Peru oil ambitions back to reality

LIMA, Jan 23, 2009

Low oil prices are forcing Peru’s government to reevaluate $2 billion it planned to invest in an oil refinery and new pipelines in the Amazon jungle, the country’s oil minister said Thursday.

Suspending the pipeline project could put Peru’s ambitions to become a net oil exporter on hold.

The upgrades would boost the transport and refining of heavy crude from deep in the Amazon jungle and include a $1 million modernization of the Talara oil refinery in northern Peru, Oil and Mining Minister Pedro Sanchez told foreign correspondents in a news conference.

Prices for light, sweet crude have fallen 70 percent since peaking at $147.27 a barrel in July, trading at $43.28 a barrel on the New York Mercantile Exchange. Peru’s heavy crude trades at 15 to 20 percent lower than the light crude.

Sanchez’s predecessor, Juan Valdivia, and other top officials had said that the modernization of Talara — state oil company Petroperu’s principal refinery — would go on despite falling oil prices. It has not been modified since 1974.

Valdivia, along with the former president of Petroperu and several other officials, were forced to resign in October in the wake of an alleged bribes-for-government-oil contracts scandal.

The modernization of Talara would expand capacity from a daily 62,000 barrels to 95,000 barrels and allow for the processing of heavier crude. The government began the formal process to hold an international auction to choose a construction company, but the modernization project is now in doubt.

Peru is also reviewing a project to build pipelines deep into the northern Amazon jungle so that Paris-based Perenco SA can transport heavy crude from a newly opened oil block.

Petroperu has said the project will cost slightly more than $1 billion and would require parallel pipes to carry gasoline from the coast to lighten the heavy crude extracted at the site. Without mixing the gasoline to thin the crude, it would be too heavy to pass through the oil pipeline.

“Everything seems to indicate that it has to be reevaluated,” Sanchez said of the pipeline project. Without Petroperu’s pipeline investment, Perenco would have to assume all the transportation costs itself.

Perenco acquired the rights to the oil block last year when oil prices were still above $100 a barrel. Perenco has not indicated plans to suspend the project.

Perenco’s Peru spokesman told the Associated Press by telephone on Thursday that no company official was available to comment.

President Alan Garcia said early in 2006 that the development of block 67, where Perenco hopes to pump 100,000 barrels of oil a day, would turn Peru into a net oil exporter. It has been a net importer for more than a decade.

Story by Renzo Pipoli from The Associated Press.

AP 01/22/2009

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