2 Challenges of The Sri Lanka's Petroleum Sector

Challenges of the Sri Lanka’s Petroleum
Industry
by
R. H. S. Samaratunga
Secretary, Ministry of Petroleum Industries
1
Challenges of the Sri Lanka’s Petroleum Industry
• Global Scenario in Brief
• Sri Lanka’s Petroleum Industry Structure
• Demand, Supply and Challenges
2
Global Scenario
Consumption
• Global : 90/mb/day (2011)
• OECD : 50% (appox)
• North America: 24%
Production
• OPEC: 37% North America: 15%
• Russia: 11% Saudi Arabia: 10%
3
• Petroleum product prices: increasing trend

• Short term demand: price inelastic
• Current scenario:- Weaker demand in EU
- Supply side uncertainties
- Additional supplies
- Downward stock adjustment
4
US$/Bbl
Brent Crude Oil Prices 1997 - 2012
5
Sri Lanka’s Petroleum Industry

• Import dependent petroleum consumer
• Prior to nationalization: oligopoly of imports/distribution
• 1961 - creation of state monopoly
• 2003 - end of state monopoly and creation of duopoly (CPC
and LIOC)
• Island-wide presence
• Many players in several petroleum product markets:
bunkering, lubricants
• Case for regulating the market: products quality, services
quality maintenance and enforcement
• Employment 600-700 (1970s); now 6000-7000
6
Market Structure of Petroleum Product

Distribution
Period Products Market Market players

structure
Prior to 1961 All products Oligopoly Caltex, Mobil, Shell
1961-2003 All products Monopoly CPC
2003 to date Petrol, diesel, Duopoly CPC, LIOC
kerosene, bitumen
7
• PG was a private monopoly, nationalized and

again privatized
• Presently a duopoly market - Litro (govt.); Lauhfs

(private)
• Both are import dependent to a larger extent
8
Petroleum Products Consumption by
Sector
2000 2010
10% 6%
Transport
49% 33% Industrial

31%
55% Power Generation
Other
6%
10%
9
Demand, Supply and Challenges

• Importer of refined products: beginning till late 1960s
• Only refinery commissioned in 1969
• Refinery met the country requirement in total for about a
decade
• Since then a larger part of key products/total demand for
kerosene from the refinery
• Currently about third of the country requirements met from the
refinery
10
• Rising domestic demand: petrol, diesel, fuel oil

• Fuel oil demand: depends on the rain- inverse
relationship
• Declining demand: kerosene
11
Growth Rates of Refined Petroleum Products
Growth Rate (%)
Year
Petrol Diesel Kerosene Fuel Oil
1990 - - - -
1995 -8.34 57.81 12.41 8.65
2000 32.49 79.46 5.03 26.04
2001 7.07 2.64 -3.67 -0.68
2002 21.13 0.73 11.05 9.91
2003 10.85 -6.46 -27.52 -14.76
2004 12.52 21.43 28.38 -0.71
2005 27.54 19.39 -6.71 68.68
2006 -5.78 4.19 -3.23 -13.81
2007 16.29 4.05 -34.91 -10.11
2008 4.75 -9.59 -5.93 0.68
2009 0.05 -1.65 9.2 16.33
2010 18.21 4.21 -23.56 -6.84
2011 15.47 15.99 0.13 9.14
12
1,200
1,000
Volume /MT
800
Furnace Oil Annual Sales Volume
600
(MT)
400
200
0
2001
2005
1985
1990
1995
2000
2002
2003
2004
2006
2007
2008
2009
2010
Year
70,000
60,000
50,000
Value/ Rs. Million
40,000
Furnace Oil Annual
30,000
Sales Value (Rs/Mn)
20,000
10,000
-10,000
2005
1985
1990
1995
2000
2001
2002
2003
2004
2006
2007
2008
2009
2010
Year 13
• Rapidly rising overall demand

• Petroleum accounts for 24% of import bill and 45% of exports
(2011)
• Demand doubled during last three years (in value terms)
• More on refined products
• More resources required for imports in absolute and relative
terms in the future
14
Country’s Demand for Petroleum
Products
6000
5000
4000
Value (US$/Mn)
3000
2000
1000
0
1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011
Year
15
Country's Demand – Relative Significance -
% of Exports & Imports
43.8
Percentage of Exports & Imports
36.5
29.2
% of Exports
21.9 % of Imports
14.6
7.3
0
1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
2011
Year
16
• Sri Lanka: price taker, import quantity being very small
• Periodic price revisions from 2005: upward/downward

- international price trends
- subsidy levels for each product
- CPC’s financial status etc.
17
Crude Oil Imports - Unit Price Movements
120
110
100
97.6
80
C & F Price (US$/ Bbl)
79.3
72
65.1
62.6
60
51.9
C&F Price
US$/bbl
40
37.4
28.3
28.7 29.3
28.5
23.6 25.1
20 18.9 17.4
11.6
0 1.6
2009
1970
1974
1979
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2010
2011
Year
International Market Prices and Government Subsidy
19
Import Prices Vs. Domestic Market Prices
20
• State control in pricing during the monopoly era
• Price revision by LIOC on its own or LIOC can follow the

government program of revision
• As the largest share of market is with CPC, major price

changes by the competitor becomes ineffective
2011 Petrol 80%
Diesel 95%
Kerosene 100%
21
• Increased power supplies to be met from oil based electricity

generation : 2010 - Gwh 10714 of which thermal: 46.7%
2011 - Gwh 11528 of which thermal: 49.9%
• Fuel oil is also subsidized, affecting CPC financial status
• Electricity consumption is subsidized and also regulated

(average unit cost: Rs 15.59 against selling price of Rs. 13.22)
• Stable electricity supply
22
Electricity Generation / Gwh
Year Thermal Other
2006 4751 4638
2007 5865 3950
2008 5763 4138
2009 5975 3908
2010 4994 5720
2011 5748 5781
14000
12000
Electricity Generation/GWh
10000
50%
8000 49% 40%
40% 42% 53%
Other
6000
Thermal
4000
60% 58% 60% 50%

51% 47%
2000
0
2006 2007 2008 2009 2010 2011
Year
23
• Refinery provided: entire requirement in 1970s
• 1990s: about one half met from refinery
• 2010: about 35 met from the refinery
• Increasing demand met from imported refined products

(on expenditure basis)
• Change due to: fixed processing capacity and increased
demand
24
Crude Oil & Refined Petroleum Product Import Ratio
Product 1990 2000 2010
Refinery Output 91.5 55 35

Imported Refined Petroleum
8.5 45 65
Products
8.5%
Percentage (%)
91.5%
Year 25
Refinery’s technological limitations:

- built in 1960s
- can accommodate limited crude types
- low yield and value addition
26
• Current tension in the Middle East/supply uncertainties

gulf region: 20% of global petroleum exports
30% LNG exports
• Diversification of sources of supply

- crude oil (technological issues)
27
Thank You
28

2 Challenges of The Sri Lanka's Petroleum Sector

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2 Challenges of The Sri Lanka's Petroleum Sector

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Challenges of the Sri Lanka’s Petroleum

• Global Scenario in Brief

• Sri Lanka’s Petroleum Industry Structure

• Demand, Supply and Challenges

• Petroleum product prices: increasing trend

Sri Lanka’s Petroleum Industry

Market Structure of Petroleum Product

Period Products Market Market players

• PG was a private monopoly, nationalized and

• Presently a duopoly market - Litro (govt.); Lauhfs

• Both are import dependent to a larger extent

49% 33% Industrial

Demand, Supply and Challenges

• Rising domestic demand: petrol, diesel, fuel oil

• Rapidly rising overall demand

• Sri Lanka: price taker, import quantity being very small

• Periodic price revisions from 2005: upward/downward

- subsidy levels for each product

- CPC’s financial status etc.

• State control in pricing during the monopoly era

• Price revision by LIOC on its own or LIOC can follow the

• As the largest share of market is with CPC, major price

• Increased power supplies to be met from oil based electricity

• Fuel oil is also subsidized, affecting CPC financial status

• Electricity consumption is subsidized and also regulated

• Stable electricity supply

60% 58% 60% 50%

• Refinery provided: entire requirement in 1970s

• 1990s: about one half met from refinery

• 2010: about 35 met from the refinery

• Increasing demand met from imported refined products

Refinery Output 91.5 55 35

Refinery’s technological limitations:

• Current tension in the Middle East/supply uncertainties

• Diversification of sources of supply

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