also draw the attention of the experts on the Law of the Sea relating to the declaration of the Exclusive Economic Zone (EEZ) by India and Sri Lanka. The declaration of the 200 nautical mile EEZ, especially in the Gulf of Mannar and part of the Mannar Basin by both countries will overlap as the Gulf of Mannar, lying between the southern tip of India and west coast of Sri Lanka is on the average 160 and 200 kms (86 –160 nautical miles) wide.

Will the maritime boundary delimitation in these areas supersede the declaration of EEZ's or have the two countries to agree on a median line for the EEZ's in the areas concerned through bilateral consultations? Another alternative is to work on a Joint Development Zone as provided by the Law of the Sea Convention. This arrangement will be advantageous to Sri Lanka.

It is also suggested that the three blocks offered should be clearly demarcated with established coordinates with respect to the turning points of the maritime boundary between India and Sri Lanka in the Gulf of Mannar and the Mannar Basin as to avoid future complications.
 

Boosting Maritime Capabilities in the Indian Ocean, Dipanjan Roy Chaudhury, New Delhi, India,  23 August 2007 [see also Tamil Eelam Struggle for Freedom - Some Aspects of the International Dimension ]

Maritime power represents military, political, and economic power, exerted through an ability to use the sea or deny its use to others. It has traditionally been employed to control "use-of-the-sea" activities undertaken by nations for their general economic welfare and, often, even for their very survival. Maritime power and naval power are not synonymous, the latter being a sub-set of the former. Traditional land powers are more and more focusing on developing their maritime capabilities to safeguard their economic interests and extend their sphere of influence.

Historically, China has been a land power. However, over the past two decades, it has found itself increasingly dependent on resources and markets accessible only via maritime routes. This has left Beijing with the dilemma of how to safeguard its trade routes and flow of resources in a world in which the United States is the dominant naval power, and both India and Japan — China's neighbors and strategic rivals — are stepping up their own naval capabilities.

Ensuring a continuous supply of energy has come to be the most important prerequisite for China in building an advanced, industrialized state. Despite being the world's sixth largest oil producer, China has been a net importer of oil since 1994. It imported 40 million metric tons in 1999 and is projected to import 100 million tons by 2010. China's dependence on seafood has increased in recent years. China will therefore have to ensure security of its sea lanes and shipping industry to ensure its continued development As of today, 85 percent of China's trade is sea-based. Also, with its 26 shipyards, China has emerged as the world's fourth largest shipbuilder. Thus for both reasons, China needs assured access and control over its adjacent oceans.

China and Indian Ocean Nations

China's perceptions regarding other major powers, especially Moscow and Washington, have been the most important external factor molding its Indian Ocean vision and policy initiatives. While initially it was American containment that explained all their activities in the Indian Ocean, the Sino-Soviet split in the early 1960's made China suspicious of Moscow's initiatives and intentions in this region.

In the recent years, a new great game has begun between India and China to bring the Maldives and Sri Lanka under their respective sphere of influence in the Indian Ocean Region (I.O.R.).

After Myanmar and Bangladesh, to complete the "arc of influence" in South Asia, China is determined to enhance military and economic cooperation with the Maldives and Sri Lanka. China's ambition to build a naval base at Marao in the Maldives, its recent entry into the oil exploration business in Sri Lanka, the development of port and bunker facilities at Hambantota, the strengthening military cooperation and boosting bilateral trade with Colombo, are all against Indian interests and ambitions in the region.

Although China claims that its bases are only for securing energy supplies to feed its growing economy, the Chinese base in the Maldives is motivated by Beijing's determination to contain and encircle India and thereby limit the growing influence of the Indian Navy in the region. The Marao base deal was finalized after two years of negotiations, when Chinese Prime minister Zhu Rongzi visited Male' in May 2001. Once Marao comes up as the new Chinese "pearl," Beijing's power projection in the Indian Ocean would be augmented.

Recently, Sri Lanka allocated an exploration block in the Mannar Basin to China for petroleum exploration. This allocation would connote a Chinese presence just a few miles from India's southern tip, thus causing strategic discomfort. In economic terms, it could also mean the end of the monopoly held by Indian oil companies in this realm, putting them into direct and stiff competition from Chinese oil companies.

At Hambantota, on the southern coast of Sri Lanka where Beijing is building bunkering facilities and an oil tank farm. This infrastructure will help service hundreds of ships that traverse the sea lanes of commerce off Sri Lanka. The Chinese presence in Hambantota would be another vital element in its strategic circle already enhanced through its projects in Pakistan, Myanmar and Bangladesh.

It is Sri Lanka's strategic location that has prompted Beijing to aim for a strategic relationship with Colombo. Beijing is concerned about the growing United States presence in the region as well as about increasing Indo-U.S. naval cooperation in the Indian Ocean. China looks at using the partnership with Sri Lanka to enhance its influence over strategic sea lanes of communication from Europe to East Asia and oil tanker routes from the Middle East to the Malacca Straits. China has been consolidating its access to the Indian Ocean through the Karakoram Highway and Karachi, through the China-Burma road to Burmese ports and through the Malacca Straits, especially once they have established their supremacy over the South China Sea.

China's Indian Ocean policy has been clearly influenced by its ties with the other major powers. Its interest in the Indian Ocean started partly as a reaction to its perception that increasing United States presence there was aimed at encircling China. The policy has also been directly linked to its problems with New Delhi. China feels India is facilitating the American presence in the Indian Ocean region as a means of countering Beijing.

The United States Navy maintains a substantial permanent presence in the I.O.R. from its Fifth Fleet base in the Gulf, its substantial naval and air assets at Diego Garcia as well as by rotational deployments of Seventh Fleet units from the Pacific, centered on one or two nuclear-powered, nuclear-armed aircraft carriers. It was last deployed in major hostilities against Iraq, was briefly involved in Somalia and was on call to resist the Australian preemptive intervention in East Timor.

Chinese Naval Power and the Indian Ocean Region

The Indian Ocean, along with other sea lines of communication, have attracted the attention of Chinese naval planners. The takeover of the Panama Canal by a private Chinese firm after the United States withdrawal in 1999, reported Chinese threats to intervene in the Straits of Malacca and the active Chinese role in the West Asian region indicate unfolding Chinese interest this region. Beginning from the early 1980's, Chinese naval modernization underwent a sea change, partly with the modified perceptions about the value of the oceans.

China has launched an ambitious futuristic weapons development program, including high energy microwave beam-weapons, ship-based laser cannon and space-based weaponry to destroy communication and reconnaissance satellites. The country is the greatest source of proliferation of weapons of mass destruction and missile technology. History has shown that China is not averse to using force in order to achieve its aims, and its attitude towards its neighbors is a constant source of concern.

Gwadar in Pakistan, Hambantota in Sri Lanka and Sitwe (Akyab) in Myanmar have functioned essentially as fishing harbors. The growing Chinese interest in these places and China's generous offer of assistance to these countries for converting their fishing harbours into maritime ports of international standards has aroused doubts about Beijing's motive in increasing its naval presence in the region.

Beijing is trying to give its Navy a greater visibility, operability and rapid action capability in the Indian Ocean region than it enjoys now. Gwadar, Hambantota and Sitwe form important components of its maritime security strategy. China is also interested in the island nation of Seychelles. It is important to monitor the growing Chinese interest there as part of any study of China's maritime strategic moves.

Beijing has given signal to the world of its aspirations to assume a role beyond its natural geographic and historical maritime boundaries. Any Chinese threat to India's maritime interests in the near future is economic and political as well as military. China is setting up a series of military bases as part of an endeavor to project its power.

In Bangladesh, Beijing is seeking extensive naval and commercial access. Dhaka already shares close defense ties with Beijing. In Myanmar, China is also building naval bases and electronic intelligence gathering facilities at Grand Coco Island in the Bay of Bengal. However, the military junta, wary of excessive dependence on China, has turned to New Delhi for military supplies.

In Cambodia, Beijing is helping to build a railway line from South China to the sea. In Thailand, China is funding the construction of a $20 billion canal across the Kra Isthmus. This would allow ships to bypass the Strait of Malacca. China has also set up electronic posts near the Persian Gulf to monitor ship traffic through the Strait of Hormuz.

New Delhi's Role in the Indian Ocean Region

India has been apprehensive about China's growing naval expansion in the Indian Ocean, which New Delhi views as encirclement. As China's naval diplomacy take roots in the region, India cannot remain a mute spectator and, much like China, has increased its military engagement in the region. India now regularly conducts naval and military exercises with the United States, Japan, and China, as well as with its South Asian and South-East Asian neighbors. New Delhi has signed a defense agreement with Singapore and has cooperative arrangements with many nations stretching from the Seychelles to Vietnam. It has participated in mechanisms to protect maritime traffic passing through the strategic Malacca Straits.

In recent years India has intensified its pace of cooperation with countries in the Indian Ocean littoral. After the success of its tsunami diplomacy, New Delhi is looking forward to evolve new channels of naval diplomacy with these countries. During the past year, the just-retired Indian Navy chief, Admiral Arun Prakash, visited many South East Asian and South Asian capitals. The primary goal of these visits was to enhance bilateral cooperation and strengthen naval ties.

Two Indian warships recently made friendly port calls in Bangladesh and Myanmar. The navies of India and Bangladesh have also discussed possibilities of connecting the Vishakapatnam and Chittagong ports. An access agreement with Dhaka would allow more extensive patrolling, both sea borne and from the air in these sensitive waters. The Indian navy is also keen to maintain vessels at the Bangladeshi ports, to compete with Beijing's strategic gains in that sector. China has signed a training and equipment agreement with Dhaka.

India's geographical location at the natural junction of the busy international shipping lanes that crisscross the Indian Ocean has had a major impact upon the formulation of New Delhi's maritime strategy. The sea area around India is among the busiest in the world, with over 100,000 ships transiting the shipping lanes every year.

The Straits of Malacca alone account for some 60,000 ships annually. India itself has a 4,670-mile long (7,516 km) coastline and several far-flung island territories. The 13 major and 185 minor ports that mark India's coastline constitute the landward ends of the country's sea lines of communication. The development of additional ports is a high-priority activity and is taking place all along the western and eastern seaboards of the country.

India, today, has a modest, but rapidly-growing merchant-shipping fleet, presently comprising 756 ships and totaling 8.6 million "Gross Registered Tonnes," with an average age of around 17 years, as compared to the global average of 20 years. The Indian Navy and the Indian Coast Guard are major stabilizing forces in the movement of energy across the Indian Ocean, not just for India, but for the world at large.

The region of India's maritime interests, which on primary geographic considerations might suggest itself only as the north Indian Ocean and the Arabian Sea, in fact has to take maritime factors into account and developments in distant areas such as the western Pacific, South China Sea, the eastern Mediterranean, the central and southern Indian Ocean.

Also under review are islands such as Diego Garcia, Madagascar, Mauritius, Reunion and the Seychelles, in addition to South Africa and Australia as they dominate the southern approaches to the Indian Ocean. This is because of the flexibility and mobility of naval forces and the rapidity with which they can traverse large distances, concentrate, deploy, withdraw or disperse.

India's maritime diplomacy, like its broader diplomatic effort, radiates out in expanding circles of engagement, starting with the country's immediate maritime neighborhood. As a mature and responsible maritime power, New Delhi is contributing actively to capacity building and operational coordination to address threats from non-state actors, disaster relief, support to United Nations peacekeeping and rescue and extrication missions.

In fact, India's maritime diplomacy is now an essential component of New Delhi's "Look East" policy. India has concluded bilateral arrangements with Thailand and Indonesia for joint coordinated patrols by the three navies in the Bay of Bengal at the mouth of the Malacca Straits.

New Delhi is also ready to contribute to capacity building of the littoral states in the interests of maritime security. Southeast Asian navies participate in the bi-annual MILAN exercises. At the multilateral level and within the maritime domain, India has launched a series of initiatives to provide an inclusive and mutually-consultative forum in which the navies and maritime security agencies of the region - whether large or small - can meet and discuss common issues that bear upon international security.

Economic growth and opportunities in the Asia-Pacific and Indian Ocean have attracted China into taking an interest in the region. Beijing feels compelled to look outwards in order to craft joint strategies for achieving faster economic growth and peace and security.

China is a long-term concern by reason, not only because of its phenomenal economic growth and military power, but because of its ambitious and determined drive towards great global power status.

The drive is already manifesting itself in the modernization of its armed forces — in particular the expansion of its navy and maritime capabilities. The Chinese, however, argue that their initiative towards the Indian Ocean is guided by both strategic and economic compulsions and capabilities, as a significant proportion of its sea borne trade (around 85 percent) passes through the Indian Ocean.

Given its sensitivities to the United States and India, China has supported proposals for the Indian Ocean as a Zone of Peace. The country's long-term strategic outlook is global and not regional. Beijing seeks to develop its naval capabilities and seek definite sea superiority over other naval powers in the region.

Some of China's initiatives in the Indian Ocean are also geared to preventing any littoral country from granting Taiwan their membership. China's ability to deter Taiwan thus is more effective since the Indian Ocean states seem willing to oblige Beijing. Thus, Taiwan is not a member of the Indian Ocean Tuna Commission although it is represented in the fishing associations of the Pacific and Atlantic Oceans.

By 2020 China plans to deploy task forces consisting of two aircraft carriers, two S.S.B.N.s, six S.S.N.s, 18 destroyers and about 30 frigates in the I.O.R. However, until about 2045, it will be difficult for China to deploy its naval forces permanently in the Indian Ocean. By that time, it remains to be seen if Pakistan, Myanmar and other countries in the region become full-fledged Chinese allies.

India is trying to create a balance of power in the I.O.R, as the country is emerging as a major power and is often regarded as a pivotal influence in the region's geopolitics.

It has established a "Far Eastern Strategic Command" headquartered in Port Blair to monitor the military situation in the region. However, in order to have a strong hold over the region, India needs economic assets as well as a strong military presence.

India must have access in the region of Chinese influence, by establishing political, economic and security ties with East and Southeast Asian countries. New Delhi must strengthen its ties with other major regional and global forums to maintain its sphere of influence.

At a strategic level, India will have to attempt to balance China's power realistically, through development of its own economic and military potential and through building strong relationships with neighbors, and regional organizations like the Association of Southeast Asian Nations (A.S.E.A.N.)
 

Oil exploration; the battle begins -  Natasha Gunaratne, Sri Lanka Sunday Times, 9 September 2007

Documents for tenders for offshore oil and gas exploration in the Mannar Basin are to be distributed by end 2007 including during several road shows that have been planned, according to Minister of Petroleum and Petroleum Resources, A.H.M. Fowzie.

He told The Sunday Times FT that tenders will be examined until April 2008 and the contract is expected to be handed over to the successful bidder in August 2008. Out of the eight available blocks in the Mannar Basin, three are up for sale for offshore oil exploration. Two have already been sold to India and China. Fowzie said he is very confident of the estimated figure of one billion barrels of offshore oil which oil experts have also concurred with him. According to 2D surveys of the area, Fowzie said the data has been interpreted by experts who have confidently concluded the existence of oil and gas deposits.

But an expert on oil exploration told this newspaper that the Norwegian company which the minister refers to is the controversial TGS NOPEC who received US$8 million from the Sri Lankan government to hand over data from 2D seismic surveys it conducted. The expert further added that the claim of one billion barrels is unsubstantiated since there is yet to be 3D seismic surveys conducted in the area in question.

The expert also added that regulations under the Petroleum Resources Act have not been framed or finalized and it is unknown as to what stage the Production Sharing Contract (PSC) is at. However, Fowzie contended that the PSC has been drawn up and that once it is handed over to the companies interested in offshore oil and gas exploration, the profit sharing, part of the PSC, is what the companies will have to offer.

The contract will subsequently be awarded to the highest bidder. Fowzie also added that the regulations under the Petroleum Resources Act have been finalized.
 

Sri Lanka to allow India, China to explore oil along its coast  -  China Institute, University of Alberta, 7 July 2007

COLOMBO, Sri Lanka (AP) - The Sri Lankan government has decided to allow India and China to explore for oil along its coast, a news report said Saturday.

India and China will be allowed to explore two of the six blocks identified for oil exploration off the island nation's northwest coast, the state-run Daily News quoted Petroleum Resources Development Minister AHM Fowzie as saying.

"The proposal received Cabinet approval this week. We will shortly call tenders for exploring the four remaining blocks," Fowzie said.

Sri Lanka, which now imports all of its oil and gas, might be able to produce oil within three years if exploration efforts were successful, according to the Petroleum Resources Development Ministry, which was established in 2005 to help facilitate the country's oil and gas exploration efforts.

The Gulf of Mannar, between the southern tip of India and the west coast of Sri Lanka, has been identified for the first phase of oil exploration, which is likely to begin in August 2007, the news report said.

Fowzie said many countries engaged in the oil trade, including giants Saudi Arabia and Iran, have been told about opportunities in Sri Lanka and have provided technical assistance and expertise for local oil exploration.

In October last year, a Norwegian seismic survey company, after completing a second phase of studies, said there may be oil and natural gas reserves off the west coast of Sri Lanka. An earlier survey had showed the possibility of small hydrocarbon reserves in the northwest Gulf of Mannar.

From the mid-1970s to the mid-1980s, overseas companies had explored areas off Sri Lanka's coast, but failed to find any oil or gas reserves.
 

China's Oil Quest Across India's Cauvery Basin, SAAG Paper no. 2181 - B. Raman 26.March 2007 (The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies.)

China's oil quest is set to reach the Mannar area of Sri Lanka adjoining the likely oil/gas bearing Cauvery basin of South India. A Chinese energy foothold in this key area has been facilitated by the Government of President Mahinda Rajapakse to balance an Indian presence in this area.

2. Exploration for oil and gas in certain parts of Sri Lanka between 1967 and 1974 did not yield any useful results. That exploration did not cover the Mannar area. In 2001, the Ceylon Petroleum Corporation awarded a contract for a seismic study of the Mannar area to TGS NOPEC, a Norwegian company.

Under this contract, the Norwegian company was permitted to sell the data collected by it to third parties too. It sold the data to the Oil and Natural Gas Corporation (ONGC) of India and British Gas, India.

In 2006, the Sri Lankan Government purchased the entire data from the Norwegian company for US $ 10.5 million and cancelled its right to sell the data collected by it to third parties.

According to Dr. Neil de Silva, Director-General of the Petroleum Resource Development Secretariat (PRDS), the data collected by the Norwegian company indicated the possibility of the presence of oil and gas in the Mannar Basin. The data was given to an Australian company, Spectrum, for analysis.

3. On September 22, 2005, A.H.M. Fowzie, the Minister for Environment and Natural Resources, stated as follows in a press interview:
"The Sri Lankan Government hopes to get foreign expertise for the exploration of oil and natural gas deposits in Sri Lanka. We have been informed that oil and natural gas resources are found in Sri Lanka from Puttlam to Matara and also in the Bay of Mannar as well."

4. During a three-day visit to New Delhi, Mangala Samaraweera, the then Foreign Minister of Sri Lanka, announced on May 9, 2006, that Sri Lanka would offer one oil and gas exploration block to the ONGC on a preferential basis. He said: “Given our close relations, we are offering one block on a preferential basis to the ONGC. We are confident that the discussion on this will be finalised soon."

5. During a visit to New Delhi in the third week of January this year, Fowzie announced that the Sri Lankan Government had divided the area to be explored into eight blocks, of which one each would be offered to India and China without bidding and there would be international bidding for the remaining six. He announced at Colombo on March 6, 2007, that the Government would be entering into a Memorandum of Understanding with the Government of China on the oil exploration process within the next two months.

6. Earlier, the "Asian Tribune" of Bangkok reported on January 4, 2007, as follows: "India’s state-owned Oil and Natural Gas Corporation Videsh Ltd. has announced that it will explore for oil and gas in Sri Lanka’s Mannar basin very soon. The ONGC Videsh Ltd said the company’s own experience in India’s Cauvery basin would help them to explore oil and gas in the neighbouring Sri Lanka. It has been speculated by geologists that the same Cauvery oil deposit string also runs beneath Sri Lanka’s Mannar bay."

7. In a press interview on March 4, 2007, Dr.Neil de Silva was asked what was the reason for the decision to offer one block to the ONGC without bidding. He replied as follows: "We have to collaborate with the Indian government in the management of oil in the border area.
This is because all over the world, oil and gas fields do not know the country boundaries and in many instances they span over country boundaries. Countries have agreements to exchange technical data. India has found oil fields but not close to our border. India is not tapping our oil."

8. He was then asked why a block was being offered to China without bidding. He replied as follows: "It is the government's decision. May be to strengthen relations with China. However, we have to live with regional politics. What we have to do is to manage them to get the maximum benefits to the country."

9. In other words, the policy of the Rajapakse Government is whatever benefit is offered to India, an equal benefit will be offered to China.

10. In the meanwhile, the US Embassy in Colombo has disseminated the following advisory to American oil companies:

"Sri Lanka is hoping to begin offshore oil prospecting soon. Licensing to open 6 drilling plots in the Mannar basin will be handled through a competitive bidding process. According to current plans, the exploration round will be announced in May 2007 with bids closing in December 2007. The Government hopes to do a road show after opening the bid round, including stops in the US, London, Dubai, and Singapore. The US stop will likely be Houston during the May 1 Offshore Technology Conference. In addition to the exploration round, the government is planning to procure the following services in Spring 2007:A. Designing the production sharing agreement; B. Designing a computer model to analyze and evaluate the exploration bids; C. Designing of the regulatory regime governing petroleum exploration (to be funded through a US Trade and Development Agency (USTDA) grant); and D. Designing and executing a marketing campaign to promote the bid round."

11. A press release issued by the US Embassy on March 14, 2007, stated as follows:

"Promoting energy security in Sri Lanka through the development of the nation's oil and gas sector is the goal of a grant from the U.S. Trade and Development Agency awarded today to the Ministry of Finance and Planning. The 51 million Rs. ($474,000), grant will fund technical assistance to the Ministry of Petroleum and Petroleum Resources Development in support of its efforts to develop a comprehensive oil and gas regulatory system and establish an organizational structure for the regulatory authority.

 The USTDA grant was conferred in a signing ceremony at the Finance Ministry in Colombo. U.S. Ambassador to Sri Lanka Robert Blake and Dr. P.B. Jayasundera, Secretary for the Ministry of Finance and Planning, signed the grant on behalf of the U.S. and Sri Lankan governments, respectively. The USTDA grant awarded today will help Sri Lanka transition from a consumer-driven to a production-oriented oil and gas regulatory structure, based on the Sri Lankan government's plans to open up promising offshore oil and gas blocks for exploration and development.

"Development of the offshore oil and gas sector could be an important opportunity for Sri Lanka to reduce energy imports, generate revenue and create jobs. The United States wants to help Sri Lanka maximize its potential gain from oil and gas exploration," said Ambassador Blake. Sri Lanka presently has no oil or gas production of its own and imports approximately 80,000 barrels per day. The establishment of a sound regulatory regime will contribute to Sri Lanka's nascent petroleum industry and reduce the nation's dependence on imports. "A well-developed regulatory structure is essential to attracting and keeping high-quality investors in the oil sector," remarked the Ambassador; "We hope our assistance will help Sri Lanka establish an open and transparent regulatory system that both protects Sri Lanka's interests and gives investors confidence that they can earn a worthwhile return on their investment."
 

Sri Lanka Will Seek Bids for Oil Exploration Licenses - Anusha Ondaatjie, Bloomberg News, April 5, 2007

Costlier oil and military purchases to combat separatist Tamil Tiger rebels have fanned consumer prices, curbing growth in the island's $26 billion economy. China and India, Asia's two fastest-growing economies, are competing for overseas oil and gas reserves to meet soaring energy demand.

"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 statement. "The oil and gas industry has the potential to change the destiny of Sri Lanka.''

Sri Lanka, a country that imports all its oil, will next month ask explorers to compete to develop a field that may contain 1 billion barrels of crude, 17 percent of neighboring India's reserves.

China and India's state oil companies have already been promised two of the Mannar basin's five blocks. Sri Lanka will seek bids to develop three remaining areas on May 1, said Neil De Silva, director general of petroleum resources development. Licenses will be awarded in early 2008, he said yesterday.

Sri Lanka needs to secure its own oil supplies to reduce petroleum imports. Costlier oil and military purchases to combat separatist Tamil Tiger rebels have fanned consumer prices, curbing growth in the island's $26 billion economy. China and India, Asia's two fastest-growing economies, are competing for overseas oil and gas reserves to meet soaring energy demand.

``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 statement. ``The oil and gas industry has the potential to change the destiny of Sri Lanka.''

Demand for fuel is rising in line with economic expansion, projected at 7.5 percent this year. Oil prices in New York have risen 5.4 percent this year to trade at $64.35 a barrel today.

West Coast

The auction for the three remaining blocks in the basin off Sri Lanka's west coast will be launched at an offshore technology conference in Houston on May 1, De Silva said in a telephone interview yesterday. Bids will be open until early November, he said.

China National Offshore Oil Corp., parent of overseas- listed Cnooc Ltd., may develop one coast, Petroleum Minister A.H.M. Fowzie said in an interview in Shanghai on March 1. The basin contains the equivalent of one billion barrels of oil, he said. The Beijing-based company may start exploration off the Sri Lankan coast by 2008, he said.

``A block will also be going to the government of India,'' De Silva said. 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.

China's Help

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.

Sri Lanka Oil Exploration Map Showing Cauvery Basin (yellow lines shows boundaries of Cauvery Basin on land, see map below), October, 2003, Sharp IOR eNewsletter. "...there is a resurgence of interest in offshore exploration in Sri Lanka, after a lapse of about 20 years. The main impetus is the success achieved on the Indian side of the Cauvery Basin, which straddles India and the north of Sri Lanka, where fields are in production and a significant discovery has been made close to the median line."

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 percent 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.
 

US grants Sri Lanka $474,000 to develop upstream licensing rules -  Platts, Singapore, March 23, 2007

The United States has given Sri Lanka a grant of Sri Lanka Rupees 51 million ($474,000) to fund the development of an oil and gas regulatory system, the US embassy in Sri Lanka said in a statement last week.

The grant will help Sri Lanka transition from a consumer-driven to a production-oriented oil and gas regulatory structure, based on the Sri Lankan government's plans to open up promising offshore oil and gas blocks for exploration and development, the US embassy said. Sri Lanka plans to unveil its much-delayed maiden bidding round around mid-April, oil minister A H M Fowzie told Platts earlier.

Some eight blocks have been identified in the Mannar Basin close to India's Cauvery Basin, but Sri Lanka has already promised two of these to China and India.

The contracting round was originally scheduled for the third-quarter of 2006 but has faced several setbacks as the government changed tack mid-way on the acquisition of seismic data.

Lack of adequate human resources and supporting infrastructure also caused the delay.

The creation of a regulatory regime will contribute to Sri Lanka's nascent petroleum industry and reduce the nation's dependence on imports, the US embassy said. "A well-developed regulatory structure is essential to attracting and keeping high-quality investors in the oil sector," Robert O. Blake, US ambassador to Sri Lanka, said.

Barring some sporadic exploration activities in shallow waters along Sri Lanka's west coast in the 1970s and 80s, which yielded nothing, the south Asian country has seen almost no upstream activity.

But since 2001, with help from the Asian Development Bank, Sri Lanka began taking steps toward exploring its upstream potential and in October 2005 set up a Ministry of Petroleum Resources Development under the president's office to manage oil and gas exploration and production activity.

The Mannar Basin, located between southwestern Sri Lanka and the Indian coastline in water depths ranging from 50 meters to more than 3,000 meters, lies immediately to the south of the Cauvery Basin, known for both oil and gas production in the Indian waters.

Sri Lanka currently relies on imports to meet all of its crude demand of around 42,000 b/d and 50% of its products demand of around 3.5 million mt/year (about 70,000 b/d).
 

Offshore back on agenda after Mannar basin rethink - Dr. Ray Shaw, Asian Oil & Gas, 26 April 2002, team leader of the ADB-Sri Lanka Project, University of New South Wales’ School of Petroleum Engineering.

With newly acquired seismic data serving to dispel earlier suggestions that the Gulf of Mannar basin was devoid of rift basin architecture, the Sri Lankan government is gearing up for petroleum exploration of its offshore areas for the first time in almost 20 years. Dr Ray Shaw* summarises the current state of play.

A recent report sponsored by funding from the Asian Development Bank recommended new fiscal and legal frameworks be implemented as part of a major overhaul of Sri Lanka’s promotion of its upstream oil and gas potential.

The report, prepared by the School of Petroleum Engineering within the University of New South Wales (UNSW) based in Sydney, Australia, sets out a draft Petroleum Resources Act as well as the conclusions of a technical review of the petroleum prospectivity of the offshore areas.

Prepared in 2001, the draft Petroleum Resources Act was being considered by a cabinet committee at the time Sri Lankan president Chandrika Kumaratunga announced the proroguing of Parliament and new elections. Following December’s election of a new government under prime minister Ranil Wickremesingsinghe and the appointment of Karu Jayasooriya as minister for power and energy, it is expected that reconsideration and passage of the bill will be high on the agenda during the first part of this year.

Once adopted, a formal announcement will be made outlining details of the bidding round process. This is likely to take place during a workshop to be held in Colombo at which senior government and UNSW representatives will outline in detail key legal, fiscal and administrative aspects of the new Act and technical conclusions of the report.

Earlier exploration

From an exploration perspective Sri Lanka has been virtually ignored by the international upstream oil and gas community for nearly 20 years. Prior to Petro-Canada pulling out in 1984 there had been a number of forays, between 1966 and 1984, by both Western and Soviet entities, principally focused on exploration within the shallow offshore areas of the Cauvery basin located off the Jaffna Peninsula.

During this period some 18,000km of seismic data were recorded and seven wells drilled, of which four were structural tests. All were plugged and abandoned without encountering commercial hydrocarbons, although the three stratigraphic wells drilled by the Soviets on Mannar Island (Pesalai 1, 2 and 3), were reported to have encountered wet gas shows at several levels. In the Palk Strait region of the Cauvery basin, Marathon drilled the Palk Bay-1 and Delft-1 wells and Cities Service drilled Pedro-1. Cities Service also drilled Pearl-1 on the eastern flank of the Gulf of Mannar basin located to the south of the Adam’s Bridge high which separates the two basins.

Principal targets were sought by Marathon and Cities within Cretaceous sands across horsts and tilted fault blocks in the Palk Strait region. Interest here was kindled by a flow on test of 1488b/d from Cretaceous sands in the PH-9-1 well located just 30km to the north of the Pedro-1 structure, within Indian waters of the Cauvery basin.

It was this interest in pursuing PH 9-1 lookalikes in the nearby shallow waters of the Sri Lankan Cauvery basin that focused attention away from the comparatively much deeper water setting of the Gulf of Mannar basin. Only Cities Pearl 1 well tested the Gulf of Mannar basin and that well was located high up on the shelf, again in shallow waters. Although penetrating a thick sequence of Cretaceous sands, Pearl-1 failed to encounter any shows. Terminating prematurely in Late Cretaceous basalts, similar in age to basalts in Asamera’s Mannar 1,1A well drilled on the northwestern Indian counterpart side of the basin, Pearl-1 led to speculation that this basin may be underlain by oceanic crust and so lack any of the syn-rift sequences thought to host the likely source rocks of the Cauvery basin to its north.

Alternative viewpoint

Contradicting this view, the UNSW report concluded that the area holding the best potential in the offshore Sri Lankan region is the Gulf of Mannar basin. The Bay of Bengal margin side of the island, first thought to have good potential, appears to have been transform dominated and much of the syn-rift sequences may have been detached during the inception of seafloor spreading along this margin. Following interest by a number of seismic acquisition companies, TGS-Nopec was awarded a licence by the Ceylon Petroleum Corporation (the national oil and gas enterprise of Sri Lanka) to acquire the first reconnaissance seismic coverage across the deeper water portions of the Gulf of Mannar basin.

During June and July 2001, some 1100km of 2D seismic were recorded by TGS-Nopec and subsequently processed by WesternGeco. Their preliminary results, presented in Singapore at a Southeast Asia Petroleum Exploration Society (Seapex) conference last December, confirmed the UNSW view and have now encouraged moves by TGS-Nopec to acquire a much more elaborate survey of some 7000-8000km across the Gulf of Mannar basin during 2002.

The previously-undescribed Gulf of Mannar basin developed during at least two periods of rifting and associated continental breakup, as part of the multiphase fragmentation of Gondwanna during the Mesozoic.

The first phase began as a precursor to the commencement of seafloor spreading in what is now the oceanic Bay of Bengal. This was followed by a second phase of rifting associated with the detachment of Madagascar from the western side of the developing Indian sub-continent, culminating in a second breakup unconformity at the top of the Late Cretaceous.

Subsequently the Sri Lankan margins entered a phase of subsidence, driven by thermal contraction, which continued until uplift and a major period of regressive sedimentation began in the late Miocene.

TGS-Nopec data has confirmed up to at least six seconds of section lies above basement in the Gulf of Mannar basin. Sediments comprise four packages. The oldest package, Megasequence 1, was deposited during the initial syn-rift phase of basin development, prior to the commencement of seafloor spreading west of Sri Lanka within the Bay of Bengal. Megasequence 2 sediments were deposited during the rift and sag phase, after the commencement of seafloor spreading in the Bay of Bengal but before the onset of spreading about the West Indian Ridge. The boundary between Megasequences 1 and 2 coincides with an Albian unconformity, whereas a Late Cretaceous to Paleocene unconformity separates Megasequences 2 and 3. Megasequence 3 was deposited during a Tertiary sag phase of basin development, which terminated in the late Miocene following compression. Subsequent basin-wide regression resulted in deposition of Megasequence 4.

Petroleum geology

There are three potential source intervals. The first are associated with the Upper Gondwanna Group sediments which occur in outcrop both on the Indian and Sri Lankan landmasses. These are likely to be mainly terrestrial and associated with initial syn-rift development. Another source sequence is associated with the basal transgression over the Albian unconformity, and the third with the open marine Cretaceous sediments. On the basis of synthetic burial history modeling discrete hydrocarbon generation phases are envisaged both in the Late Cretaceous-Early Tertiary and again in the Late Tertiary.

Good clastic reservoir intervals are predicted in Megasequence 2, based on the results of the Pearl-1 well. Megasequence 3 contains good potential clastic reservoirs towards the base, immediately overlying the breakup unconformity and carbonate reservoir potential is also present in the Paleocene to middle Miocene section.

There are a wide variety of potential trapping mechanisms including horsts and tilted fault blocks and associated compactional drape. Regionally, compressionally-induced traps together with turbidite-related and carbonate stratigraphic traps are recognized, there being a major fairway along the basin-floor and lower slope of the Sri Lankan margin comprising at least three discrete stratigraphic intervals of stacked and interbedded turbidite and channel deposits, some up to 1.0 seconds thick. Several structures have associated flat spots, phase changes and amplitude bursts on the seismic sections, consistent with direct hydrocarbon indicators. These occur across a wide range of stratigraphic levels.

Conclusions

A review of pre-existing exploration data together with recently acquired new seismic data clearly dispels earlier interpretations that the Gulf of Mannar basin is devoid of rift basin architecture. It is now established as a basin containing thick syn-rift and post-breakup sedimentary infill. The Gulf of Mannar basin represents a new deepwater frontier region which has the indicia for hosting significant hydrocarbon accumulations.