Suez Energy: US$1.1bn Pisco-Tocopilla Pipeline is Feasible

Belgian energy group Suez Energy has completed its feasibility study of a US$1.1bn, 1,450km gas pipeline to bring gas from Peru's Camisea field to northern Chile, Suez Energy South America senior VP for business development, César Ortiz, said at the IBC/BNamericas Energy Integration Congress in Santiago, Chile.

The pipeline is "completely feasible and we see it as an important part of the future of the region," Ortiz said. The pipeline would be the first step in the South American gas pipeline project that could eventually link the Camisea gas field to Chile, Argentina, Uruguay and Brazil, Ortiz said.

This regional project "has to be done gradually in steps, starting with the Pisco-Tocopilla link," Ortiz said.

The pipeline is considered urgent due to gas shortages for power generation in Chile's northern power grid (SING), where most of the country's mining industry is located, as a result of recent gas export restrictions from Argentina.

The 30-inch pipeline would transport a minimum of 12-15 million cubic meters a day (Mm3/d) of gas from Pisco in Peru to Tocopilla in northern Chile, Ortiz said. Of that amount some 2.5Mm3/d would be used in southern Peru, 8Mm3/d in northern Chile and the remainder could be re-exported to Argentina through the existing GasAtacama and NorAndino pipelines.

Suez subsidiary Tractebel owns NorAndino and northern Chilean power generators Electroandina and Edelnor. GasAtacama is owned 50:50 by local power generator Endesa and US-based CMS Energy.

GasAtacama and NorAndino currently transport gas from northern Argentina to Chile, but they are near empty due to gas export restrictions from Argentina that have affected volumes on all four pipelines that transport gas across the Andes. Although the flow on these pipelines could be reversed to bring gas to northern Argentina, the Pisco-Tocopilla project would be feasible without re-exporting any gas from Chile, Ortiz said.

Financing for the US$1.1bn project could come from multilateral financing agencies such as the IDB or the World Bank, Ortiz said. The idea is that a private firm such as Argentina's Pluspetrol, Spain's Repsol YPF or Brazil's Petrobras would control the supply of gas to northern Chile at a fixed price independent of its origin, Ortiz said.

The cost of transporting Peruvian gas to the border is about US$2.03/MBTU, which would drop to US$1.72 if the volume rose to 20Mm3/d, Ortiz said. The cost of new infrastructure on the Chilean side would be about US$0.45/MBTU. Peruvian gas would end up costing consumers in northern Chile about US$6/MBTU, the executive director of gas and power at Argentine firm Petrobras Energía, Rafael Fernandez Morandé, said at the conference.

This is much more than the price Chile currently pays for gas from Argentina but potentially less than the cost of importing liquefied natural gas (LNG).

Gas in the US market currently costs about US$12/MBTU after hurricanes Katrina and Rita. According to Suez's timeline, the project could start operations in 2008. Suez has hired Peruvian firm Macroconsult to carry out an economic impact study of the project on southern Peru, the results of which are expected by the end of November, Ortiz said.

The idea is to convince Peruvians that the project is good for the country's mining industry in southern Peru and not just a project to give gas away to Chile and Argentina. Suez, however, will face an uphill challenge as many Peruvians see the project as exploiting their natural resources to help Chile's economy without giving them any benefits.

"Once the public has been won over we can talk about bringing gas to the south," Ortiz said. "We don't want to do this project behind people's backs." Suez plans to begin a campaign to promote the benefits of the project in southern Peru in December this year, Ortiz said.

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