Technical Assistance Consultant’s Report Project Number: 53193-001 June 2021 Democratic Socialist Republic of Sri Lanka: Supporting Feasibility Study and Survey to Adopt Liquefied Natural Gas (LNG) Power Generation to Diversify Energy Mix Prepared by the consultants engaged under TA 9741-SRI: Supporting Feasibility Study and Survey to Adopt Liquefied Natural Gas (LNG) Power Generation to Diversify Energy Mix For Ceylon Electricity Board This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Development of LNG infrastructure for power generation in Sri Lanka Feasibility Study Report March 5, 2020 Disclaimer This document (herein referred as “Report”) has been prepared by team of Consultants individually engaged by Asian Development Bank solely for Ceylon Electricity Board and Asian Development Bank, being the express addressee to this document. The consultants don’t accept or assume any liability, responsibility or duty of care for any use of or reliance on this document by anyone, other than Asian Development Bank and Ceylon Electricity Board, to the extent agreed in the relevant contract for the matter to which this document relates (if any), or as expressly agreed by the Consultants in writing in advance. This report contains certain information extracted from third party documentation and so being out of context from the original third party documents; readers should bear this in mind when reading the report. The copyright in such third party material remains owned by the third parties concerned, and the Consultants express their appreciation to these companies for having allowed it to include their information in this report. For a more comprehensive view on each company’s communication, please read the entire document from which the extracts have been taken. Please note that the inclusion of a company in this report does not imply any endorsement of that company by the Consultants nor any verification of the accuracy of the information contained in any of the examples. This report contains various forward looking statements, which by their nature involve numerous assumptions, inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward looking statements will not be achieved. We caution readers of this report on these forward looking statements, as a number of important factors could cause actual future results to differ materially from the plans, objectives, expectations, estimates, and intentions expressed in such forward looking statements. Development of LNG infrastructure for power generation in Sri Lanka March 5, 2020 1 Executive Summary During the last 10 years, Sri Lankan economy has grown at an average annual rate of over 5.5 percent. This reflects a peace dividend and an unwavering commitment to reconstruction and growth. This impressive growth has put the country on the trajectory of becoming an internationally competitive middle-income country in the coming years. A robust economic growth results in commensurate increase in the energy demands. In parallel to the achieving economic growth over the last 10 years, Sri Lanka has taken some important steps in the energy sector. It is a matter of pride that it is the only country in South Asia that has achieved 100 percent electricity accessibility with 24 hours of uninterrupted electricity supply. However, the energy requirements of future mandate a re-evaluation of energy mix of the country in line with the current global, regional and local energy industry dynamics. As present, the country is primarily dependent on biomass and petroleum fuels for meeting its energy requirements. Non-conventional renewable energy projects including solar photo-voltaic, wind, small hydro power are in various stages of development. The share of hydropower as a source of electricity has been declining over the past years and has currently been surpassed by the share of fossil fuels. On account of limited refining capacity, Sri Lanka is reliant on imports of crude oil or refined products to meet the total fossil fuels’ requirement of the county. Electricity remains the main secondary energy source. The country has set out a vision of achieving self-sufficiency in energy and reducing carbon footprint of energy sector. Natural Gas is cleaner than all other fossil fuels, emitting less CO2 as compared to coal and diesel. Given the above context, natural gas emerges as an option which is expected to play an increasingly important role in future. At present, natural gas does not feature in Sri Lanka’s primary energy mix. However, the government has framed a vision to increase the share of natural gas to 30 percent in electrical energy mix of Sri Lanka by 2030. It is also important to note that introduction of natural gas helps diversify the energy mix which is important from an energy security standpoint. The immediate and largest potential demand for natural gas in the country is from the power sector. Usage of natural gas in industrial, commercial and transport sectors is also possible. However, the current policy focuses on gas usage in the power sector at present. Demand from power sector is expected to constitute over 90 percent of total demand for the foreseeable future. Without the development of natural gas transmission infrastructure like pipelines, CNG stations, etc. to deliver gas to the end-user, power sector would remain the primary consumer. Development of LNG infrastructure for power generation in Sri Lanka March 5, 2020 2 Ceylon Electricity Board (CEB), has been legally entrusted with the responsibility to develop & maintain electricity supply in the country in an efficient, coordinated and economical manner. The increasing demand of electrical energy coupled with the need to retire the ageing / aged thermal plants has created an imperative for setting up new generating stations as and when necessary and new solutions for meeting the demand have to be explored. Natural Gas as a fuel for the power sector has advantages beyond its cleaner burning properties. Natural gas fired combined cycle power plants have more efficiency and incur less maintenance and operating costs as compared to coal or diesel fired power plant. Given the above context, CEB realized the importance of exploring the natural gas as a fuel for its power plants. Sri Lanka does not have any natural gas production at present and neither is any production expected to come on-stream in the near future. This necessitates exploring importing gas from international markets in cryogenically cooled (at (-) 163 degrees) liquid form also known as Liquefied Natural Gas (LNG). Once imported, the liquid gas needs to be re-gasified before being pumped to the consumption points through gas pipeline. Accordingly, CEB has explored the opportunity of development of LNG infrastructure in the country to cater to the natural gas demand from its Colombo based power plants. As a first step, CEB, sought the assistance of Asian Development Bank to facilitate the hiring of a Natural Gas Industry Specialist to provide advisory support to CEB for evaluating the pre-feasibility of supplying LNG to Sri Lankan power sector and prepare a roadmap for CEB. Among the installed thermal power plants in the country are 3 combined cycle gas turbine plants with total capacity of 628 MW. One of these power plants is located at Kerawalapitiya having generation capacity of 300 MW while the other two are at Kelanitissa, at the northern boundary of the Colombo city, with capacity of 165 MW and 163 MW respectively. In addition to these power plants, five other natural gas fired combined cycle power plants are planned in Kerawalapitiya having capacity of 300 MW each. Further, 3 gas turbine plants of 35 MW capacity each are also being implemented in Kelanitissa. All these plants were considered for evaluating the usage of LNG as a fuel. Considering the conversion of above-mentioned existing power plants to operate on natural gas and taking into account the commissioning of planned natural gas fired combined cycle power plants at Kerawalapitiya, the total capacity (operating on natural gas at the end of 2033) is estimated to be 2,233 MW. Based on the Long Term Generation Expansion Plan 2020-2039, the Generation Planning Branch of CEB has estimated the LNG demand from these power plants under Average, Wet and Dry hydro Development of LNG infrastructure for power generation in Sri Lanka March 5, 2020 3 conditions. Maximum LNG demand during the project period of 10 years (2023-2024 to 2032-2033) has been estimated at 1.34 MMTPA. Table 1: Demand for LNG from power sector in Sri Lanka1 LNG requirement LNG requirement LNG requirement Year (Average condition) (Dry condition) (Wet condition) (‘000 MT) (’000 MT) (‘000 MT) 2023 660 779 515 2024 635 759 502 2025 666 863 464 2026 758 997 515 2027 840 1,091 582 2028 765 1,009 518 2029 852 1,104 583 2030 957 1,217 679 2031 1,065 1,344 787 2032 997 1,266 729 2033 932 1,194 672 During the pre-feasibility study, various possible and prevalent configurations for development of LNG infrastructure were identified through detailed analysis of the entire LNG value chain. This included the location of the storage facility, location of the regasification facility, mooring location and mode of delivery of LNG/Gas from the port to the power plants. The pre-feasibility study also included a location analysis to identify the most suitable location for FSRU terminal. Three potential locations (Colombo, Kerawalapitiya and Trincomalee) were analysed for installation of LNG import terminal. These locations were compared on the basis of various parameters like their proximity to demand centres, ease of downstream logistics for transporting LNG / R-LNG to power plants, marine traffic, ease of construction, availability of allied facilities, draft limitations, dredging requirement and operational safety and security at the terminal.