Analysis: Peru leader's $11.5 billion gas project faces snags

Tue Jul 2, 2013 5:23pm EDT
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By Patricia Velez

LIMA (Reuters) - Peru has abundant natural gas reserves, but President Ollanta Humala's $11.5 billion plan to use them to transform the country's underdeveloped south is facing mounting hurdles.

The U.S. shale gas revolution, left-wing guerrillas who operate near Peru's gas fields in the jungle, and difficult negotiations with energy firms have dragged the expected finish line for Humala's flagship project far past his 2016 term limit.

The delays underscore the risks of making natural gas plans, especially in an emerging era dominated by cheap U.S. shale reserves, causing some investors to reevaluate projects in Peru.

Humala wants to diversify Peru's fast-growing economy with what would be the first plastics plants along the Pacific coast of South America while generating power for new mines and providing Peruvians with cheap fuel.

The plan calls for a $4 billion natural gas pipeline, a $3.5 billion petrochemicals factory and $4 billion in power plants that would rely on Peru's main gas fields, known as Camisea, which have nearly 13 trillion cubic feet of proven reserves.

But two years into his term, no parts of the plan have gone past the design phase. Concessions have yet to be auctioned for the 1,000-km (620-mile) pipeline and power plants, while tough negotiations over ethane supplies for the petrochemicals complex have barely started.

Committed investors are impatient.

"It is not enough to talk about it. Action must be taken," said Sergio Thiesen, the regional head of Brazilian petrochemicals giant Braskem (BRKM5.SA: Quote), which would build the $3.5 billion factory as part of the plastics hub. "Peru has a unique opportunity because it has the resources and the demand."   Continued...

A view shows the Las Malvinas natural gas plant of the Camisea project in the Amazon jungle in Cuzco, in this April 3, 2012 file picture. REUTERS/Enrique Castro-Mendivil