The specialist questions the few achievements in the oil sector, as well as in the energy sector of the country. These issues and more will be addressed from different approaches in the Energy Day organized by Laub & Quijandría for the fourth consecutive year; and in 2015, it will take place on November 17. These issues will be high on the campaign agenda of candidates to the presidency of the Republic.
How is the situation of the oil sector a year away from ending the current government?
The oil issue in Peru is highly complex, each time it has become more decisive. We haven’t come to sign any new oil contract in recent years, nor do we have any important oil discovery and the production has been declining constantly. Today, we consume about 220 barrels of oil equivalent and we produce at least 65 thousand barrels; that means that we are importing the rest.
Do you think the problem lies in the oil contractual model?
We need to decide what can be done with the oil contracts. The icing on the cake is a poor performance regarding oil contracts and this was evidenced when Lot 192 happened. This is the most productive lot in Peru, with best potential to further increase production or give a twist to increase production; however, within a week, we will be left without a concessionaire and we still do not know who will be the company that will temporarily take possession these fields. The worst that could happen is that the current operator leaves and we remain without a qualified operator (before knowing the news about Pacific).
You seriously question Perupetro’s role.
We have seen that Perupetro in their last rounds instead of making more flexible and turn our high geological risk (we have little oil) into something much more attractive for oil investors, it has been tightened. That is, more royalties and increases in investment have been demanded and eventually also joint participations with the state company, establishing an additional tax. So, instead of making terms and conditions more flexible – at least temporarily – they have been tightened.
What do you consider should have been the most appropriate?
Maybe Perupetro should have modified how contracts have been established, review a little what Colombia was doing; today Colombia approximately produces one million barrels per day and not long ago, it was producing a third of it. This is a positive example of how things should be done and we should look for and study those successful examples.
What other analysis should Perupetro consider?
Review which have been the unsuccessful cases to avoid making the same mistakes. The idea in a pre-election year is to start identifying which are the most important points of the energy agenda and these points should eventually be addressed by the presidential candidates.
Is this what the Energy Day is seeking?
With the Energy Day, we seek to become a space for open dialogue where all people who want to say something about the energy issue in Peru are present. By that I mean the State, private parties and state business parties. Additionally, the idea is to also discuss financing issues of energy projects since these are needed, and today it is extremely complex. An example of this would be if today an investor wants to build a hydroelectric power plant without considering subsidized prices given by the State, that would be virtually impossible to finance if asking for support to the commercial banking. Likewise, this Energy Day will commit the main candidates for the Presidency of the Republic to explain their energy plans in case they reach the government. Thus, we have PPK’s commitment and we have sent invitations to other candidates who will confirm shortly.
Are there good expectations for the sector, considering that investments have stopped and the international market remains depressed?
The energy sector is a very delicate situation, since both electricity and oil and gas current conditions are not what we were expecting. However, in this panorama, being growing at lower rates than expected allows us to have a truce in addressing urgent needs and rethink which are the things that should be replanned and which should be kept. For example, it is necessary to not disrupt or modify electric power generation activity until an analysis of what has happened in the last 20 years with this sector is completed, and until having the consensus of the majority of actors that converge in this activity
Why this issue in particular?
Today we have an oversupply of electric power of more than 40% resulting in prices that have fallen drastically; if generation supply continues increasing and the demand does not follow such growth, we will face a sustainability problem that may put in crisis generation in Peru. Low prices will generate disincentives for the execution of new investments. If this happens and demand does not grow at exceptional rates, we will have a gap in the future that later will become a serious deficit of new investments.
But isn’t an advantage having low prices in power generation?
This is a very complex issue. Electric energy prices are really low. In response, on one hand, we could suppose that this is good, but it is good for those who consume but not necessarily for those who produce. So we have to look for a balance between the person who consumes and the person who produces so both are in a calm and no stress situation. We should not forget that, in normal price conditions, Peru is still largely competitive with respect to countries with which we compete such as Chile or Colombia.
Who suffers more this reverse effect?
Clearly, today generators are in a stress situation. What is not acceptable, for example, and it is part of what we are suggesting in the event, is the entry of new generation when the increase in demand is not clearly certain. That is, we will put more units but they won’t produce because the market is satisfied bringing the price down artificially resulting in a much more serious crisis than expected if there was no electric power. The effects of excess or lack are terrible and we need to see how to balance the scale.
Massification of gas
How do you see the natural gas and massification issue?
The expansion of natural gas is very important. I believe it is essential that natural gas reaches new zones of the country and satisfies future demand of especially the South of the Country. It is important to start thinking in an energy integration with Bolivia, which as we know, has surplus of natural gas and it has to evacuate this natural gas to other places, and we should convince them to do it in the Peruvian territory. It would be very sad that one day Bolivia chooses to go through the Chilean territory and not through Peruvian territory, and furthermore we lose the opportunity to have greater availability of natural gas and new infrastructure that can be built for such purpose.
Infrastructure such as gas pipelines?
Exactly. Bolivia, being landlocked, has to go through a port and to do so, a gas pipeline has to be built. If this port is somewhere in the South of Peru, we will benefit from a gas pipeline that will give us energy security and redundancies which do not currently exist. This gas pipeline may even arrive sooner and thus the South of Peru will obtain benefits that today does not enjoy. The South requires large investments and new development opportunities. Having gas pipelines and natural gas in the South opens a big door to the development of new industries in the zone: talking about petrochemical industry (ethane and methane), energy nodes which are as important as those we have in Chilca, liquefaction plants and other industries that use gas as input. We also talked about bringing natural gas to homes in the main cities of the South and vehicular natural gas, for the benefit of the entire population.
Would you consider viable an integration of this type in the region?
Of course. We need to be better aligned with our interests and understand that Peru is a country with a very powerful energy potential. So we should see how this potential can be taken to a different level in which we become into a sort of energy hub in South America. We have the capacity of producing much more electric power than we produce today, but if we already have a market fully stocked, obviously we need to go out and get new markets. We should be thinking about energy integration with countries of the region such as Colombia, Ecuador and Bolivia. Similarly, if we enter into a dynamic of major discoveries and production of natural gas, we should seek to position ourselves in the region as an eventual supplier, just as Russia and Germany.
In the energy sector in general, which issues are seen as urgent?
The development of infrastructure, in every sense. Gas pipelines, electric power transmission lines and an element that we must never lose sight is that today we have not been able to bring electric power to more or less 10% or 15% of Peruvians and in a country that claims to be a developing country it is unacceptable. We need to make a greater effort to address the needs of this population who still do not have energy and give them the opportunity to choose if they want or not energy. On the oil issue, the agenda is quite clear, we require major surgery. We need to restructure Perupetro and provide it with more tools to develop its promotion and procurement more successfully. We need to become a country sufficiently attractive for medium-sized companies to start coming to Peru, I won’t say large companies which simply do not come to Peru, because we have a very high geological risk. We are not a country with vast oil reserves, but we could start engaging medium-sized companies. As we have seen, on electric power issues, we should walk cautiously in the way that we could give without compromising the future and healthy development of the electric power generation; activity that while being developed freely it has responded appropiatly to the needs of the country. We should also satisfy the growing demand of LPG and anticipate the necessary measures, so that in the case there are problems with the supply of this hydrocarbon, supply to population is not been affected. And finally, promote the South American energy integration.
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The specialist questions the few achievements in the oil sector, as well as in the energy sector of the country. These issues and more will be addressed from different approaches in the Energy Day organized by Laub & Quijandría for the fourth consecutive year; and in 2015, it will take place on November 17. These issues will be high on the campaign agenda of candidates to the presidency of the Republic.How is the situation of the oil sector a year away from ending the current government?The oil issue in Peru is highly complex, each time it has become more decisive. We haven’t come to sign any new oil contract in recent years, nor do we have any important oil discovery and the production has been declining constantly. Today, we consume about 220 barrels of oil equivalent and we produce at least 65 thousand barrels; that means that we are importing the rest.Do you think the problem lies in the oil contractual model?We need to decide what can be done with the oil contracts. The icing on the cake is a poor performance regarding oil contracts and this was evidenced when Lot 192 happened. This is the most productive lot in Peru, with best potential to further increase production or give a twist to increase production; however, within a week, we will be left without a concessionaire and we still do not know who will be the company that will temporarily take possession these fields. The worst that could happen is that the current operator leaves and we remain without a qualified operator (before knowing the news about Pacific).You seriously question Perupetro’s role.We have seen that Perupetro in their last rounds instead of making more flexible and turn our high geological risk (we have little oil) into something much more attractive for oil investors, it has been tightened. That is, more royalties and increases in investment have been demanded and eventually also joint participations with the state company, establishing an additional tax. So, instead of making terms and conditions more flexible – at least temporarily – they have been tightened.What do you consider should have been the most appropriate?Maybe Perupetro should have modified how contracts have been established, review a little what Colombia was doing; today Colombia approximately produces one million barrels per day and not long ago, it was producing a third of it. This is a positive example of how things should be done and we should look for and study those successful examples.What other analysis should Perupetro consider?Review which have been the unsuccessful cases to avoid making the same mistakes. The idea in a pre-election year is to start identifying which are the most important points of the energy agenda and these points should eventually be addressed by the presidential candidates.Is this what the Energy Day is seeking?With the Energy Day, we seek to become a space for open dialogue where all people who want to say something about the energy issue in Peru are present. By that I mean the State, private parties and state business parties. Additionally, the idea is to also discuss financing issues of energy projects since these are needed, and today it is extremely complex. An example of this would be if today an investor wants to build a hydroelectric power plant without considering subsidized prices given by the State, that would be virtually impossible to finance if asking for support to the commercial banking. Likewise, this Energy Day will commit the main candidates for the Presidency of the Republic to explain their energy plans in case they reach the government. Thus, we have PPK’s commitment and we have sent invitations to other candidates who will confirm shortly.Are there good expectations for the sector, considering that investments have stopped and the international market remains depressed?The energy sector is a very delicate situation, since both electricity and oil and gas current conditions are not what we were expecting. However, in this panorama, being growing at lower rates than expected allows us to have a truce in addressing urgent needs and rethink which are the things that should be replanned and which should be kept. For example, it is necessary to not disrupt or modify electric power generation activity until an analysis of what has happened in the last 20 years with this sector is completed, and until having the consensus of the majority of actors that converge in this activityWhy this issue in particular?Today we have an oversupply of electric power of more than 40% resulting in prices that have fallen drastically; if generation supply continues increasing and the demand does not follow such growth, we will face a sustainability problem that may put in crisis generation in Peru. Low prices will generate disincentives for the execution of new investments. If this happens and demand does not grow at exceptional rates, we will have a gap in the future that later will become a serious deficit of new investments.But isn’t an advantage having low prices in power generation?This is a very complex issue. Electric energy prices are really low. In response, on one hand, we could suppose that this is good, but it is good for those who consume but not necessarily for those who produce. So we have to look for a balance between the person who consumes and the person who produces so both are in a calm and no stress situation. We should not forget that, in normal price conditions, Peru is still largely competitive with respect to countries with which we compete such as Chile or Colombia.Who suffers more this reverse effect?Clearly, today generators are in a stress situation. What is not acceptable, for example, and it is part of what we are suggesting in the event, is the entry of new generation when the increase in demand is not clearly certain. That is, we will put more units but they won’t produce because the market is satisfied bringing the price down artificially resulting in a much more serious crisis than expected if there was no electric power. The effects of excess or lack are terrible and we need to see how to balance the scale.Massification of gasHow do you see the natural gas and massification issue?The expansion of natural gas is very important. I believe it is essential that natural gas reaches new zones of the country and satisfies future demand of especially the South of the Country. It is important to start thinking in an energy integration with Bolivia, which as we know, has surplus of natural gas and it has to evacuate this natural gas to other places, and we should convince them to do it in the Peruvian territory. It would be very sad that one day Bolivia chooses to go through the Chilean territory and not through Peruvian territory, and furthermore we lose the opportunity to have greater availability of natural gas and new infrastructure that can be built for such purpose.Infrastructure such as gas pipelines?Exactly. Bolivia, being landlocked, has to go through a port and to do so, a gas pipeline has to be built. If this port is somewhere in the South of Peru, we will benefit from a gas pipeline that will give us energy security and redundancies which do not currently exist. This gas pipeline may even arrive sooner and thus the South of Peru will obtain benefits that today does not enjoy. The South requires large investments and new development opportunities. Having gas pipelines and natural gas in the South opens a big door to the development of new industries in the zone: talking about petrochemical industry (ethane and methane), energy nodes which are as important as those we have in Chilca, liquefaction plants and other industries that use gas as input. We also talked about bringing natural gas to homes in the main cities of the South and vehicular natural gas, for the benefit of the entire population.Would you consider viable an integration of this type in the region?Of course. We need to be better aligned with our interests and understand that Peru is a country with a very powerful energy potential. So we should see how this potential can be taken to a different level in which we become into a sort of energy hub in South America. We have the capacity of producing much more electric power than we produce today, but if we already have a market fully stocked, obviously we need to go out and get new markets. We should be thinking about energy integration with countries of the region such as Colombia, Ecuador and Bolivia. Similarly, if we enter into a dynamic of major discoveries and production of natural gas, we should seek to position ourselves in the region as an eventual supplier, just as Russia and Germany.In the energy sector in general, which issues are seen as urgent?The development of infrastructure, in every sense. Gas pipelines, electric power transmission lines and an element that we must never lose sight is that today we have not been able to bring electric power to more or less 10% or 15% of Peruvians and in a country that claims to be a developing country it is unacceptable. We need to make a greater effort to address the needs of this population who still do not have energy and give them the opportunity to choose if they want or not energy. On the oil issue, the agenda is quite clear, we require major surgery. We need to restructure Perupetro and provide it with more tools to develop its promotion and procurement more successfully. We need to become a country sufficiently attractive for medium-sized companies to start coming to Peru, I won’t say large companies which simply do not come to Peru, because we have a very high geological risk. We are not a country with vast oil reserves, but we could start engaging medium-sized companies. As we have seen, on electric power issues, we should walk cautiously in the way that we could give without compromising the future and healthy development of the electric power generation; activity that while being developed freely it has responded appropiatly to the needs of the country. We should also satisfy the growing demand of LPG and anticipate the necessary measures, so that in the case there are problems with the supply of this hydrocarbon, supply to population is not been affected. And finally, promote the South American energy integration.