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 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% 3 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 4 US$/Bbl Brent Crude Oil Prices 1997 - 2012 5 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 6 Challenges of the Sri Lanka’s Petroleum Industry 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 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 8 Petroleum Products Consumption by Sector 2000 2010 6% 10% Transport 49% Industrial 33% 31% 55% Power Generation Other 10% 6% 9 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 10 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 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 2011 18.21 15.47 4.21 15.99 -23.56 0.13 -6.84 9.14 12 1,200 800 Furnace Oil Annual Sales Volume (MT) 600 400 200 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1995 1990 0 1985 Year 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Year 13 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1995 1990 -10,000 1985 Furnace Oil Annual Sales Value (Rs/Mn) Value/ Rs. Million Volume /MT 1,000 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 14 Country’s Demand for Petroleum Products 6000 5000 Value (US$/Mn) 4000 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 36.5 29.2 % of Exports % of Imports 21.9 14.6 7.3 2011 2010 2009 2008 2007 2006 2005 2000 1995 1990 1985 0 1980 Percentage of Exports & Imports 43.8 Year 16 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. 17 Crude Oil Imports - Unit Price Movements 120 110 97.6 80 79.3 72 65.1 62.6 60 51.9 40 28.7 28.5 25.1 23.6 20 18.9 C&F Price US$/bbl 37.4 28.3 29.3 17.4 11.6 Year 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1995 1990 1985 1979 1974 1.6 0 1970 C & F Price (US$/ Bbl) 100 International Market Prices and Government Subsidy 19 Import Prices Vs. Domestic Market Prices 20 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% 21 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 22 Electricity Generation / Gwh Year 2006 2007 2008 2009 2010 2011 Thermal Other 4751 5865 5763 5975 4994 5748 4638 3950 4138 3908 5720 5781 14000 Electricity Generation/GWh 12000 10000 8000 49% 50% 40% 40% 42% 53% Other 6000 Thermal 4000 2000 51% 60% 58% 60% 2007 2008 2009 47% 50% 0 2006 2010 2011 Year 23 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 24 Crude Oil & Refined Petroleum Product Import Ratio Product 1990 2000 2010 Refinery Output 91.5 55 35 8.5 45 65 Imported Refined Petroleum Products Percentage (%) 8.5% 91.5% Year 25 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 26 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) 27 Thank You 28