Peru is banking on the development of natural gas projects in its Amazonian rainforest to make it a significant regional petrochemicals player
THE PROSPECT of petrochemical feedstocks from Peru's Camisea gas fields is enticing foreign companies into the country. Partners have already been selected for fertilizer and methanol projects, and an olefins complex is under discussion.
The Camisea Consortium, which is developing the fields, has decided to award natural gas feedstock supply contracts to US group CF Industries for the construction of a fertilizer plant and Mexico's Protexa for a methanol plant. Additional feedstock contracts will also be awarded for an ethane cracker and downstream polyolefins complex and an ammonium nitrate (AN) plant.
The development of the gas fields near the village of Camisea in the Urubamba Valley is a cornerstone of Peru's economic plans. The San Martin and Cashiari fields, jointly known as Block 88, house one of Latin America's most important nonassociated natural gas reserves, according to the consortium. Block 88 became operational in August 2004 and other parts, including Block 56, which includes the Pagoreni field, are under development.
The Camisea Consortium, led by Argentine company Pluspetrol with a 27.2% stake, won the rights to the San Martin and Cashiari fields in 2000. The consortium also comprises Dallas, Texas, US-based Hunt Oil (25.2%), South Korea-based SK Corp. (17.6%), Sonatrach (10%), Argentina-based Tecpetrol (10%) and Spain-based oil firm Repsol YPF (10%).
The backing by the US government of a free trade agreement with Peru will help the country's emerging petrochemical industry become a regional trade player - one of the goals of the current Peruvian government.
PRESIDENT MUST FOLLOW THROUGH
Economic growth in Peru, where President Alan Garcia has largely followed a probusiness agenda, is of political interest to the US, observes Robert Bauman, vice president for polymers at US consultancy Nexant ChemSystems. "President Garcia has got to deliver," he says. "If he doesn't, he's gone, and the Left will move in."
Foreign investors will drive the development of the petrochemical sector, without economic contributions from the government. However, the Peruvian government is responsible for ensuring that all large infrastructure projects in the country respect the national interests, and therefore several official institutions are involved in supervisory and administrative activities during the life of the Camisea project.
"Peru needs infrastructure including port facilities, roads, and electricity, and some help from the government is needed," remarks Bauman.
Antonio Tella, commercial development specialist at Pluspetrol, says the petrochemical projects are crucial for Peru's development. The fertilizer projects will support the agribusiness, while polyethylene (PE) is required for infrastructure projects.
IMPORT/EXPORT BALANCE SHIFT?
In particular, CF Industries' project will enable Peru, which currently imports some 300,000 tonnes/year of urea, to become an exporter of urea, he says.
Domestic demand for PE, used for piping natural gas and water and for insulating electrical cables, will rise significantly with the development of the Peruvian economy, says Tella, noting that some 27% of Peru's population does not have electricity.
About a third of the PE production will be supplied to the domestic market, he says. A third will be supplied to the regional countries including Ecuador, Colombia, Mexico and Chile, and the rest will be supplied to India, China and the US, he adds.
Camisea's natural gas is distributed from a gas processing plant, located in Malvinas close to the Camisea fields, to the coast along two pipelines to the Pisco area, 200km south of Lima. One pipeline carries natural gas liquids (NGLs) to a fractionation plant in Pisco, while the other, carrying the gas, continues from Pisco to Lima.
The consortium has allocated 100m cubic feet/day of natural gas to CF Industries for its ammonia/urea project and 50m cubic feet/day to Protexa for its methanol project. Agreements are expected to be signed with the two companies in about one month, says Tella.
Last month the Peruvian government asked the consortium to offer another 50m cubic feet/day of natural gas to support construction of an AN plant.
CF Industries' $1.2bn-1.3bn (€823m-892m) project is expected to produce about 1m tonnes/year of urea and come onstream in about three years. The US producer is considering San Juan port as a location for the project, says Tella.
Protexa intends to locate its 650,000 tonnes/year methanol plant onstream in Pisco. The project is expected to be completed 35 months after the signing of the agreement.
The consortium intends to invite bids for an ethane supply contract for the cracker and polyolefin complex during the first half of 2008. Some 1m tonnes/year of ethane feedstock will be available after an expansion of the Malvinas gas processing plant, says Tella. US-based Dow Chemical, India-based Reliance Industries, Saudi Arabia-based SABIC, SK Corp., and Brazil's Petrobras and Braskem have expressed an interest in the project, he adds.
Braskem already has strong links with Peru through its parent, Brazil-based construction group Odebrecht, putting it in a strong position, maintains Manoel Carnauba, Braskem vice president with responsibility for basic petrochemicals. Braskem is "looking at all opportunities where we can find competitive raw materials," he adds.
Peruvian resin distributor Consorcio Unipetro says it has been seeking an opportunity to invest in a polyolefin project for many years. "Today we're still very interested in participating in any PE or polypropylene (PP) project in Peru," asserts Roberto Lukac, Consorcio Unipetro's executive president.
In particular, Consorcio Unipetro would like to join Brazil's state-owned energy group Petrobras, which has been studying a project in partnership with state-run Petroperu. Petrobras and Petroperu are jointly exploring gas fields close to the Camisea fields and are expected to announce a discovery shortly.
The discovery of additional gas fields in the Peruvian rainforest is likely to lead to the development of further petrochemical projects. Last month Repsol YPF and its partners, including Petrobras, announced a significant find in Block 57, near the Camisea fields.
"This discovery puts Peru in an advantageous situation as we can promise gas for many years for internal consumption, industrial, automotive and the petrochemical industry," said energy minister Juan Valdivia after the discovery was announced.
Repsol YPF is already a partner in Peru LNG, which plans to expand the Camisea gas project by building a natural gas liquefaction plant, a marine export terminal and a 408km pipeline connecting the liquefaction plant to the existing gas pipeline. The consortium, led by US group Hunt Oil, will manufacture LNG from the natural gas extracted from Blocks 56 and 88.
CRITICS NOT MOLLIFIED
Despite objections from environmental organizations and local Indian activists, the US Inter-American Development Bank (IDB) approved in December a $400m loan for the development of the Peru LNG project. The $3.9bn project, which is scheduled for completion in 2010, would generate $230m/year in royalties and $90m/year in tax revenues for the country, according to the IDB. The project would also boost Peru's gross domestic product (GDP) by an average of 0.4% a year during the construction period and 0.5% once it becomes operational, it says.
The Camisea project has attracted concerns from environmental and anthropological groups from the start. Opposition grew following leaks from the pipeline carrying natural gas liquids to the Pisco fractionation plant. A report from pressure group Amazon Watch cites six ruptures since the pipeline became operational in August 2004.
The Camisea natural gas project, which runs through a stretch of the Amazon that is home to 12,000 indigenous people, is arguably one of the most controversial development projects currently in operation anywhere in the Amazon basin, Amazon Watch says. Various environmental measures and promised protections for isolated indigenous peoples have not been properly implemented, it maintains.
Pluspetrol says it has implemented various environmental and social initiatives including an environmental monitoring program with the local communities in the Block 88 area and an agreement with the communities to finance development projects in exchange for the right to operate on their lands and waterways.
The IDB maintains that Camisea is increasingly recognized as a model for exploiting energy resources in the Amazon in a socially and environmentally sustainable way. Royalties from the project are starting to finance social development projects such as schools, community centers, water and sanitation, it says.