LNG Investment in Sri Lanka: A Risky Road Ahead 📈

Sri Lanka’s decade-long pursuit of Liquefied Natural Gas (LNG) and Floating Storage and Regasification Units (FSRUs) remains stalled, facing significant financial and contractual hurdles. Despite numerous MOUs, no project has reached operational status. • Financial Risks & Credit Hurdles Sri Lanka’s poor credit rating prevents reputable global suppliers (e.g., Golar, Hoegh) from bidding. LNG infrastructure is highly capital-intensive; globally, only 6%-10% of proposed FSRU projects reach fruition. Dual-fuel plants like Yugadanavi (300 MW) and Sobadhanavi (350 MW) currently run on costlier HFO/diesel due to lack of LNG. • Contractual & Market Complexities "Take-or-pay" clauses risk heavy penalties; India previously faced a US$ 1 Bn penalty for contract breaches. Global price volatility is extreme, with costs ranging from US$ 12 to US$ 70 per MMBTU. Vessel leases often exceed 15 years, creating long-term liabilities. • Operational & Social Barriers Environmental clearances can take decades due to high population density and safety concerns. Pipeline projects face "NIMBY" (Not In My Back Yard) protests, similar to challenges seen in Thailand and local oil line leaks in Colombo. • Strategic Outlook Energy Minister Kumara Jayakody has signaled a cautious pause on further commitments. Experts urge a shift toward renewable energy resources to ensure a resilient and diversified national energy strategy.