Latin Finance - September/October 2014 - 88

the three projects announced around that
time have failed to materialize. Chicagobased CF Industries yanked its $2.5 billion
urea project in favor of more abundant and
cheaper shale gas sites in the US, while an
$800 million joint venture between Peru's
Breca Group and Chile's Sigdo Koppers
never managed to sign a gas supply contract
for an ammonium nitrate plant. Australia's
Orica had planned to use feedstock from
CF Industries' project for an ammonium
nitrate plant.
Gutiérrez doubts that petrochemicals are
in Peru's future at all. He says the price of

Source Wikimedia Commoms Villa de omas

cluster of power plants and gas-related
industries in a corridor between the cities
of Ilo, Mollendo (near Matarani) and Arequipa.
Enersur, the local subsidiary of French
utility GDF Suez, will build one of the two
initial plants, while the other will be built by
Samay I, a division of Israel's IC Power. The
government also plans to offer a concession
to build a 200-megawatt plant in the jungle
Quillabamba province. Separately, existing
power plants running on more expensive
fossil fuels are expected to switch.
These power plants will require 532 mil-

MODERNIZATION: Peru's Camisea gas
complex, opened ten years ago, has helped
spur economic growth in the country

lion cubic feet a day of natural gas from the
new pipeline, while industries in the south
of the country, including steel manufacturer
Aceros Arequipa, cement firm Cemento
Sur, and industrial conglomerate Grupo
Gloria, could increase this demand by
another 300 million cubic feet per day.
"The minimum demand required is 500
million cubic feet per day, which is already
guaranteed, but we expect to start with
much higher demand," says Costa.
One other possible source of demand
is petrochemical plants, which could
produce everything from chemical fertilizers like urea to plastics like ethylene and
polyethylene. Brazilian petrochemicals firm
Braskem, in which Odebrecht holds a stake,
already has a memorandum of understanding with Petroperú to study petrochemicals
development.
Peru has been trying to get a petrochemical industry off the ground since 2008, but

88 L ATINFINA NCE.COM - September/October 2014

natural gas in the US is now so low there is
less reason for companies to look to Peru.
There is also regional competition that did
not exist before. Bolivia, for example, has
a contract with South Korea's Samsung
Engineering to build an $845 million ammonium nitrate and urea plant that will supply
the local and regional market that Peru had
hoped tap.
But Harasic says it is too early to claim
Peru would not be competitive in petrochemicals. "I think that sooner or later
there will be petrochemical development.
It is still too early to talk about it, because no
one is going to say they will invest $5 billion
on a petrochemical plant if the gas supply is
not there already. The scenario will change
greatly once we are finished," he posits.
Tapping reserves
On the supply side, gas for the pipeline
will initially come from Block 88 in the

Camisea zone. That block already has
proven reserves at 9.5 trillion cubic feet.
And the block's exploration and production
consortium, led by Argentina's Pluspetrol,
is investing another $500 million in new
exploration.
Gas for the new pipeline was made
available in July, when the government and
the Pluspetrol consortium concluded 26
months of negotiations to alter contracts
and free up 2.5 trillion cubic feet of gas
production from Block 88.
But questions remain about the available
reserves. Former energy and mines minister Carlos Herrera, who signed the original
Camisea contract in 2001, says proven
reserves only guarantee supply for GSP for
six or seven years. "The planning for this
pipeline is based on possible and probable
reserves, which is questionable strategy for
an investment of his magnitude," he says.
However, as GSP is going to provide
the infrastructure to move gas, this will,
in Costa's view, encourage companies to
invest in exploration, and develop fields. "If
you look at the different blocks in the zone,
there is no way to get out gas. The Camisea
pipeline is at capacity, so the pipeline to the
south is going to encourage a virtuous cycle,
with companies investing more in exploration of reserves to get out gas, increasing
the country's capacity to produce gas,
electricity and, eventually, energy exports,"
he says.
Aside from the new pipeline to the
southern coast, Camisea's existing pipeline is undergoing an expansion that will
increase capacity to 940 million cubic feet
per day by the end of 2015, from the 640
million cubic feet per day today. Ricardo
Ferreiro, general manager of the management consortium for the existing pipeline,
Transportadora de Gas del Perú (TGP),
says demand has increased at such a clip
that further expansion already needs to
be planned for when they finish the work.
What TGP is doing now is already its second
expansion in 10 years.
Meanwhile, several other gas blocks
exist in the Camisea zone, and exploration
will intensify now that new infrastructure
will be built to move gas from the area,
according to Costa. Spain's Repsol began
operations on Block 57 in the first quarter.
China National Petroleum Corporation
this year completed the purchase of Block
58 from Brazil's Petrobras, part of a wider
acquisition of assets in Peru. The two blocks
hold an estimated eight trillion cubic feet
of gas. LF
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