A cool, soft fog sits on sandy cliffs shielding the largest foreign investment in Peru’s history from the Pacific Ocean. In four years, the white towers, tanks and tubes of a $2.5 billion gas liquefaction plant run by Hunt Oil Co. of Dallas are expected to rise up on this site.
It’s not much to see yet. Giant dump trucks pour tons of sand and stones over the 400-foot cliffs, where the detritus of excavation mixes with the landslides of earthquakes. Footpaths lead barefoot fishermen down to the beach. Schools of pelicans glide over the rough, green-gray surf.
Whether this desolate site is transformed into an expensive superchilling machine pumping liquefied natural gas into supertankers depends on faraway bankers and auditors.
They are looking at not just the fiscal soundness of this beach project, but also the engineering integrity of pipelines crossing Andean peaks and Amazon jungle ravines from gas wells near the Camisea River.
Since shipments of natural gas and gas liquids began in August 2004, the Camisea liquids line has ruptured five times. The bankers want to know why before they lend $400 million to Hunt and its partners at Pampa Melchorita – SK Corp. of South Korea and Repsol YPF of Spain.
The government of Peru wants to know why as well before it approves additional Camisea work.
“We’re extremely concerned. There’s a lot of pressure to accelerate the audits,” outgoing Prime Minister Pedro-Pablo Kuczynski said in an interview. “But I think the consortium is a very responsible group of guys. … In the end, Hunt will do well here.”
Groups trying to defend the Amazon and its indigenous peoples aren’t buying such assurances.
“Hunt has had virtually zero experience operating in Latin America and the ecologically fragile rain forest, much less contacts with indigenous peoples,” said Atossa Soltani, founder and executive director of Washington-based Amazon Watch.
“We are less than impressed with their willingness to be open-minded about this.”
Not true, replied Jeanne Phillips, Hunt Oil’s senior vice president for international relations.
“Everyone from Hunt has a very high commitment to operating this project on the very highest level of social and environmental programs,” she said.
Swirling through this dispute is a bitter legacy of natural resources exploitation.
Spaniards took gold and silver and shattered the Inca empire. Miners and oil companies have done less harm, but half of Peruvians still live in poverty and aspire to more.
So projects such as Peru LNG remain at the root of political upheavals that continue across much of Latin America.
The Camisea gas deposits were discovered in the early 1980s by the Royal Dutch/Shell Group. Shell’s contracts were annulled in a populist move in the late 1980s, but a decade later a new government invited the company to return. This time, Shell walked away when the government insisted that Camisea’s gas resources be used only in Peru. Shell contended exports were needed to make the project worthwhile.
Hunt, joined by several companies including Pluspetrol Corp. of Argentina, bid successfully to take over. They worked out a compromise with a new Peruvian government. Camisea gas would first go to Peruvians as a fuel for electricity and bottled gas for hot water and cooking.
The government agreed to pay the consortium as much as $100 million a year as long as the gas pipeline ran at less than 60 percent of capacity. Hunt, meanwhile, would lead a team of companies in building an LNG export facility.
“In these first two years, it’s cost us $200 million, but consumers have received far more benefits,” Mr. Kuczynski said. “Since August of 2004, we’ve saved $1 billion in Lima’s electricity rates.”
Barbara Bruce, Hunt’s general manager of Peru LNG, said that from the start, the company has been sensitive to community concerns and the need to protect the culture and environment of the Amazon.
But when leaks started, the consortium member managing the pipelines, Techint Group of Argentina, kept quiet.
“Camisea had already been oversold by the government,” Ms. Bruce said. “They’d fed this belief that, thanks to Camisea, we’re going to be a new country, there’d be all this power and all these jobs.”
Deepened fears
For critics of Camisea, the pipeline rupture confirmed their fears.
Amazon Watch had managed to block financing at the U.S. Export-Import Bank for the first phase of Camisea over concerns that the project would irreparably harm the rain forest and disrupt the culture of native peoples in the region, some of whom avoid all contact with the outside world.
Ms. Soltani said influenza brought into the jungle by Shell’s workers in the 1980s killed more than half the people in some native communities. So far, no one has been able to document these claims.
The Inter-American Development Bank agreed to provide $75 million in loans for the pipelines built during the $1.65 billion first phase of Camisea. The companies promised stringent medical precautions and a difficult, mountainous pipeline route that would make it almost impossible for loggers or settlers to follow the project into the rain forest.
Techint built two pipelines – a 454-mile natural gas line 32 inches in diameter and a 348-mile, 14-inch gas liquids line. The lines cross the Andes at more than 15,000 feet, then snake up and down more than 130 miles of jungle canyons to the Camisea.
The pipelines were built in the six-month dry season of 2003-04. The companies expected the jungle to reclaim the corridor, and today much of it is barely visible from a low-flying helicopter.
But the rains returned before the jungle did – rains of 6 to 10 inches a day, torrents that loosened the round stones and sandy soil. Ms. Bruce said the first of five leaks in the gas liquids line was caused by a weak weld. Then a loosened boulder broke the line. Three other leaks came as erosion stripped away the pipeline’s foundations.
Amazon Watch hired engineers who said the pipe steel and welds were defective. The oil companies insist that’s not true, and the Inter-American Development Bank’s auditors have found no problems so far with the quality of the pipe.
Techint, Pluspetrol, Hunt and the other Camisea partners are financing pipeline repairs that are expected to cost more than $45 million.
“About 600 people are now walking the line to identify weak points, clear them out and clean them out,” said Ms. Bruce.
For the LNG project, another pipeline will run from Pampa Melchorita to the edge of the jungle, along roughly the same route as the other lines. This time, Hunt is in charge.
Hunt is preparing to choose a contractor to build the line, but Techint was not invited to bid.
“There were a number of reasons, not all of them associated with construction quality,” said Steve Suellentrop, Hunt Oil’s senior vice president for liquefied natural gas projects.
Martin Wouch, environmental and community affairs manager with Hunt’s Compañia Operadora de LNG del Perú, said the company has held more than 125 workshops with communities in the Andes explaining the plan, and in one case chose a different route to avoid a sacred mountain.
“The universal demand is jobs,” Mr. Wouch said. “We’re working out a complex of job assignments rotating among communities to give as many people a chance to work as we can.”
Pampa Melchorita is a nearly 1,300-acre site of empty cliffs and beach several miles away from two small cities named Cañete and Chincha. Thousands of jobs at the site are being divided equally between the two towns and will be shifted to give as many people as possible an opportunity to work.
Production plans
At the peak of production, roughly 35,000 people will be brought together to build the pipeline, the LNG liquefaction plant and a breakwater a mile offshore.
The blueprints describe a machine to superchill natural gas to 259 degrees below zero, where the molecules slump together into tons of liquid. This liquefied natural gas, or LNG, would pour trembling down the cliffs through an insulated pipe and into the spherical cargo holds of gas supertankers.
The plant is being built with special insulators and shock absorbers to handle the many earthquakes that shake Peru’s Pacific coast.
Peruvians with environmental and Indian rights groups want the Inter-American Development Bank to make the $400 million loan to Peru LNG to improve oversight of the job.
“Our objective is not to stop this project but to improve it, to change the conditions under which they build and operate,” said Carlos Abanto Kcomt, a scientist with an association called Labor. “If the IDB participates, it will be much better.”
This month, Peruvians turned aside Ullante Humala, a nationalist presidential candidate who’d promised to renegotiate the Camisea project contracts. The election was won by Alan Garcia, a more moderate figure. Mr. Garcia met with Hunt officials last week, and endorsed the Camisea project “wholeheartedly,” Mr. Suellentrop said.
Prime Minister Kuczyinski has known Ray Hunt for many years. Before entering the government, he urged Mr. Hunt to invest, and he advised Hunt Oil on how to raise $270 million in Peruvian private capital for the Camisea project – actions that drew a lot of criticism in the Peruvian Congress from Camisea opponents.
Mr. Kuczynski is expected to leave office once Mr. Garcia is inaugurated in July.
“The question is what Peru will do in the next five to 15 years – will some unilateral measure spoil the gains from this?” he asked. “I think the answer is no.”
“We still have a ton of poor people – 50 percent of the population,” Mr. Kuczynski said. “But beyond that ton of poor people is a ton of high expectations. If the economy runs well, those left behind get frustrated. It will go away with growth, but it’s a race between eliminating poverty and high expectations.”
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{WebVideo}Video: Jim Landers reports from Peru, where Dallas-based Hunt Oil Co. and a group of international partners are pumping natural gas found beneath the Camisea region of the Amazon.
DallasNews.com/video
