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Oil presence in Sri Lanka

Oil presence in Sri Lanka

In Sri Lanka there is oil. And it was an old and very well known fact. Petroleum exploration began in the ’60’s and after that especially the Soviets undertook several geological surveys from 1972 to 1975. After that a Canadian company acquired seismic data in 1984.

Then the war broke out, leaving everything dormant(source: the Minister of Petroleum Resource Development Secretariat, PRDS)1.

In fact the areas interested are offshore the coast controlled by the LTTE; moreover the separatist group had an extraordinary navy force, agile, well-trained, with perfect knowledge of the surroundings. The so called Sea Tigers were a crucial element of the strategic survival: the supply line was coming through the sea; thus for the LTTE was a priority to maintain a capable navy, which indeed was able to face up the Sri Lankan one.

In the ’80s technology and low prices made it uninteresting to search for oil. But in the 2000s, technology improved immensely in the field, countries like Brazil or Norway became expert in working in such conditions. The thirst for natural resources driven by China sparked a global race to exploit even secondary fields. And price went up.

Seismic survey

Seismic survey

Norway’s interest in particular focused on Sri Lanka; in fact they developed an expertise for those geological conditions. So it was nothing but natural that a Norwegian company begun to work in Sri Lanka. TGS-Nopec started started seismic survey in the Mannar Basin (source: PRDS2). In December 2001, the company delineated a “major, unexplored Jurassi-Creataceous continental rift basin. Large structures, thick turbidite sequences and numerous direct hydrocarbon indicators have encouraged TGS-Nopec and CPC to now propose to the industry a major Phase II program” (source: TGS Nopec press release)3.

From 2002 to 2005 the company continued to acquired data about the potential of the Mannar Basin(source: PRDS) 4.

Column and cartoon about the breach of contract with TGS-Nopec from Lankanewspaper

Column and cartoon about the breach of contract with TGS-Nopec from Lankanewspaper

From the enthusiasm expressed in public we can argue that the company felt of being close to a major discovery. But suddenly on the 3rd of March, 2006, President Rajapakse spread the voice he wanted to stop the collaboration with TGS Nopec5. This produced a very odd case: the government of Sri Lanka had given concession rights to the company, but it rushed so badly, that it was in breach of the contract. At the time many didn’t understand why Sri Lanka should pay to re-acquire rights on its own land6.

Opinion about the breach of contract with Nopec.From www.nation.lk

Opinions about the breach of contract with TGS-Nopec.
From http://www.nation.lk

It should have been the other way round. Instead the government of Sri Lanka agreed to pay 10.5 USD in compensation 7. In the 2001 agreement, TGS Nopec had the right to sell to third parties its data. Sri Lanka wanted to rescind the contract and accepted to pay the termination fee. It seemed like a very odd behavior, given the information available in public at the time. You can assume that Colombo was crazy in terminating a collaboration with a long-standing partner if they weren’t sure. Or you can assume that confidential information was more convincing that the public one. Later on oil was actually found. So either Sri Lanka had gambled and won. Or they knew it for sure since then. These events happened in 2006. If you have some interest in the Sri Lankan civil war, this year should ring a bell.

More to come, stay tuned.

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Union Petroleum Minister Mani Shankar Aiyar with the President of China National Petroleum Corporation, Chen Geng in Beijing on January 13.

In 2006 the India’s Petroleum Minister Mani Shankar Aiyar and the Head of the National Reform and Development Commission Ma Kai, (the chief economic for planning and energy minister),signed an agreement “aimed at preventing the two nations’ competition for oil assets pushing up prices.[…]Co-operation between China and India could benefit international energy companies by reducing the ferocity of the bidding.[…]Under their agreement, Chinese and Indian oil companies will establish a formal procedure to exchange information about a possible bid target, before agreeing to co-operate formally”(source: Financial Times)(read also: China Daily; Asian Times.

In the 18th century China and India accounted for half of world economy (source: The Economist). Then they’ve been surprised by the Western economic and scietific model and fell in disgrace. What’s happening today is just the re-equilibrium of forces. The combined population, industrial output and economic growth will make the two defining axis of the future.
And they are already trying to understand each other, because the confrontation will be though and every move will count towards vital interests. They are too big, too close. They cannot fight each other directly,but they cannot simply coexist. They are too big, too close to peacefully play the boy-scouts. Any rise in one’s prestige, influence and power is inversely affecting the other. They will benefit each other, but they can’t just mind their own business.

courtesy AP

Recently they showed a series of reciprocal disturbances, with China even sending patrols inside the Indian borders of the Himalaya. At the moment they are playing the game of mutual encirclement. India is warming its relationships with Japan and Korea via USA, its also courting Vietnam for cooperation in the South China Sea, with much disappointement by Beijing. On the other front, China is cementing a military and industrial partnership with Pakistan. It became also an essential partner for Sri Lanka. Not only economically, president Rajapakse owns everything to Beijing.

Maybe it will be only competition rather than confrontation, but China and India are rising the stake on each other.