En­ergy firms to ben­e­fit from Lanka’s port projects

The Gulf Today - Business - - Region3 -

COLOMBO: China-led in­vest­ments in Sri Lanka’s ports, with a goal of turn­ing the is­land na­tion into a ship­ping hub along the Belt & Road, will spur in­ter­est among both Chi­nese and non-chi­nese com­pa­nies in de­vel­op­ing en­ergy fa­cil­i­ties such as re­finer­ies and LNG ter­mi­nals. If fi­nan­cial and po­lit­i­cal risks can be over­come, these would rep­re­sent an im­mense boost to Sri Lanka’s nascent en­ergy in­fra­struc­ture sec­tor.

Belt & Road in­vest­ments in Sri Lanka have so far been dom­i­nated by two China Mer­chants Group -led port projects - one in Colombo and one in Ham­ban­tota - but an­a­lysts high­light that the longterm goal of turn­ing the is­land na­tion into an In­dian Ocean ship­ping hub will spur in­ter­est in en­ergy in­fra­struc­ture over the next decade. Although fi­nan­cial vi­a­bil­ity of greenfield LNG ter­mi­nals, oil re­finer­ies and bunker­ing fa­cil­i­ties in Sri Lanka is un­cer­tain given low mar­itime traf­fic vol­umes and lim­ited do­mes­tic en­ergy de­mand, ge­o­graphic and geopo­lit­i­cal fac­tors sup­port the sec­tor’s long-term po­ten­tial.

Ham­ban­tota, in par­tic­u­lar, lies just 20km from key ship­ping cor­ri­dors be­tween Europe, the Mid­dle East and Asia that carry, among other goods, nearly 65% of the global oil trade. China’s sus­tained fo­cus on the Belt & Road ini­tia­tive means that Chi­nese state-owned com­pa­nies — who al­ready have a pres­ence in Sri Lanka’s ports sec­tor — will likely be the first in­vestors in en­ergy in­fra­struc­ture, but if de­mand even­tu­ally reaches a crit­i­cal mass, we be­lieve that there will be room for non-state-owned and non-chi­nese com­pa­nies as well. For Sri Lanka, these in­vest­ments would rep­re­sent a sig­nif­i­cant boost to the en­ergy in­fra­struc­ture sec­tor, which cur­rently con­sists of a sin­gle, age­ing oil re­fin­ery and pipeline.

Cap­tur­ing just a small por­tion of the im­mense mar­itime traf­fic that flows through the In­dian Ocean will gen­er­ate siz­able de­mand for mar­itime ser­vice and fuel fa­cil­i­ties in Sri Lanka, in­clud­ing bunker­ing sites and re­finer­ies. The de­vel­op­ment of such in­dus­tries would al­low Sri Lanka to adopt a role sim­i­lar to Sin­ga­pore - a re­gional hub for both trans­ship­ment and fuel trade.

Con­tainer through­put in Sri Lanka reached 5.7mn twenty-foot equiv­a­lent units (TEUS) in 2016; up­ward trends in trade flows in­di­cates that port traf­fic is likely to con­tinue its growth tra­jec­tory in the next few years. With rapid eco­nomic growth trends in neigh­bor­ing Bangladesh and Myan­mar, Sri Lanka also has long-term po­ten­tial to de­velop into a re­fin­ing hub, as fu­els de­mand grows in line with in­dus­trial de­vel­op­ment and per­sonal in­comes.

A Colombo Port City con­struc­tion site in Sri Lanka.

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