The success of Peru’s plans to develop the country’s gas industry depends on investment, but more importantly on the support of indigenous tribes in the Amazon region, writes NJ Watson
PERU’S AIM of joining the world’s liquefied natural gas (LNG) exporters received a boost last month, when the Inter-American Development Bank (IDB) said the Camisea gas pipeline is clean and properly constructed. The bank’s June declaration suggests a $400m IDB loan will be forthcoming to help fund a planned LNG export terminal.
At a public meeting at the IDB’s headquarters in Washington, DC, external consultants presented the results of a social and environmental audit and a pipeline-integrity analysis of the Camisea project in the heart of the Peruvian Amazon forest. Both were ordered by the IDB following a series of leaks from the 510 km gas and natural gas liquids (NGLs) pipelines that run in parallel from fields in the Ucayali basin, across the Andes to local markets on the Pacific coast.
One of those consultants, ICF International, found an acceptable performance in the four areas of environmental protection – social, health and occupational safety concerns, contingency planning and emergency response. ICF also described the performance of the two project companies – Transportadora de Gas del Peru (a consortium led by Techint) and Argentina’s Pluspetrol – as “effective” in terms of erosion monitoring, re-vegetation and biodiversity.
Reduced risks
An audit prepared by Exponent on pipeline-integrity found the main risks to the lines were with geotechnical and geological conditions rather than shoddy construction and materials, and said geotechnical stabilisation measures have reduced these risks.
Following the meeting in Washington, Peru’s energy and mines minister, Pedro Gamio, told reporters that the government has pledged to complete by next month 21 agreements designed to strengthen the Camisea project’s environmental and social-management programme. “At the meeting, we reported an advancement of 70% of the 21 pledges the state has with the IDB,” Gamio said.
However, environmental lobby groups and those representing indigenous tribes were unimpressed. They argue the results of the audits contradict a study conducted last year by a US technical research firm after one of the pipelines ruptured for the fifth time since its start-up. The E-Tech International study claimed the materials and construction procedures used in the pipeline were substandard and predicted further leaks.
“We feared this audit would be a rubberstamp for pushing forward with financing the second phase of Camisea, regardless of whether the problems with the first phase were resolved,” environmental group Amazon Watch said following the meeting in Washington. “On initial review, it looks like we were right.”
Certainly, financing from the IDB and other multilateral institutions, such as the World Bank’s International Finance Corporation, now looks much more likely.
The US’ Hunt Oil, South Korea’s SK and Spain’s Repsol YPF are seeking to raise $2.25bn in third-party financing to help build the $3.8bn second phase of the Camisea project. Most of the money will go towards building the 4.2m tonnes a year liquefaction terminal at Pampa Melchorita, 158 km south of Lima. The terminal would export Camisea gas to the US and Mexico, and possibly Chile.
Hunt says construction of the tank and train foundations is scheduled for the third and fourth quarters of this year, respectively, and the first LNG deliveries are expected to be made in the second quarter of 2010.
Government hopes
The IDB report will also be a relief to Peru’s government, which has high hopes for growth in the hydrocarbons industry. The government is trying to increase gas use in the residential, industrial and power sectors, as well as to boost foreign currency revenues from overseas sales. According to a June report by the US Energy Information Administration, the country has proved gas reserves of 8.7 trillion cubic feet (cf), the fifth-largest in South America.
The opening-up of the Camisea fields since 2004 has gone a long way to realising this goal. The energy agency, Perupetro, said last month that the country’s gas output rose by 74.3% in the January-May period, to 30.5bn cf, compared with the first five months of 2006. Camisea’s largest fields, San Martin and Cashiriari, jointly known as Block 88, reported the highest average output in the country, of 160.2m cf/d in May. Block 88 is operated by Pluspetrol and holds 11 trillion cf of proved plus probable gas reserves and 482m barrels of associated NGLs.
Analysts say gas production will rise significantly over the next few years when the Pagoreni field, or block 56, comes on stream. The consortium developing the field – Pluspetrol, Hunt, Argentina’s Tecpetrol, Algeria’s Sonatrach and SK – which will supply the LNG export terminal, expects output levels of around 0.6bn cf/d.
The country’s oil sector is also seeing increased interest from foreign investors. The head of Perupetro, Daniel Saba, says 37 companies, including several Canadian firms, have registered to participate in an international bidding round for licences to develop oilfields. Perupetro is offering 19 blocks – 14 onshore and 5 offshore – in the bid round. These blocks are in the Maranon, Ucayali, Madre de Dios, Huallaga, Titicaca, Talara, Trujillo and Salaverry Basins.
“The introduction of tax incentives and more flexible exploration schemes, as well as the development of the Camisea gas project, has led to increased interest in Peru’s hydrocarbons sector,” says Juliette Kerr, an analyst at Global Insight, a consultancy. “Sixteen contracts were signed last year, beating the record achieved in 2005 of 15 contracts.”
Yet the success of all this depends in large part on the support of indigenous tribes in the Amazon. The fighting talk following the IDB meeting and the continuing recent protests, which are easily triggered in impoverished areas, will do little to assure investors that the government is any nearer to adequately assuring these groups of the benefits of expanding the oil and gas business.
Last month, Pluspetrol said it had halted production at Block 8, in the Loreto region in the Amazon jungle, as a precautionary measure to protect the safety of its workers and its oil installations. According to reports, around 100 protestors broke into the site as part of a regional strike to protest against a government plan to eliminate gradually the tax exemptions prevalent in their areas.
