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Should Sri Lanka engage floating LNG Regasification vessel to secure electric power?

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Should Sri Lanka engage floating LNG Regasification vessel to secure electric power?Sri Lankan government joins a bandwagon of regional countries such as India, Bangladesh, Pakistan, Indonesia, Malaysia, Thailand, Myanmar, Philippines, Vietnam, and Cambodia turning to regassified LNG (liquefied natural gas) as a primary energy source to supplement their other energy sources. South Asia is becoming the epicentre in LNG regassification with these countries turning to a gas-based economy to benefit from increasing global LNG supply with their lower harmful emissions to meet the COP 15 net zero targets.

They too face similar challenges as SL in their energy policy formulation and as such gives GOSL the confidence that FSRU may offer a possible solution today and to the immediate future. They would have scrutinised the risks and their rewards carefully. There are no missteps by those regional governments on record, as having taken the wrong decision in securing a FSRU, so far. All these countries have a higher credit rating than SL having guided their economies better than SL. (

SL is almost in ‘default category with no prospect of recovery’ against all the other countries in a far better position per their credit rating from whom lessons have to be learnt, as a minimum of their energy policy.

Countries and economies need to transition sustainably. Some primary energy sources such as LNG that are not completely ‘green’ will nevertheless be needed to assist an economy transition to net zero carbon emissions. However, investing in a reduction in carbon emissions energy source such as LNG can still be an important part of the transition, even if the immediate outcome is not zero emissions.

The current proposal by NFE is seen as a much sought-after investment by a US company when SL is desperate to attract any foreign investment to provide some confidence to the global investor community. This is the most opportune time given Sri Lanka investment credit rating having reached junk status needing a boost.

All past GOSL FSRU tender invitations in about three or four attempts were only meaningless academic exercises with no guarantee of payment by a investment grade credible entity.

This is akin to GOSL seeking to purchase a new Rolls Royce with no money even to buy an old Morris Minor, engaging highly paid consultants who see ‘cash in chaos’, and taking the GOSL for a ride. The last invitation to tender proposed under Swiss challenge process against SKE&S’s unsolicited proposal did not attract a single bid after more than four or five extensions to the closing date of tender over a period of more than about eight months.

Should Sri Lanka engage floating LNG Regasification vessel to secure electric power?The current CEB tender is no different with no guaranteed payment security package by a credible investment grade party offered to the bidders which will eventually be required.A toxic combination of misinformation in the public domain and unregulated malfunctioning of the electricity sector by the Ministry of Power and CEB has crippled SL’s economy perhaps beyond repair.Understandably they will attempt to wrest control over this project from any other competing ministry.

India facedmanychallenges in these projects in countering misinformation in the public domain by self-appointed expert pure academics, who had no exposure to the industry norms, the complex technology, any understanding, or experience in the highly specialised nature of offshore oil and gas business and their complex commercial transactions.This was found to be the case when the writer was consulting for ONGC, Govt of India on their premier offshore gas project in Krishna- Godavari KG-DWN-98/2 offshore floating pioneering vessel.SL is not any different with misinformation from those with vested interests and ignorant of the complexity of the business or the industry norms.

The upstream oil and gas industry remains a high risk-high reward business with risk sharing mechanisms inbuilt to safeguard the parties involved, which have matured over 100 years. They operate under multiple overlapping jurisdictions and established proven industry norms.This cannot be understood overnight by academics in total isolation making outlandish demands and should not be continued thus creating total confusion within themselves, with the public at large and policy makers.

What is LNG and how can we use it?

LNG is a clear, colourless and non-toxic liquid which forms when natural gas is cooled to -162ºC (-260ºF). The cooling process shrinks the volume of the gas 600 times, making it easier and safer to store and ship. In its liquid state, LNG will not ignite. In its gaseous state is highly explosive could lead to catastrophic environmental disasters.

When LNG reaches its destination, it is turned back into a gas at regasification plants. It is then piped to homes, businesses and industries where it is burnt for heat or to generate electricity. LNG is now also emerging as a cost-competitive and cleaner transport fuel, especially for shipping and heavy-duty road transport as well.

Why LNG now?

The global energy landscape is continuously changing. The global energy mix is shifting, driven by technological improvements and environmental concerns. More than ever, energy policies of all countries need to adapt to meet those changing energy needs.

A decade of volatile energy prices, alongside increasingly dire warnings of climatic disaster and emissions related ill-health, has pushed energy security and climate change steadily up the global policy agenda. The rhetoric within governments and the public has emphasized the immediate need to deal with all these challenges all at once.

However, challenges such as energy security, energy affordability and climate change do not always align. Thus, many important decisions in primary energy sources including natural gas, coal, oil and renewables involve complex tradeoffs and force policymakers, their advisers, the public and the media to be confused unable to navigate these complicated issues. Understandably, this results in conflicting reports reaching the public and the policy makers.

A fixed and unbending energy policy is unsustainable. In response, the national energy policies and energy mixes of countries are being revisited. Any energy policy should be affordable, pollution free and reliable without interruptions. Energy security is the confidence of sustained supply of affordable energy efficiently and economically to meet the demand for a ‘given time’. Those countries exposed to excessive fossil fuels imports such as Sri Lanka are most prone to these changes.

A global energy price has entered a new paradigm with changing natural gas dynamics. The supply abundance of natural gas affected LNG pricing levels with the oversupply, driving prices downward about 5 years ago.

Another development affecting the energy policy is the results of Conference of Parties 21st (COP 21) conference in Paris 2015. ‘Parties’ relate to countries that ratified the UN Framework Convention on Climate Change (UNFCCC) in 1992 and include Sri Lanka as a signatory. In two decades of UN negotiations, COP26aim to achieve a legally binding and universal agreement on climate, with the aim of keeping global warming below 2°C.

Its overall message was a desire to move long term global economies away from fossil fuels and towards renewables. The near-term challenges are the detrimental effects of poor air quality on public health and economic development. The global social and political groundswell illustrated by COP 21 Agreements suggests that natural gas can be a critical part of the globe’s energy mix.

Natural gas has many benefits – it is abundant, flexible and a perfect complement to intermittent renewable for electricity production during this transition period. Natural gas also has a lower impact on climate change and lower carbon and particulate emissions that contribute to poor air quality and ensuing health concerns.

When the Kerawalapitiya power plant was established in 2006, it had the capability of running on diesel or natural gas. As power from LNG is much cheaper than producing electricity with diesel, the LNG storage, offloading, regasification for pipeline transmission and power generation should have been conceptualised, techno-economic feasibility studied, project planned and executed over the past 15 years. Although several proposals were made, CEB and the Ministry of Power failed to establish are gasified LNG operation. A failure to produce regassified LNG as natural gas would enable CEB to continue producing power using diesel which is most uneconomical primary energy source thus continue increasing the losses to the GOSL.

Natural gas faces challenges

However, LNG too must face challengers due to the Greenhouse Gas Emissions in its value chain which should be recognized. LNG production incurs GHG emissions which require carbon capture and storage (CCS) technology which is still uneconomical. LNG produced without CCS in most parts of the world greenhouse gas emissions violate in meeting COP 2015 Paris targets, eventually meeting zero emissions.

This may have an impact on future global LNG production’s individual domestic energy policies. These are factors currently debated globally with the threat of climate change. These concerns may arise during the COP 26 meeting in Glasgow in Nov 2021.

The European Union is currently putting the final touches on a climate portion of sustainable financing classification meant to drive private capital toward clean energy alternatives. The EU understands that categorising natural gas as a clean alternative would violate EUs own targets, including its own greenhouse gas emission goals. While natural gas is viewed as a bridge to a cleaner future because its carbon emissions are lower than coal or crude oil, it is still a polluting fossil fuel.

Countries and economies need to transition sustainably. Some primary energy sources such as LNG that are not completely ‘green’ will nevertheless be needed to assist an economy transition to net zero carbon emissions. However, investing in a reduction in carbon emissions energy source such as LNG can still be an important part of the transition, even if the immediate outcome is not zero emissions.

What is a FSRU? How does NFE’s FSRU work?

The figure above shows Moheshkhali FSRU Bangladesh with its submerged turret loading mooring and dynamic riser exposed to monsoons operating since 2018.

The vessel has a disconnectable mooring which disconnects from the vessel by lowering the swivel during high storm surges (such as monsoons) and reconnects when the weather is benign. The vessel weathervanes (rotates) about the single point mooring with the oceanographic variations in wind, wave and current.

The vessel motions are determined analytically and verified by model tests to meet essentially Classification Society requirements. There are other forms of shallow water moorings.

The mooring and riser technology is proprietary and technically complex in which the writer has specialized along with the commercial transactions in vessel leasing and operations under complex multiple jurisdictions.

Floating Storage and Re-gasification Unit FSRU is a floating vessel that is permanently moored at a site where it can receive LNG from carriers, store and re-gasify the LNG and send it as natural gas to shore via a subsea pipeline at a rate required by the natural gas users. The natural gas upon receipt at landfall from the FSRU would be transferred via pipelines on land to the end user power generators at Kerawalapitiya.

NFE has proposed the FSRU regassification facilities with all the associated pipelines as a foreign investment proposal which was accepted by GOSL.

NFE will be supplying a floating storage and regasification unit (FSRU) and the associated pipelines to feed the power generators in Kerawalapitiya. The project components are leased being supplied under EPCIC (Engineering, Procurement, Construction, Installation and Commissioning) and O&M (Operation and Maintenance) terms of responsibility for a specified period called the ‘fixed term’ with a period of optional extensions. NFE would remain as the single point responsible for all components up to the end user of the gas.

The removal of the existing installation or transfer of the project components to the client at the end of the lease term usually is an option. This is the industry standard of the lease of these vessels of which the writer has been associated for about 25 years. In the case of SL the vessel will be handed over to GOSL for continued operation after its tenure with NFE. In some countries the vessel when handed over has been a liability being a ‘rust bucket’ having a considerable negative value requiring the taxpayer to fund its removal in excess of USD 50 million.

The ability of GOSL to undertake the operation and maintenance at hand over may raise questions in securing insurance such as P&I insurance, when the operator’s competency will be questioned by the insurer. This is a form of due diligence in determining GOSL’s capability by an independent third party.

This is completely new technology to Sri Lanka, lacking any exposure inter alia to any form of offshore oil and gas industry standards, codes, practices, industry norms, risks, Classification Society rules under which these facilities are designed, insurance requirements, and health safety and security and environmental practices.

In the case of the NFE’s proposal, they would be the ‘single point responsible party ‘for all the components until the gas is delivered to the end user at Kerawalapitiya.

The FSRU is expected to have a regasification capacity RLNG of 380mmscfd and a LNG storage capacity of a minimum 156,000 cbm.

The FSRU will be moored offshore Colombo Port in ‘open water’ in relatively shallow water or at a suitable location alongside the jetty. The offshore mooring location in ‘open water’ Colombo Port is based on earlier safety studies, hazard identification and navigational simulations in determining risks to other vessel movements.

The navigational simulations related safety studies were carried out by GOSL some time ago allowing for any future larger vessels entering the port.

However, it is expected that a fresh feasibility study may be carried out by NFE to revalidate the previous numerous conceptual studies carried out by GOSL.

The mooring locations offshore in open water are expected to be exposed to monsoons. Based on similar met ocean conditions that include exposure to monsoons in similar water depths, the vessel is expected to weathervane under a submerged turret loading (as is the case of the Bangladesh Mokheshwali FSRU with a submerged turret loading mooring) or tower yoke mooring in Lumpung FSRU in Indonesia. The vessel would operate to be station permanently for the duration for the lease under UWILD (under water inspection in lieu of dry-docking ) conditions where the vessel will not be required to be taken to a shipyard every 5 years for a special survey as required by IMO, which would interrupt the delivery of natural gas.

The expectation is that should the vessel be exposed to monsoons as in Bangladesh, the vessel would disconnect from the moorings during the exposure to very high storm surges and reconnect when the weather is benign.

(A disconnectable mooring system is where the floating installation system that has a propulsion system and a means of disengaging the installation from its mooring and riser systems to allow the installation to ride out severe weather or seek refuge under its own power for a specified design environmental condition. A disconnect able moored vessel under monsoon conditions requires a full marine crew and must be flagged as required by IMO with the vessel likely being in transit during its tenure- the writer has supplied many of these complex mooring systems which remain proprietary technology)

Records of cyclones have been noted in the region which would require verification which would then mandate a disconnectable mooring.

The expectation is that the FSRU would be ‘converted’ from an existing trading vessel in a shipyard given the cost and schedule advantages. The shipyard is expected to be in Singapore where the writer has worked on a number of these vessels. The H Energy FSRU for India was just converted in Keppel Shipyard, Singapore from a trading LNG carrier to a FSRU and installed offshore Mumbai India in Sept 2021.

Every floating system project is unique and so are the contractual terms given the significant number of variables. The contractual terms are strictly confidential and generally not in the public domain. The contractual terms in the writer’s possession cannot be released except under a NDA.

The writer Nalin Gunasekera now has spent about 40 years in the offshore upstream oil and gas industry and about the last 26 years in executing projects in leasing and operating offshore floating regassification type units globally in more than 10 countries in some under difficult jurisdictions and fiscal regimes and sensitive offshore environments representing Royal Dutch /Shell, and later Mitsui and Mitsubishi, who are some of the largest LNG vessel owner operators and LNG traders in the world. Shell is the licensee for the largest gas reserves in the world and the custodian of gas and floating system technology. The writer has been awarded the Anniversary Technical Excellence Award by Shell for floating system being a ‘market trend setter’. He has made presentations on these projects in New Zealand, Australia, Singapore, Thailand, Malaysia, Japan and Indonesia and recently to Lloyds Register London, India and Singapore over zoom. The writer has been in the roles of client, consultant and contractor representing the largest institutions in this business globally. The writer trained as an Engineer in University of Ceylon and at University College London as a Sri Lanka government post graduate scholar and lives in Australia, the largest LNG producer in the world in 2021 and the host to the highest density of LNG floating production vessels in the world and technically most advanced ever built Prelude by Shell, costing USD 12 billion. He can be accessed via:

To be continued tomorrow…

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