Padraig Colman

Rambling ruminations of an Irishman in Sri Lanka

Tag: oil exploration

The Dream of Oil- the Nightmare of Oil

This article appeared in Ceylon Today on Tuesday March 10 2015

Colman's Column3

The minister for power and energy, Patali Champika Ranawaka, has announced that Sri Lanka will stop importing fuel by 2020. I wonder if by that date I will have stopped enduring six-hour electricity cut-offs at weekends.

 

One can see why the Sri Lankan Government would like to have its own oil. Each year, Sri Lanka imports nearly 30 million barrels  of oil at a cost of  US$ 2.2 billion, Oil is used to generate electricity as well as for transport. One can add to this the cost of subsidies, and the knock-on effect of transport and electricity costs on the price of everything.

 

Many countries have taken measures to assure themselves of continuing supplies of this diminishing resource without having to pay too much for it. The USA has taken the drastic step of freeing itself from dependence on Saudi Arabia by building impregnable enclaves on Iraqi oil while the country disintegrates around it. Fracking is a subject all on its own.

Even little Ireland tried to secure its own oil by making  a claim to Rockall when there is Rockall there apart from the sea around it and the oil it might contain. The summit of an eroded volcano core hundreds of miles off Ireland’s north- west coast and measuring just 19m (62ft) high, it was claimed by the British in 1955. But the Irish never accepted this, stating Rockall is closer to Ireland.

Way back in August 2007, the then Petroleum Resources Development Minister of Sri Lanka AHM Fowzie met a slew of representatives of oil companies on a junket to Baku. According to Mr Fowzie, Sri Lanka was going to produce oil by 2010. Azerbaijan’s ambassador to Sri Lanka announced at that time that his country could help Sri Lanka develop its oil production.

From the mid-1970s to the mid-1980s, overseas companies had explored areas off Sri Lanka’s coast, but failed to find significant reserves. There have been a number of reports in the press over the past ten years about promising geological indicators that strongly suggest there may be exploitable oil reserves within Sri Lankan territorial waters, off the Gulf of Mannar and in the Cauvery basin. The general tenor of these reports has been that this is a good thing for the nation and its economy and its people. “Around 200 countries have expressed interest in taking part in the oil exploration activities along Sri Lanka`s sea belt. We hope that a considerable number of foreign investors will bid for these three blocks”, Mr Fowzie  said. It is indeed astounding that 200 nations should express an interest when there are only 193 nations in the UN.

The Sri Lankan Government demarcated eight exploration blocks in the Mannar Basin, two of which were  earmarked for India and China. The year 2010 has come and gone and Sari Lanka still does not have its own oil but we are being promised it for 2020 – ten years on from when Mr Fowzie said we would have it.

 

Mr Fowzie’s friends in Baku demonstrate what happens when a country is oil-rich. President Heydar Aliyev (and his son Ilham) promised to cut poverty and create 200,000 jobs, but about half of Azerbaijan’s population still lives below the poverty line. A ruling dynasty has been established and oil-rich families from the clan networks of Nakhichevan retain their power base by resorting to arrests, torture and media suppression.

 

It would also be instructive to examine what a success the Nigerian state has become thanks to the blessings of oil. Oil generates US$ 17 billion each year for Nigeria – which, if shared, would provide 15 years of wages for every man, woman and child. Instead, the proportion of Nigerians living in poverty rose to 66 per cent by 1996. Around 70 per cent worked in agriculture, but oil has stifled diversity and agricultural production has not kept pace with the increase in population. In 1962, agriculture contributed 78 per cent of the nation’s revenue; in 1977, it contributed just above one per cent. The contribution of crude oil rose from 13.3 per cent to 98.9 per cent over the same period.

 

Nigeria has graphically demonstrated that oil can bring poverty, corruption, environmental damage, conflict, foreign exploitation, and an erosion of human rights and media freedom.

 

When Mr Fowzie was junketing in Azerbaijan, the Director General of Petroleum Resources in Sri Lanka, Dr Neil R de Silva, said oil companies would be expected to take steps to ensure employment for Sri Lankans. He also said that the Sri Lankan maritime services are not prepared and there were no Sri Lankans qualified to work in the industry. I wonder where the local Sri Lankan expertise has been discovered in the intervening period.

 

In his treatise Petroleo y Dependencia, Juan Pablo Pérez Alfonzo, principle architect of OPEC, wrote: “Oil will bring us ruin. It’s the devil’s excrement. We are drowning in the devil’s excrement.” The whims of geology are such that oil deposits have always been scarcer in democracies than in countries that trample rights and freedoms under foot. In virtually all countries where they operate oil companies themselves have a dubious moral record. Mobil Oil was accused by Business-Week of complicity in massacres close to its installations in Indonesia and the company admitted supplying food, fuel and equipment to soldiers. In Burma, the French company Total and its American partner Unocal joined with Myanmar Oil and build a pipeline. The junta used slave labour and summary executions to get the work done. BP provides the Colombian army and police with arms and training. Oil causes resentment among local people and disruption of their way of life, livelihood and environment.

 

Costa Rica has been allowed to go its own way because of its lack of tempting mineral resources. Unusually for Latin America, it has been a stable democracy for many years and has no standing army. It faltered in the 1990s and suffered increasing unemployment and poverty. President Rodriguez divided the country for oil exploration brokered ten of the 22 blocks to US and Canadian companies. Harken Energy, a Texas-based company closely linked with GW Bush, selected sites for exploration in the middle of several protected wilderness areas. Farmers, fishermen, restaurateurs, businessmen, religious groups and marine biologists came together in the Anti-Petroleum Action Struggle (ADELA). Their campaign received strong enough support to persuade Rodriguez to restrain his enthusiasm. ADELA won even more support when oil executives acted rudely towards respected local residents.

Abel Pacheco de la Espriella was outspoken in his opposition to oil exploration and his stance won him the presidency. He introduced new constitutional protection for the environment and declared, ‘the true fuel and the true gold of the future will be water and oxygen, our aquifers and our forests’. Harken tried  to claim from Costa Rica $57 billion in lost profits. ADELA claims that the State Department and the US Embassy put pressure on Pacheco.

Last year incumbent President Luis Guillermo Solís extended the country’s ban on petroleum exploration and extraction until 2021 as well as adding guidelines for energy efficiency in government agencies. The extension continues a moratorium signed by former President Laura Chinchilla in 2011, which tasked the Environment Ministry (MINAE) with enforcing the ban. The original law cited Costa Ricans’ constitutional right to a healthy environment as its authority. The moratorium called for an updated cost-benefit analysis of petroleum extraction, citing risks like the 2010 BP oil disaster in the Gulf of Mexico. Chinchilla’s moratorium was set to expire in August.

There has long been a link of anxiety in Sri Lanka between petroleum, terrorism and the environment. There was opposition to building a massive refinery near wildlife-rich areas such as Bundala and feeding grounds of flamingos and other waterfowl, as well as beaches frequented by egg-laying marine turtles. There was talk at one time of drilling in the seas off Hambantota. As far as Sri Lanka goes, the ‘easy oil’ has already been discovered – so, new explorations are costly and involve environmentally-sensitive areas. Seismic vibrations damage buildings and noise displaces wildlife, and chemicals and river warming deplete aquatic life. Soil and water are contaminated when a well blows out and emissions of flammable hydrocarbon cause fires, making land infertile and retarding photosynthesis. Ruptured pipelines, instrument failures and sabotage cause pollution.

 

A nation heavily dependent on oil sees its currency soar, making it harder for local manufacturers to export. Skilled workers leave manufacturing and agriculture to service the rich. Using oil as collateral, governments incur foreign debts and squander national funds to buy support.

 

Profits go to the elites and existing power imbalances are further compounded. The elites see no advantage in sharing the benefits of oil with the poor. Oil enables clannish elites to become even richer and establish dynastic kleptocracies that cling to power. It increases the risk of conflict -particularly where there are separatist tendencies and ethnic tensions- and gives terrorists targets for sabotage. The need to protect installations against terrorists brings repression and the desire of the elites to protect their ill-gotten gains threatens freedom of speech and human rights in general.

 

As we question Sri Lanka’s financial links with China. As we boggle over the waste on Mattala Airport, Mihin Air and those innumerable white elephant stadiums and conference centres, do we want to invest in oil extraction?  Does Sri Lanka want to be a nation where foreigners call the shots – a nation plagued by poverty, inequality and ethnic conflict; where corruption, dynastic elites and nepotism compromise good governance and erode human rights?

 

Does Sri Lanka want to be Costa Rica or Nigeria?

The Devil’s Excrement

This article appeared in Lakbima News on November 14 2010. Unfortunately, they attributed authorship to Dr Juan Pablo Pérez Alfonzo, rather than Padraig Colman.

Oil will bring us ruin. It’s the devil’s excrement. We are drowning in the devil’s excrement.

Dr. Juan Pablo Pérez Alfonzo, principal architect of OPEC.

The people of Louisiana have been drowning in the stuff but Sri Lanka nevertheless wants to have a swim. Once again, Sri Lanka has hopes of becoming oil-rich. Perhaps we will one day be able to import maids rather than sending our Sri Lankan women to Saudi Arabia. Petroleum Resources Development Minister, Susil Premajayantha, recently announced that that plans are underway to drill the first oil well in the Mannar basin during the first quarter of next year. He also said that the government hoped to conclude the ongoing oil exploration activity off Kirinda and elsewhere in the country’s territorial waters.

This has a familiar ring. Is it too late to warn that oil is a curse rather than a blessing to most countries that find it on their premises?

Sri Lanka imports nearly 30 million barrels of the black stuff every year at a cost of some US$ 2.2 billion. The CEB uses it to generate electricity. Add to this the cost of subsidies, the knock-on effect of transport costs on prices and one can see why the Government would like to have its own oil.

Previous minister, AHM Fowzie, said Sri Lanka could produce oil by 2010 but we are still waiting. The government demarcated eight exploration blocks of 3,500 to 4,000 square kilometres in the Mannar basin, two of which were earmarked for India and China. Fowzie hobnobbed with some unsavoury characters in Baku. The Azerbaijani ambassador to Sri Lanka told his country’s news media that Azerbaijan could help Sri Lanka develop an oil-producing industry. In Azerbaijan, the oil-rich clans retain power through politically motivated arrests and torture. At least two people died in pre-trial custody in 2006. Media freedom deteriorated, with violence against and arrests of journalists, as well as defamation cases brought by the government.

As long ago as 2004, a Transparency International report estimated that billions of dollars were lost to bribery in public purchasing, citing the oil sector in many nations as a particular problem. As the Corruption Perceptions Index 2004 showed, oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen all had extremely low scores. Public contracting in the oil sector is plagued by revenues vanishing into the pockets of Western oil executives, middlemen and local officials.

Even if oil exploration in Sri Lanka proves to be successful, it is unlikely that many Sri Lankans will benefit. Venezuela is to some extent an exception in that government policy is to try to use the wealth to improve the lot of the people as a whole. Hugo Chávez used oil revenue to regenerate agriculture and help Venezuelans feed themselves. The illiteracy rate used to be 90% but now adult literacy is complete; there are new schools across the country, a free health service operates in shantytowns; housewives get a wage. The transport infrastructure is improving even in remote places. The government is spending nearly $900 million to promote manufacturing, agriculture and tourism. Venezuela has, over the past 25 years, earned $300 billion from petroleum sales, yet more than half of the population lived in poverty, a quarter of the population of working age were unemployed and over 200,000 children survived by begging. Caracas is one of the three most violent cities in the world.

When Mr Fowzie was junketing in Azerbaijan, the Director General of Petroleum Resources in Sri Lanka, Dr Neil R de Silva, said oil companies would be expected to take steps to ensure employment for Sri Lankans. He also said that the Sri Lankan maritime services are not prepared and there were no Sri Lankans qualified to work in the industry. I wonder where the local Sri Lankan expertise has been discovered in the intervening period.

The number of local people employed after the construction phase of the Chad-Cameroon pipeline was negligible in Cameroon and around 350 in Chad. In Ecuador 50,000 new jobs a month were promised; there have been only 9,000 new jobs so far, mostly unskilled and temporary.

Professor Michael Ross of the University of California in Los Angeles produced a chart mapping oil sales against literacy and malnutrition rates. In it, every five per cent rise in oil exports was matched by a three-month fall in life expectancy and a one-point rise in childhood malnutrition. Sri Lanka currently enjoys good WHO indicators in terms of infant mortality but malnutrition figures are causing concern.

Dutch disease is the concept that if a country’s economy is heavily dependent on oil production its currency becomes too strong, making other sectors such as manufacturing, unprofitable and difficult to develop. In Nigeria 70% of the workforce worked in agriculture. Oil has stifled diversity and agricultural production has not kept up with the increase in population. In 1962, agriculture contributed 78.2% of the nation’s revenue; in 1977 it contributed 1.1%. The contribution of crude oil rose from 13.3% to 98.9% over the same period.

Governments squander oil revenues to buy support. Profits go to the elites and existing power imbalances are worsened. The elites have no desire to share the benefits of oil with the poor.

Does Sri Lanka want to be a nation where foreigners call the shots – a polluted nation, plagued by poverty and inequality; where corruption, dynastic elites and nepotism compromise good governance and erode human rights?

 

Does Sri Lanka deserve the blessing of oil?

 

 

 

 

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Lanka’s oil rich hopes

This article was published in The Nation on November 20 2011

 

In his treatise Petroleo y Dependencia, Juan Pablo Pérez Alfonzo, principle architect of OPEC, wrote: “Oil will bring us ruin. It’s the devil’s excrement. We are drowning in the devil’s excrement.”

 

Once again, fantasies of Sri Lanka becoming oil-rich are bubbling to the greasy surface.

 

Sri Lanka imports nearly 30 million barrels of oil a year, which is used to generate electricity as well as for transport, every year. This used to cost around $800 million a year. In 2005, it cost $1.64 billion. In 2006, higher international prices took the bill to $2.2 billion. Add to this, $19 million per month in subsidies, the knock-on effect of transport costs on prices and the never-ending cost of war and reconstruction and one can see why the government would like to have its own oil.

 

India started exploring the Cauvery Basin in the Palk Straits as long ago as 1954, drilling 100 test wells. From 2000, India started production from fields close to Sri Lanka at the rate of 1,000 barrels per day. In the late 1970s, the Ceylon Petroleum Corporation, assisted by US and Russian companies, drilled seven test wells on and offshore in the Gulf of Mannar Basin without success. India’s success encouraged Sri Lanka to try again. The Cauvery and Gulf of Mannar basins are said to be associated with rift complexes of the Late-Jurassic-Cretaceous Age and have the potential to yield 100 million barrels.

 
Gamble

 

An oil bonanza cannot be confidently predicted without drilling. Offshore wells require more than $10 million each and the investor loses it all if the well is dry. It will be at least five years before there is any return on the investment.

 

The Director General of Petroleum Resources, Dr Neil R de Silva said in January 2007 that the picture was still “fuzzy” about how viable the fields were. “One of the requirements oil companies would be expected to meet in getting a licence for oil exploration would be a benefits plan – this would ensure employment for Sri Lankans and enable Sri Lankan manufacturers and service providers to take part on a competitive basis to supply goods and services.” He added that they must be competitive, efficient and trained. How can that work? He conceded that there was a serious shortage of professionals to work in the field and that the industry needs to train a certified labour force. There are no petroleum professionals coming through the education system.

 

The number of local people employed after the construction phase of the Chad-Cameroon pipeline was negligible in Cameroon and around 350 in Chad. In Ecuador, 50,000 new jobs a month were promised; there have been only 9,000 new jobs so far, mostly unskilled and temporary.

 

De Silva gave the Sunday Observer an update in March 2011. He did not sound very positive to me: “with the available data it is not possible to estimate the amount of oil in the Mannar Basin confidently… At the beginning of the oil production process, the Sri Lankan Government’s share would be 15% and Cairn Lanka’s 85% … As the years go by, Sri Lanka’s share will increase to … 85% while Cairn Lanka’s share will come down to …15%”.

 

Oil and corruption

 

As long ago as 2004, Transparency International estimated that billions of dollars were lost to bribery in public purchasing and oil seemed to guarantee corruption. Oil-rich Saudi Arabia, Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen were highly corrupt. Public contracting in the oil sector is plagued by vanishing revenues.

 
Inequality

 

Even if Sri Lanka’s oil exploration is successful, it is unlikely that many citizens will benefit. Venezuela is to some extent an exception in that government policy has been to use oil to improve the lot of the people as a whole. Even with Chavez’s reforms, problems persist and Caracas is one of the three most violent cities in the world.

 

Prof. Michael Ross of UCLA produced a chart mapping oil sales against literacy and malnutrition. Every 5% rise in oil exports was matched by a three-month fall in life-expectancy and a one-point rise in childhood malnutrition. Sri Lanka currently enjoys good WHO indicators, but child malnutrition figures are causing concern. This could get worse with the ‘benefits’ of oil.

 
Terrorism and environment

 

Spillages from sabotage sometimes occur. In Colombia and Nigeria, guerrillas persistently targeted pipelines. In 1995, the LTTE attacked CPC refinery and oil storage installations in Colombo causing several deaths and massive fires in the storage areas. Security fears undermine human rights. In more recent times the LTTE air force targeted oil installations.
The seismic vibrations generated by drilling can adversely affect buildings and the chemicals used can also deplete aquatic life in rivers and streams. Pollution can occur because of human error, sudden rupture of pipelines, or instrument failures.

 
Conclusion

 

So, does Sri Lanka want to be a nation where foreigners call the shots – a polluted nation, plagued by poverty and inequality; where corruption, dynastic elites and nepotism compromise good governance and erode human rights?

 

Does Sri Lanka deserve the blessing of oil?

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