Tuesday, January 16, 2007

Camisea II: Hunt Oil May Build Second Pipeline in Amazon

Since October, we have been hearing diverse accounts that Peru LNG - the consortium led by Hunt Oil (US) and including SK Corporation (South Korea) and Repsol YPF (Spain) is considering building a second pipeline originating from the Las Malvinas facility in the Lower Urubamba region to feed its LNG plant in Pampa Melchorita with gas from Block 56. According to the Peru LNG's website, and the InterAmerican Development Bank (IDB), which is considering financing the project, the second pipeline was supposed to be built only from the coast to the edge of the jungle in Ayacucho. The reasoning has always been that constructing a new pipeline in the Amazon jungle would cause additional environmental damage to an extremely sensitive region. The original Camisea gas pipeline was supposedly sized large enough in anticipation of the additional gas from Block 56.

Now, however, Hunt is looking seriously at the possibility of constructing a second pipeline in the Amazon. Peru's Ministry of Energy and Mines (MEM) and its natural resource agency (INRENA) held consultations with local organizations in Quillabamba in November about the proposed second pipeline. In late November, a senior official with MEM told me that a second pipeline in the Amazon was in the planning and that it was needed because Peru's internal demand for gas has far exceeded expectations. This argument does not make much sense because the new pipeline would be build by Peru LNG to feed their LNG export facility. Besides, according to El Comercio, Camisea operator, Pluspetrol has not managed to offer gas at a price that has been attractive to industry. In a recent interview with Reuters, PeruPetro President, Cesar Gutierrez said, "The conversion to gas in industry has been limited and the conversion for domestic use is almost nil."

A more likely reason why Hunt is looking into the second pipeline is that Peru LNG could not come to agreement with TGP over the cost of transporting gas through the existing pipeline. Quality concerns with the pipeline may be another factor.

In December, I spoke with Lelis Rivera, Director of CEDIA, who has worked in the Upper and Lower Urubamba for three decades. He predicts that a second pipeline in the Amazon could not be routed alongside the existing liquid and gas pipelines. The existing pipelines were built along steep ridgelines and subsequent erosion has left little room to add another pipe. In some places, erosion of the ridgeline has been so bad that it has exposed the pipeline.

If Hunt does decide to build a second pipeline in the Amazon, the impacts on indigenous communities and the ecosystem will be as extreme. In a 2003 report on the construction of the first pipeline, Global Village Engineers Global Village Engineers estimated that the clearing and exposure of the right-of-way in the Amazon caused as much as 100 tons of soil and vegetation per meter of pipeline eroding into sensitive aquatic habitat. This left local indigenous communities without clean water or fish to eat.

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