|Peru's Camisea project expected to further boosts economy

Aug 06, 2004 02:00 AM

Development of the giant Camisea natural gas project has already boosted Peru's economy, and expansion of the fledgling gas industry should continue to add to the Andean nation's gross domestic product. The long-stalled $ 1.6 Camisea project could add a full percentage point to annual GDP for decades to come and boost the government's coffer from royalty payments, officials say.
The government also hopes to cut imports of hydrocarbons while creating a local gas-based economy. Work has gone on for years to bring gas from the southern jungle to the Pacific coast, where it will be initially shipped to customers through pipelines to the Lima region.

A separate fractionation plant has been built near the Paracas marine reserve on the Pacific coast to process associated liquids. Plans are also underway to eventually export LNG to feed demand in Mexico and elsewhere.
"During construction, Camisea has had an estimated effect of adding from 0.5 % to 1.0 % to gross domestic product in the last year," said Banco Wiese Sudameris economist Pablo Nano.

Energy and Mines Minister Jaime Quijandria said that Camisea's impact on GDP will be to add from 0.8 % to 1.0 % annually in the initial 37 years of the project, adding that this could increase if more reserves are developed. Officials say Camisea will allow Peru to substitute imports, mainly of diesel, propane and butane, and allow exports of nafta and other gas liquids.
Quijandria has said that as the energy mix in Peru changes to use more of the local natural gas and natural gas liquids, Peru could drastically cut imports of hydrocarbons, worth about $ 700 mm a year.

Meanwhile, the government has already started a second step of development to construct regional pipelines to bring natural gas to outlying regions in the next few years.
"We expect to give the contract in the first quarter of next year so that in 2007 natural gas will arrive at these regions," Quijandria said recently.
Peru's Finance Ministry forecasts that national energy costs will fall 16 % with the arrival of Camisea gas, and the substitution of energy for industrial use will save $ 1.9 bn over the life of the project. That ministry also forecasts that Camisea will generate fiscal revenues from royalties worth about $ 300 mm in the 2004 to 2007 period.

Camisea gas was first discovered in the early 1980s, but politics alongside technical and financial issues kept the deposits from being developed. But by 2000, after years of wrangling, Peru awarded multiyear concessions for the upstream and downstream development to two consortia.
The government says that proven, probable and possible natural gas reserves are 12.8 tcf in Block 88, the main Camisea field under development. The companies developing the deposits peg proven volumes of gas in Block 88 at 8.7 tcf, with 545 mm barrels of associated liquids.

Another project is underway to export LNG by 2008 or 2009 using gas from nearby Block 56, which the government says holds 7.9 tcf. Exporting that gas will require investments in a plant and a pipeline worth about $ 2.1 bn, Carlos Del Solar, CEO of Peru LNG, said recently.
Peru LNG, run by Hunt Oil Peru, a unit of Dallas-based Hunt Oil and South Korea's SK Corp, has plans to produce about 4.4 mm tpy of LNG. Peru LNG last year signed a deal to sell LNG to a unit of Belgium's Tractebel for export to Mexico, although that company still has to receive permission to construct a regasification plant there. Moreover, in Peru a land dispute affecting the proposed LNG plant has raised the possibility of delays.

Repsol Exploracion Peru and Burlington Resources Peru are also exploring in Block 57 and elsewhere in southern Peru.
Peru and Bolivia are also in talks to possibly have Bolivian gas exports pass through a special economic zone that could be established on the Pacific coast.

Source: Dow Jones
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