The perfect mix: As demand for energy surges, investment in new projects flows in

Though a wealth of natural resources protect long-term energy security, in the short term, surging demand continues to put pressure on the sector. A recent influx of investment in Peru’s hydroelectric power stations and natural gas-fired thermoelectric facilities should be enough to stave off any bottleneck in electricity generation and avert potential power shortages in 2016 and 2017. The delay of one or two major power generation projects could nonetheless spell trouble.

Within the hydrocarbons subsector, the commercialisation of the giant Camisea field in 2004 changed the country’s energy mix, resulting in a national debate on how best to utilise the newfound wealth of natural gas. Currently reliant on one pipeline running east to west, the addition of a second southbound pipeline has sparked several new developments, including the establishment of a petrochemical industry, the exportation of liquefied natural gas (LNG) through southern ports, and even the potential export of electricity to Chile.

Meanwhile, the government is continuing to promote the exploration of oil and gas resources in search of the next big discovery, while also promoting the inclusion of renewable energy within the national grid. Infrastructure projects, particularly in pipelines and transmission lines, have also been prioritised as the government seeks to increase distribution channels.

Modern narrative

Though Peru was operating its first oil well by 1863, its energy matrix has undergone a greater transformation in the past 20 years than it did in its first 140, thanks to two significant events – the privatisation of oil and gas in the early 1990s and creation of Perúpetro through Law 26221, otherwise known as the Organic Law for Hydrocarbons, and the commercialisation of the major Camisea natural gas field.

The privatisation of the hydrocarbons subsector was done in line with the privatisation of the electricity markets. Though the government still retains control of several important companies in both areas, including Petroperú and Electroperú, the majority of the energy industry now lies in the hands of the private sector.

The opening of the energy sector to the private market has brought about an influx of investment. From 1996 to 2012, hydrocarbons and electricity received investments worth $12.38bn and $13.28bn, respectively, according to the National Society of Mining and Energy (Sociedad Nacional de Minería, Petroleo y Energía, SNMPE), allowing for important increases in energy sources and supporting the country’s rapid economic growth over the past decade. This is largely owed to the exploitation of the Camisea gas field, which has not only provided a cheap source of energy for electricity generation at a time when demand threatened to outstrip supply, but has also permitted the creation of a petrochemicals industry.

General Oversight

The Ministry of Energy and Mining (Ministerio de Energía y Minas, MEM) oversees the sector as the central agency in charge and is responsible for the formulation of national strategy. While the MEM has traditionally been responsible for carrying out environmental impact assessments (EIAs) on individual energy and mining projects, that duty is being transferred to the Ministry of the Environment (Ministerio del Ambiente, MoA). Though the MoA wasn’t officially formed until 2008, the National System of Environmental Impact Evaluation (Sistema Nacional de Evaluación del Impacto Ambiental, SEIA) was created in 2005 through Law 28611, which will be implemented by the National Service of Environmental Certification ( Servicio Nacional de Certificación Ambiental, SENACE). SENACE, which will be part of the MoA, is expected to take over all EIAs from the MEM in 2014.

Central Sector Players

The Supervising Organisation of Investment in Energy and Mines (Organismo Supervisor de la Inversión en Energía y Minería, OSINERGMIN) was created in 1996 to act as regulator and supervisor of private sector investment in the electricity and hydrocarbon industries. In 2007, it was also given responsibility for the mining industry. Beyond its regulatory duties, OSINERGMIN is tasked with issuing government tenders on electricity generation projects, in addition to Proinversión, the national investment promotion agency, and the MEM.

The MEM works jointly with Perúpetro – not to be confused with Petroperú, the state-owned oil company – a government agency created in 1993 to establish an autonomous state-owned entity responsible for negotiating, signing and monitoring all hydrocarbons contracts. Finally, the Committee for the Economic Operation of the National Interconnected System (Comité de Operación Económica del Sistema Interconectado Nacional, COES-SINAC) is responsible for supervising the development of the national transmission network and operating the national electric grid, known as the National Interconnected Electrical System (Sistema Eléctrico Interconectado Nacional, SEIN).

NUMES

In January 2012, the MEM issued a study dubbed the New Sustainable Energy Matrix (Nueva Matriz Energética Sostenible, NUMES), which serves as its long-term strategic plan for the energy sector. NUMES reviews the sector’s history and forecasts seven possible scenarios with a horizon of 30 years.

From 1970 to 2009 national energy consumption grew at an average annual rate of 1.5%, a figure below population growth, according to the study. Growth in energy consumption stemmed largely from transportation (61%), and mining and industry (38%). Meanwhile, total energy supply in 2009, including grid generation, transportation, industrial use and personal consumption, was predominantly fulfilled through use of hydrocarbons, with oil accounting for 39% of energy use, followed by natural gas (33%), hydroelectricity (11%), and coal and renewable sources (17%). One of NUMES’s main objectives is to identify the ideal long-term energy matrix given Peru’s available resources.

The Figures

According to Perúpetro, which is also responsible for promoting the exploration and exploitation of Peru’s hydrocarbons, the country’s proven oil reserves increased by nearly 70% over the last decade, from 374m barrels in 2002 to 633m barrels in 2012. However, oil production has been gradually decreasing, from a high of 87,500 barrels per day (bpd) in 2003 to a low of 66,700 bpd in 2012. Production for the first nine months of 2013 appeared to follow this falling trend, with Perúpetro reporting an average production rate of 62,900 bpd for the period. At any rate, Peru remains a small oil-producing nation, particularly when compared to the region’s larger producers, Venezuela (2.3m bpd) and Brazil (2.1m bpd). Increases in oil consumption continue to outpace production. In fact, consumption increased an additional 5% over the first eight months of 2013, reaching 217,235 bpd.

But what Peru lacks in oil it makes up for in natural gas, with Perúpetro reporting proven reserves of 436bn cu metres (bcm) in 2012. Production of natural gas has increased each year since the commercialisation of the massive Camisea field in 2004, from 83m cu feet per day (mcfd) in the first year of production to 1.14bn cu feet per day (bcfd) in 2012, according to Perúpetro. This grew slightly in the first three quarters of 2013, to 1.18 bcfd per day. Investments in hydrocarbons have, and will continue to play, a key role in the development of the segment. In fact, the $8.15bn in investments planned for 2010-14 is nearly equivalent to the total investments the sector received over the previous two decades. As of September 2013, there are 75 outstanding hydrocarbons contracts, of which 51 are for exploration and 24 are for exploitation.

Meanwhile, electricity demand is expected to grow at an average annual rate of 8.8% between 2013 and 2017, according to projections by the Directorate General of Electricity (Dirección General de Electricidad, DGE) of the MEM, bringing peak demand from 5291 MW in 2012 to 8066 MW in 2017, an increase of 2775 MW. However, supply side increases are projected to add an additional 4081 MW of new generation capacity during the same period, which if operational on time should ensure the country’s energy security in the short term. PETROPERÚ: State-owned Petróleos del Perú, commonly known as Petroperú, will mark its 45th anniversary in 2014. Yet, questions abound as to its role in the oil and gas industry. Since seeing the vast majority of its assets, including all of its oil-producing fields, privatised during the mid-1990s, Petroperú has been involved primarily in the refining and sale of hydrocarbons. However, in recent years, management has stated its intentions to return to upstream activities while also seeking to diversify its downstream operations. While some fear the beginning of a re-nationalisation of oil and gas assets, most pundits doubt the firm’s technical ability to re-enter the upstream market and are wary of potential bias. The most likely scenario would see Petroperú re-enter the market by taking minority stakes in producing assets in the mould of Petrobras, Brazil’s state-run energy company (see analysis).

Natural Gas

The discovery of the Camisea gas field has drastically altered the composition of available energy sources, as natural gas grew from providing 7% of the total energy matrix in 2002 to 41% by 2012. Moreover, its use within the electricity sector grew 132% in 2005-12. As of October 2013, natural gas was responsible for 48.9% of total electricity generation.

Camisea was first discovered by Shell in 1986, when it found reserves in the San Martín and Cashiriari fields in Peru’s Ucayali basin. However, it was not until 2000 that a 40-year licence for the upstream exploitation of Camisea was awarded to the consortium of Pluspetrol, Hunt Oil, SK Energy and Tecpetrol.

According to Perúpetro, natural gas production has gone up from an average of 83 mcfd in 2004 to 1.18bn bcfd by October 2013, as gas production from Camisea continues to increase at astounding rates. Block 88 is by far the largest in Camisea and is made up of the original San Martín and Cashiriari fields. It is estimated to contain proven and probable reserves of 11trn cu feet (tcf), 8.24 tcf of which is recoverable, as well as an estimated 411m barrels of natural gas liquids, such as propane, butane and ethanol.

Camisea’s second giant field, Block 56, has an additional 3 tcf of proven and probable reserves. In addition to Blocks 56 and 88, the country has seven other producing natural gas fields, though the two principal blocks accounted for 97.2% of all production in 2013. In September 2012, Spanish company Repsol announced the discovery of natural gas in Camisea. Its Sagari well in Block 57 is believed to hold about 1-2 tcf of probable natural gas reserves. Repsol is the majority owner and operator of the block with a 53.84% stake, while Petrobras holds the remaining 46.16%. Petrobras sold lots 57 and 58 to PetroChina, which is part of the Chinese National Petroleum Corporation. In October 2013, Luis Ortigas, the president of Perúpetro, told local media that Block 57 would begin production in December 2013, with an initial production of 85 mcfd of natural gas per day and 5600 barrels of liquid.

A Matter Of Debate

Camisea has significantly improved the country’s energy security, and promoted associated investments in thermoelectricity, pipeline infrastructure and even potentially a petrochemical complex down the line. It has also added significant revenue to government coffers – in 2012 royalties from Camisea totalled $1.16bn, half of which went to the regional government of Cusco, where the fields are located, as stipulated by existing legislation.

How best to use the country’s large reserves of natural gas has become a subject of debate. Francisco Dulanto Swayne, executive president of local energy firm GMP, told OBG, “Peru will have no problem regarding natural gas reserves and has the potential to export significant amounts if infrastructure was better developed.” Peru has already established its first liquefied natural gas (LNG) complex in Pampa Melchorita. The $3.8bn facility, inaugurated in 2010, is connected to the Transportadora de Gas del Perú (TGP) pipeline and has an annual capacity of 4.4m tonnes of LNG per year. The facility is operated by Peru LNG, a consortium of Hunt Oil (50%), Repsol (20%), SK Energy (20%) and Marubeni (10%). A second LNG facility is being planned in the south of the country once a second pipeline is constructed bringing gas from Camisea to the south.

While NUMES calls for natural gas to be used for around 45% of electric generation by 2040, some would rather see a return to increased usage of hydroelectricity. Sergio Thiesen, director for South America at Braskem, the largest petrochemicals firm in the Americas, cited a specific example of value-added activities that would simultaneously cut the import bill.

“Peru is currently burning or exporting all its gas,” he told OBG. “Camisea gas is very rich in ethane and could be used to produce polyethylene in Peru instead of buying it from elsewhere. Capitalising on the ethane and value addition would bring far more revenues into the country than just selling or burning it.” With close to 70,000 MW of potential hydroelectric power, natural gas could be used to focus on providing maximum value through exportation and the creation of a value added petrochemical industry. However, fired thermoelectric facilities also offer competitive advantages in locations where water resources are low, particularly along the more densely populated desert coast.

Infrastructure

The sole pipeline transporting gas from Camisea is operating at full capacity, primarily bringing feedstock to thermoelectric facilities outside Lima. More than 40% of the nation’s electricity generation capacity is reliant on this pipeline. To minimise the risk, there are plans to establish a second. The TGP pipeline, which includes a 729-km natural gas segment and a 557-km natural gas liquids segment, runs from deep in the Amazon over the Andes Mountains to the coast. Originally estimated to cost $865m, the pipeline, which was commissioned in 2004, has seen its cost rise to a total of $1.7bn after a number of expansions. Installed capacity for the pipeline was first anticipated to reach 450 mcfd. However, rapid economic growth increased demand for natural gas significantly over the past decade. An upgrade doubling natural gas capacity to 900 mcfd was due in 2012, but delays caused by a variety of issues, including security concerns, prompted the government to announce the expansion would not be completed before 2015.

New Route

A second pipeline heading to the southern coast is also in development, known as the Peruvian Southern Gas Pipeline (Gasoducto Sur Peruano, PSGP). The PSGP will take gas from Camisea to the south, passing through Cusco, ApurÍmac, Puno, Arequipa, Moquegua and Tacna. Proinversión announced that the tender for the PSGP will be awarded in February 2014. However, due to market demands, this date could be postponed. Total investment for the project is estimated at approximately $3.5bn.

The 1200-km-long PSGP, which will be built in stages ( jungle, coast and mountains), will allow the development of a major petrochemical complex in the south of the country in three years. From the total energy demand of the south, 350 mcfd will be for power generation, 100 mcfd for the petrochemicals complex, and 50 mcfd for industrial and residential uses in the region.

Proinversión also recently awarded Energy Node a project that will consist of the construction of two thermoelectric power generation plants with a total capacity of 1000 MW and which are expected to begin commercial operations by 2017 at the latest.

OIL: While Camisea and the country’s newfound wealth of natural gas reserves continue to dominate headlines, oil production has been in decline over the past decade. Combined with the fact that domestic demand for crude and its derivatives increased from 114,714 bpd in 1990 to 147,714 bpd in 2000 and 217,235 bpd in the first eight months of 2013, according to the MEM, Peru’s hopes of again becoming a net oil exporter, as it was in the 1980s when production hovered around 200,000 bpd, are slim.

Even NUMES’ optimistic model of oil production sees domestic production peaking at just over 120,000 bpd in 2022 – not enough to cover the demand at the turn of the millennium. The conservative model outlined in NUMES forecasts a decline in oil production, dropping below 40,000 bpd in 2040.

Average daily production of oil has fallen from 87,500 bpd in 2003 to 62,900 bpd in September 2013. This is primarily caused by decreased production in the Amazonian jungle region, from about 57,900 bpd to 24,700 bpd in the same time period.

Oil is also found in the north-west of the country as well as offshore, respectively accounting for 39.1% and 22.6% of total production in 2012. A significant boost is expected when Perenco, an Anglo-French oil company that has partnered with Vietnamese state-owned oil company PetroVietnam, starts the exploitation of Block 67 in December 2013.

When the oil in Block 67 was declared commercially viable in December 2006, before Perenco became involved, the government announced it as the biggest energy discovery in Peru’s history after the Camisea gas fields. Perenco took over operations in January 2008 and now intends to drill 185 wells and build a 207-km pipeline to exploit the estimated 217m barrels of oil. Until the pipeline is built, some 7000 bpd are scheduled to be transported via river every day from Block 67. The new pipeline, which is 60% completed, is planned to connect to the northern branch of the existing North Peruvian Pipeline, which will transport the oil to a terminal on Peru’s Pacific coast. Once the pipeline is fully completed (projected for 2019), production will rise to 60,000 bpd, nearly doubling the current national production. Perenco’s initial estimations hold that the development of Block 67 would cost $1.59bn.

Oil & Gas Exploration

Hydrocarbon exploration is based on four main basins in Peru: the Ucayali basin, home to Camisea, as well as the basins of Madre de Dios, Marañon, Sechura, Tumbes, Talara and Trujillo. According to MEM, there were 51 active exploration contracts as of September 2013. Of the total, 31 are exploration contracts in the eastern jungle region, where companies continue to explore the hydrocarbons-rich Marañon and Ucayali basins. Additionally, there were 11 offshore exploration contracts and nine contracts in the north-west.

While increasing crude oil production remains an uphill battle, there is still plenty of unexplored territory. Perúpetro told OBG that it wants to issue additional tenders for every block in the country to increase the current exploration rate from six to eight wells per year to 40-70. To this end, it plans to issue 26 licences in the rainforest by mid-2014.

“There are 18 principal areas of oil and gas deposits, but many of these are only semi-explored,” Aurelio Ochoa Alencastre, former president of Perúpetro, told OBG. Mario Contreras, country manager for Ecuador and Peru at energy company Exterran, added, “Compared to other countries in the region, Peru remains relatively unexplored, especially in offshore areas. As more seismic surveying and exploratory drilling is completed, the country should uncover larger reserves.”

Data from the SNMPE indicate investment in oil and gas could be as high as $25bn from 2011 to 2020, much of which will go toward exploratory projects. In hopes of increasing investment in exploration, Perúpetro is also seeking to alter its strategy in handing out exploration contracts. “We are developing a long-term plan to triple exploration over the next five years by handing out concessions for smaller lots,” Ochoa said.

Planning Downstream

The unearthing of the Camisea fields presents several avenues. Thus far, the site’s natural gas has been transported via pipeline, sparking the development of several gas-fired thermoelectric power plants outside Lima, and exported. Now that investment seems to have secured the short- to medium-term demand for the national grid, the government has one eye fixed on establishing a petrochemicals industry along the southwest Pacific coast. In fact, more efficient capitalisation of natural gas resources has been a talking point for several years.

To this end, Petroperú is looking to establish a joint facility with Braskem, the largest petrochemicals firm in South America, which would receive ethanol feedstock through the PSGP. Though original plans called for such a facility to be operational by 2015, delays to the pipeline have prompted the government to move its target date to 2017. In May 2012, Braskem revealed it would require nearly 170 bcm of reserves to justify a $3.5bn investment in a petrochemical complex.

Peru also has other petrochemical projects closer to construction phases, including a planned nitrate plant in Pisco being developed by Nitratos del Peru, a joint venture between local industrial firm Grupo Brescia (51%) and Chile’s Sigdo Koppers (49%). At the time of writing, the EIA for the $800m project was still being evaluated by the MEM. Initial reports suggest that the plant will have the daily capacity to produce 2060 tonnes of ammonia, 1060 tonnes of ammonium nitrate and 925 tonnes of nitric acid. A $500m plant is also being planned by Orica, the world’s largest explosives manufacturer, which could have a capacity of 400,000 tonnes per year of ammonium nitrate.

Warning Signs

Though blessed with more than sufficient resources to power the national grid, several cautionary events have prompted significant changes to the electricity market. The SEIN has experienced two close calls in the past 10 years, starting with a 2004 energy deficit caused by severe drought.

In the summer of 2008 a more serious supply shortage occurred, causing electricity prices to become almost six times higher than average prices the previous summer, while the average annual price was nearly double. The 2008 shortage highlighted a congested transmission network as well as a severe lack of cold reserve energy stores. The SEIN maintained cold reserves of just 1% at several points during the summer of 2008, though averages were slightly higher albeit in single digits. According to DGE regulations, the system should have at least 20% of capacity on cold reserve in case of such emergencies. As a result, 2008 was the peak year in electricity prices in the last decade, averaging $236/MWh, more than twice the 10-year average of $91/MWh from 2000-2010, according to NUMES.

Both of the last two major crises were followed by changes to the electricity markets that, at least for the short-term, have alleviated the root problems. Investment in transmission lines has increased access to electricity in rural areas, while the upgrades of transmission lines from 220 kW to 500 kW high tension lines will significantly increase capacity along existing and new transmission routes. Furthermore, the addition of a large natural-gas-fired thermoelectric complex outside Lima reduced reliance on hydroelectricity and in turn the SEIN’s susceptibility to droughts.

Thermoelectricity

The installation of natural gas-fired facilities has been largely responsible for keeping the national grid sufficiently supplied over the past five years. Thermoelectric facilities accounted for 48.9% of electricity generation in October 2013. From 2013-17 the MEM forecasts an additional 1736 MW of thermoelectric power will enter the national grid.

When its large combined-cycle plant starts commercial operation in late 2013 or early 2014, Fenix Power will add another 534 MW, around 10% of national electricity capacity. The plant, which is located near the Chilca substation, has been under construction since 2009 with total investment reaching $800m.

Despite being a finite resource, natural gas provides the country with a certain flexibility, primarily because of the uneven distribution of hydroelectric resources and the relative ease, compared with constructing lengthy transmission lines, with which thermoelectric plants can be built in just about any part of the country, given an adequate feedstock of natural gas.

However, in an ironic turn of events, the construction of thermoelectric plants to reduce vulnerability of hydroelectricity to droughts has increased the SEIN’s vulnerability, as virtually all of the thermoelectric power relies on a single pipeline from Camisea to Lima, at least until the construction of the PSGP or the Pampa Melchorita LNG regasification plant is built to supply natural gas to the thermoelectric plant.

Although thermoelectricity now accounts for more than half of all electricity production, the MEM estimates that hydroelectric resources could be as high as 69,445 MW, nearly 10 times the current capacity. In the long term, re-developing hydroelectricity as the main source of electricity would free up natural gas resources for more profitable ventures (see analysis).

Renewables

Though Peru already uses significant renewable energy resources in the form of its vast hydroelectric development, the MEM is pushing for the development and utilisation of “non-conventional” renewable resources, including wind, solar, biomass, geothermal and small-scale “mini” hydroelectric facilities of less than 20 MW (see analysis).

Regional Integration

Ernesto Tejeda, president of Peruvian engineering and construction firm Obrainsa, told OBG, "One of the largest infrastructure gaps lies in the energy sector, which prevents the country from taking full advantage of its energy resources.” The concept of Peru as an energy exporter only emerged recently, in parallel with greater energy security. While Peru has an abundance of hydroelectric potential, more than enough to be a major electricity exporter, a lack of connectivity is a serious limitation (see analysis).

Network

Improving connectivity and expanding transmission capacity have therefore been prioritised, leading to significant increases in electricity access over the past decade. In fact, this has arguably played an equally important role as increased generation capabilities in improving the overall electricity subsector. Investment in improving transmission capacity continues, as OSINERGMIN data show a total of $2.3bn is being invested in the construction and improvement of the national transmission network. Though grid efficiency improved from 3.57% of electricity being lost in the transmission process in 1995 to 1.81% in 2004, the figure had since reverted to 2.92% by 2011, but improved to 2.12% by the first half of 2013.

COES-SINAC is responsible for overseeing the development and operation of the national grid. In 2012 the national electric grid expanded more than 4.5% as 980 km of transmission lines were added, according to COES-SINAC. There are 22 distributors: public companies, private firms and sales directly commercialised by generation companies. In February 2013 Proinversión announced plans to award 20 projects throughout the year for an estimated $12bn. At the time of going to press the most recent concession was awarded in November 2013 to Energy Node, which will involve the development of thermoelectric power generation plants in southern Peru with a capacity of up to 2000 MW.

As of end-2012, there were 22,534.7 km of transmission lines, with 611.8 km operating at 500 kV, 9998.7 km at 220 kV, 4704.8 km at 138 kV, and 7219.4 km of lines transmitting at less than 69 kV. Improving the grid’s capacity has become equally as important as increasing its coverage, with NUMES calling for $4.45bn invested into high-tension lines over the next 30 years.

Lighting Up The Countryside

Mounting investment in improving grid connectivity and therefore increasing domestic access is part of the administration’s broader social inclusion agenda. Overall, access to electricity has improved drastically since the privatisation of the industry in the early 1990s. Connecting small towns and villages, particularly those located high in the Andes and deep in the Amazon, can be expensive. There are concerns about the challenge that a private firm may face when it takes on a project to distribute electricity in isolated areas with very few or small clients, as the necessary investment in infrastructure can be too high given the limited demand.

Water Utilities

According to the World Health Organisation, 15% of Peruvians have no access to drinking water. The difficulty stems from the geological makeup of the country. The Amazon accounts for most of the water resources but very little of the population. Conversely, the coastal desert region offers very little in the way of water resources – just 2% – but houses more than two-thirds of the country’s population. Conflict over water usage has led to social unrest and protests against agricultural, mining and hydroelectric projects, leading to the establishment of the National Water Authority (Autoridad Nacional del Agua, ANA) in 2008 to try to resolve conflicts.

Several solutions have been implemented to offset this disparity, the most common being the construction of west-east irrigation channels bringing water from the Amazon through the Andes mountains to the desert coast where it is distributed. However, there has been practically no investment towards using water from closer sources, such as the construction of desalination plants along the Pacific Ocean. To improve water distribution, the ANA is working to modernise six of the 159 hydrologic basins at a cost of $49m, with a much broader overhaul to follow if successful. Rossina Manche Mantero, general manager of Sedapal, the primary water distributor to the capital, told OBG, “Lima depends on the Rimac River as its principal water source. However, it also depends on only one trans-Andean tunnel to transport water. Consequently, if the tunnel is damaged or destroyed regular water service would last for only 12 hours and then the city would need to begin rationing.” She added, “Lima is growing quickly and there is urgent need to rehabilitate and expand networks of water distribution, where there has been no significant investment in 30 years.”

In late 2012, the authorities estimated that about $10bn would be needed to close the infrastructure gap in the water sector. It will also require a multifaceted approach that utilises improved techniques to minimise water loss, the construction of desalination plants and significant investment in irrigation channels.

Challenges

The main challenges facing the energy sector are red tape and the lack of planning. “These deficits can be disastrous given the energy vulnerability of a country that depends on limited infrastructure,” Dulanto told OBG. The current reliance on a single pipeline for well over 40% of the electricity generation is one example of the lack of infrastructure endangering the industry. Complaints about the bureaucracy most often refer to lengthy processes for approving EIAs, as well as a lack of cohesiveness between federal and local governments, corruption, inefficiency and a lack of capacity at the local level. Nevertheless, these challenges are generally outweighed by the opportunities presented by the affluence of energy resources.

Outlook

With economic growth expected to continue unabated, Peru faces a fairly tight energy supply-demand gap, at least in the short-term.

However, over the longer term, the wealth of hydroelectricity and natural gas resources should be more than enough to supply the electric grid. In the hydrocarbon subsector, the country appears destined to remain a net importer of crude. Yet, Peru now finds itself in a position where it could develop into a net exporter of energy once its southern gas pipeline is operational and the growth of domestic demand is covered.