Peru inaugurates Hunt Oil LNG plant —amid controversy

Hunt Oil of Texas inaugurated its new $3.8 billion liquefied natural gas (LNG) plant at Melchorita Pampa on the Peruvian coast just south of Lima June 10, with President Alan Garcia attending the ceremony. The first shipments of LNG from the plant are scheduled to take place within the next few days, when a specially equipped tanker will set sail for a regasification plant in Baja California, Mexico. Ray Hunt, Hunt Oil's chief executive, told Dow Jones: "This project will serve as an example to the world that Peru is a very attractive place for foreign investment. Capital can go anywhere in the world with the push of a computer button, but investment capital only goes where it is appreciated."

The gas is being piped over the Andes to the plant from the Amazonian fields at Camisea, where a Hunt-led consortium won exploitation rights in 2004. Hunt now has a 50% stake in the field, with South Korea's SK Group, Spain's Repsol YPF and Japan's Marubeni Corp. A second, overlapping consortium won rights to build the terminal at Pampa Melchorita.

The government and the terminal consortium say that Camisea contains enough gas both to meet the export contract of 4.2 trillion cubic feet and to supply Peru's internal needs for 50 years. But when the consortium that operates the gasfield hired consultants to certify the reserves, they found just 8.8 trillion cubic feet. A new study commissioned by the government has raised that by almost 30%, but opponents remain unconvinced. Over 100 companies in Peru are waiting to sign contracts to use the gas, but must wait for the consortium to finish expanding domestic pipelines.

Objections are also raised over the destination of the exported gas. The plant in Mexico is actually still not ready, and may not be for over a year. If Spain's Repsol, which will handle the exports, ships the gas to Asia or Argentina, it will receive a much higher price and profit than the export contract envisaged.

Exports to Chile are effectively precluded by Peru's ongoing tensions with its southern neighbor. The government and Repsol insist that no gas will reach Chile—but mayors in towns near the Camisea field called a three-day protest over the issue last month, forcing the government to issue a decree requiring publication of the destination of exports within 48 hours of shipments. (Dow Jones, Bloomberg, Peru LNG press release via PR Newswire, June 10;