LIMA – Government officials, NGO representatives, and energy executives from Peru, Chile, Argentina, the United States and Colombia joined the Institute of the Americas and Peru’s Ministry of Energy and Mines in Lima on August 26 for a half-day roundtable.
The program was a celebration of the tenth anniversary of the Camisea natural gas project but also a frank assessment of what must be done to consolidate the lessons and upside of the historic energy project in Peru.
The last ten years have been transformative for Peru’s energy sector. The Camisea natural gas project, inaugurated in 2004, now provides all the natural gas consumed in Lima and accounts for 50 percent of the nation’s power generation.
In many ways, Camisea has exceeded expectations. Natural gas production has kept pace with strong economic growth, while best practices developed for environmental protection and community relations have become a model for the region. And the project’s impact on Peru’s economic development is undeniable.
For the Ollanta Humala administration, Camisea has become the cornerstone of efforts to ensure energy access for all Peruvians – so-called ‘massification’ – and plays an important role in the government’s strategy to achieve economic growth with social inclusion.
But as Peru celebrates Camisea’s tenth anniversary, it has become clear that the project alone will be insufficient to meet the country’s rising energy needs.
Instead the project must be recognized as just one contributor to the much larger goal to foster energy security in Peru. In practice this requires investment along the energy value chain. Not just a rejuvenation of the country’s oil and gas exploration efforts but investment in infrastructure and championing the role of renewables in the power sector.
The question for the Humala government and Peru’s energy actors is how to sustain the economic benefits generated by Camisea. More importantly, government, industry and civil society must develop an approach that incorporates the valuable lessons learned in the last decade into energy projects across the country without undermining the competitiveness of Peru’s energy sector.
The Camisea project was launched at a time when Peru was emerging from a period of economic and political instability, providing a much needed injection of foreign capital and laying the foundation for public-private partnerships in the nation’s hydrocarbons sector.
The contribution to both the national energy sector and the broader economy has been significant. Hydrocarbons production in Peru grew an estimated 260 percent in the last decade, due in large part to the exploration and production at Camisea. Since 2004, the project has brought in over $13 billion in investment and boosted the nation’s GDP by approximately $16 billion. Natural gas liquids in particular have made an important contribution to the hydrocarbons trade balance; according to the Peruvian Hydrocarbons Society, Camisea has reduced the trade deficit by $9 billion.
The opportunities for natural gas extend beyond the power sector, with the potential to transform industry and transportation in Peru. The Ministry of Energy and Mines is exploring options for natural gas to replace diesel in fleets of trucks, for example. The government also advocates for the greater use of liquefied petroleum gas or LPG and associated natural gas.
Peru is hopeful that ongoing exploration and production in the Camisea fields will lead to new discoveries and increased reserves. For the Inter-American Development Bank, the lead financier of the Camisea project, the next step is the expansion and development of natural gas markets – both domestic and international – in order to sustain momentum and ensure adequate demand.
Natural gas also has the potential to support greater renewable deployment in Peru. Despite concerns that competition between cheap natural gas and hydropower in Peru’s electric market could cause a decline in hydropower’s contribution, panelists emphasized the importance of both energy sources in a diversified energy matrix. Over time, they argued, natural gas will play a supporting role as the electric sector makes the transition to greater renewable sources.