Sri Lanka ramps up fuel imports as drought hits hydropower

* Severe drought curbs hydropower in Sri Lanka

* Stokes imports of diesel, fuel oil -sources

* Infrastructure push could also support demand for diesel

SINGAPORE/COLOMBO, Feb 8 (Reuters) - Sri Lanka’s fuel imports in January jumped to double typical monthly levels, with the country rushing to plug an energy shortfall as severe drought hits its hydropower output, industry sources said.

The South Asian nation is suffering its worst drought in over 40 years, dragging hydro’s share of Sri Lanka’s power mix to below 11 percent in 2016 from an annual average of about 35 percent, said Senthil Kumaran, senior oil analyst at energy consultancy FGE.

“As a result, fuel oil and diesel consumption in thermal power plants increased, partly to offset the hydropower deficit,” Kumaran said.

“High fuel oil imports should continue amidst range-bound crude prices.”

Ceylon Petroleum Corp, the country’s state-owned oil importer, has been requesting bigger-than-usual volumes of diesel and fuel oil in the spot market, traders said.

It has bought about 260,750 more barrels of diesel in January than December and around 260,000 more barrels of fuel oil, said a source close to the matter, speaking on condition of anonymity.

Sri Lanka typically imports 26,000 to 32,000 barrels per day (bpd) of diesel and 6,000 to 10,000 bpd of fuel oil, Kumaran said.

A delay in awarding term oil contracts also caused a spike in spot imports, traders said.

“We have decided to increase imports of fuel oil mainly and more diesel as well because the Ceylon Electricity Board needs more for power generation,” a senior Ceylon Petroleum official said, declining to be named as he was not authorised to speak with the media.

“(Ceylon Petroleum) is also going to maintain additional stocks of fuel and diesel due to the drought. So both these products will be maintained at more than required levels.”

Sri Lanka’s fuel oil demand will likely grow by about 14 percent year-on-year to 24,000 bpd in 2017 and diesel demand will increase by 7 percent year-on-year to 53,000 bpd, FGE’s Kumaran said.

An improving housing market, lower interest rates and government efforts to speed up infrastructure projects will keep supporting diesel demand in the next two or three years, Kumaran added. (Reporting by Jessica Jaganathan; Editing by Joseph Radford)