Connect with us

Features

LNG Scam is a Hangman’s Noose

Published

on

by Kumar David

There has been a news blackout on the liquid natural gas (LNG) deal that Basil Rajapaksa’s Ministry has entered into with the American company New Fortress Energy (NFE). The Sunday Island Editorial last week 26 September expressed concern about lack of transparency of facts and secrecy in negotiations. The deal is a response to an “unsolicited bid” is the official line but how much soliciting and wheeler-dealing went on no one will never know. The negotiations though commenced when Prime Minister Mahinda Rajapaksa was Finance Minister. I am not picking on the deal because it’s an American company, not at all. I am expressing disquiet about negotiating conduct, technical issues and potential long-term implications.

Before pitching into the topic I will define that ugly acronym FSRu&P (Floating Storage and Regasification unit & Pipelines). Natural gas globally is the fossil fuel of choice to replace King Coal. There is much disputation about whether one or two final coal-fired power stations will be built in Lanka in the next 15 years, but natural gas will be the eventual successor. Once released from the bowels of the earth, gas can be piped across continents. When chilled to very low temperatures it liquefies, ready for confinement in strong containers that can be brought into your kitchen or transported thousands of miles in huge tankers.

When a tanker arrives the FSRu&P game starts. Tankers can dock at a harbour designed for the purpose if you have one; if not a floating terminal is launched about five miles out at sea where LNG is stored. It can when needed be regasified – as in your kitchen gas cooker – and sent ashore via undersea pipelines. That’s the FSRU&P storyline and one of these is coming on the west coast, north of Colombo. The gas can be used in power-stations, industries and homes.

The plan is to convert the currently coal-fired 310MW West Coast Power Station (WCPS), Yugadhanavi, to gas, and to make the proposed Sobadhanavi 350MW station also gas fired. The gas-fired capacity will then be 660MW, but this is only the start. The CEB and the CPC (Petroleum Corporation) have reached an advanced stage in preparation and issue of documents calling for international bids for an FRSU and Pipelines, but not yet for the supply of LNG. Then suddenly and out of the blue the process was scuttled – it was infected by a bacillus. The Finance Ministry signed a Framework Agreement to proceed with the unsolicited or privately canvassed bid from NFE. A so-called Framework Agreement was inked in September in secrecy.

There are three harmful aspects. The first is unnecessary secrecy and unseemly sabotage of ongoing tender procedures. The second is a likely financial rip-off that may raise electricity prices and the third is a trap that will endanger Lanka’s long-term energy security and put the country’s neck into a hangman’s noose.

First things first. It is a violation of good practice to make an award to an unsolicited bid when tenders have been called; it rings alarm bells whether someone took 10%. International Competitive Tenders were called by GoSL for an FSRu&P and bid documents were issued but the Finance Ministry inked a secret deal to sell 40% of WCPS to NFE in the midst of this. The deal was reported in New Fortress’s website but not in local media. When Sirasa TV asked Power & Energy Minister Dulles Alahapperuma, he denied any agreement. Something is fishy.

https://www.newfortressenergy.com/stories/New-Fortress-Energy-finalizes-contract-with-government-of-Sri-Lanka

Basil’s defenders and the CEB Engineers Union have locked horns. A Sinhala video by CEBEU President Saumya Kumaravadu provides an excellent summary: https://www.youtube.com/watch?v=VjWQ9tvIz1k

An English statement is at:

https://economynext.com/sri-lankas-could-lose-billions-through-unsolicited-new-fortress-energy-deal-cebeu-86396/

The second shock is that in terms of the Framework Agreement the government has entered into a Take-or- Pay (ToP) deal for LNG. ToP is a bad idea if the amount contracted is large or if the donkeys writing the contracts have little understanding of electricity generation or the complexities of manoeuvring in global LNG markets. Under the tender care of these goofs Lanka will be played for a sucker – recall the oil hedging fiasco a few years ago. Suppose a petrol company offers you a fleet of taxis free (the BAIT), but on condition you buy your petrol exclusively from it for five years (the TRAP). Suppose the value of the fleet is Rs 25 million but the cost of the petrol to be consumed in the five year period is Rs 500 million. Whether you need it or not you must buy an agreed quantum from the petrol company. The BAIT in LNG story is that NFE will buy 40% of WCPS for $250 million (investment) and the TRAP is compulsory purchase of LNG for both power stations and any others subsequently taking gas from this facility.

Pricing could also be a problem. LNG prices are volatile and swings have become mercurial in the aftermath of recent supply chain disruptions. Spot-prices vary widely between Henry Hub, Japan-Korea and the Netherlands TTF spot-markets. Bangladesh bought a cargo for delivery last month at $29.9 per million-Btu, the highest the country has paid for super-chilled fuel. The average LNG price for November 2021 delivery to Northeast Asia is $27 per million-Btu. A wise man surely will keep purchasing manoeuvrability in his own hands.

Say the CEB incurs fuel supply expenditure of $500 million per annum – I am pricing natural gas at $14.5 per million-Btu; see Technical Note below for quantity estimate. If NFE makes, say 10% to 15% on the sale it will make a profit of $50 million to $75 million per year (example only). You might say “What’s the problem we have to buy LNG from somewhere?” But if in any year (lots of rainfall say) the CEB does not need that much, too bad; it will have to Take-or-Pay even if it does not use it, like alimony to an estranged wife. There will also be a fixed charge spread over the period by means of which NFE will recover its entire investment costs.

Finally the hangman’s noose. Sri Lanka has been trapped; it is infeasible to build a second FRSU and pipelines in a relatively small country since the investment is large. Once Lanka builds one, that’s it for a decade or more. We will neither need, nor be able to afford a second for a long time. India has only six terminals in operation. In the meantime the CEB long-term generation expansion plan envisages the addition of about 3GW (3000 MW) of gas-fired generation in the period from now to 2037. LNG will become the bedrock of electricity production in the period to 2040, displacing coal. The implication of the deal with NFE is that country will be in the pocket of a foreign company for energy security for the foreseeable future. The government is doing more to jeopardise natural security than any youthful, slogan-intoning, racist or religious hothead!

Renewable energy will and should be encouraged though it’s not going to provide 70% of primary energy for electricity by 2030 except in Aesop’s Fables. The cynic will read a dangerous trick written into a shady contract. Remember how in the 1990s corrupt presidents, politicos and businessmen made a killing from oil-fired private power-plant construction and operation while the CEB, grossly unfairly, carried the flak? Something reminiscent is possible if corrupt politicos and greedy renewable energy (RE) investors act in consort. Today RE investors demand that they be paid at a rate corresponding to avoided-cost. Since one unit of RE electricity can displace one unit of fossil-fuel electricity they demand to be paid the avoided cost, which is the cost of the most expensive unit then on grid. But what if you play the following game: First jack up the price of fossil energy, then enact the drama of the brave saviour lopping off a bit at the top? It could be the game of unscrupulous politicians and RE investors to jack up the price of ‘going-to-be-avoided’ electricity first and after that play the drama of avoided-cost. I don’t need to explain; you can work out what the cynic is saying. And let’s not forget that corrupt politicos and market players impede, not assist, ecological goodness.

Technical Note

If 0.66 GW (660MW) were to run flat out, non-stop, every hour of the year the electrical energy output will be 0.66x24x365 = 5,782 GWh. Since plant cannot run without maintenance and since full output is not maintained all the time the actual plant-factor is, say, 70%. The output is then reduced to 5782×0.7 = 4,047 GWh. If the efficiency of generation is 40%, then the primary-source energy need at the input is 4047/0.4 = 10,118 GWh-equivalent of LNG energy. Now 1 GWh is the same as 3412×106 Btu (British thermal unit). Therefore the input LNG energy that is needed for both power-stations is 10,118 x 3412×106.which works out at 34.5 million-million-Btu per year, or dividing by 365 we get an average of 94,520 million-Btu per day (44,420 for Yugadhanavi and 50,100 for Sobadhanavi). Someone younger than age-80 kindly check these sums.

However the New Fortress Website declares: “New Fortress will initially provide the equivalent of an estimated 1.2 million gallons of LNG (~35,000 MMBtu) per day to GOSL, with the expectation of significant growth as new power-plant become operational.” There seems to be a cockup in NFE’s numbers, or maybe it’s meant to obfuscate Ministers and Administrators.

https://economynext.com/us-based-new-fortress-energy-says-strikes-lng-supply-deal-with-sri-lanka-86367/

[MM stands for Metric-Million. The initial “Metric” is redundant and will be thrown out of the window in self-respecting scientific discourse. So MM simply stands for million].



Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Features

Why Small Farms will be the backbone of food security

Published

on

The ecological axiom that: ‘Energy flow through a system tends to organise and simplify that system’, is abundantly clear in agriculture. As farms moved from small interdependent units, bounded by fences and hedgerows, to large cropping fields to accommodate machine management, we lose the biodiversity that once existed on that landscape and the biomass that provided the Ecosystem Services. This sacrifice was rationalised through the invocation of economic profit. The economic ‘profit’ gained by subsidies on fossil fuel and uncontrolled extraction from the Global Commons. The ‘development’ of agriculture has become a race to control the commodity market. The farmer ceased to be a feature of the farm. In a telling statement, the farmers of Sri Lanka sent the following statement to the CGIAR in 1998 :

‘We, the farmers of Sri Lanka would like to further thank the CGIAR, for taking an interest in us. We believe that we speak for all of our brothers and sisters the world over when we identify ourselves as a community who are integrally tied to the success of ensuring global food security. In fact it is our community who have contributed to the possibility of food security in every country since mankind evolved from a hunter-gather existence. We have watched for many years, as the progression of experts, scientists and development agents passed through our communities with some or another facet of the modern scientific world. We confess that at the start we were unsophisticated in matters of the outside world and welcomed this input. We followed advice and we planted as we were instructed. The result was a loss of the varieties of seeds that we carried with us through history, often spanning three or more millennia. The result was the complete dependence of high input crops that robbed us of crop independence. In addition, we farmers producers of food, respected for our ability to feed populations, were turned into the poisoners of land and living things, including fellow human beings. The result in Sri Lanka is that we suffer from social and cultural dislocation and suffer the highest pesticide- related death toll on the planet. Was this the legacy that you the agricultural scientists wanted to bring to us ? We think not. We think that you had good motives and intentions, but left things in the hands of narrowly educated, insensitive people.’

The diverse farm had to yield to production monoculture, which was made possible through the burning of fossil fuels. Ironically the burning of fossil fuels is the major reason for the current destabilised climate and threat to agriculture. One consequence of climate change is the predicted rise in global temperatures. If ambient temperatures exceed 40 degrees , which has become the reality in many places even today, food production will be compromised. All the food we eat originates with plants and plants produce using photosynthesis. Photosynthesis, or the capture of solar energy by plants, is done with chlorophyll, the thing that makes plants green and chlorophyll begins to break down after 40 degrees. Landscapes whose summer temperatures go beyond this limit will have smaller and smaller crops as the temperatures increase. The only solution to this oncoming crisis, is to begin introducing trees at strategic points on the landscape.

Trees and all other forms of vegetation cool the environment around them through the transpiration process, which takes place in the leaves. The water absorbed by the roots is sent up to the leaves which release it as vapor, cooling the air around it. Measurements on trees done by research institutions worldwide, indicate that an average large tree produces the cooling equivalent of eight room sized air conditioners running for 10 hours, a cooling yield 0f 1,250,000 Bthu per day. Plantations of trees have been recoded to have daytime temperatures at least 3 degrees below the ambient. This is an important aspect of Ecosystem Services that needs to be considered for adaptive agriculture.

Small farms which produce food with low external energy and maintain high biomass and biodiversity, are the models of food production that can face the climate compromised future before us. Capital, resource and energy expensive agricultural systems could fail in a high temperature future and threaten global food security, we need options. One would be to encourage a consumption and distribution system that facilitates small farmers to enter the market. Another would be to realise the value of the ecosystem services of a farm and develop systems to measure and reward. We are all aware of the future before us. Now is not the time to stand blinking like a deer facing the headlights.

But placing trees in and around cropping areas becomes a problem in large cropping fields designed to accommodate machine management. The management of such trees and hedgerows requires needs that cannot be provided without human management. Agricultural landscapes will need management that will be adaptive to the changing climate. An example would be; small interdependent units bounded by fences and that increase biodiversity and the biomass while providing Ecosystem Services.

Investment in food security, should take climate change seriously. All new agricultural projects should address the heat thresholds of the planned crops. The Sri Lankan country statement at COP 21 stated that :

“We are aware that the optimum operating temperature of chlorophyll is at 37 deg C. In a warming world where temperatures will soar well above that, food production will be severely impacted.”

And that :

“We are aware that the critical Ecosystem services such as; production of Oxygen, sequestering of Carbon, water cycling and ambient cooling is carried out by the photosynthetic component of biomass. This is being lost at an exponential rate, due to the fact that these Ecosystem Services have not been valued, nor economically recognised.”

These statements cry out for the recognition of the role that small farms will have to play in the future. In a temperature compromised future, small farms with high standing biomass, through their cooler temperatures will continue to produce food in heat stressed periods. If such Ecosystem Services can be given a value, it will strengthen the economy of small farms and ensure local, sustainable food production into the future.

Small farms which produce food with low external energy and maintain high biomass and biodiversity, are the models of food production that can face the climate compromised future before us. Capital, resource and energy expensive agricultural systems could fail in a high temperature future and threaten global food security, we need options. One would be to encourage a consumption and distribution system that facilitates small farmers to enter the market. Another would be to realize the value of the ecosystem services of a farm and develop systems to measure and reward. We are all aware of the future before us. Now is not the time to stand blinking like a deer in sheadlights.

Continue Reading

Features

Encouraging signs, indeed!

Published

on

Derek and Manilal

Local entertainers can now breathe a sigh of relief…as the showbiz scene is showing signs of improving

Yes, it’s good to see Manilal Perera, the legendary singer, and Derek Wikramanayake, teaming up, as a duo, to oblige music lovers…during this pandemic era.

They will be seen in action, every Friday, at the Irish Pub, and on Sundays at the Cinnamon Grand Lobby.

The Irish Pub scene will be from 7.00 pm onwards, while at the Cinnamon Grand Lobby, action will also be from 7.00 pm onwards.

On November 1st, they are scheduled to do the roof top (25th floor) of the Movenpik hotel, in Colpetty, and, thereafter, at the same venue, every Saturday evening.

Continue Reading

Features

Constructive dialogue beyond international community

Published

on

by Jehan Perera

Even as the country appears to be getting embroiled in more and more conflict, internally, where dialogue has broken down or not taken place at all, there has been the appearance of success, internationally. President Gotabaya Rajapaksa will be leading a delegation this week to Scotland to attend the UN Climate Change Conference (COP26). Both the President, at the UN General Assembly in New York, and Foreign Minister Prof G L Peiris, at the UN Human Rights Council, in Geneva seem to have made positive impacts on their audiences and, especially amongst the diplomatic community, with speeches that gave importance to national reconciliation, based on dialogue and international norms.

In a recent interview to the media Prof Peiris affirmed the value of dialogue in rebuilding international relations that have soured. He said, “The core message is that we believe in engagement at all times. There may be areas of disagreement from time to time. That is natural in bilateral relations, but our effort should always be to ascertain the areas of consensus and agreement. There are always areas where we could collaborate to the mutual advantage of both countries. And even if there are reservations with regard to particular methods, there are still abundant opportunities that are available for the enhancement of trade relations for investment opportunities, tourism, all of this. And I think this is succeeding because we are establishing a rapport and there is reciprocity. Countries are reaching out to us.”

Prof Peiris also said that upon his return from London, the President would engage in talks locally with opposition parties, the TNA and NGOs. He spoke positively about this dialogue, saying “The NGOs can certainly make a contribution. We like to benefit from their ideas. We will speak to opposition political parties. President Gotabaya Rajapaksa is going to meet the Tamil National Alliance on his return from COP26, which we will attend at the invitation of the British Prime Minister. So be it the NGO community or the foreign diaspora or the parliamentary opposition in Sri Lanka. We want to engage with all of them and that is very much the way forward”

INTERNAL FRAGMENTATION

The concept of a whole-of-government approach is indicative of a more cohesive approach to governance by government ministries, the public administration and state apparatus in general to deal with problems. It suggests that the government should not be acting in one way with the international community and another way with the national community when it seeks to resolve problems. It is consistency that builds trust and the international community will trust the government to the extent that the national community trusts it. Dialogue may slow down decision making at a time when the country is facing major problems and is in a hurry to overcome them. However, the failure to engage in dialogue can cause further delays due to misunderstanding and a refusal to cooperate by those who are being sidelined.

There are signs of fragmentation within the government as a result of failure to dialogue within it. A senior minister, Susil Premajayantha, has been openly critical of the ongoing constitutional reform process. He has compared it to the past process undertaken by the previous government in which there was consultations at multiple levels. There is a need to change the present constitutional framework which is overly centralised and unsuitable to a multi ethnic, multi religious and plural society. More than four decades have passed since the present constitution was enacted. But the two major attempts that were made in the period 1997-2000 and again in 2016-2019 failed.

President Rajapaksa, who has confidence in his ability to stick to his goals despite all obstacles, has announced that a new constitution will be in place next year. The President is well situated to obtain success in his endeavours but he needs to be take the rest of his government along with him. Apart from being determined to achieve his goals, the President has won the trust of most people, and continues to have it, though it is getting eroded by the multiple problems that are facing the country and not seeing a resolution. The teachers’ strike, which is affecting hundreds of thousands of schoolchildren, is now in its fourth month, with no sign of resolution. The crisis over the halting of the import of chemical fertiliser is undermining the position of farmers and consumers at the present time.

EARLY WARNING

An immediate cause for the complaints against the government is the lack of dialogue and consultation on all the burning issues that confront the country. This problem is accentuated by the appointment of persons with military experience to decision-making positions. The ethos of the military is to take decisions fast and to issue orders which have to be carried out by subordinates. The President’s early assertion that his spoken words should be taken as written circulars reflects this ethos. However, democratic governance is about getting the views of the people who are not subordinates but equals. When Minister Premajayantha lamented that he did not know about the direction of constitutional change, he was not alone as neither does the general public or academicians which is evidenced by the complete absence of discussion on the subject in the mass media.

The past two attempts at constitutional reform focused on the resolution of the ethnic conflict and assuaging the discontent of the ethnic and religious minorities. The constitutional change of 1997-2000 was for the purpose of providing a political solution that could end the war. The constitutional change of 2016-19 was to ensure that a war should not happen again. Constitutional reform is important to people as they believe that it will impact on how they are governed, their place within society and their equality as citizens. The ethnic and religious minorities will tend to prefer decentralised government as it will give them more power in those parts of the country in which they are predominant. On the other hand, that very fact can cause apprehension in the minds of the ethnic and religious majority that their place in the country will be undermined.

Unless the general public is brought aboard on the issue of constitutional change, it is unlikely they will support it. We all need to know what the main purpose of the proposed constitutional reform is. If the confidence of the different ethnic and religious communities is not obtained, the political support for constitutional change will also not be forthcoming as politicians tend to stand for causes that win them votes. Minister Premajayantha has usefully lit an early warning light when he said that politicians are not like lamp posts to agree to anything that the government puts before them. Even though the government has a 2/3 majority, this cannot be taken for granted. There needs to be buy in for constitutional reform from elected politicians and the general public, both from the majority community and minorities, if President Rajapaksa is to succeed where previous leaders failed.

Continue Reading

Trending