Does It Make Sense to Export Camisea Gas?

With the IDB on the verge this week to make a decision to finance Camisea II, the export phase of the Camisea project, aka Peru LNG, an article in today's El Comercio reports that it could be a grave economic error for Peru to export its gas. According to an analysis by Glen Jenkins of Environmental Defense, at current oil prices, it would be more cost effective for Peru to secure its internal hydrocarbon demand for the next 33 years than to export the gas and have to import fuel in the future. In other words, Peru is paying a high opportunity cost by exporting fuel that it will eventually need.

The Camisea blocks 88 and 56 together contain an estimate 10.9 trillion cubic feet of gas. Of this, 4.2 trillion TCF is destined for export by Peru LNG. The Peruvian Ministry of Energy and Mines calculates Peru's future demand for gas to be 6.6 TCF and a large portion of the energy, industrial, and transportation sectors are making costly conversions to function on gas. The initial contracts for the exploitation of the Camisea gas required that export would be permitted only if domestic demand was permanently assured for a 20-year outlook, however this provision was conveniently changed to a fixed 20-year period (2005-2025) during a renegotiation between the Toledo administration and Pluspetrol. Now the Peruvian government's answer to meeting the future domestic demand for gas is simple if uncertain: discover more.

With over a billion in public financing for Camisea II pending from the IDB, IFC, and ExIm Bank, it is clear that the real beneficiary will be Hunt Oil which controls 50% of Peru LNG. What is less clear is how the project will ultimately benefit the Peruvian economy.