The quest for oil

SRI LANKA has begun its quest for oil in earnest. A report published in yesterday’s Daily News said three roadshows will be held in London, Houston and Kuala Lumpur to kick off the oil exploration drive in the offshore Mannar Basin.

Exploration is slated to begin in mid-2008 as seismic surveys show that more than one billion barrels of oil can be extracted from the sea off the northwestern coast.

Although Sri Lanka has been prospecting for oil for a number of decades, this is the first time that high-tech data has been made available to the Government.

If oil drilling finally takes place, Sri Lanka can look forward to a substantial saving on its annual fuel import bill, which amounted to US$ 2.1 billion last year. The actual cost to the exchequer is much higher, when subsidies are taken into account.

With China and India already in the picture, there will be considerable interest in the three blocks on offer as international oil prospecting companies are always keeping an eye on new reserves.

This can be attributed to the finite nature of the oil resource and any new oil fields are worth a premium. The healthy competition will also enable Sri Lanka to negotiate beneficial terms with the prospecting companies, most of which are owned by Governments.

The discovery of oil will hopefully have a positive impact on the cost of living, which has escalated in recent times thanks largely to the high cost of oil. Net importers of oil such as Sri Lanka are the hardest hit by the upward movement in world oil prices.

On the other hand, oil producers are in a position to release some of their own sticks to the domestic market to keep pump prices low.

Another positive development is the proposed expansion of the Sapugaskanda refinery, which will enable Sri Lanka to refine more crude oil, instead of importing finished products (diesel/petrol). This will also result in a substantial saving of foreign exchange.

Eventually, fuel subsidies too will have to be abolished as such a massive cost is not sustainable in the long term.

Domestic oil could well pave the way for the abolition of these subsidies. Such monies can be diverted to development projects.

In the meantime, a little bit of austerity will not hurt. We must bear in mind that most of the oil imports go towards power generation, as we are heavily dependent on thermal generators.

Moreover, diesel is sold to the Ceylon Petroleum Corporation way below market price, increasing the burden on State coffers.

Turning off even a single lightbulb or fan can make a difference. If everyone makes it a habit to switch off unnecessary appliances and bulbs, the cumulative gain will be tremendous. The same goes for transport. Just walking to the junction instead of taking the car can reduce your fuel bill and lessen the impact on the environment too.

Sometimes, travelling may not be necessary at all - just reach for the phone instead of the car keys.

Given the state of our public transport system, it will not be easy to lure motorists to give up the car keys, though.

An extremely efficient, clean, well-run integrated public transport system could convince them to leave the cars at home or at a designated car park. A subway seems to be the ideal solution. It will be a huge investment, but the long-term benefits in terms of savings on oil bills must be considered.

But these practices must not be abandoned the moment oil is discovered off our shores. They will help keep the economy buoyed by oil in an even better shape.