Economist: regulation needed to ensure greater savings for Peruvian consumers who convert gasoline cars to cleaner-burning natural gas

While thousands of drivers in Peru’s capital are converting their gasoline powered vehicles to run on Peru’s abundant supply of less expensive natural gas, one economist says the savings aren’t as substantial as they should be because filling stations are gouging customers with artificially high costs to compress the fuel into their tanks.

“The lower cost of natural gas, compared to the rising cost of gasoline, cannot serve as an excuse or a pretext for excessive gross profit being generated by the filing stations,” Peruvian economist Humberto Campodónico wrote in a column published Wednesday in daily La Republica.

Campodónico called on Peru’s government to implement regulations to control the compression price that is passed on to consumers.

“The Osinergmin (Peru’s Bureau for the Supervision of Energy and Mining Investment), Indecopi (Peru’s Bureau of Consumer Protection) or the Congress must intervene and find a remedy for the market’s flaws,” Campodónico wrote.

Vehicular natural gas, considered more “environmentally friendly” than other fuels, is made by compressing natural gas to less than 1 percent of its volume at standard atmospheric pressure. Then, it must be stored, transported or distributed in hard, usually cylindrical or spherical-shaped containers, at a normal pressure of 200-220 bar. The natural gas tanks are usually bolted down in the converted vehicle’s trunk.

There are now 34 natural gas stations located in various parts of the city where motorist can fill up, and — compression costs or not — the savings are substantial.

Peru’s government has fixed the cost of compressed natural gas, or methane, at a ceiling price of 4.30 soles, or about $1.50 per gallon, compared to about $4.55 per gallon for 90 octane gasoline. That has compelling the owners of some 34,000 vehicles, mostly taxis, to make the switch.

A taxi driver who spends about $420 per month on 90 octane gasoline stands to save the equivalent of two Peruvian minimum monthly wage salaries of 550 soles, or $192. But Campodónico wrote that filling station owners are charging exorbitant compression costs of 1.58 soles per gallon, or $4.00 per million Btu (MMBtu).

These unregulated compression expenses are higher than the transport costs that cover bringing the natural gas from the Peru’s south-eastern jungles to Lima plus the price at well-headt which was fixed at $0.80 MMBtu, down from $2.215 MMBtu in January 2007, when the government renegotiated the Camisea contract.

The Camisea Gas Project, known as Block-88, is located in Peru’s south-eastern Amazon basin and thought to hold some of the largest undeveloped gas reserves in South America. It’s one of Latin America’s key energy infrastructure projects.

As world oil prices skyrocket, Peru is looking to convert on a wide scale to low-cost natural gas, a fossil fuel abundant in the Andean country, to reduce the current hydrocarbon deficit and the country’s dependence on costly diesel and liquefied petroleum gas imports.

But some energy analysts have said President Garcia, and his predecessor, former President Alejandro Toledo, were too quick to cut deals to allocate up to 30 percent of Peru’s known natural gas reserves for export. That energy will be needed for domestic use in coming years, they say, to generate electricity and power water desalinization plants as Peru’s quickly melting glaciers disappear, depriving the country of drinking water and hydroelectric energy.

Domestic shortage could, in the long run, cause an increase in natural gas prices.

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