Sri Lanka stands at a historic energy crossroads with $267 billion in offshore oil and gas reserves waiting to be tapped. The Mannar Basin could transform the island’s fragile economy into an energy powerhouse, but only if the government can balance global investment, political stability, and transparent governance.
Sri Lanka is preparing to take a decisive step into the global energy market with the selection of a marketing consultant this week, a move that will pave the way for international bids for commercial extraction of oil and gas in the Mannar Basin. This announcement signals the government’s determination to move forward with unlocking energy resources that have long been identified but left untapped due to financial, political, and technological hurdles. With an estimated value of 267 billion US dollars in offshore oil and gas reserves, the opportunity presents both immense potential and significant risks for an economy still struggling to recover from bankruptcy.
The foundation for Sri Lanka’s energy ambitions was laid in 2020 when a national policy on natural gas was gazetted, outlining strategies for domestic demand creation and options for commercialization of offshore gas. This was followed by the Petroleum Resources Act No. 21 of 2021, which introduced new regulations to streamline exploration and extraction processes. The establishment of the Petroleum Development Authority of Sri Lanka (PDASL) as an independent upstream regulator further institutionalized the government’s intent. Now, with interest already expressed by companies from India and Qatar, the stage is set for Sri Lanka to position itself as an energy hub in South Asia.
Sri Lanka’s history with offshore exploration, however, highlights the challenges ahead. In 2008, the government signed an agreement with Cairn India Limited to explore for oil and gas off the northwestern coast. Cairn Lanka Limited, its subsidiary, drilled two exploration wells in the Mannar Basin in 2011 and discovered natural gas in the Barracuda and Dorado fields. At the time, the extraction was deemed commercially unviable due to high costs, leaving the reserves untouched. With technology now more advanced and global demand for cleaner energy rising, the government believes the conditions may finally be favorable for commercial viability.
Still, risks remain. Extracting and exporting oil and gas requires billions in investment, stable long-term contracts, and political consistency. Investors will carefully watch Sri Lanka’s regulatory environment and fiscal policies, as the country cannot afford another misstep in energy development. While offshore oil and gas could transform Sri Lanka’s energy independence, generate revenue, and create thousands of jobs, failure to manage contracts transparently could repeat past cycles of corruption and delay.
The Mannar Basin offers Sri Lanka a once-in-a-generation chance to secure its energy future. The challenge lies not in identifying the resource but in ensuring the nation has the discipline, governance, and global partnerships to turn potential into lasting prosperity.
