Southern Peru Gas Pipeline

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The Southern Gas Pipeline, commonly known as Integrated Gas Transportation System - Southern Zone of Peru or by its Spanish names SIT Gas, Sistema Integrado de Transporte de Gas al Sur, Gasoducto Interior or Gasoducto del Sur, is a proposed Peruvian pipeline designed to transport natural gas from the Camisea gas fields in the upper Amazon basin to Peru's Pacific coast.

Location

Starting at the Malvinas separation plant in the Camisea gas fields north of Cusco, the proposed pipeline would span roughly 1100 kilometers, crossing the Andes and passing through the Cusco, Apurímac, Arequipa and Moquegua regions en route to power plants at Mollendo and Ilo on Peru's southern Pacific coast, then continuing south and southeast to the regions of Tacna and Puno on Peru's southern border with Chile and Bolivia.

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Project Details

• Operator: Petroperú
• Owner: Petroperú
• Proposed capacity: 800 million cubic feet per day
• Length: 684 miles / 1100 kilometers
• Status: Proposed
• Start Year: 2024-2026
• Associated infrastructure:
  • Ilo power station
  • Puerto Bravo power station
  • Block 88 gas field
  • Block 56 gas field
  • Block 57 gas field

Background

As early as 2008, companies began proposing the construction of a trans-Andean gas pipeline linking the Camisea natural gas fields of the upper Amazon basin with cities and power plants along Peru's Pacific coast.

In 2010, the Peruvian government signed an initial US$1.33 billion agreement with Kuntur Transportadora de Gas (KTG) for construction of the pipeline. However, the contract was ultimately canceled, prompting a new round of bidding for the project.

In July 2014, the Peruvian government signed a new $7 billion, 34-year agreement for construction of the pipeline with the Consorcio Gasoducto Sur del Perú, a consortium made up of the Brazilian firm Odebrecht (75% stake) and the Spanish company Enagás (25% stake). The agreement gave Enagás responsibility for operating and maintaining the pipeline, while Odebrecht was to be in charge of EPC (engineering, procurement and construction).

In September 2015, with the pipeline 34% complete, the Peruvian company Graña y Montero paid US$215 million to acquire a 20% stake in the consortium from Oderbrecht. At this point, construction work on the pipeline was still scheduled for completion by 2017. However, the project ran into a serious roadblock in March 2016 when Oderbrecht's CEO Marcelo Odebrecht was sentenced to 19 years in jail for his role in a major bribery scandal. Banks threatened to cut off funding for the Southern Gas Pipeline as long as Odebrecht remained part of the project, but attempts to find a replacement under the existing contract were ultimately fruitless, with American energy giant Sempra and Italian-Argentine conglomerate Techint pulling out of negotiations in November 2016.

Cancellation of contract with Odebrecht

In January 2017, the Peruvian government announced that it would cancel its pipeline contract with Odebrecht, Enagás, and Graña y Montero due to the consortium's inability to meet funding requirements for the project. The government signaled its intention to solicit new bids for completion of the project, but the exact timeline remained unclear, with media sources reporting that it would take at least a year to find new partners and negotiate terms for a revived pipeline deal.

In November 2017, Peru's Minister of Energy and Mines, Cayetana Aljovín, announced that new bidding for the Southern Gas Pipeline project would be delayed until late 2018, prompting some analysts to question whether the project would actually be revived. Aljovín indicated that future contracts for the pipeline will be co-financed by the Peruvian government and will no longer rely on subsidies from utility bill surcharges, noting that the pipeline's exact route and design may change as a result of these financing changes. In December 2017, Alberto Ñecco, executive director of ProInversión, a government agency promoting private investment in Peru, confirmed that renewed bidding for the Southern Gas Pipeline was still on the table for 2018 and that both European and American companies continue to express interest in the project. In January 2019 Peru's Minister of Energy and Mines, Francisco Ísmodes, affirmed that the project was still being pursued.

As of October 2022, legal proceedings regarding potential bribery by Odebrecht, Graña y Montero, and other actors remain ongoing.

Efforts to revive the project

In early 2020, several news reports suggested that the project might be revived, pending the expected March 2020 release of a feasibility study by the Mott MacDonald consultancy exploring financing options for the pipeline. In March 2020, Cusco's regional governor Jean Paul Benavente called on Peruvian president Martín Vizcarra to uphold his promise to resurrect the pipeline and make it operational within the first half of 2022. In July 2020, Peruvian lawmakers called for the proposed pipeline to be extended south to Puno, on Peru's southeastern border with Bolivia.

In September 2020, following release of Mott MacDonald's feasibility study, which estimated a price tag of US$4.5 billion for the revamped SIT Gas project, Peru's Ministry of Energy Mines (MINEM) announced that the pipeline's scope would be expanded to include the southern regions of Apurímac, Puno and Tacna, in addition to the previously announced regions of Cusco, Arequipa and Moquegua. Vice Minister of Hydrocarbons Víctor Murillo indicated that the government would hold a tender for development rights to the project in the first half of 2021, with the goal of awarding a contract by July 2021 and bringing the new pipeline fully online by 2025 or 2026. As of October 2020, MINEM official Miguel Incháustegui reported that the government was conducting a 35-year assessment of Peru's available natural gas reserves as a prelude to launching the tender in early 2021.

As of July 2021, Peru's incoming president Pedro Castillo was expected to announce the restart of work on the pipeline. In October 2021, the president of Castillo's ministerial council confirmed the government's intention to relaunch the project.

In November 2021, President Pedro Castillo authorized a transfer of an additional 29 million Peruvian soles for "improvements to the country's energy security and development of the South Peruvian Gas Pipeline"; critics see this as the Peruvian people paying to care for a pipeline abandoned by Odebrecht, which doesn't work until the government can secure a new bidder to complete the project.

In January 2022, a government commission called for construction of the pipeline to begin in the second half of 2023, with commercial operations to follow progressively from north to south between 2024 and 2026. The commission noted that the project could be expedited by reusing pipe and other engineering infrastructure from Odebrecht's original project, while relying on Odebrecht's original environmental impact study rather than requiring a new one.

In February 2022, Russia's invasion of Ukraine prompted renewed focus on Peru's role as an exporter of natural gas to Europe. In an interview with the Peruvian business journal Gestión, Peru's former Vice Minister of Hydrocarbons Victor Murillo cited reactivation of the Southern Peru Gas Pipeline project as key to increasing the country's export potential, noting that excess production from Peru's existing Block 56 and Block 57 could potentially be supplemented by new production in Block 58.

In April 2022, Peru's Minister of Energy and Mines, Carlos Palacios, announced plans to form a working group aimed at reactivating the Southern Peru Gas Pipeline, while declaring a state of emergency that would provide the government with the necessary legal mechanisms to ensure the project's completion.

In July 2022, a legislative initiative proposed the expansion of the pipeline further south, to Apurímac, Cusco, Puno, Arequipa, Moquegua y Tacna, as a public necessity, and the project was again discussed in a meeting between Peruvian governors Germán Alejo Apaza and Kimmerlee Gutiérrez.

In January 2023, Peru's Minister of Energy and Mines, Óscar Vera, announced that the government was committed to reactivating and completing the pipeline project, though he did not offer a timeline or other details. Mr Vera noted that several private companies had expressed interest in building the pipeline. Investment cost for the project was estimated at 4 billion Peruvian soles. Over the next several months, the government authorized the transfer of millions of soles to cover the costs of maintaining and preserving the existing pipeline infrastructure abandoned by Odebrecht.

In February 2023, the government announced plans to solicit bids from interested companies through a tender process to be held within the next three months. As of March 2023, the proposed tender had been postponed until the second half of the year. In May 2023, US-based Energy Transfer Partners expressed interest in developing the pipeline, noting that it planned to send a delegation to Peru to discuss the project with the Peruvian private investment agency, Proinversión.