The quest for oil

Another important step has been taken in the country’s quest for oil. Bids have been opened for the Mannar Basin Blocks. Two Indian and one Cyprus company have submitted bids. China will also be involved in the exploration.

Petroleum Minister A.H.M. Fowzie says the bids will be evaluated in three months, to expedite the process of oil exploration. As many as 18 oil and 11 gas reserves have been identified on the Indian side of Cauvery Bay in the Gulf of Mannar.

The Mannar Basin, located between southwestern Sri Lanka and Indian coastline in water depths ranging from 50 metres to more than 3,000 metres, lies to the south of Cauvery Basin - known for both oil and gas production. Experts estimate the new sites may contain millions of barrels of crude oil.

As the Minister has emphasised, this is a historic event which will be a boon for Sri Lanka as it steps into the 61st Year of Independence. For far too long, we have depended on foreign oil.

In fact, we spend billions of US dollars per year to import crude and refined petroleum products mainly from the Middle East.

Sri Lanka currently relies on imports to meet all of its crude oil demand of around 42,000 barrels a day and fifty per cent of its products demand of about 70,000 barrels a day.

The discovery and exploitation of oil, plus increased capacity at local refineries, will enable Sri Lanka to cut down drastically on this fuel import bill.

We salute the Minister for maintaining transparency and accountability at every stage of the oil quest. This is essential for a massive project of this nature and there will be no room for any allegations.

However, one cannot expect success overnight. It will take several years for oil production to reach profitable levels. In the meantime, Sri Lanka - and Sri Lankans - will have to live with the high cost of oil in the international market.

The recent oil price hike came as no surprise, as an upward revision of prices was expected with world crude oil prices touching US$ 100 per barrel. Sri Lanka, a net importer of oil, has no other option in the face of this escalation.

Petroleum is perhaps the most vital component in passenger and goods transport. Thermal power generation is also heavily dependent on oil. Kerosene is widely used in rural homes for cooking and lighting. Thus the immediately casualty of the oil price rise is the cost of living.

But further subsidies will not be the answer. We quoted the World Bank’s Chief Economist for South Asia yesterday as saying that shielding consumers from the real prices of petroleum products will ultimately cause a great harm to the economy.

Thus the Government has no other option. Asian countries including Sri Lanka have been traditionally subsidising fuel to shield the public from the negative effects of fuel price rises.

The Treasury has spent a staggering Rs. 2.5 billion every month to keep the oil prices artificially low. If world oil prices remain even at current levels without a further rise, the State will have to spend more than Rs. 30 billion a year to subsidise oil prices.

A developing country such as Sri Lanka cannot afford to allocate funds in this manner every year. Such funds can otherwise be spent on development and essential welfare programmes.

Obviously, the State is still subsidising fuel prices up to a certain extent, but the subsidy bill will be more manageable. The eventual goal should be ending fuel subsidies altogether.

We have to face the harsh reality of a relentless escalation of global oil prices. In this context, there are various steps that we can collectively take to minimise the effects of the price hike.

The first step is saving power. You may not realise it, but most of our fuel imports go to power massive thermal generators which supply electricity to homes across the island.

Thus switching off even one light bulb or unwanted appliance can make a difference. It might seem a minor gesture, but if this advice is followed in offices, homes, factories around the island, it will lead to a massive saving.

In the end, though, oil is going to run out around the world as it is a finite resource. It might take several centuries, but future generations will certainly see a world without oil. Sri Lanka must join hands with the rest of the world in developing and deploying renewable sources of energy to meet this huge challenge.