October 2021 – @alvaroriosroca – If you, dear reader, were given the choice between the economic/energy model adopted in Venezuela or the one adopted in Peru, which would you choose?
Venezuela’s oil production fell from 2.8 million barrels per day (MMBLD) in 2003 to 0.5 MMBD in 2021, as a result of nationalizations, expropriations and erratic state management. Not to mention the severe electricity and fuel shortages that are reported on a daily basis to the hardship of its citizens and of course of those who have the least.
Paganinis are the almost 4.5 million Venezuelan exiles of which an estimated 1.2 million are in Peru. It is clear to us that the solution does not lie in expropriation, nationalization or putting everything in the hands of the State for good. There are other paths to explore and where success has already been achieved, which we will see below.
The Peruvian model does not make its citizens flee, nor does it generate the shortages and power cuts noted in Venezuela. The supply and demand of natural gas, electricity and other fuels has grown notably with the dynamism of the private sector and accompanied by its competitive company Petroperu. This company must now enter the upstream and accompany the massification of natural gas, a situation that has been notably neglected by previous governments.
Entering into the subject, the Peruvian Premier has unleashed a deep confusion and debate by publicly declaring that he will nationalize Camisea if his requests are not granted. From our point of view, resolving or changing the conditions of a contract by public threat and unilaterally does not work anywhere in the world.
Contracts are not written in stone and they can all be renegotiated, which is the right way to go. We also believe that unnecessary and premature declarations do a lot of harm to Peru by scaring away new and billionaire investments required, mainly in the mining sector to produce minerals that the planet and the energy transition require. And also to build infrastructure that will allow a true massification of gas in the regions inside Peru.
From now on, we will only consider the upstream in the Camisea Consortium (consortium) and not the investments made in pipelines, gas distribution and other downstream investments that total US$15,000 MM. The consortium has invested around USD 3,2500 MM in developing wells and plants to deliver gas and liquids in the 17 years of the project. It is reported that, according to the established prices, the consortium has invoiced about 29,500 MMUSD in gas and liquids, of which it has paid 11,000 MMUSD in royalties (38%), 4,000 MMUSD in other taxes and 7,000 MMUSD in operating costs (OPEX), with an approximate net profit of 7,500 MMUSD.
Is this a low, high, reasonable profit? We are not the ones to say, but put 3,250 MMUSD at 10% return and you will have the answer. What is certain is that the consortium has earned money and for this it invested capital in the development of the project under established rules. If any government wishes to obtain greater benefits or income from this or any other project, they should only try to negotiate on these numbers and the projections they have and then communicate the results.
From our point of view it would be easy to reach agreements with the consortium without the need to nationalize and expropriate. For example, lowering the wellhead price for the necessary future gas in order to achieve the longed-for massification of natural gas in all of Peru and in the south in particular. Receiving contributions from a company that has 23 additional years of concession I do not think it would be difficult to achieve. We believe that this is the path to follow.
There are already two instances where the State has negotiated with the consortium and has obtained benefits. One was in 2006 when the original contract established a linkage of gas prices to international oil prices and these began to rise like crazy. Then it was agreed to index them to other much less volatile indexes, so that the prices left the previous volatility and since then they have had very small annual adjustments.
On that occasion it was also achieved that the prices for Natural Gas Vehicles were reduced so that there could be significant savings for end users. This boosted the growth of the gas-powered vehicle fleet, which stopped using imported fuels.
Peruvian rulers and its citizens, however, have the last word. We have only analyzed some ideas and figures.
*Former Minister of Hydrocarbons of Bolivia and current Managing Partner of Gas Energy Latin America.