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.

New Report Finds Camisea Fails IDB and IFC Standards

The September 2007 report, Holding the IDB and IFC to account on Camisea II, is available for download from Amazon Watch. The report, by anthropologist, Tom Griffiths, highlights some of the major environmental and social problems of Camisea I and II and concludes that the Camisea consortium's community engagement in Block 56 has violated international standards on protecting the rights of indigenous peoples and fails to the meet the performance standards of the InterAmerican Development Bank (IDB) and the World Bank’s International Finance Corporation (IFC), both of which currently considering financing Camisea II.

Among the problems with Camisea II outlined in the report are:
1) A flawed and deficient Environmental Impact Assessment (EIA) for operations in Block 56.
2) A community consultation process on the Block 56 EIA that threatened confused and dissatisfied communities into signing their approval.
3) Evidence that prior consent and prior consultation rights were not fully respected by the Ministry of Energy and Mines and Perupetro when it sold exploitation rights to Block 56, questioning the legality of the sale.
4) Failure to address potential impacts of Block 56 exploration and development on isolated indigenous peoples.

The report states that the IDB must delay its decision on financing Camisea II until it first addressed project non-compliance issues with respect to its financing of Camisea I and ensure that ascertain that the project fully complies with IDB policies, including protections for indigenous peoples’ established under ILO Convention 169 and the Inter-American human rights system.

It urges the IFC to include the “associated facilities” of Blocks 56 and 88 in its due diligence; conduct its own social and environmental audit as required under its Performance Standards; and ensure public consultation in Peru and internationally before proceeding with the project.

This is a very good document, in particular for understanding how indigenous communities were railroaded into signing off on the Block 56 EIA in early 2005. Good work, Tom.

Brief: IFC to Consider Financing Camisea II

Sources recently reported that the Policy Committee of the International Finance Corporation, the private sector arm of the World Bank, has given the lender a green-light to consider financing Hunt Oil for Peru LNG or Camisea II. The IFC has a performance standard on indigenous peoples. The upcoming project approval process should be interesting to watch.