The Challenge Of Delivering Natural Gas To Southern Peru

In October 2008, the Peruvian government announced that Kuntur Transportadora de Gas had been awarded a 30-year concession contract to build and operate a 675-mile natural gas pipeline that will extend from the Camisea gas field, located in the Amazon jungle, to the port of Ilo, on the south Pacific coast of Peru.

The proposed pipeline will deliver gas to many cities in southern Peru and will enable:

• The development of petrochemical facilities;
• The installation of electric power plants that will allow small to large industrial and mining facilities, as well as residential customers to switch to a more efficient energy source; and
• The distribution of compressed natural gas (CNG) in the southern region of Peru.

Kuntur Transportadora de Gas is a Peruvian company entirely owned by Latin Power III, which is one of the private equity funds managed by Conduit Capital Partners, LLC based in New York. The word “Kuntur” is in the Quechua tongue, which is a native language of South America (it was the language of the Inca Empire), and means Condor. The Andean Condor inhabits the Andes mountains (Figure 1).

Figure 1: The Andean Condor inhabits the Andes Mountains.

Development and construction costs for the pipeline, known as “Gasoducto Andino del Sur” (South Andean Gas Pipeline), have been estimated in the range of US$1.4 billion, considerably higher than the US$850 million alternative presented by Suez Energy Peru to run the pipeline down the Pacific coast to the southern city of Ilo. Peruvian government officials chose, however, the former proposal, which they declared would favor a much larger population, mainly in cities located in the Andes.

Figure 2: Map of proposed South Andean Gas Pipeline route.

Kuntur Transportadora de Gas’ proposed route (Figure 2) for the pipeline was based on preliminary technical and environmental studies. However, now that they have been awarded the concession, they are expected to begin the full development of the project, including the signing of firm off-take contracts, environmental and social impact studies, detailed engineering, financial structuring and the incorporation of additional equity participants. Construction is expected to begin in 2010 and the pipeline should be operational by the end of 2012.

Geographical Challenges

Peru’s topography is extremely variable, from flat areas in the lower rainforest and coast, to deep canyons and valleys with steep slopes of 50 or even 60 degrees in the Andes (Figure 3) and higher jungle. Access can be very difficult, making the use of helicopters necessary in some regions of the Andes and rainforest. The Andes high-lands can easily reach 4,800 meters above sea level, and are the origin of a great number of steep gradients and short rivers draining toward the Pacific Ocean, as well as long and large-flow rivers draining toward the Amazon (Figure 4).

Multiple river crossings will most certainly be unavoidable during the construction of the pipeline. Some cross-ings may require the use of horizontal directional drilling (HDD), while others may need to be aerial. The need of tunnels to penetrate mountain areas with rough topography and geological risks cannot be discarded.