Peru gas pipeline inspires new LNG plan

OREANDA-NEWS. March 13, 2015. A planned 1,000km natural gas pipeline in southern Peru is paving the way for a second LNG export terminal, based on the country?s expanding base of reserves.

Rodney Carvalho, chief executive of the Southern Gas Pipeline (GSP), envisions the construction of petrochemical plants, thermal electric power plants and, most importantly, a second liquefaction plant as soon as gas starts to reach the southern coast in the first half of 2018.

The LNG plant "is not only feasible, it is necessary. An LNG plant is a critical component for the project to grow," Carvalho told Argus.

He said the first step is to change assumption that LNG is only for export. "An LNG plant could be used to supply all of Peru without the need to build new pipelines. Small regasification plants could be built in the highlands and the north, moving the LNG by ship or tanker trucks. It would be cheaper than building thousands of kilometers of pipelines," he said.

The contract to build the \\$4bn pipeline was awarded in June 2014 to a joint venture formed by Brazil?s Odebrecht (75pc) and Spain?s Enagas (25pc).

GSP plans to start laying the pipeline in April, two months ahead of schedule. The first phase, from the jungle to the highland city of Anta, will be completed in December 2016. The second phase, running to the southern port city of Ilo, will conclude at the end of 2017.

The company received a \\$600m bridge loan from five private banks to start construction, and will shortly close a deal with 15 banks, including the original five, to cover the full \\$4bn.

The company is already in talks with Peruvian mining and manufacturing companies to provide them with gas. Carvalho said he has held discussions with petrochemical companies, including Brazil's Braskem and Canada's Methanex, to install plants at two sites the Peruvian government has designated for petrochemical developments, Ilo in Moquegua province and Mollendo in Arequipa.

GSP would also offer neighboring Bolivia an option to move its gas to the Pacific coast. Carvalho said Bolivian authorities were the first to approach the company about the pipeline, seeing it as an alternative to its current export markets in Argentina and Brazil.

"This is the natural route for Bolivia in the future. Bolivia exports gas to Argentina and Brazil, but Brazil expects to be self-sufficient with gas with the sub-salt and Argentina the same with Vaca Muerta. These markets will eventually close for Bolivia, so they are looking for a new option and that means linking with our pipeline," he said.

The project will initially pump 500m ft3/d (14mn m3/d) from block 88 in the Camisea complex, but GSP is betting on more reserves from block 76, operated by US firm Hunt Oil, and block 58, operated by China?s state-owned CNPC.

The Camisea consortium, led by Argentina's Pluspetrol, is also conducting a drilling campaign to uncover more reserves on block 88.

The energy ministry estimates that block 76 could hold 12.7 trillion ft3 of gas, block 58 another 3.1 trillion ft3 and block 88 an additional 7.4 trillion ft3. Block 88 currently has 9.5 trillion ft3 of proven reserves.

Hunt Oil operates Peru's existing 4.4mn t/yr LNG plant in partnership with Japan's Marubeni, South Korea's SK Energy and Shell. It has dispatched 259 shipments of LNG since it was launched in June 2010.

About 70pc of the Peru LNG?s exports supply Mexican state-owned utility CFE under a long-term contract. The balance is sold on the spot market.