POWER March 2014 - 64

FUEL SUPPLIES
The LNG Export Debate: Lessons
from Peru
What could a relatively small country in South America have to teach the U.S. about
LNG exports? Maybe a lot, as 2014 marks the 10th anniversary of its natural
gas market.
Javier Matos Flores-Guerra
R
ecent shale gas development, resulting
in cheap natural gas in the U.S., has
opened the debate about whether or
not to export some of that energy-mainly as
liquefied natural gas (LNG). As the U.S. considers
the merits of LNG exports, it may be
useful to look at how that debate played out
in other countries faced with a similar situation.
Understanding how previous debates
evolved, and the consequences of the decisions,
may prove to have lessons that the U.S.
can learn from.
There are just two LNG export terminals
in the Americas outside the U.S., in Trinidad
& Tobago and Peru. The Peruvian project, the
first of its kind in South America, was the one
that faced major controversy over whether or
not the nation should export natural gas.
The Peruvian Natural Gas
Revolution
Peru is the third-largest country in South
America, with a population of 30 million and
a GDP per capita of US$6,800. It is an emerging
market that grew 7% a year on average in
the past eight years. Unlike the U.S., before
2004, Peru had never been a significant consumer
of natural gas (see sidebar " Natural
Gas and Electricity in Peru " ).
The natural gas revolution in Peru had a
name, and its name was Camisea.
Camisea hydrocarbon deposits are loNatural
Gas and Electricity in Peru
According to The World Factbook (published
online by the U.S. Central Intelligence
Agency), in 2010, Peru had an
estimated 8.613 GW of installed electric
power capacity. Fossil fuels accounted
for roughly 60% of all generation, with
the balance coming from hydropower.
Also for 2010, the International Energy
Agency says that 12,226 GWh were generated
by natural gas, accounting for
34% of total generation.
cated 500 kilometers east of Lima, Peru's
capital city, in the Ucayali Basin, in the Peruvian
region of Cusco, in the southcentral
jungle of the country. As early as 1981 the
Peruvian government signed an operation
agreement with a subsidiary of Royal Dutch
Shell (Shell) in order to explore the deposit.
From 1983 to 1987, Shell discovered and
confirmed the Camisea deposit was rich in
natural gas and associated liquids reserves,
with over 8 trillion cubic feet (Tcf) of reserves.
For many reasons-including political
incompetency, the emergence of the
leftist guerrillas known as the Shining Path,
and lack of capital and human resources-
Camisea had to wait until the new millennium
to see the light.
In August 2004, Camisea started its comThe
U.S. Energy Information Administration
reports that domestic consumption
of natural gas in Peru increased from 16
Bcf in 2002 to 202 Bcf in 2011, " driven by
government incentives, economic growth,
and the growing number of gas-fired electricity
plants. " Overall, the role of natural
gas in Peru's energy sector and economy
has increased dramatically in recent years
(Table 1).
-Gail Reitenbach, PhD, Editor
Table 1. Natural gas ramp-up. Source: U.S. Energy Information Administration
History
Central &
Peru
Production
Consumption
Net export
Proved reserves (trillion
cubic feet)
255.33
193.88
61.45
12.46
South America World Rank
5, 517 111,954 400.83
5,106 113,321 201.65
415 - 199.18
270 6,845 12.70
mercial operation as an integrated project.
The project's entire value chain included production,
transportation-a 729-km pipeline
from Malvinas to Lima and a 557-km natural
gas liquids (NGL) pipeline from Malvinas
to Pisco-and distribution, including to the
City of Lima.
The Camisea project had two main phases,
with the first involving resource exploration
and development and the second involving
the LNG export components. When Camisea I
was under procurement and construction, between
2001 and 2003, Peruvian policymakers
faced the dilemma that American policymakers
are facing now: There was too much gas
for the country's domestic consumption-or
at least that seemed to be the case.
From a global perspective, 8 to 10 Tcf is
not much natural gas at all, but in the early
stage of the Peruvian natural gas industry,
when nobody used natural gas because they
did not even know about it, it was reasonable,
even indispensable, to evaluate all the
alternatives available to obtain the highest
economic benefit from the natural gas.
Because gas reserves appeared to vastly
exceed domestic needs, exportation initiatives
started to make sense. At the same
time, questions started to arise. In an immature
energy market like the Peruvian
62
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