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Tuesday, January 31, 2023

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Government proposes that SIT-Gas start in 2023

The Multisector Commission created by the Executive to expand natural gas reserves presented the preliminary version of its final report, with proposals and conclusions to strengthen the hydrocarbon industry for the mass use of this resource.

The delivery of this document represents the first formal step of the Government on its interest in resuming the South Zone Integrated Gas Transport System (SIT-Gas) as a flagship project for overcrowding in regions, which, added to other new supply mechanisms in the north and center, will sustain the internal demand that may lead to the renegotiation future gas contracts.

The trace must be the same as the one left in its path by the former Odebrecht South Peruvian Gas Pipeline (GSP). This, based on the results of the evaluation carried out by Mott MacDonald, which has determined the social profitability of the project. Basically, going the GSP route would save you money and especially time by Condition to conclude a mega-work that should never have ended.

In this line, the commission proposes to declare the SIT-Gas of national interest and evaluate the feasibility of seeking its execution from the existing works and assets of the GSP; that is, the abandoned tubes whose care costs Peru between US$40 and US$50 million each year. Likewise, it is requested to establish the creation of a commission to monitor the progress in its execution, as well as generate proposals and recommendations that allow the responsible entities to make better decisions.

Under these considerations and on the assumption that the disposition of the assets can be resolved in the year 2022, the construction of the SIT-GAS could start in the second half of 2023, with commissioning of the system by milestones in the years 2024 (Cusco), 2025 (Apurímac, Puno) and 2026 (Arequipa, Moquegua, Tacna). There is even talk of advancing this last milestone a year if all goes well.

Political will

”That the commission says that SIT-Gas is important does not mean that all the problems have already been fixed. It reflects a political will to do it. The Peru it needs a gas pipeline and comply with the towns in the south where there is gas and they don’t have it,” a specialized source in the sector told La República.

He also recalled that the southern gas pipeline has been seen as “a hot iron” by previous governments since it was put on standby in 2017 and that it resulted in trials and litigation in the ICSID with Odebrecht and Enagás.

Step by step through the gas

In addition to this section, the preliminary report, which will be put to the consideration and opinions of the public until this Monday, January 24, indicates that Perupetro must review and evaluate a new methodology to determine the valuation of production for the calculation of the royalty. This includes the revision of the table of the Minimum Values ​​for the Valuation established in the Block 56 contract.

Likewise, it is also emphasized that both Perupetro and the Ministry of Energy and Mines (Minem) must propose modifications to the table that defines the Realized Prices in the contract for Block 56 to reflect netback values ​​(the gross profit per barrel of oil produced by a company) through a transparent mechanism throughout the cost chain: from the last point to the wellhead where taxes and royalties are paid.

This would imply reaching agreements with Peru LNG and the Camisea Consortium to modify the contract between them in order to achieve the changes necessary.

In this regard, the aforementioned source commented that, broadly speaking, the aim is to increase the income for the Peruvian coffers addressing the income chapter, and even entering the State in the modification of agreements between private businesses.

On the other hand, the former president of Perupetro Aurelio Ochoa considers that an important chapter of the report lies in the need to renegotiate exploration commitments in the contracts of the lots 88 and 56, including the drilling of new exploratory wells.

Here the document states that some clauses that allow drilling should be modified, considering –even– contract term extensions if the legal framework allows it. “The only way to increase reserves (of natural gas) is by drilling exploratory wells. It is essential to demand it as part of the renegotiation, especially in the Camisea lots,” he noted.

The specialist points out that the State must demand that the reserves be increased and removed, since while they are being exploited they must be renewed. “The issue is to demand exploration to give more life to the Camisea project. It is not a question of exploding and then I go and leave you without gas”, maintains Ochoa.

Another of the main points to be renegotiated is the establishment of a single national gas rate that would allow final prices to be leveled throughout the country.

Pending reviews in the Minem

According to the report, the Minem must evaluate changes to the TGP concession contract that make the execution of branches to the regions of Junín, Pasco and Huancavelica viable or, failing that, develop another transportation project for it, with the aim of promoting the overcrowding in the central zone of the country for residential, industrial and mining use.

It also recommends promoting legal mechanisms that promote and make viable exploration, development and production activities in the basin. Mother of God (Prospective Resources are estimated at 18 TCF), in order to ensure the supply of natural gas to the domestic market in the long term.

The estimate made by the General Directorate of Hydrocarbons (DGH) considers that in 2028 the demand for NG from the electricity generators located in Chilca will have a significant contraction, taking into account that they will begin to compete for the supply of NG with the thermal generators of the South Energy Node.

The word

Aurelio Ochoa, former president of Perupetro

”The only way to increase reserves (of natural gas) is by drilling exploratory wells. It is essential to demand it as part of the renegotiation, especially in the Camisea lots.”



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