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Cablegate: Peru Energy Update: March 2008

VZCZCXYZ0012
RR RUEHWEB

DE RUEHPE #0516/01 0851732
ZNR UUUUU ZZH
R 251732Z MAR 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8275
INFO RUEHBO/AMEMBASSY BOGOTA 5630
RUEHQT/AMEMBASSY QUITO 1837
RUEHLP/AMEMBASSY LA PAZ MAR SANTIAGO 1823
RUEHBR/AMEMBASSY BRASILIA 7818
RUEHBU/AMEMBASSY BUENOS AIRES 3328
RUEHCV/AMEMBASSY CARACAS 1108
RUEHME/AMEMBASSY MEXICO 3642
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS LIMA 000516

SIPDIS

SIPDIS

DEPT FOR WHA/AND, EB/IEP
COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR MMALLOY
USTR FOR BHARMAN AND MCARRILLO
INTERIOR FOR USGS/RESTON DMENZIE AND AGURMENDI
ENERGY FOR GWARD AND SBROWNE
ENERGY INFORMATION ADMINISTRATION FOR CHARLES ESSER

E.O. 12958: N/A
TAGS: ENRG ECON EINV ETRD SENV PE

SUBJECT: PERU ENERGY UPDATE: MARCH 2008


SUMMARY
-------
1. This is an update on the following energy sector news from
Peru:

-- Natural gas consumption surges
-- Distributing LNG within Peru
-- Vehicular use boosts LPG sales
-- Pisco-Lima LPG pipeline
-- US firm to build Peru's first petrochemical plant
-- Thermal power generation heats up
-- $1 billion refinery modernization bids
-- Fuel smuggling still a problem
-- Uranium in Puno?

End Summary.

CAMISEA NATURAL GAS CONSUMPTION SURGED 78.6%
--------------------------------------------
2. Pluspetrol, the operator of the Camisea gas fields, provided
natural gas consumption statistics which show an increase of 78.6%
in 2007 over the preceding year to 193.6 million cubic feet per day
(cuft/d). Gas re-injection fell from 83% of total production when
operations started in 2004 to 54% in 2007 (226.7 million cuft/d).
Consumption by electricity generators almost doubled to 125.6
million cuft/d (a 92.4% increase), as two natural gas-fired power
plants started up in 2007 in addition to one plant commissioned in
December 2006.

LNG TO BE TRUCKED WITHIN PERU
-----------------------------
3. Irradia is going ahead with its compressed natural gas project,
having closed a financial deal with two German banks to build Peru's
first domestic natural gas liquefaction and distribution plant. The
plant, located just south of Lima in Chilca, will have a
300,000-gallons-per-day capacity and will use Camisea gas. The
liquefied natural gas (LNG) will be distributed by cryogenic trucks
to areas in Peru not served by pipelines. Irradia is made of
Applied LNG Technologies (U.S.), Inversiones Wineca (Venezuela/Peru)
and Energy Partners (U.S.).

LPG SALES CLIMB 12.1% IN 2007
-----------------------------
4. Motor vehicle use of liquefied petroleum gas (LPG) has boosted
domestic sales. Peru's Association of Liquefied Petroleum Gas
reported a 12.1% increase in 2007 LPG sales over the prior year to
2,237 metric tons per day (mtpd). The main driver of this result
was the explosive growth of LPG for motor vehicles to 413 mtpd,
61.4% over 2006, which reportedly saves motorists over 60% in fuel
costs compared with gasoline and diesel fuel. The number of
LPG-fueled or dual LPG-gasoline vehicles rose to 82,600 in 2007,
that is 31,600 above 2006. Residential and commercial sales of LPG
rose 4.8% in 2007, totaling 1,825 mtpd or 81.6% of total sales.

LPG PIPELINE FROM PISCO TO LIMA
-------------------------------
5. The GOP's Private Investment Promotion Agency (ProInversion)
awarded February 19 a concession to build a pipeline that will
transport liquid petroleum gas (LPG) and other hydrocarbons from the
Camisea project's Pisco fractionation plant to Lurin, just south of
the principal market of Lima. ProInversion Executive Director David
Lemor expects the pipeline will be a less costly alternative to
truck and ship transportation from Pisco to Lima. The 30 year BOOT
(Build, Own, Operate and Transfer) concession was awarded to a
consortium of the local Grana y Montero Petrolera and German company
Oiltanking. The estimated investment on the pipeline and related
facilities is over $70 million.

CF INDUSTRIES TO BUILD PETROCHEMICAL PLANT


------------------------------------------
6. U.S. firm CF Industries, one of the winners of a bid to procure
natural gas from the Camisea consortium, is preparing to build
Peru's first petrochemical plant. The plant will produce 2,100
metric tons/day of ammonia and the investment will be about $1
billion. The project has been delayed because ProInversion has
postponed until April 30 the awarding of the Ica regional pipeline
project, which will deliver the gas to the likely plant site in
southern Ica.

POWER GENERATION UP 9.1%
------------------------
7. The Ministry of Energy and Mines (MEM) reported that power
generation in 2007 showed an increase of 9.1% over 2006 to 29.86
million megawatt hours (MWh). Mining and manufacturing drove
consumption, particularly in the departments of Arequipa and La
Libertad. Hydroelectric generation declined slightly (0.5%) to 19.5
million MWh but thermal generation soared 33.2% to 10.35 million
MWh. Thermal generation accounted for 34.7% of total generation in
2007, compared with 27.4% the prior year. Peak demand at year-end
grew 10.8% in 2007 to 3,966 MW. Installed capacity in 2007 rose
6.0% to 7,059 MW.

TAKING BIDS: $1 BILLION REFINERY MODERNIZATION
--------------------------------------------- -
8. On March 24 state-owned PetroPeru called for bids related to the
$1 billion modernization of its Talara refinery, Peru's second
biggest. Bidding will include the procurement of process licenses;
extended basic engineering; detailed engineering; procurement of
equipment and construction; and project management consultancy. The
project would expand capacity and improve the quality of fuels
produced to meet Peru's stricter sulfur standards (50 ppm for diesel
by January 1, 2010, from 5,000 ppm maximum today, and 50 ppm for
gasoline from 1,000 ppm maximum today). Arthur D. Little performed
the feasibility study.

SMUGGLING DEPRIVES GOP OF $88 MILLION OF UNPAID TAXES
--------------------------------------------- --------
9. Smuggling of gasoline, LPG and diesel from lower-priced Ecuador
and Bolivia costs Peru's Treasury over $88 million/year in unpaid
taxes, according to estimates by the Mining, Petroleum and Power
Society (SNMPE). The SNMPE puts smuggled diesel and gasoline at
about 160,000 gallons per day, worth almost $82.5 million/year in
unpaid taxes, and 3 million cylinders/year of LPG, worth over $5.8
million/year in unpaid taxes.

URANIUM PROSPECTS IDENTIFIED
----------------------------
10. Early in February, Australian firm Contact Uranium Limited
reported having identified three new uranium prospects at its
Kihitian project in Peru's southern department of Puno. In January,
Cotact had also reported a very large resource potential resulting
from its drilling program at its Corachapi project, also located in
Puno. Based on positive exploration results, Canadian company Vena
Resources announced it and its partner Cameco (also Canadian and the
world's largest uranium producer) agreed to increase their uranium
exploration budget for late 2007 and 2008 to almost US$4 million in
the three regions they are exploring in Puno through their
subsidiary, Minergia.
MCKINLEY

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