ENERGY SECURITY AND SOUTH PERUVIAN
GAS PIPELINE PROJECTS
October 2013
2
ProInversión, the promotion arm of Peru Government, seeks investors tohelp construct and operate new natural gas and gas liquids pipelineinfrastructure as well as new power generation facilities in Peru. Fourconcessions are envisaged:
• Two separate concessions of 500MW (+ or – 20%) each of diesel-firedgeneration in the southern coastal region (the Energy Node), to beconnected to the natural gas pipeline once gas is available
• Gasoducto Sur Peruano (GSP), a natural gas pipeline from the existingTGP system to these power generation facilities in the south as well asto other consumers such as potential petrochemicals
• The “Energy Security Project” – additional natural gas and gas liquidspipeline capacity from the Camisea region to Chiquintirca to improvereliability of the overall system
Today we will discuss each of these projects, their economic, strategicrationale and key technical, financial, and contractual considerations
Why we are here today
1. Project background
3. Technical considerations
4. Contract considerations
5. Q&A
2. Project description
Domestic production of hydrocarbons has increased roughly 16% p.a. since 2006 while the consumption of natural gas has increased 37% p.a.
Project Background:
Strong growth in Peruvian energy
production
Source: MINEM
4
Peru Energy Historical Resource Production
-
50
100
150
200
250
300
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
KB
OE
Crude Natural Gas
• Since 2008 the average GDP growth has roughly been 6.5% p.a.
• As of 2012, the gas demand is broken out in the following way:
• Peru LNG (56%)• Power (27%)• Industrial (10%)• GNV (5%)• Residential (1%)
CAGR (06-12): 16%
Hydroelectric Thermal Solar Total
Installed Capacity (MW): 433 356 788
Effective Capacity (MW): 454 327 781Annual Production (GWh): 2,462 820 3,282
Peak Demand (MW) : 395 62 457
Hydroelectric Thermal Solar Total
Installed Capacity (MW): 2,384 3,409 5,793
Effective Capacity (MW): 2,258 3,155 5,413Annual Production (GWh): 15,734 14,884 30,618
Peak Demand (MW) : 2,102 2,253 4,355
Hydroelectric Thermal Solar Total
Installed Capacity (MW): 428 527 84 1,039
Effective Capacity (MW): 428 415 80 923Annual Production (GWh): 2,652 709 60 3,421
Peak Demand (MW) : 345 133 479
Hydroelectric Thermal Solar Total
Installed Capacity (MW): 3,244 4,292 84 7,620
Effective Capacity (MW): 3,140 3,897 80 7,117Annual Production (GWh): 20,849 16,413 60 37,321
Peak Demand (MW) : 2,843 2,448 5,291
Northern Zone
Central Zone
Southern Zone
Peru Total
Source: COES Operational Statistics 2012
Project Background:
Power generation in Peru is divided
into three zones
5
Installed Generation Capacity and Power Generation by Region in Peru
Source: COES Operational Statistics 2012
Project Background:
The central region generates the
majority of Peru’s power
Growth in power generation in Peru since 2006 has averaged roughly 9% p.a.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Eff
ecti
ve C
apac
ity
(MW
)
Po
wer
Gen
erat
ion
(G
Wh
)
North Central South Total - Effective Capacity (MW)
6
CAGR (‘06-’12): 9.1%
Source: Wood Mackenzie’s analysis, COES
Project Background:
The power sector is driving growth
in natural gas consumption
Natural gas demand is expected to grow significantly, led by the power sector
Peru Natural Gas Demand Forecast (2013 – 2033)
7
0
500
1,000
1,500
2,000
2,500
2012 2015 2018 2021 2024 2027 2030 2033
MM
CF
D
LNG Possible Future LNG Electricity - North NGV - NorthOther Users - North Electricity - South Other Users - South
CAGR (’12-’20): 5.1%
CAGR (’20-’33): 2.5%
Project Background:
Highly prospective plays expected to
meet future growth
Reserves
Block 56 57 58 88 TotalNatural Gas (TCF)
Proved (1P) 3.0 0.6 0.0 10.3 142P1 4.0 2.5 2.3 11.9 21
Natural Gas Liquids (MMbbl)
Proved (1P) 216.8 30.8 0.0 515.1 7632P1 293.4 132.3 135.9 614.7 1,176
There are a number of highly prospective plays in Peru that will provide the resources to meet continued demand growth in natural gas
Source: COES Operational Statistics 2012; Note: 2P is inclusive of 1P
8
First exploratory well is expected to be drilled in
block 76 in 2015, Prospective reserves of
around 2-3 tcf are expected
Project Background:
Reserves outlook vs. demand
outlook
Peru has more than enough reserves to meet the expected domestic demand for the next 30+ years
Demand Outlook (2013-2050) - tcf
9
0
24
68
1012
1416
1820
22
Block 57
17
Block 56
21
Block 88
12
Block 58
14
Proved reserves
Probable reserves
Reserves Outlook (2013-2050) - tcf
It is expected that additional reserves will be found and
developed as demand expands and infrastructure bottlenecks
are removed4
02
468
1012
141618
2022
Other users -South
21
Electricity demand -
South
202
Other users -North
19
6
Electricity demand -
North
13
9
LNG
Demand
Source: MINEM, Wood Mackenzie 2013, Upstream Services; Includes blocks: 56, 57, 58, 88 (Block 76 could be incorporated in the future)
0
500
1000
1500
2000
2500
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
mm
cfd
PLNG TGP Gas TGP Gas - Expansion GSP - Aprox. Capacity Production
It is expected that additional reserves will be developed to reverse the expected fall in
production
Production is based on 1P reserves
Project Background:
Infrastructure investment needed to
meet growing gas production
The TGP expansion and the construction of Gasoducto Sur Peruano will drive further development of the Camisea basin
Peru Natural Gas production forecast
10
0
20
40
60
80
100
120
140
160
180
200
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
Kb
/d
TGP - NGL TGP - NGL - Expansion ProductionSource: Wood Mackenzie 2013, Upstream Services; Includes blocks: 56, 57, 58, 88 (Block 76 could be incorporated in the future)
It is expected that additional reserves will be developed to reverse the expected fall in
production
Production is based on 1P reserves
Project Background:
Added take-away capacity also
needed in NGLs
Like natural gas, current natural gas liquids production is infrastructure limited
NGL Production and Takeaway Capacity
11
1. Project background
3. Technical considerations
4. Contract considerations
5. Q&A
2. Project description
Project Description:
Energy infrastructure projects
proposed
PISCOPISCO
LIMA (Lurín)LIMA
(Lurín)
HUMAY
HUANCAVELICA
AYACUCHO
APURIMAC
AREQUIPA
MOQUEGUA
MADRE DE DIOS
TACNA
CUSCO
PUNO
CUSCO
PUNO
CHILECHILE
BOLIVIABOLIVIA
BRASILBRASIL
LAGOTITICACA
LAGOTITICACA
GASODUCTO DE SEGURIDAD ENERGÉTICAGASODUCTO DE SEGURIDAD ENERGÉTICA
AREQUIPA
MALVINAS
TGP (SISTEMA ACTUAL + LOOP COSTA) Gasoducto / PoliductoTGP (SISTEMA ACTUAL + LOOP COSTA) Gasoducto / Poliducto
JULIACAMARCONAMARCONA
ICA
CONTUGAS (SISTEMA ACTUAL)CONTUGAS (SISTEMA ACTUAL)
Pampa Melchorita
Pampa Melchorita
PERU LNG (GASODUCTO)PERU LNG (GASODUCTO)
Loop TGPLoop TGP
ACTUALES
PROYECTADOS
GASODUCTO SUR PERUANOGASODUCTO SUR PERUANO
ANTA
ESPINAR
ZONA DE SEGURIDAD
ENERGÉTICAQUILLABAMBA
CHIQUINTIRCA
POLIDUCTO DE SEGURIDAD ENERGÉTICAPOLIDUCTO DE SEGURIDAD ENERGÉTICA
Km 127
Km 73
ABANCAY
ZONA DE UBICACIÓN DEL POLO PETROQUÍMICO Y DEL NODO ENERGÉTICO
Energy Security and Gasoducto Sur Peruano Projects
13
� Historical failures of the TGP system has had a large financial impact on the country’s economics (~$400,000/day)
� Sense of vulnerability as ~50% of the power produced in Lima depends on a single supply line
� 500 MMcf/d of gas is being re-injected due to limitations in midstream gas processing and downstream markets
� Trigger economic development in Southern Peru and address demographic concentration
Address Socio/Economic Issues
� ~60% of power consumed in the south is generated in the north while demand for peak power in the south is growing
Remedy Regional Power Generation Disparities
Project Background:
Strategic rationale
Energy security
Resolve Infrastructure constraints
1
2
3
4
14
MALVINASChiquintirca
URCOS
a1
a2
bc
QUILLABAMBA
APURÍMAC
PUNO
� The GSP sections from the Point ofConnection (PC) to Mollendo/Ilo whichincludes:
� Section a1: Gas pipeline from the PCto the province of Anta
� Section a2: Gas pipeline from theprovince of Anta to Mollendo/Ilo
� Section b: Gas and liquids pipeline fromthe separation plant at Malvinas to thePC
� Section c: Gas and liquids pipeline fromthe PC to the compression plant atChiquintirca (km 211)
PC
MOLLENDO ILO TACNA
Project Description:
Energy Node & Gasoducto Sur Peruano
Gas Pipeline
Liquids PipelineExisting
15
ANTA
AREQUIPA
1. Project background
4. Contract considerations
5. Q&A
3. Technical considerations
2. Project description
Technical Considerations:
Existing TGP pipeline (NG and NGL)
has limited capacity
17
Existing Transmission System – Natural Gas
Existing Transmission System –Natural Gas Liquids
Km 0: Malvinas PlantCapacity 2000 MMCFD
Discharge Pressure: 147 barg
Km 127:Kepashiato Intermediate Compression Station in constructionto increase capacity to 1,500 MMCFD
Km 211: Chiquintirca Compression Station
Arrival Pressure: 70 barg
32”32”
TgP NG Maximum Operating Capacity with current configuration : 1230 MMSCFD
TgP NGL Maximum Operating Capacity with current configuration: 110 MBPD
Km 0:PS1
Discharge Pressure: 24 barg
Km 108:PS2 Suction Pressure : 16 barg
Discharge Pressure : varies with flow rate
Km 210: Chiquintirca PS3
Inlet Pressure: 7 barg
14”14”
� Pipeline stability protection solutions should be given to protect the pipeline from movements caused by difficult terrains that need to be traversed
Seismic Areas
� Terrain traverses from low to high altitude locations with dramatic slopes that need to be considered; there will be a requirement for slope protection
Terrain Difficulties
Technical Considerations:
The pipelines have a number of
technical complexities
Protected Areas
Archaeological Issues
1
2
3
4
18
� RoW located in jungle, mountain, costal desert where isolated tribes need to be considered for safety and security issues. There will be logistical requirements to avoid issues because of proximity to communities
Right of Way (RoW) Issues
5
�The environmental impact is the most onerous During construction phase
� Numerous archaeological sites in Peru - possibility finding archaeological artefacts during construction
Technical Considerations:
Energy Security
Recommendation Schematic
19
Future Transmission System – Natural Gas
Future Transmission System –Natural Gas Liquids
Km 0: Malvinas PlantCapacity 2000 MMCFD
Discharge Pressure: 147 barg
Km 127:Kepashiato Intermediate Compression Stationto increase capacity to 1,500 MMCFD
Km 211: Chinquintirca Compression Station
Arrival Pressure: 70 barg
32”32”
TgP NG expected Maximum Operating Capacity with current configuration 1230
Energy Security Maximum Operating Capacity (0-73km/73-211km): 2000/1500
Km 0:PS1
Km 108:PS2Km 210:
Chinquintirca PS3
Inlet Pressure: 7 barg
14”14”
Km 73: Derivation Point
32”
36”36” 36”
MMCFD
ExistingNew
TgP NGL Maximum Operating Capacity (with DRA): 130
Energy Security Maximum Operating Capacity/Design of new (without DRA) : 130
KBD
Existing with DRANew
Km TBD:PS2 (New)
24”24” Km 0:PS1 (New)
Note: 1) Design capacity is expected to be 10% above operating capacity
Technical Considerations:
Energy Security
Recommended Installations
20
Energy Security Loop Overview – Recommended Option
Product Recommendation
Natural Gas• 36” NG Loop from Las Malvinas Separation Plant to Chinquintirca• 4 Scrapper Facilities • 8 section valves
Natural Gas Liquids
• 24” NGL Loop from Las Malvinas Separation Plant to Chinquintirca• 4 Scrapper Facilities • 10 section valves• 2 New pumping stations at Las Malvinas Plant close by to Derivation Point
Full System • 2 new control rooms
Technical Considerations:
Energy Security
CAPEX Estimate
21
Energy Security Loop CAPEX Estimate
Cost Breakout Cost ($)
Basic Engineering / Feed Excluded
Surveys 8,000,000
Detailed Engineering and Project Management 42,000,000
Materials - Line Pipe, Major Valves, etc. 370,000,000
Compression and Equipment 17,000,000
Controls : Field Instruments, Sub-Systems, Bulks, SCADA and RTU 19,000,000
Buildings 41,000,000
Construction Works 484,000,000
Estimated Total CAPEX : $981,000,000
Technical Considerations:
Gasoducto Sur Peruano
Recommendation Schematic
22
Gasoducto Sur Peruano System
Mollendo:
275 MMCFD
Ilo:
175 MMCFD
Quillabamba:
50 MMscfd
TgP existing NG Pipeline
NG new Security Pipeline
Gasoducto Sur Peruano
URCOS
Km76224”
24”
14”
32”
32”
GSP Flow Rates MMCFD:
Inlet of system1 : 500
Quillabamba (Power) : 50
Mollendo (Petrochemicals) : 50
Mollendo (Power) : 175
Ilo (Petrochemicals) : 50
Ilo (Power) : 175
Km 0: Malvinas PlantCapacity 2000 MMCFD
Discharge Pressure: 147 barg
Km 127:Kepashiato Intermediate Compression Stationto increase capacity to 1,500 MMCFD
Km 211: Chinquintirca Compression Station
Arrival Pressure: 70 barg
32”32”Km 73: Derivation Point
32”
36”36” 36”
Note: 1) Design capacity is expected to be 10% above operating capacity
23
Gasoducto Sur Peruano Overview – Recommended Option
Product Recommendation
Natural Gas
• 32” from Point of Derivation from TGP/Energy Security to Mollendo Branch (Km762)• 24” from Km 762 to the end of the pipeline at Ilo• 9 Scrapper Facilities• 27 section valves (blocking and bleeding stations)• 8 branches: Quilibamba, Anta, Apurimac, Espinar, Juliaca /Puno, Arequipa, Mollendo,
Moquegua, Tacna
Technical Considerations:
Gasoducto Sur Peruano
Recommended Installations
Technical Considerations:
Gasoducto Sur Peruano
CAPEX Estimate
24
Gasoducto Sur Peruano CAPEX Estimate
Cost Breakout Cost ($)
Basic Engineering / Feed Excluded
Surveys 20,000,000
Detailed Engineering and Project Management 112,000,000
Materials - Line Pipe, Major Valves, etc. 882,000,000
Compression and Equipment Not required
Controls : Field Instruments, Sub-Systems, Bulks, SCADA and RTU 62,000,000
Buildings 16,000,000
Construction Works 1,371,000,000
Estimated Total CAPEX : $2,463,000,000
1. Project background
5. Q&A
2. Project description
3. Technical considerations
4. Contract considerations
Questions?
26
Issue Discussion
Concession 1:Energy Security
• This 30-year Concession will be a single Concession in two Phases.
• Phase 1 will run from the existing natural gas fields in the Malvinas to the Derivation Point at or around KM 73 on the existing TGP pipeline system.
• Pipelines Dimensions: 36-inch for natural gas; 24-inch natural gas liquids
• Phase 2 will run from the Derivation Point to Chiquintirca.• Pipelines Dimensions: 36-inch for natural gas; 24-inch natural gas liquids
• Qualified Bidders have reasonable discretion regarding the pipeline route.
Concession 2:Gasoducto Sur Peruano (GSP)
• This 30-year Concession will be single Concession in two Segments.
• Segment a1 will run from the Derivation Point to roughly Urcos • Pipelines Dimensions: 32-inch for natural gas
• Segment a2 will run from Urcos south to Mollendo and Ilo• Pipelines Dimensions: 24-inch for natural gas
• Qualified Bidders have reasonable discretion regarding the pipeline route.
Key Contractual
Considerations
Questions?
27
Issue Discussion
Bidder Selection
• Minimum technical and financial criteria will be applied to pre-qualify Bidders
• The winning bid will be selected based on the Total Cost of Service
• MINEM and ProInversión propose some processes to help Winning Bidder
manage risks:
• Cost of Service Adjustment Process
• Right of Way Risk
• Local Community Support Risk
Key Contractual
Considerations
Questions?
28
Issue Discussion
Cost of Service Adjustment Process
MINEM and ProInversión recognize it may be challenging for prospective Bidders to estimate the cost of construction of the pipeline owing to the difficult terrain, geotechnical and weather conditions. MINEM and ProInversión propose a process –the Cost of Service Adjustment Process -- by which unexpected events and related cost adjustments might be incorporated into the cost recovery system of the pipeline system.
If, during the course of the construction of the pipeline actual construction costs are determined to be higher than those used to derive the Total Cost of Service, Winning Bidder may petition to adjust the Total Cost of Service. This process would be used, amongst other things, to address such issues as potential cost increases and schedule delays owing to unexpected archaeological finds and the possible related need to re-route the pipeline.
A qualified and independent international engineering firm would review the Adjustment Petition as quickly as is practical and, in conjunction with MINEM/ProInversión, approve re-routing and related modifications in construction costs (and overall Total Cost of Service) as well as potential modifications to the construction schedule
Adjustments to the Total Cost of Service would be limited to 15%
Key Contractual
Considerations
Questions?
29
Issue Discussion
Right of Way Cost Risk
MINEM/ProInversión recognizes that it is challenging for a Bidder to develop an accurate estimate of the cost of acquiring Right of Way for the construction of the pipeline without spending many months discussing ROW issues with the many affected stakeholders in Peru. It is intent of MINEM/ProInversión to limit ROW cost risk and make it easier to Bidders to estimate the overall cost of the pipeline project. MINEM/ProInversión will do so in the following steps:
• MINEM/ProInversión will for each pipeline Concession, provide estimated ROW costs
• Bidder will bid to this estimated cost, such funds to ultimately be placed in escrow from the Winning Bidder
• If total ROW costs exceed the estimated ROW costs, such additional costs will be paid by Bidder but will be added to the winning bid and will be recovered as part of the overall cost recovery mechanism
• If total ROW costs are less than estimated ROW costs, such difference will be distributed to local communities along the route of the pipeline
• It will still be the role of the Winning Bidder to negotiate ROW with appropriate stakeholders in consultation with and with the support of MINEM/ProInversión
Key Contractual
Considerations
Questions?
30
Issue Discussion
Local Community Support
MINEM/ProInversión recognizes that the local Peruvian communities affected by the construction of the pipeline could, in some cases, raise important issues and concerns that could delay the construction of the pipeline. The government will provide a best efforts attempt to facilitate the delivery of the environmental and construction permits and to gain social acceptance of the project in the affected communities
Possible delays in the construction of the pipeline system caused by lack of local community support that lead higher costs will be managed through the Cost of Service Adjustment Process
Possible delays in the construction of the pipeline system caused by lack of local community support that make is impossible for the Winning Bidder to commission the pipeline according to schedule will be considered a force majeure event
Key Contractual
Considerations
� A combination of recovery mechanisms depending on the pipeline segment
� The revenue for the pipelines included in the Security Node will be entirely recovered by the users of the TGP and GSP
� Over time, conversion of the diesel-fired Energy Node to natural gas as well as industrial development creates long-term contract revenues, reducing the need for the surcharge
� “Mechanism of Guaranteed Income” – Law 29970: Peruvian government through this mechanism guarantees the investment recovery in all trenches of the pipelines (natural gas and liquids)
Mechanism of Guaranteed Income
� Ability to collect the surcharges and the tariffs from usersWinning Bidder effectively holds Peru economy risk
Project Background:
Recovery of Cost of Service:
Summary
Most costs recovered from a “surcharge” on users
As contracted volumes on the pipelines increase, the
surcharge declines
31
Concession 1: Energy Security Concession 2: GSP
Product Pipeline b and c Gas Pipeline b and c Gas Pipeline a1 Gas Pipeline a2
Pipeline Tariffs from users
GRPPipeline
Tariffs from users
Payment - all natural gas users in the countryPayment – all liquids users
in the country
The tariff for the liquids security loop is distributed
between all the liquids users and is sufficient to
cover the cost of service of the liquids product pipeline.
Energy Security and Gasoducto Sur Peruano Systems
The tariff for the gas pipelines included in the energy security is distributed between all the users of natural gas
and is sufficient to cover the difference between the cost of service of the gas pipelines and the payment of the users of
the gas at Quillabamba.
The GRP would compensate for the
difference between the cost of service of a2 and the revenue generated from
the users of a2 (generators and others).
Contract consideration:
Remuneration system
There are three different systems that will work in these various concessions to guarantee the payment to the winners of the projects
32
Cost of service of the security pipelines (MM$)
3,005
888
GSP TotalGSP Segment a2
2,117
GSP Segment a1
760
1,166
406
Security loopsSecurity natural gas loops
Security liquid loops
Cost of service of the GSP (MM$)
Contract consideration:
Estimated Cost of Service
The Cost of Service accounts for Capex/Opex and the tax regime
33
Tariff System
PipelineApplicable
TariffAffected Consumers Tariffs
Impact on end-user price
Product Pipeline b y cSecurity
tariffAll liquids users in the
country$1.1/bbl 2%
Gas Pipeline b y c Security tariff
All natural gas users in the country
$0.5/kcf 9%
Gas Pipeline a1TGP Tariff
Generator users of GSP –segment a1
$1.2/kcf N/A
Regulated Tariff(GSP)
All other users of GSP –segment a1
$2.1/kcf N/A
Gas Pipeline a2
TGP TariffGenerator users of GSP –
segment a2$1.2/kcf N/A
Regulated Tariff
All other users of GSP –segment a2
$2.1/kcf N/A
GRP Tariff All electricity users $0.13¢/kWh 2%
It is assumed that all tariffs are adjusted based on IPP: “Finished Goods Less Food and Energy”
Contract consideration:
Remuneration system
34
INDICATIVE
Project Description:
Timeline for the pipelines bidding
process
2013 2014
Oct Nov Dec Jan Feb Mar Apr
Contract closure
Activity
Communication to all the qualified participants
Qualification of participants
Responses to the consultation
Consultation of the tender documents
Publication of the final version of the contracts
Roadshow Lima
Roadshow Houston
Roadshow Calgary
Presentation of the legal, technical and commercial proposal
Award of the contract
35
Project Description:
Timeline for the power plants
bidding process
Aug Sep Oct Nov
05. 12. 19. 26. 02. 09. 16. 23. 30. 07. 14. 21. 28. 04. 11. 18.
13/11/2013
30/10/2013
15/10/2013
25/09/2013
17/09/2013
TBD
Activity
Contract closure
Award of the contract
Presentation of the legal, technical and commercial proposal
28/10/2013
Publication of the final version of the contracts
Communication to all the qualified participants
Pre-qualification of Participants and timeline for establishment of consortiums
Responses to the consultation
Consultation of the tender documents
Update to tender documents published16/08/2013
15/11/2013
36
1. Project background
5. Q&A
2. Project description
3. Technical considerations
4. Contract considerations
Questions?
Questions?
38
www.proinversion.gob.pe
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