Sri Lanka will forge ahead with plans to import liquefied natural gas in the next few years, even as a global supply crunch sends prices of the fuel soaring. 

“We should not be worried about gas prices,” Energy Minister Udaya Gammanpila said in an interview. “These are the result of a sudden shock.”

New York-based New Fortress Energy Inc. is building an LNG import terminal near Colombo, Sri Lanka’s capital. It’s scheduled to start in 2023, by which time Gammanpila said he expects gas prices to have declined from record highs.

Sri Lanka is the latest of many Asian nations turning to LNG for the first time or ramping up purchases. Demand on the continent is rising faster than anywhere else, in part due to governments trying to reduce their use of dirtier fossil fuels such as coal and oil.

Prices for cargoes arriving at the Sri Lankan facility will be the cheapest of either Asian LNG or a U.S. gas hub pricing formula, said Gammanpila. New Fortress, which will operate the terminal, will charge an extra 15% for turning the liquid fuel back into gas, he said.

Asian LNG futures have almost doubled this year to around $27.50 per metric million British thermal units, roughly the energy-equivalent of $155 per barrel of oil. Prices have soared as shortages of coal and wind power in parts of Asia and Europe boost demand for gas.

U.S. gas is far lower, but has still climbed more than 100% since the end of 2020.

Local Production

Sri Lanka will seek to take in around 35,000 MMBtu a day of gas, which will be sent to several power stations that now run on oil. While it may increase imports over time, it probably won’t build a second import terminal because it wants to start producing its own gas within four years, said Gammanpila.

The country’s Mannar Basin holds 9 trillion cubic feet of potential gas reserves and two of the four wells drilled in the area have struck gas, said Gammanpila.

By the end of the year, he will invite international companies to develop offshore gas reserves in an area that Indian billionaire Anil Agarwal’s Cairn India Ltd. relinquished in 2015. Energy firms will also be able to request licenses to explore Sri Lanka’s other blocks, Gammanpila said.

The minister said that a regulator for the upstream oil and gas industry will be established next month.