The Camisea natural gas megaproject has the potential to spur a surge in gas exploration in Peru comparable to that seen in Bolivia following the development of the Bolivia-Brazil gas pipeline, according to the head of the company leading Camisea's upstream effort.
Luis Alberto Rey, president of Argentina's Pluspetrol SA, called for an "enormous exploration initiative in Peru, like that of Bolivia," during his keynote speech at Ingepet 2002, the fourth edition of the international upstream conference held in Peru since its inception in 1993. The conference, held every 3 years in Peru, focuses on exploration and exploitation of oil and gas with a primarily Peruvian tilt.
Rey also updated progress on the Camisea project, which had sat on the shelf since the first discoveries were made in Peru's southern jungle in the early 1980s by Royal Dutch/ Shell Group until a Dec. 9, 2000, agreement launched "the beginning of energy independence for Peru."
Pluspetrol heads the consortium operating the upstream concession for the Camisea mega- project. Another Argentine company, Techint SA, heads the group that operates the transportation concession, which delivers Camisea gas to Lima for power, industrial, and residential users. Belgium's Tractebel SA leads a third consortium for distribution of the gas in Lima.
Meanwhile, Dallas-based Hunt Oil Co., a member of both the upstream and transportation consortia, unveiled results of its LNG prefeasibility study at Ingepet. A Hunt official affirmed that Peru's greater Camisea fields area has sufficient natural gas reserves to support a $1 billion project to export LNG to the western coasts of North America.
Peru's gas potential
The Pluspetrol chief noted that the Bolivia-Brazil gas pipeline sparked a flurry of exploration and development in Bolivia. That E&D flurry has yielded such vast gas reserves that the country is mulling an LNG export project to monetize gas discoveries that the export pipeline can't accommodate any time in the foreseeable future. Rey pegged Bolivian gas reserves at 50-60 tcf, up from a mere 4 tcf discovered prior to the development of the Bolivia-Brazil export pipeline.
"Camisea will make Peru's energy industry competitive on a worldwide basis."
Rey said that Peru's gas potential compares favorably with Bolivia's, with large underexplored basins such as the Ucayali (home to the Camisea gas fields) and Madre de Dios on trend with the world-class gas reservoirs found in neighboring Bolivia.
"Why can't we we also discover 50-60 tcf in Peru?" he asked rhetorically, placing that as the ultimate gas reserves potential in the country. The Camisea fields, San Martin and Cashiriari, hold combined (proved plus probable) reserves totaling 11 tcf of gas and 600 million bbl of condensate and natural gas liquids.
Given an aggressive effort by government and private industry to support gas utilization in Peru, Rey envisioned a growing gas grid within the country linking all communities with populations exceeding 5,000. He also cited a growing role for vehicular compressed natural gas along the lines of Argentina's effort, which has 800,000 CNG vehicles consuming 175 MMcfd of gas.
With Camisea fulfilling all projected domestic gas needs, the additional reserves to be discovered could support a growing role for Peru as a regional gas exporter, with possible gas pipelines laid directly to Brazil or indirectly via a link with Santa Cruz, Bolivia, the starting point for the Bolivia-Brazil gas line.
In addition to LNG export opportunities in Mexico and on the US West Coast, Peruvian gas could find a home in Brazil, considering that market's massive potential for gas demand growth from a base that represents a paltry 2-4% of the nation's energy mix, Rey added.
Camisea update, benefits
Rey offered this update of Camisea work to the Ingepet keynote luncheon audience:
All seismic work, including 800 sq km of 3D, has been completed.
The first well drilled, San Martin-1, was to be tested in mid-November; the second San Martin well has been spudded and is expected to be completed by yearend. In a second stage, three more San Martin wells will be drilled, while the drilling program at Cashiriari will proceed "as a function of demand and the need for reinjection."
Gas compression, cryogenic gas processing, and liquids recovery facilities at the Las Malvinas production center are on track to be completed by the end of January 2003.
Infield pipeline construction work will be 75% complete by yearend.
Rey noted that the schedule mandated by the concession contract calls for start of commercial operations by August 2004, but his company's own start-up target date is April 2004.
Among the benefits accruing to Peru from the Camisea project is a substantial reduction in the domestic cost of energy, Rey said. Beyond the oil imports that developing the domestic gas resource will supplant, he noted that "the installed cost of a hydropower project is triple that of a gas-based power project."
Rey added, "Camisea will make Peru's energy industry competitive on a worldwide basis."
Pluspetrol, which is the operator for the upstream group, holds 36% of the upstream contract. The other partners are Hunt 36%, South Korea's SK Corp. 18%, and Hidrocarburos Andinos (Argentina's Tecpetrol SA) 10%.
In the transportation consortium, Techint unit Tecgas is the operator with 30%, with other interests held by Pluspetrol 19.2%, Hunt 19.2%, Algeria's state oil company Sonatrach 10%, SK 9.6%, Tractebel 8%, and Peruvian independent Graña y Monteros SA 4%.
Hunt view of LNG
Beyond the $1 billion needed for a Peruvian LNG export plant, an additional investment of $1 billion would be needed for an expansion of Camisea field development and pipeline infrastructure to support a coastal Peruvian LNG export project, Stephen Suellentrop, vice-president, Peru Hunt Oil Development Co., told Ingepet delegates.
He unveiled the results of an LNG project prefeasibility study by a consortium promoting the project that Hunt is leading; the independent also holds interests in the discoveries in the greater Camisea area.
However, timing is critical in an increasingly competitive LNG project window, said Suellentrop, who warned against tying the Peruvian LNG export project to additional reserves available in Bolivia, as some have suggested: "The project has to start when the markets become available."
Camisea fields San Martin and Cashiriari are already being developed to support a pipeline from Peru's southern jungle to Lima, essentially creating a natural gas infrastructure and market for the country.
Sufficient reserves
Suellentrop said that the greater Camisea area holds 19.6 tcf of gas in known structures and in identified extensions of existing structures, without the need for additional exploration.
Looking at the greater Lima area market, gas demand forecasts range from a pessimistic 1 tcf over the next 20 years to 2-3 tcf over the same time span. However, an International Development Bank study supports the more optimistic forecast, the Hunt official said.
Suellentrop expressed confidence that the Camisea reservoirs would perform well enough to support the production levels required by both the LNG and pipeline projects.
Accounting for the level of demand projected for the existing Camisea megaproject, a projected reserves base of 4.2 tcf needed to support a single-train, 4 million tonne/year LNG export project would leave at least 6 tcf of gas still available in the greater Camisea area for possible future expansions, he added.
Noting that gas demand in the US is projected under some scenarios to reach 30 tcf by 2015, that leaves potential shortfalls of 5 bcfd of market availability in the US alone, Suellentrop said. In addition, Mexico's booming gas demand—at growth rates of 8.1%/ year—yields a potential shortfall of 800 MMcfd-1 bcfd of gas demand in that country by 2010.
Project progress
Suellentrop said that Hunt is in "serious discussions with potential purchasers" of Peruvian LNG and that the consortium has "substantially advanced the design of liquefaction facilities" along Peru's Pacific coast.
The group has screened several potential sites for the plant as having met design parameters, including the need for a breakwater whose design is expected to be completed by yearend.
The plant would be based on Air Products Corp.'s liquefaction process, which the Hunt official noted is used in 90% of the world's LNG facilities. Special attention is being paid to the storage tank design—which would entail two 110,000 cu m single-containment tanks—because of the intense seismic activity in the region.
The single-train LNG plant would have an initial inlet design capacity of 620 MMcfd, but a more likely output level would be 4.5 million tonnes/year, which would ratchet up the inlet design capacity to 670-700 MMcfd, "along the lines of the largest LNG trains in the world." It would also employ two General Electric Frame 7 compressors.
The Hunt group would buy the gas, a mix of methane and 8% ethane, from the upstream developers without the need for scrubbers or liquids recovery, which would be accommodated via gas processing facilities upstream at Las Malvinas. Suellentrop estimated the carbon dioxide content of the gas stream at 57 ppm, which would be taken care of via the BASF AG dehydration process.
Market concerns
The Hunt official stressed the importance of timing the Peruvian project to take advantage of a narrow market window at a time when competing LNG projects—expansions and grassroots efforts—are proliferating in areas such as Australia, Indonesia, and Russia.
Suellentrop told OGJ that the Peruvian LNG export project would target a start-up by yearend 2006 or early 2007, with regasification facilities likely to be sited at Baja California or another site along Mexico's western coast. "The regasification folks tell us that they could start up in 2005, but nothing is being built yet," he added.
He didn't disclose the projected landed cost of the Peruvian LNG in Mexico or California but said that it would be able to compete with Henry Hub gas on a netback basis, accounting for the transportation differential.
In response to queries from the Ingepet audience about the potential for a Peruvian LNG export project incorporating Bolivian gas as well, Suellentrop said, "It is not in Peru's best interest to move the project south." Rather, "The Bolivians should follow our project. We have economies of scale and shipping advantages that the Bolivians must envy."
Incorporating Bolivian gas would entail not only incurring additional costs of moving the project farther south along Peru's coast, moving it farther from market, but "the Bolivians would have to place twice as much gas to justify the added infrastructure."
Suellentrop suggested that tacking on the 8 million tonnes/year that incorporating a Bolivian scheme would entail would overwhelm the available market. He likened Peru's LNG export initiative to the successful model established by Trinidad and Tobago, whose Atlantic LNG export project is being developed on a phased, single-train module basis.
He ticked off the benefits to Peru from the project of increased employment (3,000 during construction, 400 permanent during operations), improvements to local infrastructure, an acceleration of royalties and taxes estimated at $200 million/year, and—most appealing to the Ingepet audience—the country achieving the status of being a net exporter of hydrocarbons.
