By: Staff Writer
January 13, Colombo (LNW): Sri Lanka’s new government has decided to reactivate a previously suspended liquefied natural gas (LNG) agreement with US-based New Fortress Energy, marking a significant step toward reducing energy costs and transitioning to cleaner fuels. This decision reflects the government’s effort to modernize its energy infrastructure while balancing relationships with global partners, including India and China, despite controversies surrounding past LNG procurement processes.
The government views LNG as a transitional energy source that complements its renewable energy goals while ensuring affordable and reliable power for citizens. Energy Minister Kumara Jayakody announced plans to revive a tender for an LNG terminal to support two major combined-cycle power plants, which currently rely on costly liquid fuels.
Speaking in parliament, Jayakody highlighted the importance of LNG in reducing energy expenses and supporting the shift to cleaner energy, although he acknowledged coal remains the cheapest thermal option. Despite this, Sri Lanka has pledged not to expand coal-based energy projects.
Renewable Energy Expansion and LNG’s Role
Sri Lanka is striving to enhance its renewable energy capacity, particularly through solar and wind projects. However, these energy sources are intermittent and require backup to maintain supply reliability. LNG is positioned as a crucial transitional fuel to bridge the gap between liquid fuels and the country’s expanding renewable energy portfolio.
Controversies and Policy Revisions
In 2023, an open international tender awarded a China-Pakistan consortium, led by Engro, the contract to supply LNG and develop a pipeline network aimed at significantly reducing power production costs. However, this initiative was suspended in 2024 when the government, under a new energy policy, halted key LNG projects.
These included plans for a floating storage and regasification unit (FSRU) off Kerawalapitiya, an offshore and onshore LNG transmission pipeline network, and an onshore receiving facility.The suspension created an opportunity for India’s Petronet LNG Ltd. to enter the market.
India’s Petronet LNG Entry
India’s largest LNG supplier, Petronet LNG Ltd., is set to begin supplying Sri Lanka with LNG in 2025. Initially, Petronet will deliver 850 tonnes of LNG daily using containers, eventually transitioning to a floating LNG receipt facility at Colombo Port.
According to CEO Akshay Kumar Singh, Petronet plans to source LNG from Qatar, Australia, and other suppliers, with shipments originating from its terminals in Gujarat and Kerala. This initiative aligns with Sri Lanka’s goal of diversifying energy partnerships while reducing costs.
US-Based New Fortress Energy’s Resurgence
New Fortress Energy (NFE), a US-based energy developer, has resumed its plans for LNG infrastructure in Sri Lanka after the Supreme Court dismissed opposition petitions in 2022. NFE originally signed an agreement in 2021 to develop an LNG terminal off Colombo’s coast and supply LNG to major power plants.
Under the agreement, NFE secured gas supply rights for the Kerawalapitiya Power Complex, which includes the operational 310 MW Yugadanavi Power Plant and the 350 MW Sobadanavi Power Plant, expected to begin operations in 2023.
NFE plans to supply an initial volume of 1.2 million gallons of LNG per day, significantly advancing Sri Lanka’s energy modernization efforts. Wes Edens, CEO of NFE, emphasized the project’s importance, stating it delivers cleaner, reliable, and affordable energy, while supporting sustainable development and economic growth.
Balancing Global Partnerships
Sri Lanka’s energy strategy highlights the country’s balancing act among major global players: the US, India, and China. While China’s earlier bid encountered setbacks, India’s Petronet LNG is now positioned to play a central role in Sri Lanka’s energy transition. Meanwhile, New Fortress Energy remains committed to advancing its LNG projects.LNG is seen as a transitional fuel bridging the gap to renewable energy by addressing supply reliability issues. However, Sri Lanka faces the challenge of navigating complex international partnerships while meeting domestic energy needs. Balancing these priorities will require careful policymaking as the nation seeks to achieve energy sustainability and affordability.
