To have a vast reserve of energy, four times the amount that Peru will use in the next 20 years, seems a wonderful gift for a country so often starved of power. Indeed those connected with developing the Camisea natural gas field, deep in the jungle 500 kilometers east of Lima, believe this resource gives Peru a tremendous opportunity. “It will transform the energy equation in this country,” says Alberto Moons, a vice president of Argentine oil company Pluspetrol. He is the coordinator of the upstream end of this huge gas and liquid hydrocarbons project involving an international consortium.
Yet Camisea has not had a smooth path. Despite the enormous supply of cheap gas it will provide once development is complete – now expected in late 2003 – its precise role is by no means certain.
Peru seemed to have hit the jackpot when Camisea was discovered in the 1980s. The gas field is conservatively estimated to hold around 12 trillion cubic feet of proven and probable reserves. By contrast, Peru is only forecast to consume around three trillion cubic feet of gas in the next two decades. Shell and Mobil lined up to develop Camisea, but pulled out of the project in 1998 after failing to reach terms with the government for gas pricing and distribution – even after investing an estimated $500 million in exploration.
The government put the contract out to tender again and the upstream development rights are now held by Pluspetrol, Hunt Oil of the US with 36% each, and SK of South Korea with 18%. Techint, the Argentine manufacturing, oil and construction group, has the remaining 10%. The same companies, as well as Sonatrach, the Algerian state oil and gas company, and Graña y Montero, a Peruvian construction firm, hold downstream rights.
To some observers this seems like an second-rank consortium, compared with giants like Shell and Mobil – and the participation of Argentine companies inevitably raises eyebrows, given that country’s financial and political crisis. However, Moons says the partners have enough capital and will not have to rely on access to funding. “This was an analysis done before the bid, because we could see the risks that the lenders would see. We did not want to depend on financing,” explains Moons. “Pluspetrol has the financing assured for its part of Camisea with resources that don’t come from Argentina.”
He calculates that the upstream investment will be around $500 million. Around 30% of this will consist of financing from sources like Eximbank, through credits for suppliers. That leaves around $350 million, of which Pluspetrol has to provide 36% over three years. With annual sales of around $600 million, “It is nothing to make Pluspetrol tremble,” says Moons.
The project must defuse environmental and social concerns in a remote area populated by indigenous tribes. Moons claims these doubts have diminished hugely, saying an environmental impact study has been approved and that local people now accept the project and “want to share the benefits.”
Transportation Odyssey
Getting equipment to the remote site is an odyssey. Some equipment takes a 60 days to travel from the US, up the Amazon and its tributaries to reach its destination. The consortium plans to ship in 52,000 metric tons of equipment by the end of March. Pipelines must run hundreds of kilometers across the 4,500-meter Andes mountain range to reach the coast. And what will developers find at the other end of its pipelines? Downstream investment is put at a further $700 million, but so far, Peru’s gas market is relatively undeveloped. An earlier idea of exporting to Brazil was quashed when Bolivia made its own huge gas find and cornered that market.
Moons says the domestic market alone makes the project viable, but wider development has to include exports. Moons says the only export for which Camisea has a competitive advantage is liquid natural gas, destined for the west coast of North America. “This is a project that our consortium is analyzing. This will be a second stage of Camisea,” says Moons. An extra large pipeline is already being built with a view to LNG exports.
Within Peru, Moons believes energy demand will grow quickly and that low-cost, gas-fired power plants will force higher-cost plants out of the market. Also, two-thirds of the gas produced at first will be reinjected to allow recovery of liquids such as condensates and LPG. These should have a more ready market if local refineries are adapted. “In 2000, Peru imported $1 billion in oil, diesel, and LPG. These can clearly all be substituted by Camisea,” says Moons.