IN THE PIPELINE

Peru 2015 | ENERGY & MINING | FOCUS: SOUTHERN GAS PIPELINE

The Southern Gas Pipeline looks set to put Peru firmly on the international energy map.

Peru is set to be a regional player with the Southern Gas Pipeline project. The Southern Gas Pipeline aims to bring natural gas from the Camisea gas fields in central Peru to southern parts of the country and enjoys widespread support from the government of President Ollanta Humala's administration. The project has already received billions of dollars of investment and parts of the project will see the light by 2016.

The pipeline will traverse 1,200 km and will bring natural gas to the southern cities of Cusco, Apurimac, Puno, Arequipa, Moquegua and Tacna. The first phase of the project will bring LNG from the jungle to the highland city of Anta, and is set to be completed in December 2016, while the second phase of the project, extending the pipeline to the southern port city of Ilo, is due to be completed in 2017.

The pipeline will initially pump 14 million cubic meters per day from Block 88 in the Camisea gas fields, but officials are betting on more reserves to be found and are now currently exploring possible new fields. Two other pipelines already carry gas to the capital Lima and its surrounding territories and suburbs.

In 2014, the Peruvian government granted a 34-year concession to Gasoducto Sur Peruano, run by Brazilian construction company Odebrecht and Spanish natural-gas transportation company, Enagás. The project has already raised an estimated $4 billion in investments, although according to government Peruvian government agency ProInversion—who granted the concession—estimates costs for the project may each up to $7.3 billion due to Peru's diverse ecosystem and topography which will hinder construction efforts.

The pipeline is actually only one component of a greater project in developing the energy sector in Peru. Along with the new pipeline, a petrochemical plant is also part of the project. Braskem, one of the leading thermoplastic resin producers in the region, and Petroleos Del Peru (PetroPeru), a state-owned company that oversees the transportation, refining and sale of fuels and oil derivatives, signed a Memorandum of Understanding in 2012 to build an integrated petrochemical plant in the southern town of Quillabamba. Braskem aims to invest over $3.5 billion in the plant, which will produce a plethora of petrochemicals and explosives.

By 2017 the plant is expected to start producing 1 million tons a year of the resin and will be the only petrochemical facility on Latin America's Pacific coast, according to Braskem vice-president Luiz de Mendonca.

The pipeline will have far reaching effects on southern Peru, which is mainly an agricultural region producing tobacco and cacao beans. The project will bring fuel that can spur indury and mining in the region. A 200 MW power plant is also set to be constructed and fueled by the gas the pipeline will bring, helping improve the electricity situation in rural areas. Officials estimate the project will increase the national GDP by one to two percent

The project also has an international dimension. Thanks in part to the pipeline, Peru will have the possibility to export LNG to neighboring Chile, exporting electricity to Ecuador, and Bolivia is already seeking to use the pipeline to export some of its gas on the Pacific coast. The project will ultimately make Peru an energy player in the South Andean region, especially as natural gas is increasingly seen as a cleaner fossil fuel than traditional oil. As the project continues, investors should take note about the different opportunities the pipeline can present.