Latin Finance - July/August 2010 - 45

Peru hydrocarbons

Tapping Private Investors
by Lucien Chauvin

here were 20 hydrocarbon contracts in force in May, with production of hydrocarbon liquids averaging 154,000 barrels and gas production of 428 million cubic feet daily during the month, according to the ministry of energy and mines (MEM). The amounts are low compared to neighboring countries, but president Alan García’s government is expecting big things shortly, as are hydrocarbon experts and investors, in gas as well as oil. “Peru could become an important player regionally if it understands how the market works and attracts investment,” says Alvaro Ríos, an international energy consultant and former hydrocarbons minister in Bolivia. “Reserves will only increase if there is money going after them. The state needs to convince companies to go after its resources.” Hydrocarbons promotion agency Perupetro has on the books 63 exploration contracts and in May launched a new bidding round for an additional 25 blocks. Perupetro president Daniel Saba says big-name players like France’s Total and US-based ExxonMobil, have expressed interest and could be among the winners when the round concludes in October. The agency forecasts exploration investment of $1.25 billion this year. On the state side, national oil company Petroperú, will in the third quarter officially start a $1.30 billion expansion of its Talara refinery, the largest of the four it operates nationally. Spain’s Técnicas Reunidas was awarded the engineering contract, while US-based ABSC Consulting has the contract to supervise procurement and construction. The process will take five years and boost production to 90,000 barrels daily, from 62,000 barrels. The company has announced, although with no details, that it expects to complete the first $200 million loan, which will be syndicated through several Peruvian banks, in July.

Peru may still be a minor player in hydrocarbons, but it is making strides to develop gas and oil. It is relying on the private sector to power growth.
of the largest investments ever made in Peru. Among them is the Peru LNG project spearheaded by US-based Hunt Oil and includes as partners Japan’s Marubeni, South Korea’s SK Corporation and Spain’s Repsol. A gas liquefaction and export project, Peru LNG, was inaugurated June 2010. At just shy of $4.0 billion, the LNG plant is the largest private investment in Peru’s history and the first gas liquefaction facility in South America. The consortium states that the project will generate approximately $1.4 billion annually in export earnings. “Peru LNG is the most important project undertaken in Peru. It is not only the largest investment, but the decision to move ahead with the project opened the way for others, such as petrochemicals,” says Carlos del Solar, Hunt Oil’s manager in Peru. Indeed, three petrochemical projects have followed Peru LNG, and others are in the wings. Del Solar dismisses criticism of the export project, which grew intense as inauguration approached. The principal objection is that Camisea has 11.2 TCF of certified natural gas reserves and Peru LNG will get just 4.2 TCF over the next 20 years, which may mean there is insufficient supply for local demand. “There is a misconception that reserves are static. Reserves will increase with new wells and continued exploration,” says del Solar. Another offshoot of Camisea is getting underway, as three companies complete the initial state of building Peru’s first modern petrochemical plants. US-based CF Industries and Australia’s Orica have plants planned for Marcona, 300 miles south of Lima. Nitratos del Peru, a consortium formed by Chile’s Sigdo Koppers and Peru’s Brescia Group, plans a factory in Pisco, 120 miles south of Lima. CF Industries is looking at an investment above $2 billion for a fertilizer plant, while Orica will invest $500 million and Nitratos del Peru $750 million on ammonium nitrate plants. LF

Camisea Centerpiece

Unlike most of its neighbors, Peru is betting on the private sector as the motor behind growth in hydrocarbons. The centerpiece of Peru’s hydrocarbon sector is the Camisea gas project. More than $2.00 billion has been invested so far in the well development and pipeline construction, and the consortium has paid royalties of $1.91 > billion since 2004. And Camisea gas is at the heart of different investments that could easily top $10 billion in the coming five years, reports the MEM. The second and third stages in the development of the country’s natural gas business are underway, representing some

UPDATE

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July/August 2010

LatinFinance 45

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Latin Finance - July/August 2010

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