Peru, a country abundant in gas, but does not massify it

Every day that passes, families that have not yet switched to natural gas are losing money. And the fact is that a family that switches to natural gas (for use in the kitchen and thermal baths) would save between S/80 and S/100 per month or up to S/1,200 per year, money that today is allocated to the gas bottle (LPG) and to the electricity bill. This savings, given the current economic situation, adds up to a lot.

But despite the notable progress in home connections in recent years, the figures are still incipient, particularly outside of Lima.

At the end of 2023, there are 2 million 95,747 homes nationwide that have this energy, however, it is projected that the transition will reach 7.6 million families in 2030, Centrum PUCP estimates in its report ‘Relevance of natural gas in the Peruvian economy and its potential contribution to reducing poverty’.

This means that within 6 years, residential natural gas coverage will revert to balloon gas and reach 62% of Peruvian homes. And, currently, natural gas is used by only 34% of households in the capital for cooking, according to data from the Policy and Economic Analysis Management of Osinergmin.

An extremely important element is that from the point of view of family finances, the difference in the consumption of both fuels is very marked. According to the Cetrum PUCP analysis, the gas cylinder represented 21.9% of the average annual expenditure of households that use LPG. In the case of natural gas it is 13.6%.

Why doesn’t it take off?

The growth in the number of homes that use natural gas (NG) for cooking had as its starting point those districts that belong to medium and low socioeconomic levels. Which was promoted by government programs that financed access to networks and connection points, concludes Osinergmin.

As a result of this government impulse, it is evident that the highest percentage of households with access to NG is found in the districts with a higher proportion of households with fewer resources.

This is the case in the concession of metropolitan Lima and Callao, which has 1 million 728,933 home users. In essence, all that remains is to connect sectors A and B. Lima accounts for 90% of the national demand for gas for homes.

On this point, Erick García, former general director of Hydrocarbons of Minem, remembers that Lima and Callao have had natural gas since 2005, but until 2016 the number of connections did not even reach half a million. What changed?

“The massification scheme was changed through FISE to finance the facilities and, in 2020, it also financed the construction of networks. Today we have 1,700,000 families, which is more than a million more than until 2016. It grew because money from the State is needed to build more networks,” he reflects.

Marked differences

However, the same does not happen in the interior of the country due to the lack of infrastructure (gas pipelines) to the north and south, and that is why the gas is sent in trucks (virtual gas pipelines), which makes the service more expensive, explains Luis Espinoza. former vice minister of energy.

And this is reflected in the figures: the northern concession has 245,842 connections, the Piura concession about 18,515, the Ica concession 89,582 and the southwest concession 12,875 residential users (see infographic).

For Espinoza, the problem is also who is in charge of managing the concession, since due to the business model it is easier to manage Lima than other cities. This does not happen in Colombia where electricity companies also make natural gas and are owned by the State.

“My suggestion is to copy that, but understand as a state company that they are companies from the province like Energía de Bogotá (Cálidda in Peru) and the owner is the city. There is also the public company of Medellín and its owner is the city of Medellín. However, here all public companies belong to Fonafe, so the interest is very centralized. Unlike Arequipa having its public company, the cities will have the interest in developing the natural gas service,” the expert emphasizes.

The one who pays the consequences today is the consumer within the country. The average price of a 10 kg gas bottle in Lima and Callao is S/44.06, for its equivalent in natural gas the user pays S/24, a saving of 46%. But this is different in the north, since for the same volume of natural gas you pay S/37.20, so the savings are 17% compared to LPG. In the case of the south it is more dramatic, since you pay S/41.60 for that natural gas and the savings are only 5%. Marked differences revealed by the study ‘Economic, social and environmental impact of natural gas in Peru’, prepared by Macroconsult.

According to García, the incentive to have more concessionaires in the country is for the State to finance the construction and the private or public company to operate and manage. “With a dealer attending to and fulfilling their five-year plan, progress is made faster,” he says.

NGV and conversions

The fleet of natural gas vehicles has taken off significantly in the last three years, due in part to the rise in oil prices, which forced users to look at CNG as an alternative. This was accompanied by public policy.

In the previous scheme, explains Erick García, a financial entity was identified and it chose the workshops, which is why competition was not generated. With the regulatory changes, all workshops were included, and banks were avoided, and even zero interest was offered for people to switch to Natural Gas Vehicles (NGV).

In 2021, 20,442 vehicles were converted to CNG, in 2022 there were 74,506 and in 2023 just over 36,200 units were converted, according to the Report on the Natural Gas Sector in Peru carried out by Promigas.

“With this, the total number of units converted in our country totaled 431,857. Thanks to the conversion of vehicles to CNG, the benefited users can obtain savings compared to if their vehicles were gas stations,” highlighted Alberto Morisaki, manager of Economic Studies of the Automotive Association of Peru (APP).

With respect to the mobility sector, users of Vehicular Natural Gas (NGV), between 2004 and 2023, have saved more than S/61,000 million.

According to experts and available figures, Peru has proven reserves of natural gas of 8.77 Tpc, which is enough for the next 25 years, therefore, its massification for use in homes, businesses, industries and transportation . It is urgent to resume another speed.

Massification to reduce fossil sources

Minem reported that for this year a budget of S/882.9 million has been assigned to its portfolio, which will promote the expansion of the use of natural gas and electrification in rural areas. Of this amount, S/253.7 million will be allocated for capital expenses, with the purpose of supporting the progression of Phase II of the GAS-SITGAS Preinvestment Study, as well as the ‘Transmission Investment Plan-Program PIT’.

Natural gas consumption in the country showed an average growth of 2% in the five years and an increase of 20% last year.

The mountains concentrate 60% of families that use polluting fuels, such as firewood, followed by the jungle (24%) and the coast (16%). In regions such as Huancavelica, Cajamarca and Apurímac, more than 50% of the population depends on them, according to Enaho.

Quavii, in charge of the northern concession, plans to connect nearly 17,000 homes to natural gas. In addition, it has planned an investment of US$20 million for the construction of more distribution networks.

Infrastructure and single rate

Approach. Aurelio Ochoa, energy expert

The main limitation of overcrowding is that there are no gas pipelines. Outside Lima and Callao, progress is being made with virtual gas pipelines while the physical work is being built, at some point, but the limitations that result when transported by trucks are obvious.

The infrastructure installed in the country is quite poor and all of this takes its toll on us. Any massification that is done virtually will always be slow, here and in China.

In Congress there is a PL observed on the single natural gas rate. Not having a single rate for gas in all concessions is another brake on overcrowding. With a single tariff, the prices of Lima and Callao would automatically drop, because, for example, in the north the price of LPG is almost at the level of natural gas, so there is no incentive to use NG.

The residential consumer in Lima will not have a strong increase in their gas rate, nor will they have one on the electricity rates side, because the Executive’s PL is pending, which precisely corrects the distortions in electricity rates.

Figures

• 34% of households in Lima today use natural gas to cook their food.
• 2 million is the number of homes connected to natural gas at the end of 2023.

The word

Luis Espinoza, former vice minister of Energy

“In rural electrification we have already reached almost 100%, we need to go to the natural gas service. Only the investment is subsidized, what is not given is operation and maintenance, but there is no clarity in the policy.”