POWER March 2014 - 66

FUEL SUPPLIES
1. Stored and ready to ship. South America's first and only natural
gas liquefaction terminal is located 170 kilometers south of Lima on
the Pacific Ocean. Courtesy: Peru LNG
2. Under construction. The EPC contract for the liquefaction facility
was awarded to Chicago Bridge & Iron Co. (CB&I). The LNG export
project was launched in January 2007, inaugurated on June 10, 2010, and
dispatched its first tanker on June 22, 2010. Courtesy: Peru LNG
Environmental concerns have also been an ongoing matter of
debate, especially as a portion of the natural gas reserves lie in the
Amazon rainforest (see sidebar " Environmental Concerns " ). Overall,
however, the resource development and export project has made remarkably
fast progress.
Export Infrastructure
On June 22, 2010, Peru LNG-a multinational consortium created
in 2003-dispatched its first shipment of LNG from its state-of-the
art liquefaction terminal located 170 km south of Lima at Pampa
Melchorita (Figure 1). The plant is a single-train facility with a capacity
of 4.4 million metric tons per year.
The project's total cost (for the LNG plant, marine terminal, pipeline,
plus development and financing costs) was $3.8 billion, making
it, at the time, the largest foreign investment in Peru's history.
The nearly four-year development project also included a 408the
dynamics of the oil and gas business and the virtuous circle
of open markets, exploration, and production and development of
new reserves.
When Peru took the decision to allow exports of natural gas, it also
looked to invigorate the exploration and production business and to
make it possible, through the right economic signals, that possible
and probable reserves become proven ones, making them commercially
viable.
Peru is a country that has had many traumatic experiences of
corruption in its highest levels of government throughout its history.
The worst thing about corruption is not just the economic
losses that inevitably result, but rather that it seeds mistrust among
people. Peruvians mistrust their judiciary system, their parliament,
and their politicians. In that context, it's easy for political, even
technocratic, opponents to point to different policy decisions as
motivated by corruption.
Carlos Herrera, a well-known expert in energy matters, who had
been Peru's minister of energy and mines twice (2000-2001 and
in 2011) denounced export plans publicly and said that Peru did
not have enough natural gas reserves to justify developing an LNG
export project. He suggested that it was corruption in the administration
that modified the Peruvian oil and gas regulations in order to
make the LNG project viable. However, parliamentary investigative
commissions came and went and couldn't find any evidence of corruption
or mismanagement.
64
km pipeline that crossed the Andes. The engineering, procurement,
and construction (EPC) contract for the liquefaction plant
facilities (Figure 2) was awarded to Chicago Bridge & Iron Co.
(CB&I). The marine terminal EPC was awarded to a consortium
led by Brazilian contractor Odebrecht, and the pipeline contractor
was Argentina's Techint.
Early Results
It's too early to conclude whether or not the exportation decision was
the best decision for Peru. However, according to the " BP Statistical
World Review of 2013, " at the end of 2012, Peru's natural gas
proved reserves were up to 12.7 Tcf (up from 8.7 Tcf in 2006), and
its reserves-to-production ratio (R/P)-the length of time that the remaining
reserves would last if production were to continue at the current
rate-was 27.9 years, the largest in the Americas (the U.S. R/P
ratio is 12.5 years).
Since it began exports, Peru has shipped its LNG primarily to
Spain, South Korea, Japan, and Mexico. Additionally, Peru is currently
considering new export projects (through LNG shipments or
pipeline) to Chile, a neighboring country with higher energy costs.
Industry sources estimate that Peru LNG will generate approximately
$310 million annually of export revenues.
Not bad at all for a small South American country. ■
-Javier Matos Flores-Guerra is an associate with the Peruvian
law firm Hernández & Cia. and is a specialist in the legal, regulatory,
and project development aspects of the energy sector.
www.powermag.com
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POWER March 2014

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