Peru Government Leans Toward Mountain Gas Pipeline Route
Monday May 12nd, 2008 / 17h48
By Robert Kozak Of DOW JONES NEWSWIRES LIMA -(Dow Jones)- High-level government officials are signaling that Peru will select a proposal to place a natural gas pipeline through the Andes Mountains. That plan, proposed by Kuntur Transportadora de Gas SAC, is in competition with a proposal made by a unit of Suez (SZE.FR) that would run a pipeline down the Pacific coast. The two companies have lobbied in support of their plans, but experts say demand for the gas so far is limited and barely enough for one pipeline to southern Peru. Government officials also say they are bound to respect a law that has declared a pipeline through the populated regions of the Andes to be in the national interest. "I think we have to say to the population in the south that they can have confidence that the government will comply with the law," Prime Minister Jorge del Castillo said late last week. On Saturday, Energy and Mines Minister Juan Valdivia said in a radio interview the government will follow the law and will have to make its decision official, possibly this week. The popularity of the government of President Alan Garcia is weak in the southern regions, and it is working to shore up its support. Suez Wants To Build Pipeline The proposal from Suez Energy Peru, a unit of Suez, aims to build an $850 million pipeline down the Pacific coast to the southern city of Ilo. It recently ran newspaper advertisements saying that after two years of studies it had presented a request to the Energy and Mines Ministry to approve its project, aimed at boosting gas use for electricity production and other industries. Kuntur Transportadora de Gas SAC, meanwhile, proposes a $1.2 billion 1,085-kilometer pipeline from the Camisea gas fields in the department of Cuzco to the southern departments of Moquegua and Puno. That group, tied to private equity investment firm Conduit Capital Partners LLC, has the backing of important political constituencies. The Peruvian government has been caught in the middle. It has a long stated aim of widening the use of gas in Peru, especially in the southern regions where the Camisea natural gas deposit is located. Energy and Mines Minister Valdivia had said earlier that the government could approve both pipelines, but only if there was sufficient demand for the gas. Experts say, however, that current demand for the gas in southern Peru is limited. "From the point of view of demand there isn't enough for two pipelines," said Cesar Gutierrez, chairman of state-owned oil company Petroleos del Peru, or Petroperu, in a recent meeting with the foreign press. Meanwhile, Kuntur has said that if the government approved both pipelines then it would withdraw its proposal since there isn't enough demand for gas to justify both projects. Suez, for its part, has argued that its project, known as Gassur, will be up and running by the first half of 2011, meeting a growing demand for electricity. Suez currently has an 8% share in the company TGP, which operates a pipeline to transport natural gas and liquids from Camisea to Lima and to the port of Pisco. Through a subsidiary, it is also Peru's second largest private power producer, with generating stations in southern Peru, where among its clients are Southern Copper Corp. (PCU) Kuntur, meanwhile, has the backing of various local governments of some important cities such as Cuzco and Arequipa. Mayors from various southern cities plan to hold a "summit in defense of natural gas" in mid-May to back their demands that the government choose the Kuntur project. Late last week, Peru's Congress approved a motion asking the executive branch to give priority to Kuntur's South Andean Pipeline project. Wants To Boost Gas Use The government is working to develop the fledgling natural gas industry, which has boomed with the coming on line of gas from the Camisea project in mid-2004. Gas and liquids are shipped from the jungle region to a plant near Pisco on the Pacific coast and then to the capital of Lima and elsewhere. The government wants to spread the benefits of the gas developments, including the establishment of a petrochemical industry, probably in southern Peru. -By Robert Kozak, Dow Jones Newswires; peru@dowjones.com; 51-1-211 2652
