Natural gas and development

On Sunday, President Mahinda Rajapaksa announced that exploration teams have found a large natural gas deposit on the seabed within Sri Lanka's territorial waters. He added that it was his hope that oil would be discovered as well.

The discovery was made by Cairn Lanka, which has three of eight blocks in the Mannar Basin, where they have been drilling since August. The company said that it had struck a 25-metre hydrocarbon column showing primarily gas, with potentially other 'liquid hydrocarbons' meaning oil.

Cairn had drilled a 'wildcat well', that is one on land not known to be an oil or gas field and not in the vicinity of known fields. The well, CLPL-Dorado-91H/1z had been drilled at a water depth of 1,354 metres (4,442 feet).

Economic infrastructure

Cairn also said that further drilling would be required to establish whether the find is commercially viable. The company's reticence is understandable. There have been trace finds of petroleum before - most famously at Pesalai in 1975 - but none was substantial.

Scientists have long known about the existence of fossil fuels in the area, but not where to find commercial deposits. It was for this reason that the government has been leasing out potential fields to petroleum firms with the requisite technology.

Cairn's discovery is of immense importance to Sri Lanka. In the first place, the government will get income from the royalties for the gas extracted.

This would mean that, for the first time since the 1950s Korean War boom, there would be sufficient government funds for significant spending on essential social and economic infrastructure.

In the second place, the drilling rigs in the Gulf of Mannar will require shore facilities, such as hostels, hotels, shops and entertainment localities for the workers. This should bring economic development to the littoral - from Mannar to Galle.

Natural gas

Most importantly, it would enable the replacement of imported fossil fuels (oil and coal) with relatively clean and green (albeit non-renewable) natural gas. At present Sri Lanka spends over US $ 3 million per year on petroleum imports.

The proximity of the fields would mean the gas could be sent via pipeline to the requisite destination - for example to the Kerawalapitiya and Kelanitissa power stations, which already have natural gas capability.

The existing thermal power plant could gradually be converted to, or replaced by natural gas fired equipment. New power stations could be set up closer to the gas fields, and in areas of high load - to which gas could be piped. Natural gas can also be used to replace liquid petroleum gas (LPG), which is relatively dirty, in both commercial and domestic applications. It could be piped to hotels, bakeries and other establishments for cooking, high-grade heat and emergency generators.

Natural gas could also be supplied to homes. Older denizens of Colombo will remember when town gas was piped to individual houses. This experience could be replicated, with natural gas being available on tap.

It would certainly be more convenient than lugging around heavy LPG cylinders.

Natural gas could also be used in the transport sector, to replace diesel and petrol. The savings would be greatest in pubic transport.

In many countries, buses and taxis are fuelled by compressed natural gas (CNG) - which makes for lower emissions as well as cheaper operation.

Domestic product

Railway locomotives and power sets could also be converted from diesel to CNG. This would be an important halfway measure on the way to converting them to electric traction.

There is also the possibility that we would be able to export much of the gas to neighbouring countries - thereby strengthening our ties. Tamil Nadu is undergoing a chronic power crisis and we could aid it and other states - with of course commensurate additional income.

However, amidst all the rejoicing at this great opportunity, there should be a small caveat. Shakespeare said:

'There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life is bound in shallows and in miseries.'

It is necessary for Sri Lanka to take hold of this opportunity with both hands. It must be circumspect, however in how it sets about taking advantage of it.

Nigeria is a country blessed with large petroleum reserves and is the eighth largest exporter in the world. Nevertheless, its per capita gross domestic product is about the same level as Sri Lanka's and its human development index is much lower.

Corruption and mismanagement

Although it has been exporting oil since the 1960s, it took until 2006 to pay off its foreign debt, most of which had accumulated in the period after oil exports began.

Nigeria was dogged by corruption and mismanagement. Loans were taken at an unsustainable rate. There was no proper development of alternative income sources. The country was thus for many years poorer than when its main exports were peanuts and cocoa. It was not an isolated example, either. Many other countries, such as Ecuador and Venezuela, found themselves in the same predicament.

If Sri Lanka is to avoid being 'bound in shallows and miseries' it must be careful to avoid the excesses of the Korean War boom, during which the earnings were squandered.

We must use the revenues from gas appropriately - not on conspicuous consumption but on sober investment. Our productive sectors need improvement and our infrastructure needs apposite modernisation.

Introducing more modern technology to backward sectors could increase our productivity. Sri Lanka could perhaps establish an investment fund, which would target the purchase of companies, the technology of which could be transferred here.

What we should avoid are the excesses that took place in some countries, with massive spending on huge and unnecessary construction projects and other prestige-related paraphernalia.