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Experts weigh in on ‘reactivation’ of US$4.5bn south Peru gas pipeline

Bnamericas Published: Tuesday, January 17, 2023
Experts weigh in on ‘reactivation’ of US$4.5bn south Peru gas pipeline

The relaunch of the project to build a natural gas pipeline in southern Peru raises expectations but also skepticism of what some see as a white elephant.

Energy and mines minister Oscar Vera Gargurevich’s announcement of the “reactivation” follows similar statements by previous authorities since the duct’s construction came to a halt over five years ago.

Development of the Gasoducto Sur Peruano (GSP), now known as the southern zone integrated gas transport system, or SITGAS, has been stalled since 2017, when the government revoked the concession contract held by the GSP consortium after the latter missed a financing deadline.

The US$4.5bn price tag, questions regarding sufficient offtake and wrangling over alternative routes are some of the factors that have curbed advancement.

Transparency issues regarding the disclosure of project studies, the impact of COVID-19 and the need to resolve a legal impasse with the GSP consortium also have stymied progress, a situation further complicated by political turmoil.

In addition, the cost of safeguarding the project’s assets, such as piping, which last year cost some US$45mn, has come under scrutiny.

Nevertheless, the planned infrastructure is seen as a crucial component of Peru’s energy security, as it would supply gas to thermal plants; for residential, commercial, and industrial use; and underpin the buildout of mining operations and the creation of a petrochemical pole.

To provide perspective amid the government’s latest push to add new impetus to the project, BNamericas reached out to local energy experts Amadeo Arrarte Arisnabarreta and Edgard Ramírez.

“The development of natural gas infrastructure in Peru, especially in the southern zone, is extremely necessary. Due to the lack of natural gas transportation infrastructure, which generates competitiveness in the final price for consumers, Naturgy was lost as a distribution concessionaire and the cold reserve plants of the southern energy node are waiting for their conversion to natural gas,” according to Arrarte, partner and Peru country manager of Calden Consultoría.

“Notwithstanding this, I believe the costs and development times of the SITGAS project should be reviewed. These with the passing of time have been increasing,” he said.

Arrarte highlighted the presentation of a private sector proposal to develop a coastal gas pipeline, which would mirror SITGAS’s impact but be more efficient in terms of cost and time. “Unfortunately, this has not had much echo among the authorities,” he added.

Ramírez, a senior consultant with Redland International, said time is running out, particularly regarding the impact on prices.

“Today, with the international gas crisis, authorities should have become more aware of energy security. In the Peruvian case, this security is very fragile because almost 50% of the generation supply depends on a single pipeline, Camisea to Lima,” Ramírez said.

“To the extent that more time is allowed to pass, the increase in the generation price, due to a greater participation of diesel in the electricity dispatch, will have a significant impact on the pocket of electricity consumers in three to four years.”

He added that consumers in the south pay 60-100% more for gas compared to Lima.

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