This content is from: Local Insights

Development of a petrochemical industry in Peru

Eight years after the beginning of the production of natural gas from reserves located in Camisea, Peru is seeing the benefits of joint work between the Peruvian government and private investors

Eduardo Guevara Dodds
Eight years after the beginning of the production of natural gas from reserves located in Camisea, Peru is seeing the benefits of joint work between the Peruvian government and private investors. The government issued the legal framework that has been fundamental for the development of a non-existing market for natural gas, creating the necessary incentives and establishing rules that provided confidence for the investment required. Meanwhile private investors took the step of making an important investment with some inherent risks.

As a result, more than 40% of the energy required for the steady growth of the Peruvian economy has been supported by energy produced using natural gas; in addition, public transportation fuelled with natural gas is constantly growing. This has been accompanied by the benefits of industries that are using natural gas as a less expensive source of energy. Royalties paid by natural gas producers are providing local governments (located where the gas reserves are being produced) with funds for the development of their regions.

Having achieved the goal of developing a local natural gas market, the Peruvian government wants to move to the next stage: the development of a petrochemical industry based on natural gas reserves existing in Peru, and those that can be discovered.

The petrochemical industries demand important investments and planified development. This is something that cannot be afforded alone by an investor without the support of other players. The development of a petrochemical project requires the conjunction of several factors: the existence of adequate natural gas reserves (the main feedstock for this industry), reliable pipelines (for the transportation of the feedstock), utilities suppliers (electricity, water treatment plants), storage facilities, adequate transportation (port, roads, airports), qualified personnel, and housing. Most of these factors will be considered by any investor interested in developing a competitive petrochemical project anywhere in the world.

And what is Peru doing to boost industrialisation of Peru? In 2007, rules for developing petrochemical projects were enacted by the Peruvian Congress, and regulations were later passed by the government. This legal framework recognised the importance of this industry, the need for establishing certain incentives for attracting investors (tax stability conditions) and certain requirements for achieving certain government priorities: decentralised development and the use of the highest safety and environmental standards.

These incentives have been enough to attract the attention of several petrochemical players that are considering Peru as an alternative for their projects, but it might require some additional planification to achieve the successful development of this industry. It may be important to consider the experience of other countries that have developed petrochemical hubs. It will be important, for instance, to increase the proven reserves of natural gas: therefore more exploration will be required. The development of additional transportation facilities (pipelines) will be needed to reach the future petrochemical hubs. The local governments in which the petrochemical hubs will be placed will need to adequately planify the development of their industrial zones in order to be prepared to accommodate these kinds of industries.

President Humala's administration is considering this opportunity seriously, and is working on the development of additional pipelines, and on the planification of future petrochemical hubs. For this task, it will be important to consider the experience of other countries as well as the potential risks that are relevant for investors in order to take an investment decision.

Eduardo Guevara Dodds

Instant access to all of our content. Membership Options | One Week Trial