Challenges of the Sri Lanka’s Petroleum Industry

byR. H. S. Samaratunga

Secretary, Ministry of Petroleum Industries

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Challenges of the Sri Lanka’s Petroleum Industry

• Global Scenario in Brief

• Sri Lanka’s Petroleum Industry Structure

• Demand, Supply and Challenges

2

Challenges of the Sri Lanka’s Petroleum Industry

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%

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Challenges of the Sri Lanka’s Petroleum Industry

• Petroleum product prices: increasing trend• Short term demand: price inelastic• Current scenario:- Weaker demand in EU

- Supply side uncertainties

- Additional supplies

- Downward stock adjustment

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US

$/B

bl

Brent Crude Oil Prices 1997 - 2012

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Challenges of the Sri Lanka’s Petroleum Industry

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

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Challenges of the Sri Lanka’s Petroleum Industry

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Period Products Market

structure

Market players

Prior to 1961 All products Oligopoly Caltex, Mobil, Shell

1961-2003 All products Monopoly CPC

2003 to date Petrol, diesel,

kerosene, bitumen

Duopoly CPC, LIOC

Market Structure of Petroleum Product Distribution

Challenges of the Sri Lanka’s Petroleum Industry

• 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

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49%

10%

31%

10%

2000

55%

6%

33%

6%

2010

Transport

Industrial

Power Generation

Other

Petroleum Products Consumption by Sector

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Challenges of the Sri Lanka’s Petroleum Industry

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

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Challenges of the Sri Lanka’s Petroleum Industry

• Rising domestic demand: petrol, diesel, fuel oil• Fuel oil demand: depends on the rain- inverse

relationship• Declining demand: kerosene

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YearGrowth Rate (%)

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 -6.842011 15.47 15.99 0.13 9.14

Growth Rates of Refined Petroleum Products

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1985

1990

1995

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

200

400

600

800

1,000

1,200

Year

Volu

me /

MT

1985

1990

1995

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Year

Valu

e/

Rs.

Million

Furnace Oil Annual Sales Volume (MT)

Furnace Oil Annual Sales Value (Rs/Mn)

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Challenges of the Sri Lanka’s Petroleum Industry

• 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

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1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 20110

1000

2000

3000

4000

5000

6000

Country’s Demand for Petroleum ProductsV

alu

e (

US

$/M

n)

Year

15

1980

1985

1990

1995

2000

2005

2006

2007

2008

2009

2010

2011

0

5

10

15

20

25

30

35

40

45

50

Country's Demand – Relative Signif-icance -

% of Exports & Imports

% of Exports

% of Imports

Perc

enta

ge o

f Export

s &

Im

port

s

Year

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Challenges of the Sri Lanka’s Petroleum Industry

• 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.

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19

70

19

74

19

79

19

85

19

90

19

95

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

0

20

40

60

80

100

120

1.6

11.6

18.9

28.523.6

17.4

28.328.7

25.129.3

37.4

51.9

65.1

72

97.6

62.6

79.3

110

Crude Oil Imports - Unit Price Movements

C&F Price US$/bbl

Year

C &

F P

rice (

US

$/ B

bl)

International Market Prices and Government Subsidy

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Import Prices Vs. Domestic Market Prices

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Challenges of the Sri Lanka’s Petroleum Industry

• 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%

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Challenges of the Sri Lanka’s Petroleum Industry

• 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

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23

2006 2007 2008 2009 2010 20110

2000

4000

6000

8000

10000

12000

14000

51%60% 58% 60%

47%50%

49%40% 42% 40% 53%

50%

Other

Thermal

Year

Ele

ctr

icit

y G

en

era

tion

/GW

h

Year Thermal Other2006 4751 46382007 5865 39502008 5763 41382009 5975 39082010 4994 57202011 5748 5781

Electricity Generation / Gwh

Challenges of the Sri Lanka’s Petroleum Industry

• 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

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Product 1990 2000 2010

Refinery Output 91.5 55 35

Imported Refined Petroleum Products

8.5 45 65

Crude Oil & Refined Petroleum Product Import Ratio

Perc

en

tag

e (

%)

Year

8.5%

91.5%

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Challenges of the Sri Lanka’s Petroleum Industry

Refinery’s technological limitations:

- built in 1960s

- can accommodate limited crude types

- low yield and value addition

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Challenges of the Sri Lanka’s Petroleum Industry

• 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)

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Thank You

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