Energy firms to benefit from Lanka’s port projects
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.