2013-12-27 13:21:57 - New Energy market report from Business Monitor International: "Peru Oil & Gas Report Q1 2014"
Opposition from environmentalists and the indigenous population, as well as guerrilla attacks on Peru's energy infrastructure have encouraged us to temper our optimistic stance on the country's hydrocarbons sector to a certain extent. That said, we still retain a positive view overall, forecasting that oil and gas production will expand noticeably over our forecast period given the underexplored nature of the energy sector and one of the more favourable business environment's in the region.
The main trends and developments we highlight in the Peruvian oil and gas sector are:
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* Overall, we believe Peru's natural gas prospects remain bright, led by the continued development of its Ucayali basin. We note though, that despite its potential,
opposition from environmentalists, the indigenous population and even various government ministries to the development of the Amazon-based hydrocarbons has somewhat tempered our enthusiasm in recent quarters. Indeed, combined with the continued security threat posed by the insurgent group, the Shining Path, this had encouraged us to revise down our projections in the last quarter. As such, while we are still currently forecasting fairly robust natural gas production growth - rising from 11.8 billion cubic meters (bcm) in 2012 to 14.4bcm in 2017 and 17.0bcm by 2022 - we note that this is likely below potential.
* In terms of gas demand, consumption will continue to rise over the forecast period, though at a slower pace than in the past decade, ensuring the country remains a net gas exporter. Indeed, while we expect consumer demand to continue to make solid gain, with the mining sector set for a slowdown on the back of moderating Chinese demand for Peruvian mineral exports, this will likely temper the expansion. As such, after estimated 2012 consumption of 6.0bcm, we expect gas consumption of 7.6bcm in 2017, just surpassing 10.0bcm by 2022.
* Despite our expectations for sluggish crude production, we anticipate Peru's total liquids output will continue rising - buoyed by natural gas liquids - from a total of 155,980 barrels per day (b/d) in 2012 to 189,950b/d in 2017 and 213,000b/d in 2022. Meanwhile oil demand, which averaged around 171,700 barrels per day (b/d) in 2012, is likely slump over the long term, hitting 173,400b/d in 2017 and 167,410b/d in 2022 as we see increasing efforts to move toward gas-generated energy. This implies the country could become a net exporter of oil over the coming years.
* Peru retains one of the better Risk/Reward Ratings in the region given both the country's highly prospective underexplored acreage and attractive contract terms. We note though, that continued high levels of red tape remain a significant hindrance to the sector, as does the uncertainty regarding the regulatory environment issues surrounding drilling in the Amazon.
* Recent news regarding Peru's 2013 licensing round highlights the country's struggle to attract sufficient investment in the face of some of the aforementioned problems, suggesting that for liquids (and especially crude), the risks lay to the downside. Specifically, on 31 May 2013, Peru announced the opening of a bidding round for nine offshore oil blocks - the first offered since 2010, in some of the country's most underexplored acreage. However, it has been recently announced that the deadlines for the round have been pushed back due to underwhelming interest. While we believe that there may have been greater take-up of the country's onshore blocks and there had previously been indications that the government was looking to offer such concessions, none were included in the round due to the need for further consultation with the indigenous population.
* Petroperu's President Humberto Campodonico has confirmed his company's intention to resume oil production for the first time since the 1990s, as well as to list 20% of its stock on the Lima bourse. With primary interests in the country's midstream and downstream segments, the addition of upstream exploration and production (E&P) activities will create a more vertically integrated oil and gas company.
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