28 October, 2021

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LNG Scam Is A Hangman’s Noose

By Kumar David

Prof. 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 between a US company and a US citizen 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 fifteen 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 Basil’s 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.

Basil’s defenders and the CEB Engineers Union have locked horns. A Sinhala video by CEBEU President Saumya Kumaravadu provides an excellent summary:

An English statement is can be read here

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 Rs25 million but the cost of the petrol to be consumed in the five year period is Rs500 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.

JKM: Japan-Korea-Marker,
Henry Hub: A clearing point in Louisiana, USA,
TTF: A spot-market in the Netherlands

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 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, nonstop, every hour of the year the electrical energy output will be 0.66x24x365 = 5782 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 = 4047 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.

[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].

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Latest comments

  • 9
    3

    Part 1of 2
    Kumar D,
    With all due respect to you, I cannot believe that this is happening at all as you claim and suggest!
    Best Finance Minister in 70 years, country has ever had, with unmatched reputation, in building trust and confidence in voters to bring forth a political party from conception and infancy to the forefront, manage 2 important elections, and winning them very convincingly, enabled by a majority of 6.9 Million to say the least!
    Your suggestion that this enlightened, intelligent individual is completely inept in unearthing the underlying bad effect of the agreement is untenable and there must be a serious error of thought!!
    Unless, you are suggesting and by not putting it out in sensible words that there appears to be corrupt practice, in its agreement.
    Nay! Nay!! That is impossible with this individual.
    Perhaps, you may be having a bad dream!!!
    Please consult the majority of enlightened voters of SL, the 2500 years old civilisation enlightened Religious Luminaries, the political analyst et all and you will find all of them agreeing that this claim of yours cannot hold water, in any manner or sort.
    This will destroy the newly found eminent Finance Minister of SL!!!!

    • 4
      5

      The deal must be abolished like the AUKUS – abolished the French Submarine deal and US citizen Basil impeached.
      Kumar, also, the Ultra Sinhala Buddhist Los Angeles Sri Lankan Diaspora has been weaponized!
      The US citizen Rajapaksa brothers, who benefited from the CIA owned ISIS Easter Sunday attacks in 2019 and are covering up the foreign hands that funded them, are working for the IS Deepstate and against the interests, national and energy Security of Sri Lanka.
      This New Fortress deal inked while the country was kept in brutal Covid-19 lockdown to prevent protest is to destroy Sri Lanka and turn it into a US lilypad military base for American Amphibious Over the Horizon (OTH) operations and energy supply for the American War Machine in the Indian Ocean region !

  • 8
    2

    Part 2 of 2
    As you suggest, “it would be prudent to get an analysis and calculation done by a person with younger mind and body” to quell any mistake in evaluation, though I doubt with your experience and maturity in the matter under consideration that such a mistake could occur!!!!
    It is not the kind of mistake attributable to this individual, by any means. (Him being Finance Minister of resplendent SL) Completely Clean in mind and sole!!!!!

    • 3
      0

      Mahila’s last sentence in Part 2 of 2: “Completely Clean in mind and sole” should correct spell as “soul”, meaning mankind’s supposed supernatural spirit. However he may have deliberately spelled it “sole” so it better rhymes with a particular hole.

      • 4
        1

        S
        Sole rhymes just as well.
        It is plain bad spelling, and ‘Spellcheck’ software cannot help with such errors.

      • 3
        0

        Sarath,
        Strange; there are stranger things than fiction in this world!
        I would not call our minds have identical thinking, but certainly similar, (mathematically speaking) tending towards the former!! if it is ‘convenient’, blame the spell checker, and call it quits!!!
        Many thanks for your ‘critical’ thought on this “important” comment

  • 5
    1

    Seriously I like to hear what this uneducated buffalo said in this meeting where this photo was taken. His education stopped with reading Chandramama, so was he reciting a story from the story book?

    • 3
      1

      It seems the regime has learnt from its experiences with the East Terminal, where it had to backtrack because of resistance from unions and its own rank and file. So , what’s surprising about it wishing to keep everything secret until the deed is done? Even Rajapaksas learn from experience. It’s already caved in to Dudley Sirisena. And Cabral seems to be reversing Laksman’s isolationist economics. What next? Reverse gear on fertilizer?

  • 3
    0

    Dear KD.
    I made a comment on your earlier article……..
    Made me think as this.
    The New Fortress Energy of W 19th St., NY. was established only on 6th June 2018. From 2017 there was one “R” (as in pic) in USA and who came back here. He again goes to US suddenly in 2019 and no one knows why. On his return he becomes FM and within a few months of negotiation, hey presto, we have a deal.
    May be my imagination !
    May be NFE owners may be known to us.
    Just hallucinating or theory?

    • 2
      0

      Regret :
      Not ..established on 6th June 2018…..
      but ..on 6th June 2014……
      Listed 2018.

  • 4
    1

    Prof; Kumar David in his essays keeps the Reader thinking.There is more to this than meets the eye.

    Look at the last line of the previous essay on the same subject;
    ……….Something is very fishy………
    In this essay the last line is
    ………or maybe its meant to obfuscate Ministers and Administrators…………….

    Those who are familiar with the style of Somerset Maugham, in his stories, would have noticed that the last line keeps the Reader asking questions about the plot.

  • 3
    0

    I don’t know the technical suitability or financial benefit or loss and what proportion of commission made in this deal. However, I understand that there are many deals agreed with USA by Rajapaksas in order to avoid the challenges faced by Rajapaksa family who are still closely associated with USA and other Western Nations. We all know the UNHRC resolutions, EU GSP+ threat, USA recognition of Tamil Homeland are not in the interest of Tamils of Sri Lanka. It is to bring Sri Lanka under their control or to stop or minimise Chinese control in Sri Lanka. The fact is that now China and USA the biggest political powers in the world compete each other and both Political powers in Sri Lanka need internal instability and unrest to exercise their power internal politics. The country is almost reached to a level similar to many African and Arabic nations.

    • 4
      3

      “… both Political powers in Sri Lanka need internal instability and unrest to exercise their power internal politics.”
      A, could you kindly name the countries that contributed to internal instability in this country.
      I know some powers that did by invasion, meddling with the peace process, playing both sides of the conflict? You may include them as well.

  • 1
    6

    NFE is a public, SEC company. If Prof. KD has any fish to sell, he can directly write to SEC and FBI. Rest are his Mahavamsa. His only intention is trying to make sure that Appe Aanduwa will stay under China communism. He spent here essays to stress that Lankawe should install coal plants in Mutur on the stolen land from Tamils. When Sampanthan Aiyya complained to PM Modi and stalled it Prof KD was so mad at Sampanthan Aiyya. India wanted to bring an LNG plant there. New King changed the location Kerawelapittya. Then they got support from China only for coal plant and it too became coal plant. They never had China’s support for anything other than coal. This CEB engineers union broke three times Chinese setup in Nuraicholai and caused Island wide power outrage. China wrote 16-page complain to Aanduwa about this union’s sabotages. Aanduwa did nothing though it paid a large sum to German Engineers to investigate the Union’s crimes. This guy was a CEB director. Is he a baba to not to know what that rowdy union will write on the report it wants to sabotage? Is that that he tries to spin the Union’s claim? Shame for this senior person coming here with a union’s political propaganda pamphlet, but no figures. “Irappanai Pidichutham Pari Piranthu”. Sleeping with dog!

  • 3
    0

    Mahila: I fully agree, what you said in your two parts comments. There is no doubt, this FM “BR” of “Pohottuwa” Government is the most “Brilliant” brain among a lot of other contemporaries of his caliber who now hold power. He started with “10%” and now with the “Depreciation” of S/L Rupee, he has raised his “Takings” much higher in foreseeing the fate of the currency in two to three years’ time. Isn’t he “Brilliant” to enter into “Agreements” and “Contracts” bypassing the subject Ministers and without even “Hoodwinking” the Cabinet? Please take a little of your time to watch the following:

    https://www.youtube.com/watch?v=hZWzTDpuVgM OR

    col3negoriginal.lk/page/show?video_id=240668

    Above is a link to “Mawatha” programe where this matter was discussed extensively. Pl. listen to one Mr. Nimal de Silva who details the “Profile” of this US company.

    • 2
      0

      Dear S.
      Error in URL in above.
      Should be :
      https://www.youtube.com/watch?v=nZWzTDpuV9M
      ‘h’ should be ‘n’ and ‘g’ should be ‘9’.
      Nimal can heard from about 38th minute for about 20 minutes.

      • 1
        0

        MyView: Thank you for correcting me. Have a nice day.

  • 2
    0

    Mahila: The video is unavailable. Pl. go to YouTube and search for “Mawatha” of 30/9

    • 1
      0

      Simon,
      Thanks for the link. I found it is unavailable. I will search u tube for Mawatha, probably a little later as i am going out now.
      Thanks for your help.

  • 7
    0

    There is a problem with ‘gallon’. (The US gallon is less than the ‘imperial gallon’ that we generally call the gallon.)
    *
    Specifying quantity by volume can be misleading.
    Typically LNG has a density of around 430 kg/m³ to 480 kg/m³ and a gross calorific value of around 54 MJ/kg to 56 MJ/kg depending on composition (calorific value being greater for the lighter fuel).

    • 3
      0

      SJ,
      The 1 US gallon is = 4 Litres and 1 Imperial Gallon = 4.54 Litres
      The US Pints and Quarts similarly dwarfs!
      the Americans have rounded up the decimals.
      It is so in the case of the weight
      1 Us ton = 2200 Lbs. (or short ton) and 1 Imperial ton = 2240 Lbs.

      • 0
        0

        M
        You are right about shortchanging gallon, pint etc. The US ton has some logic to it.
        The US ton is fine in a context where a 20 hundredweight (cwt) makes a ton.
        (Why on earth should a hundredweight be 112 pounds?)
        *
        But would you not agree that to bring in ‘liter’ (Am. for litre) which is a metric unit into a system that has otherwise been all Imperial units is a rather funny?

  • 1
    0

    After all my old prof did not trip in his unit conversations as I claimed in a different post. His calculations are correct. For 660 MW generation plants the thermal energy need will be 94,520 million-Btu per day. It appears that NFE calculation of 35,000 MMBtu per day is based on a plant factor of 55% for a 300 MW plant with a heat rate of 8830 Btu/kwh . This will require 3070 USgal/d or about 1.2 million US gal/year. The press release mistakenly said it is per day.
    1 US gallon=3.7854 liters. But it does not apply here. see link below for LNG conversion factors
    https://lclngmessenger.energytransfer.com/InfoPost/resources/documents/PropertiesofLNG.pdf

  • 1
    0

    Simon,
    The exclusive Tax haven for US, Caribbean, South American Despot millionaires stashing funds is South Dakota No need to go overseas to British Virgin Islands. South Dakota new haven!
    NFE and California are not far away!
    If interested, please go to the link below to read:
    South Dakota now rivals offshore tax havens for financial secrecy, Pandora Papers say (businessinsider.com.au)
    “South Dakota is sheltering assets from individuals previously accused of financial crimes, the new Pandora Papers say”

    • 1
      0

      Mahila: Thank you for the link. “Pandora Papers” carries the name of Nirupama Rajapakse, it is reported. Her husband is Thiru Nadesan – the “Deal Maker” for “Rajapakse & Co. Inc.” who is also named in the case of “Malwana Property” where Basil Rajapakse has built a “Mansion”. The case is pending in the courts. Also remember this “Nadesan” is the man who took “Rani W” to the Temple Trees in the early hours of January 9, 2015, to meet the defeated candidate “MR”.

      Pl. Google the profile of “Newport” and read the “Press Release” relating to this “Deal” put through by US Ambassador and “BR” no sooner he became the Minister of Finance. Pl. draw your attention to the interpretation given to the term “Forward Planning” in that press release. You will fall off your chair when you read that “Press Release” and the “Meaning” given to that terminology. Interestingly, the “Share Value” of this outfit has fallen from $ 68 to $ 26. Has our Secretary to the Treasury studied these details? I doubt it because filling the pockets is the name of the game.
      .

  • 0
    0

    There seems to be some cock up with regard to the use of unit MMBTu. It appears that it is being used as million million or Tera. (1 X 10^12)

    For Brazilian fertilizer plant, New Fortress expects to supply Unigel with up to 41T BTU/year of natural gas, equivalent to ~1.4M gal/day of liquefied natural gas.

    If 35 T BTU/year is the annual consumption then 1.2 million gal/d is correct.

    660 MW facility at 70% plant factor and a heat rate of 8530 Btu/kWh (40% eff) will require 34.5 T Btu/yr

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