Oil escalation reveals shortcomings in energy security

The war between Russia and Ukraine, and its subsequent impact on oil and gas prices, have reopened the debate on energy security on the world agenda.

In the region, Colombia awaits Hidroituango in July, a hydroelectric plant with the capacity to cover 20% of the country’s demand; Brazil, Guyana and Suriname enlist the largest hydrocarbon energy alliance in the continent; and Bolivia reaps the rewards of investing in exploration with the discovery of 350 billion cubic feet of gas. Our country is the exception.

Energy security is the capacity of a country to satisfy the national demand with sufficiency, timeliness, sustainability and adequate prices, in the present and in the future. The specialist in energy issues, Humberto Campodónico, explains that the Petroleum it has always had that ‘extra-economic’ component, something that has come to the fore again after the Russian siege. And it is not rising today because of the law of supply and demand, but because of the international conflict.

“Countries have to see how to protect themselves against this variation through wind, solar energy sources, etc. In this context, Peru has an ‘energy security passport’ with the natural gaswhich replaces oil in many of its definitions and, in our case, is not subject to international fluctuations”, he mentions.

Indeed, importing countries of the resource, which in Peru is obtained from Camisea, have suffered a price escalation due to the pandemic and now due to the war similar to that of crude oil. The TTF natural gas price, the reference price for Europehas exceeded €141/MWh this week, more than ten times its value in 2019, when it moved around €13.4/MWh, at a time when the tension in Ukraine It is evident and several countries point to Gazprom for reducing flows through the gas pipeline that feeds the EU. Global oil, meanwhile, is heading above US$100 a barrel.

“The contract with the consortium Camisea establishes that the price of natural gas is determined each year based on the North American inflation index, related to oil assets. If inflation in the US is 2% or 3%, that would raise the price of NG”, he specifies.

However, Campodónico points out that, in terms of overcrowding, a key component for the country’s energy security, we are still in debt. According to figures from the Ministry of Energy and Mines (Minem), more than 80% of total home connections are in Lima. The rest of the cities are left at the mercy of the importation of oil-derived fuels, which in Peru is around US$20 million a day. It is the case of LPG.

The change of matrix, says Campodónico, is the first step to open the market to other sources of energy, such as solar, wind and geothermal. Proof of this is that residential consumption only has a 3% share, while industry occupies 28% and electricity generation 58%.

“In October, the Government sent PL 679 to the Congress to speed up massification, but it is still asleep in the Energy and Mines Commission. We are 15 years behind in the mountains, it is time to do something”, he assures.

Oil and gas: prospering economies

Campodónico affirms that investments in hydrocarbons are key to guaranteeing the energy security of the country. One of the most important is the mass use of Camisea gas.

This Thursday, Moody’s has warned of a possible global recession and a rise to US$150 per barrel of oil in the event that Russia’s invasion of Ukraine continues over time.

The US became Europe’s largest source of LNG in 2021, accounting for 26% of all LNG imported by member countries of the European Union (EU-27) and the United Kingdom (UK).