A new path: The country aims to become a petrochemicals production centre

While petroleum is narrowly viewed as a source of energy, its benefits in terms of enhancing the productivity of the manufacturing sector as a whole have yet to be thoroughly explored in Peru. The country is now on the verge of developing what could be a petrochemicals industry of vital importance and has an array of projects lined up for the coming years, with the hope of creating Pacific South America’s only major petrochemicals production centre.

Natural gas is a relatively new trend in the international petrochemicals industry. It has helped to lower global feedstock prices and provides a cleaner option for fossil fuel processing. In Peru, this natural resource is abundant and will provide the base for the industry’s development, which is already growing at a rate of around 5% per year.

HISTORY: In the 1970s, state-owned petroleum company Petróleos del Perú (Petroperú) ran a small operation of three plants that produced carbon black, acetone and fertilisers from urea and ammonium. These were shut down in 1992 due to the lack of adequate technology and income.

Since the discovery of the Camisea natural gas fields around a decade later, however, prospects have changed – albeit slowly. Located in the Amazon area of the Cuzco region, it took almost 10 years for operations at Camisea to begin, mostly due to conflicts over beneficiaries of the resources. Two blocks – 88 and 56 – are currently in use, controlled by a private sector consortium made up of Spain’s Repsol YPF, Argentina’s Plupetrol and Tecpetrol, Hunt Oil from the US, South Korea’s SK Energy and Algeria’s Sonatrach. Adjacent blocks 57 and 58 are being considered for exploration and will be vital to the country’s petrochemicals development.

The Camisea consortium is obliged by law to hand over a portion of its profits to the Peruvian state. In 2011 alone, the state’s share amounted to approximately $1.24bn, 50% of which was allocated to the Cuzco region, where the installations are based. Since operations began in 2004, the consortium has contributed $3.57bn to the government’s coffers.

ON THE RISE: In 2011 total production of natural gas was some 401.17bn cu feet (bcf), up from the 145.56 bcf recorded the previous year. This 57% increase was mainly due to the expansion of Pluspetrol Perú’s exploitation of the Camisea gas fields, especially block 88 (with output destined for internal use) and block 56, output of which will be converted to liquefied natural gas (LNG) by Perú LNG.

The Camisea fields represent the country’s largest natural gas reserves, providing energy to residents, as well as to commercial and industrial operations in Lima and Callao. Output is pumped through two pipelines – one for gas, the other for liquid gas. These two pipelines stretch 540 km and 680 km, respectively, over the Andes Mountains and to the coast. Pluspetrol Perú was consolidated as the main producer of natural gas, accounting for 95.31% of output in the industry, followed by Aguaytía (1.64%), Petrobras (1.23%) and Savia Perú (1.01%).

With such abundant reserves, Peru has begun to export natural gas, an opportunity that was only a dream in the recent past. The primary markets for gas exports in 2011 included Spain (37.8%), South Korea (17.4%) and Japan on nearly the same level (17.3%). Other key markets, although receiving fewer exports, were Thailand, Mexico, the US, China and Taiwan. Total natural gas and petroleum exports earned approximately $4.7bn in 2011, increasing by 52.34% from 2010 and contributing 10.31% of the total value of exports for the year.

According to ProInversión, the state’s investment promotion agency, internal demand for petrochemicals products is currently supplied by imports, with more than 350,000 tonnes of urea and 750,000 tonnes of ammonium nitrate coming from abroad.

MATERIALS: The chemicals sector in general is growing at a very fast pace, due in part to a historic deficit in production. The number of industries that require chemicals either to enhance the quality and value of their products or to produce new ones demonstrates the massive potential for the growth of the industry. Thousands of products, ranging from fertilisers to plastics, cleaning supplies and paints, among an array of other products that fuel multiple industries, can be produced from the chemical compounds of processed fossil fuels.

Petrochemicals solvents, for example, provide chemical compounds for the elaboration of several different paint materials, such as paint itself, thinner and lacquer, among others. One company that has caught on to this growing trend is Transmerquim del Perú, a leading distributor of chemical raw materials and related logistical services for a number of different industrial end-use sectors.

The company has plans to provide services for the mining sector, which it believes will expand enormously in the coming years. However, the construction sector also provides ample scope, since it is already growing at such a fast rate, meaning paint materials are in high demand.

PROJECTS: In May 2011 the Peruvian government passed Law No. 29690, which will promote ethane production in the country’s nascent petrochemicals industry. This official backing from the country’s leadership will facilitate a number of projects already under way, making it much easier to gain permits and perform environmental impact studies.

Southern Peru is currently home to four petrochemicals projects, with investments estimated to amount to some $6.3bn. In the Inca region, Nitratos del Perú is constructing ammonium and nitrate production facilities in Pisco; CF Industries has invested in a project that will facilitate the production of ammonia and urea in San Juan de Marcona; and Orica Nitratos Perú will produce nitrate and ammonium, which is primarily used in mining activities, at a project that is also slated for San Juan de Marcona. The area’s fourth project, which is currently being considered for installation further south in the Moquegua region, is a joint venture between Brazilian giant Braskem, the Western hemisphere’s largest petrochemicals producer, and Petroperú.

This last project is the most important in terms of size and evolution. Braskem signed a contract with Petroperú in late 2011 to carry out technical and economic analyses of the industry in preparation for the undertaking. The companies aim to produce approximately 1.2m tonnes annually of ethylene and polyethylene, which will be used for the production of plastics, resins and solvents.

Braskem has also invested money in the development of the new Sur Andina pipeline that will extend more than 1000 km from Cuzco’s jungle area to the southern coast of the country, where the petrochemicals complex will be built. The complex is expected to begin operations in 2017 and will be the first petrochemicals plant to be developed on Latin America’s Pacific coast.

The plant’s production capacity should mean that, once on-line, Peru would no longer have to rely on thermoplastic imports, which cost around $300m per year. As well as supplying domestic demand, the complex is also estimated to generate exports worth some $1bn annually. According to Petroperú, petrochemical processing can add 15 times the value to products derived from natural gas.

The project is also expected to have a significant ripple effect on other areas of the economy. Many people believe the plant will improve local infrastructure by necessitating the expansion of highways, ports and other services. The petrochemicals complex will employ some 500 workers directly, and an estimated 5000 indirect jobs will also be generated. Additionally, apart from supplying existing industries, petrochemicals can provide the necessary ingredients for offspring industries, such as the production of aromatics, methane and thermoplastics, which do not currently exist in Peru.

A PROMISING INDUSTRY: Peru’s vast natural resources will provide a lasting supply of gas for the country’s emerging petrochemicals industry, and its geographical position is an advantage for supplying petrochemicals products to other countries in the region. Key industry players, such as Brazil’s Braskem, have already committed to developing petrochemicals production in Peru, having receiving the green light from the authorities to begin work on the project. This suggests that the industry is indeed on track to help expand Peru’s already growing economy and facilitate the development of the many industries that rely on these chemical products as well.

Along with garnering international interest, the country’s pension funds have also expressed a desire to get involved in the sector, which may be a sign that the industry’s growth is secure. While some speculate that competition from natural gas production in the Gulf of Mexico will lower the demand for local industry, many investors are now realising the growth potential of petrochemicals in Peru.