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Sri Lanka to cut Iran oil imports, seeks supplies from Saudi Aramco and Oman

Apr 24, 2012 (LBT) - Sri Lankan Petroleum Minister Susil Premajayantha had said yesterday that Sri Lanka is planning to cut imports of Iranian crude oil by three cargoes, each of 135,000 Metric Tonnes (MT) before the end of its current contract with the National Iranian Oil Company (NIO) in September, a report said.

Sri Lanka's only refinery at Sapugaskanda receives 14 tankers annually, of which Iran supplies 13 and another one by Saudi Arabia, according to sources. Minister had told reporters at a Gas and LNG conference in Abu Dhabi that the refinery's current term contract expires in September this year.

According to Minister Sri Lanka has already received six of the cargoes from Iran and will cut three cargoes from the balance before the end of the year. The cuts would translate into 3 million barrels that would have to be replaced. "We will have to reduce our imports to comply with the US sanctions," Minister had pointed out.

The Sapugaskanda refinery, which began operations in 1968, had been designed to run on a slate of Iranian light grades, and the island nation secures 30% of its refined product needs on the international spot market and imports crude oil for domestic refining to make up the balance of imports which cost Sri Lanka nearly US $ 5 billion annually, or a quarter of its total import bill.

Minister Premajayantha said that Iran supplies 92% of the crude oil imported. He had further outlined that Sri Lanka has had a "positive response" from both Oman and Saudi Arabia for its request for additional cargoes.

Addressing the 2nd Annual Global Gas and LNG summit, Minister also said that Colombo is seeking two cargoes from Oman and one from Saudi Aramco to replace the Iranian barrels.

However, an European Union (EU) ban on insurance cover for Iranian cargoes, has impacted Sri Lanka, Minister had said, forcing higher insurance premiums for tankers, a cost that was being shared equally by the tanker operator and the state-owned oil company Ceylon Petroleum Corporation (CPC).

EU sanctions against Iran not only ban the import of Iranian crude from July 1 but also prohibit the transportation of and the provision of insurance cover for Iranian cargoes, a measure that is having an impact beyond European shores because of the relationship between international reinsurance clubs.

For now, Sri Lanka has few options with crude oil and product imports making up 85% of its total energy demand, with the remainder coming from hydrothermal, coal and renewables, according to Minster. He has also outlined that the Sri Lanka government has approved a decision to switch to LNG for power generation and the ministry has opted for a floating LNG terminal rather than a fixed 'Re-gasification' terminal. Two US companies have already submitted proposals for the FSRU, in which according to Premajayanthi would require an investment of US $800 million.

Minister had highlighted further that the small island state is also planning to open up bidding for four of six exploration blocks in the offshore Mannar Basin within the next two months to help develop indegenous production of hydrocarbon resources and help meet anticipated growth in energy demand as a result of an improving economy.