India, the United Arab Emirates and Sri Lanka signed an agreement in April 2025 to develop an energy hub in the city of Trincomalee, a natural harbour in Sri Lanka’s east. To evolve into an energy hub, Trincomalee has to integrate supply and demand of multiple energy sources, including but not limited to crude oil, natural gas and, to a lesser extent, coal. In addition, it has to navigate competition from other regional hubs for economic success.
India has said that the trilateral memorandum of understanding is designed to ensure energy security, energy affordability and economic development through energy export revenues for Sri Lanka. What is in it for India in the energy context was largely left to speculation. Commentary on the agreement offers exuberant expectations of Trincomalee transforming into an energy hub that would, among other things, strengthen India’s energy security. While the enthusiasm is justified, Trincomalee evolving into an energy hub would take at least two decades, and, in that period, what is expected from an energy hub may be completely different from what Trincomalee can offer. In the short term, India’s energy investments in Trincomalee are more a means of geopolitical leverage than a means of energy security.
Sri Lanka’s Energy Infrastructure
In Trincomalee, the only significant energy infrastructure is the China Bay tank farm built by the British in the 1930s, which served as a refuelling station for the Royal Navy during World War II. Lanka IOC (Indian Oil Corporation), a subsidiary of IOC, currently owns the tank farm, the largest between the Middle East and Singapore. The farm has 99 tanks, each with a capacity of 12,000 kilolitres. Currently, only 15 of these tanks are operational, but Lanka IOC intends to develop the tankage in response to market signals. Lanka IOC has a 35 per cent market share in a highly competitive bunkering fuels market, operating out of Colombo, Trincomalee and other ports in Sri Lanka. Lanka IOC also markets petroleum products through its retail outlets and owns one-third share in Ceylon Petroleum Storage Terminals Limited (CPSTL), a joint venture of Lanka IOC and Ceylon Petroleum Corporation (CPC) – which operates 13 oil terminals across the Island. IOCs entry into Sri Lanka in 2003 was driven by its commercial interests of expanding its market beyond Indian borders leveraging surplus production of petroleum products and its experience in the downstream oil market.
