Kuntur raises cost estimate for Peruvian pipeline venture

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Aug. 27 -- Kuntur Transportadora de Gas SAC said two pipelines it plans to construct in southern Peru will cost about $3 billion—twice the amount of earlier estimates.

Costs have risen because the project now involves two parallel pipelines—one for natural gas and one for gas liquids—instead of just one, according to a Kuntur spokesperson.

Construction on the lines, which will carry the gas and gas liquids from Camisea to the port of Ilo, is slated to start in 2011, with completion expected in 2014.

The pipelines would extend, side-by-side, through four poor regions in southern Peru—Cusco, Arequipa, Moquegua, and Puno—that have complained about too much gas being exported to other countries or shipped to the capital of Lima.

Kuntur released the revised cost estimate as it submitted the environmental impact study for the project to Peru's mining and energy ministry, the country's Andina news agency reported.

Peru currently has one major gas line that carries gas from Camisea gas field to Lima, with a pipeline spur to the new LNG export terminal at Pampa Melchorita on the Pacific Coast (OGJ Online, June 15, 2010).

The Pampa Melchorita facility was launched on June 10, and its first shipment of LNG departed on June 22 for the Costa Azul energy terminal on Mexico’s Pacific Coast aboard the 173,400 cu m Barcelona Knutsen.

Peru’s gas exports are expected to rise next year when construction finishes on a new regasification plant at Manzanillo, where Repsol YPF has a 15-year contract to supply 67 billion cu m of Peruvian gas to Mexico’s Federal Electricity Commission.

According to analyst IHS Global Insight, the start of operations at the Pampa Melchorita LNG plant is an historical landmark as it represents the culmination of a project that has helped to transform Peru’s energy sector.

“Development of this project has provided the commercial justification for heavy investments in the Camisea gas field, which in turn have allowed the domestic gas market to grow,” the analyst said.

Earlier this month, Perupetro said that the country’s gas output—stimulated by the increased demand of domestic power utilities and the supplies to Pampa Melchorita—jumped 49.62% year-on-year to 2.868 billion cu m in the first 7 months of 2010.

Given the growing success of his country’s gas industry, President Alan Garcia wants to develop a petrochemicals industry in southern Peru using Camisea gas as a raw material—and the Kuntur project is a key element in his plan.

"This will be a major economic driver in this region for years to come," said Samuel D. Gomez, president of Kuntur, a subsidiary of US private equity firm Conduit Capital, which focuses on infrastructure in Latin America and the Caribbean.

"The south is the most economically deprived area in the country and in addition to the pipeline we could see billions of dollars of incremental investment, including petrochemical plants, power plants and cement plants," Gomez said following a meeting with Garcia.

Meanwhile, Kuntur, which has not yet signed a contract guaranteeing how much gas the lines will actually carry, this week said it is in talks about gas supplies for the project with Braskem SA. Braskem is 70% owned by Brazil's Odebrecht and 30% by Brazil's state-run Petroleo Brasileiro SA.

A Kuntur spokesperson said the talks with Braskem would allow for early confirmation of gas reserve levels in Petrobras's Blocks 58 and 57, helping the Peruvian pipeline project to move ahead as fast as possible.

Contact Eric Watkins at hippalus@yahoo.com.

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