Report Published: "Peru Oil & Gas Report Q2 2016"

Production of crude and natural gas will grow over the next decade owning to strong project pipeline and continued government support. However, the country will produce below its potential owning to a history of strong environmental opposition and a highly competitive regional market , di minishing the attractiveness of the country's oil and ga s sector amid the industry-wide downturn .

The main developments in the Peruvian oil and gas sector:

In June 2015, Peru's President Ollanta Humala and his Bolivian counterpart Evo Morales agreed to study a project that will allow landlocked Bolivia to export its natural gas to Asia from Peru's Pacific coast. Humala is willing to let Bolivia link to the USD5bn Gasoducto Sur Peruano pipeline, which is now being built by Brazilian construction firm Odebrecht in southern Peru. The pipeline is scheduled to be completed in 2017 after having received a USD4.125bn loan in October 2015.

In November, the Peruvian government reduced royalty rates on oil and gas production in an effort to incentivise exploration and field development, particularly offshore. Rates were reduced from 20% to 5%, with the drop in government take expected to be made up by an increase in upstream investment.

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In January and again in February of 2016, two pipeline leaks interrupted key operations. The first was a leak in the Camiesa liquids pipeline which suspended LNG exports for nearly a month starting on January 19, followed by a leak in a crude pipeline while spilled over 3,000bbl of oil in the Amazonian region.

In February 2016, Peru's Energy and Mines Ministry approved Repsol ' s environmental impact assessment of the Sagari natural gas project located in the jungles of Cuzco. The project requires an investment of USD958mn and will involve the drilling of two development wells as well as associated gas production infrastructure.

The start up of LNG exports from the US in March will threaten the market share of Peruvian supplies. We expect Cheniere's 4.5mntpa Sabine Pass train 1 will come online in the coming weeks, with a successive tranche of export volumes coming on stream thereafter. Though this will compete with Peru's exports, we believe the country will remain a dominant player in the region due to a lower variable cost of production compared to US supplies.

The Peru Oil & Gas Report has been researched at source and features BMI Research's independent forecasts for Peru including major indicators for oil, gas and LNG, covering all major indicators including reserves, production, consumption, refining capacity, prices, export volumes and values. The report includes full analysis of industry trends and prospects, national and multinational companies and changes in the regulatory environment.

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