Refinery woes add to Sri Lanka’s oil product dependence

Thursday, 28 October 2010 04:49 - - {{hitsCtrl.values.hits}}

Singapore, (Argus) — Sri Lanka will remain reliant on product imports amid little progress on expanding capacity at state-owned Ceylon Petroleum’s (Ceypetco) 50,000 b/d Kelaniya refinery.There have been previous proposals to double the capacity at the refinery, including a proposed partnership with Iran’s state-owned oil firm NIOC that fell through because of difficulty obtaining financing for the project.

Ceypetco now hopes to go it alone on an expansion but financing is again a major hurdle. A new refinery has also been previously proposed for Hambantota in the south of the country, where China is bankrolling new port facilities.

Sri Lanka last year imported around 26,000 b/d of gasoil to meet domestic demand of around 35,000 b/d. Domestic gasoil production was around 10,000 b/d. Gasoline imports were around 8,000 b/d, to supplement domestic production of 4,000 b/d to meet domestic demand at 12,000 b/d.

The country is already relying on spot imports of 0.25pc sulphur gasoil in the short term after Ceypetco cancelled a term import tender to be supplied by UAE-based company Al -International Petroleum. Ceypetco was to receive 14,700 b/d of 0.25pc sulphur gasoil to be delivered to Colombo between September 2010 and August 2011. The tender, which was awarded at a sharply lower than expected discount of $4.625/bl to Mops 0.25pc sulphur gasoil quotes on a delivered basis into Colombo, was cancelled after the supplier could not deliver on the requirements.

Ceypetco last bought on a spot basis up to 450,000 bl of 0.25pc sulphur gasoil via two separate tenders for delivery between late October and early November. Sri Lanka has issued a tender for 300,000 bl of gasoil for 23-24 November delivery that closes on 29 October. Cepypetco has made three attempts to buy gasoil on a term basis previously, only one of which, a contract with Trafigura for eight cargoes of gasoil that ended in early 2009, was successful. The other two attempts also saw the supplier losing its performance bond.

Ceypetco will reissue the term supply contract, but it is unlikely to do so until November at the earliest. Domestic production is also 0.25pc sulphur gasoil, although the domestic environmental specification is for 0.3pc sulphur gasoil. Sri Lanka had hoped to move this down to 0.05pc sulphur gasoil with the expansion of the Kelaniya refinery.

Kelaniya was operating at lower rates last week because of fuel oil ullage problems but runs were back at 44,000 b/d by the end of the week. The refinery could have a complete shutdown in February or March next year for 10 days for a catalyst regeneration. All units will go down apart from the visbreaker, which produces about 2,000 t/d and the bitumen unit, which produces 150 t/d. The next major turnaround will be around February 2012, when the refinery will shut down for 35-40 days. Ceypetco typically targets February for refinery shutdowns because it falls within the country’s January-March dry season, which allows maintenance to be carried out more easily.