The latest iteration of the flames of conflict which has been fanned off and on in the Middle East is once again causing anxiety in Sri Lanka as the island nation’s vulnerable energy security posture is once again highlighted. Concerns mount in Sri Lanka as reports of commercial vessels plying the Strait of Hormuz making detours continue to increase.
According to Reuters, at least two supertankers made U-turns near the Strait of Hormuz following US military strikes on Iran, going by ship tracking data. The direct entry into the Iran-Israel conflict in the region has prompted other vessels to speed up, pause, or alter their journeys. With such disruptions to critical energy supplies afoot, and concerns about Iranian-proxy Hourthi rebels in Yemen resuming their attacks on commercial shipping, Sri Lanka’s ability to weather such disruptions and inherent vulnerabilities become more apparent. With forecasts suggesting that oil can surge to over US Dollars 100 a barrel. Both Brent and West Texas Intermediate crude hit fresh five-month highs on Monday in choppy trade as investors weighed the potential risks to supply.
The situation puts Sri Lanka, still on an economic recovery path in a difficult situation. Last week, Cabinet Spokesperson and Health Minister Dr. Nalinda Jayatissa rubbished claims on social media suggesting an imminent fuel shortage due to the Iran-Israel conflict. He stated that Sri Lanka currently has enough fuel reserves to last at least two and a half months and that there is no cause for alarm. However, Sri Lanka’s usable fuel and crude oil storage capacity has long been found wanting. This despite the massive oil storage facility built by the British Admiralty in the 1930, in China Bay, Trincomalee, as it has been left to rot and not been refurbished up to now, even though the 99-tank farm has been jointly ‘managed’ by Indian State oil company and Sri Lanka’s State-owned Ceylon Petroleum Corporation for decades. Yesterday (23) the CPC told The Daily Morning that it is planning to take necessary measures if any possible fuel crisis arises in the future due to the ongoing conflict and escalating tensions in the Middle East. The CPC claimed that there would be no immediate change in domestic fuel prices. However, they said that they are planning to take necessary steps to manage the situation if the crisis escalates. The CPC predicts that the impact of the emerging global oil crisis could linger into August and September. As part of its contingency measures, the CPC also plans to test oil samples from several alternative countries, including Nigeria, in case of disruptions to traditional supply chains. CPC Managing Director Dr. Mayura Neththikumarage said that the CPC is currently in discussions with other parties to purchase fuel. He stressed that the CPC is taking every possible measure to address any potential disruptions in the fuel supply. However, such short-term remedies will do little to improve Sri Lanka’s national resilience or energy security and efficiency in the long term. Sri Lanka must act now to build storage and refining capacity, while diversifying our energy market to include more from renewable sources, and to reduce dependence on imported fossil fuels and coal which is used to generate electricity.
In March this year, the Government approved a project to develop 24 oil storage facilities in the upper Trincomalee area under a 50-year lease agreement signed in January 2022. The CPC, in collaboration with the Sri Lanka Indian Oil Company (IOC) and the Trincomalee Petroleum Terminal Company, has conducted feasibility studies and secured approvals from relevant authorities, it was reported. However, Sri Lanka should have a distributed energy storage plan, with all its eggs not kept in baskets in Trincomalee, Sapugaskanda or Muthurajawela. With a fully operational port in Hambantota, a strategic reserve for petroleum products such as diesel, petrol and aviation fuel can be built in the South, creating a safer distribution of storage for the island. If the Government is firm regarding plans by Sinopec to build a refinery in Hambantota with the aim of both export and domestic sales, then the increased storage near it makes economic sense. Let’s not forget that Sri Lanka once also explored options for leasing unused fuel tanker vessels as makeshift ‘floating storage’. The need for a national policy on energy security, which includes increasing storage capacity and diversification, is a timely need.