Camisea gas contract to be revised, Peru fears inability to meet internal demand

The Peruvian government is currently reviewing the contract it signed with the Camisea Gas Consortium to permit gas exports to Mexico, now that gas reserves have been proven to be much lower than earlier reported. The current contract would seriously diminish supplies for the local market.

“We began the revision on May 19,” said Minister of Energy and Mines Pedro Sánchez, who is concerned by the fact that of the 8.8 trillion cubic feet of natural gas confirmed in the Camisea field, 4.4 cft have been set aside for shipment to Mexico.

“We aim to guarantee that supply meets local demand over the next two years,” added Sánchez.

The Ministry has also demanded that Argentina-based Pluspetrol – the operating partner of the Camisea Consortium – carry out additional and more exhaustive studies to determine the exact amount of natural gas at Blocks 88 and 56 in the Madre de Dios region.

According to the contract, the gas from Block 88 is for the domestic market while production from Block 56 would be for export. However, the new figures show that Block 56 only has 2.2 tcf, which means that gas would have to be taken from Block 88 to meet the export quota signed with Mexico, and thus affect local supplies.

Pluspetrol has to explain why there is such a discrepancy between a January 2009 report confirming that 14.1 trillion cft could be extracted from Camisea, and recent reports indicating that only 8.8 trillion cft can be extracted, said Sánchez in comments to daily La Primera.

Demand for natural gas has increased by 80 percent in the past year due to increased consumption by the country’s thermoelectric power stations, industries and vehicles.

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

Although the world-class Camisea Project is one of Latin America’s key energy infrastructure projects, the construction and use of two pipelines as well as a distribution network that would make natural gas widely available for domestic consumption and export, has been a drawn out process, plagued by delays.

Some energy analysts believe President Alan Garcia, and his predecessor, 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, analysts 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.

A limited transport pipeline also makes it impossible to meet the increasing demand. The pipeline, which has a total capacity of 290 million square feet, was designed to supply natural gas until 2015. But in the short span of four years, it has already topped its own capacity.

Transportadora de Gas del Peru, TGP, must increase the pipe’s capacity to 450 million sq. ft. by resorting to compression, which will allow transportation to rise from 290 to 380 mn sq. ft, and must also build a second pipeline by the end of this year.

For Peru’s Interethnic Association for Development of the Peruvian Jungle, Aidesep — which led the recent protests in Peru’s north jungle– and other environmental groups, Peru’s $1.6 billion Camisea Gas Project is possibly the most damaging project in the Amazon Basin.

Seventy-five percent of the Camisea production project extends over the Kugapakori-Nahua state natural reserve, where several indigenous tribes have chosen to live in isolation. Environmental activists say the fragile ecosystem is the last place on earth fossil fuel drilling should take place.

Repeated leaks and explosions have plagued the twin pipelines that cut across the rainforest and Andean highlands to transport the gas to the coast at the port of Pisco and to the LNG liquified natural gas plant near Cañete, 170km south of Lima.

In 2006, in a public hearing held by the Inter-American Development Bank in Washington, it was claimed that the pipes had been constructed without sufficient quality control and with negligence as far as the materials and specialized workmanship were concerned; and that the pressure to meet contract deadlines coupled with a lack of financial resources had brought about these consequences. The accusation indicated that there were several weak sections throughout the length of the pipeline that could suffer future failures. Weeks earlier, a similar but scarcely noted report had been filed by OSINERGMIN, the regulating organism and supervisor of the investment in energy.

The Camisea Gas Consortium is formed by Pluspetrol of Argentina and Transportadora de Gas del Peru, TGP, which is owned by Pluspetrol, Hunt Oil of the US, Brussels-based Suez-Tractebel, SK Corporation of Korea, Algerian state-owned Sonatrach, and the Peruvian construction and energy group Graña y Montero.

The LNG Plant at Pampa Melchorita in Cañete, on the coast south of Lima, is owned by Hunt Oil (50%) SK Energy of Korea (20%), and Repsol YPF of Argentina (20%).

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