By Asoka S. Seneviratne –

Prof. Asoka.S. Seneviratne

“Energy security is not simply about energy supply; it is about national security, economic stability, and the well-being of our citizens.”  Barack Obama

In 2022, the people of Sri Lanka experienced a shocking and painful sight: long lines for fuel, shortages of LPG cylinders, and widespread economic chaos. These events weren’t just caused by global energy shortages. Instead, they uncovered a deeper systemic weakness — Sri Lanka’s reliance on imported energy combined with weak foreign exchange reserves.

The importance of LPG in daily life highlights this vulnerability even more clearly. For a majority of Sri Lankan households—particularly in urban and semi-urban areas—LPG has become the primary and often the only cooking fuel. When LPG supply disruptions occur, the impact is immediate and widespread, affecting millions of households & business.

When a country that imports almost all of its fuel loses the foreign currency needed to pay for those imports, energy security nearly collapses overnight. The lesson is clear but serious: in an economy dependent on imports, energy security is closely linked to foreign exchange stability and good macroeconomic management.

Energy Security in an Import-Dependent Economy

Energy security presents a unique challenge for Sri Lanka because the country produces virtually none of the petroleum products or LPG it consumes. Unlike larger economies such as India, which possess domestic production capacity and refining infrastructure, Sri Lanka relies almost entirely on imports to meet its energy needs.

Every shipment of fuel or LPG must be paid for in hard currency, usually US dollars. Therefore, among many, energy supply stability depends heavily on the availability of foreign exchange reserves.

“For Sri Lanka, energy security is not merely an energy policy issue; it is fundamentally a foreign exchange management challenge.”

The LPG sector clearly shows this reliance. Sri Lanka’s domestic LPG storage capacity is currently about 8,000 metric tons—enough to cover roughly one week of national demand. Such a small buffer makes the country highly vulnerable to shipping delays, geopolitical tensions, or logistical issues.

Energy Imports and the Foreign Exchange Constraint

Energy imports represent one of the largest components of Sri Lanka’s import bill. When global oil prices rise, the cost of maintaining domestic supply increases significantly.

This creates several macroeconomic pressures:

• Rapid depletion of foreign reserves
• Worsening balance-of-payments deficits
• Exchange-rate depreciation
• Inflation through rising transport and production costs

The LPG market also reflects structural weaknesses. Sri Lanka’s LPG supply system effectively operates as a duopoly, with one company controlling roughly 80 percent of the market and another about 20 percent. In addition, the lack of cylinder interchangeability between suppliers makes consumers vulnerable if one company faces distribution disruptions.

Recent shortages demonstrate that supply crises are not always caused by global shortages. In some cases, distribution bottlenecks, logistics delays, and market disruptions affecting individual suppliers have contributed to shortages, even when LPG was available internationally.

Short-Term Crisis Management by the Government

When supply disruptions happen or global prices rise, governments need to act quickly to stabilize local markets. The recent price increase serves as a good example. Stopping panic buying and hoarding of LPG cylinders or fuel is crucial, as such actions can cause false shortages even when supply is adequate. It is important to understand that the recent government measures during energy stress were not just a burden on consumers, as some opposition voices have claimed. In reality, these measures were necessary to prevent widespread disruption across the economy.

For example, the government has recently ordered approximately 100,000 additional LPG cylinders to be introduced into the market, an important step toward stabilizing the distribution network and improving availability to consumers. Temporary price stabilization mechanisms and rationing systems may appear inconvenient at first glance, but they help prevent panic buying, protect foreign exchange reserves, and maintain market stability.

The Critical Role of Energy Efficiency and Demand Management

One of the most powerful but underutilized policy tools in Sri Lanka’s energy strategy is energy efficiency and demand management. For an import-dependent economy, reducing unnecessary energy consumption can significantly lower the national import bill and ease pressure on foreign exchange reserves. Energy efficiency policies should focus on several key sectors. In the transportation sector, governments can promote fuel-efficient vehicles, enhance public transit systems, and implement better traffic management. In the industrial sector, many firms still rely on outdated and energy-intensive machinery. At the household level, improved cooking technologies and energy-efficient appliances can reduce both electricity and LPG consumption. Such demand-side improvements are especially important because if LPG shortages force households to switch suddenly to electricity for cooking, the additional demand could strain the national power grid and increase fuel imports for electricity generation, thereby putting further pressure on foreign exchange reserves.

Strengthening Strategic Storage and Supply Planning

Even when a country must rely entirely on imported energy, vulnerability can be significantly reduced through effective forward planning and robust storage systems. In short, the recent disturbances y in the energy sector vividly show a lack of forward planning in the past so that it is good lesson to be learned.

Strategic reserves are not simply a precaution—they are a critical policy tool that enables governments to maintain stability during global supply disruptions.

Recognizing these vulnerabilities, authorities have begun exploring several initiatives to strengthen LPG supply security. One proposal involves positioning a large LPG storage vessel near the Maldives capable of holding around 30,000 metric tons, creating a regional floating reserve that can supply Sri Lanka quickly during emergencies. At the same time, tenders are being prepared to expand domestic LPG storage infrastructure, although officials acknowledge that such projects will take several years to complete.

As an interim solution, the government has reached an agreement to utilize approximately 15,000 metric tons of storage capacity at a private terminal in Hambantota, demonstrating the importance of public-private collaboration in strengthening energy resilience. Supply diversification has also become a priority. To reduce exposure to geopolitical risks in the Middle East, Sri Lanka has shifted a major part of its LPG procurement toward a Swiss-based trading company sourcing gas from the United States. These measures represent important steps toward building a more resilient supply system.

The Central Role of Macroeconomic Stability

Macroeconomic stability lies at the very heart of energy security, functioning much like the central body of an octopus, with its influence extending to every arm of the economy. Countries with strong export sectors, sustainable fiscal policies, and adequate foreign exchange reserves are better equipped to manage global energy price shocks. Strong export earnings provide the foreign currency needed for energy imports. Prudent fiscal management preserves reserve buffers, while sound monetary policy protects the value of the currency.

In short, macroeconomic stability is not merely a background condition—it is the central enabler of energy security.

Pricing Transparency and Public Trust

For energy policy to gain lasting public support, transparency in pricing decisions is essential. When fuel or LPG prices are adjusted—whether increased or decreased—the government should clearly disclose the underlying cost structure, including international price movements, exchange rate effects, taxes, subsidies, and distribution costs. Without such disclosure, a policy vacuum emerges where opposition groups can easily frame increases as unjustified and decreases as insufficient, often without presenting the full economic context. Regular public reporting of pricing calculations would therefore strengthen transparency, accountability, and credibility, while reinforcing the principles of good governance. Most importantly, it would help citizens understand that energy pricing is not arbitrary, but part of (i)  a broader strategy to safeguard foreign exchange reserves, (ii) maintain economic stability, and  (iii) ensure long-term energy security for Sri Lanka.

Summary and Conclusion

Sri Lanka’s energy challenge extends far beyond the immediate question of fuel availability. It is fundamentally tied to the country’s foreign exchange constraints, macroeconomic stability, and long-term development strategy. The experience of recent years has shown that inadequate storage capacity, weak supply planning, and a heavy reliance on imported fuel and LPG can quickly expose the economy to severe shocks. When foreign exchange reserves tighten, the consequences are felt immediately by households, industries, and the broader economy.

Ensuring energy security therefore requires a broader policy vision. Strengthening storage capacity, improving supply chain management, diversifying energy sources, and promoting domestic alternatives must become central pillars of national policy. At the same time, transparent and evidence-based pricing policies are critical. When the public clearly understands how international prices, exchange rates, taxes, and subsidies influence domestic energy prices, it reduces misinformation and strengthens public confidence in government decisions.

Ultimately, energy policy is not merely a technical issue—it is a question of economic governance. A credible and transparent framework that links energy pricing, foreign exchange management, and long-term energy diversification will be essential for protecting the country from future crises. By embedding transparency, accountability, and strategic planning into energy policy, Sri Lanka can move beyond short-term crisis management and build a resilient energy system that supports sustainable economic recovery and long-term national stability.

*The writer, among many, served as the Special Adviser to the Office of the President of Namibia from 2006 to 2012 and was a Senior Consultant with the UNDP for 20 years. He was a Senior Economist with the Central Bank of Sri Lanka (1972-1993). He can be reached at asoka.seneviratne@gmail.com