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SOUTH AMERICAN ENERGY MARKETS DAILY ROUNDUP (April 28, 2009): Engel España announces $350m hydropower investment in Peru

April 28, 2009

South American Energy Markets (SAEM) publishes a daily roundup of the top-five stories affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Daily Roundup appears from Monday through Friday and is published by noon London time.

Tuesday, April 28, 2009


Power company Engel España announced that it will invest $350 million in the construction of a hydropower plant in Cusco department, reports Lima daily La Republica. Engel España director, Victor Marsal, who met with President Alan Garcia, was optimistic about investment opportunities in Peru. “Our intention at the moment is to invest in the energy sector and we understand that energy and hydropower are important for Peru,” he said. COMMENT: Together with Chile and Colombia, Peru has been seen as the darling of the foreign investment community. While some countries such as Argentina and Bolivia are trying to get energy companies to invest in long-overdue energy projects, Peru continues to attract investment.  From a foreign investment standpoint, clear rules, regulation and a return in investment are vital. From a Peruvian perspective, it is hoped that these investments will benefit the country in the long term and not follow Argentina’s ruinous example, which was the IMF darling of the 1990s.


An auction by Petrobras for short-term gas supplies in May saw a 36% fall in prices to $4.20/million BTU, reports, citing Rio de Janeiro daily O Globo. Gas auctioned for the month of June was sold at $4.25/million BTU, a 35% fall. The amount of gas auctioned in May represents 37% of the gas (3.24 million cu m/day) that was offered. COMMENT: The impact of the new gas law, which was signed into law in March by President Luiz Inacio Lula da Silva, appears to be making a positive impact. Even so, some analysts see gas tariffs pricing in the country lacking clear benchmarks and government policy.


State-owned energy group Petrobras flares $5 million/day and is seen growing by 29% in 2009 due to lower consumption by industry and thermal-power plants, reports gas association Abegas, citing Folha de Sao Paulo. In February alone, Brazil flared 8.1 million cu m/day. Petrobras said that most of the flaring took place where oil is produced. COMMENT: One of the surprising aspects of Brazilian gas production is the high amount of flaring and reinjection. Out of a total output of 58.951 million cu m/day in 2008, 5.971 million cu m/day of the gas was flared and 10.634 million cu m/day reinjected. That compares with 5.331 and 9.574 million cu m/day, respectively, in 2007. Brazil should find a better way to bring gas to markets so that sectors such as industry could benefit from more competitive prices.


With uncertainty still shrouding higher future gas supplies from Bolivia, 11 Argentine congressmen signed a document asking the Federal Planning Ministry to begin construction of the GNA gasline, which will transport more gas volumes to Argentina to the provinces of Salta, Formosa, Chaco, Santa Fe, Corrientes and Misiones, reports COMMENT: The GNA pipe, which was supposed to originally cost over $2 billion and transport up to 27.7 million cu m/day, is today more of a political issue than an economical one. Supply uncertainty in Bolivia and lower government revenues have been a hard blow for the 1,500km pipeline. The new watered down version of the pipeline envisages supplying five provinces and not bringing more gas to Argentina’s industrial heartland. Some analysts believe that the pipeline will never be built because it is no longer feasible.
One of the strangest pipeline projects in the region has got to be the one where Bolivia aims to supply Paraguay. This project has been ongoing for years and will never come to fruition because it is expensive and impractical. In a new twist to the Bolivia-Paraguay pipeline saga, President Fernando Lugo, who is a Catholic bishop embroiled in a scandal due to having children with a number of women outside wedlock, said that Paraguay is not interested in importing gas from Bolivia, reports Tarija-based daily El Pais. COMMENT: Gas was never a viable option for Paraguay taking into account its huge hydropower plants such as Yacyreta and Itaipu. If there is any sense to importing gas from Bolivia, it was probably due to the hope of finding gas reserves in western Paraguay and transporting them with the future pipeline from Bolivia.

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