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Cablegate: Peru Lng: New Pipe, but No New Jungle Pipeline

VZCZCXYZ0001
RR RUEHWEB

DE RUEHPE #1774/01 1371644
ZNR UUUUU ZZH
R 171644Z MAY 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 5498
INFO RUEHBO/AMEMBASSY BOGOTA 4662
RUEHBR/AMEMBASSY BRASILIA 7344
RUEHBU/AMEMBASSY BUENOS AIRES 2889
RUEHCV/AMEMBASSY CARACAS 0395
RUEHLP/AMEMBASSY LA PAZ MAY QUITO 1216
RUEHSG/AMEMBASSY SANTIAGO 1279
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUMIAAA/USSOUTHCOM MIAMI FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS LIMA 001774

SIPDIS

SIPDIS

USEU FOR DCM MCKINLEY
TREASURY FOR U/S TAYLOR, KKOZLOFF, MSHWARZMAN, AJEWELL
STATE PASS TO EXIM MHASAN/SPARSONS
ENERGY INFORMATION ADMINISTRATION FOR CHARLES ESSER
DOE FOR GWARD/SBROWNE

E.O. 12958: N/A
TAGS: ENRG ECON ETRD EAID SENV PE
SUBJECT: PERU LNG: NEW PIPE, BUT NO NEW JUNGLE PIPELINE

REF: (A) 06 LIMA 3896 (B) Lima 3686 (C) Lima 742

1. SUMMARY: Camisea gas transporter TGP and Peru LNG operator Hunt
Oil agreed to a tariff for TGP to transport Peru LNG gas for the
jungle portion of the shared gas pipeline. This agreement obviates
any need that might have seemed present for a new gas pipeline to be
laid in the environmentally and socially sensitive jungle section.
Both companies will now move ahead with previous pipelines plans,
with shared pumping stations and control. From the beginning, the
designs of the Camisea and Peru LNG projects contemplated additional
gas pipe for Peru LNG, from the mountains west to the coastal Peru
LNG site. There is no change in the plan for both projects to share
the existing liquids pipeline. END SUMMARY.

BACKGROUND - DESIGN OF CAMISEA
------------------------------
2. As Reftels explain, the Camisea natural gas project was designed
with eventual additional gas load in mind, whether from Peru LNG or
development of other gas concessions in the vicinity of the Malvinas
gas processing plant (in Block 58) and the San Martin and Cashiriari
gas fields in Block 88. The gas line was constructed with 32-inch
diameter pipe for the portion from the separation plant in Malvinas
to the start of the Andes Mountains; the size is greater than needed
for the expected flow of Block 88, but is large enough for the gas
from an additional concession blocks such as the adjacent Block 56
from which the Peru LNG project will get its gas. The more
expensive pipe was used to avoid the engineering challenges, and
environmental sensitivity associated with construction and operation
of another gas pipeline in the unstable terrain of the Amazon jungle
section. The plan for the new extraction sites for Peru LNG has
always contemplated piping to connect to the separation plant in
Malvinas.

3. At around km 212, the Andes Mountains create less environmental
sensitivity and the Camisea pipe steps down to 18-inches, later
reducing once more to 12-inch pipe in the relatively flat coastal
desert. The 18- and 12-inch gas pipe sections are not large enough
to accommodate the increased gas volume from the Peru LNG (liguified
natural gas) project; Peru LNG (operated by Hunt Oil) will need to
build a separate, 34-inch pipeline from approximately km 212 to the
Peru LNG plant site, about 80km north on the coast from the Camisea
fractionation plant in Pisco. Peru LNG's plan is to parallel the
existing Camisea gas and liquids pipelines as much as possible;
using the existing Camisea route will minimize environmental impact,
engineering challenges and impacting local communities. TGP will
operate Peru LNG's pipeline out of its sophisticated remote sensing
control center near Lima.

4. The liquids pipeline that now runs parallel to the gas pipeline
to Pisco (near Pisco the gas pipeline cuts north to it terminus just
south of Lima) will not change. The Malvinas separation plant will
expand to accept the Peru LNG product extracted from Lot 56,and will
separate it into gas and gas liquids just as currently occurs with
Camisea extraction. The liquids pipeline flow will increase to
accommodate the additional liquids, but no new pipeline will need to
be built; additional processing structures will be built at the
Pisco fractionation plant to process those additional liquids.

SO WHAT IS NEW?
---------------
5. Media reports recounted what appeared to be stalled negotiations
between Peru LNG and Transportadora de Gas del Peru (TGP), the
operator of the Camisea gas and liquids pipelines, over the tariff
TGP would charge for transporting Peru LNG gas through the 32-inch
jungle pipe. Peru LNG held out the possibility that if negotiations
failed, Peru LNG would have to build its own gas pipeline for the
sensitive jungle portion. The tariff deal was finalized by Hunt and
TGP on March 22, so there will be no new pipeline in the jungle
portion.

6. Environmental impact assessment (EIA) processes are proceeding
satisfactorily, according to the Environmental Division of the
Ministry of Mines and Energy (MEM). The EIA for the new gas
pipeline was approved in September 2006. New pipelines are under
consideration to connect the Camisea gas pipeline to other cities in
the Andes such as Ayacucho, La Oroya and Cuzco.

6. A description of the new Peru LNG gas pipeline that has always
been planned, along with a map, can be found at
http://www.perulng.com/proj_pipeline.asp.
A map of the existing Camisea pipelines can be found at
http://mirror.perupetro.com.pe/exploracion01- e.asp.
STRUBLE

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