Peru LNG Project (Liquid Natural Gas Project), Peru

The Peru LNG project is one of the most important resources of the Peruvian Government’s future energy strategy. The project, which was launched in January 2007, is also one of the largest industrial projects ever to be undertaken in the country. It is also the first LNG plant in South America. The plant was officially inaugurated in June 2010.

The international project consortium for the project consists of Hunt Oil Company of the US (50%), SK Corporation of Korea (20%), Repsol YPF of Spain (20%) and Marubeni Corporation of Japan (10%). The operator for the Peru LNG gas export project is Hunt Oil Company, a subsidiary of Hunt Oil Peru.

Natural gas resources in excess of domestic demand will be exported as a sustainable commodity over a period of 20 years.

The total investment for the project, including the liquefaction plant ($1.5bn), related marine and pipeline facilities and development and financing costs, was $3.8bn.

Peru LNG is expected to generate roughly $310m annually of hard currency export revenues. During the construction phase, approximately 30,000 direct and indirect jobs were generated. The project was financed by a variety of sources, including the Inter-American Development Bank, with which Peru LNG signed an $800m mandate letter in July 2006. A bond issue in the Peru capital market was made in late 2009 for additional funding.

International Finance Corporation (IFC) advised Peru LNG in optimising the environmental approach so that communities surrounding the project site are protected.

Financing the Peru LNG project

The project was largely financed through foreign direct investment. Out of the $3.8bn investment, approximately $2.25bn was secured by Hunt Oil, Repsol, SK Energy and Marubeni through third parties including export credit agencies, multilateral institutions and commercial banks in June 2008.

Inter American Development Bank (IDB) and other multilateral institutions signed loans of $800m for the project.

The loan is split into two tranches, $400m loan A from IDB and another $400m loan B from Societe Generale and BBVA, and through other lenders such as Calyon, Mizuho, ING, Sumitomo and Bank of Tokyo-Mitsubishi.

IFC approved a $300m loan for the project in June 2008. About $1.6bn was secured through equity. A sum of $200m was raised through bond issue in Peru’s capital market in 2009. In July 2010 Peru LNG received a two-year credit line of $75m for short-term financial needs to export the LNG.

Construction of Peru LNG

The engineering, procurement and construction (EPC) contract for the project was awarded to the Chicago Bridge & Iron Company (CB&I). The entire project took four years to complete. The facilities include an LNG Plant at Pampa Melchorita, Peru, which provides marine export facilities, an ocean breakwater and a natural gas pipeline to transport feed gas from Ayacucho to Pampa Melchorita.

The marine terminal EPC contractor was CDB consortium (Odebrecht, Saipem and Jan de Nul) and the pipeline contractor was Techint. Other contractors involved in the project were Cosmos, Minera San Martin, Esmetal, Grana & Montero, Sima, Aceros Arequipa, Cosapi, Tecnicas Metalicas and Translei.

The selection of the Pampa Melchorita site was based on its natural characteristics and a location that is far from populated communities. Engineering improvements were made to the plant design based on the finalisation of gas supply, LNG sales agreements and the selection of an inland rock quarry site from which to build the breakwater.

The LNG plant is a single train facility with a capacity of 4.4 million tonnes a year. It can process 620 million cubic feet of gas every day. It carries out the following functions: feed gas receiving, liquid separation, gas metering and pressure reduction, and removal of carbon dioxide and water from the feed gas. The equipment and utilities include gas dehydration and carbon absorption units, facilities for refrigeration and liquefaction, two storage tanks of 130,000m³ LNG capacity each and refrigerant storage.

Natural gas pipeline

A major element of the project is the construction of a 34in diameter pipeline for the transportation of natural gas from Chinquintirca, located in the mountains around Ayacucho, to the LNG Plant at Pampa Melchorita on the coast. Camisea gas field supplies natural gas for the LNG plant through a pipeline.

The pipeline runs for 408km through 22 districts, nine districts in Ayacucho (Paras, Socos, Vinchos, Tambillo, Acocro, Chiara, Acos, Vinchos, San Miguel and Anco), four districts in Huancavelica (Ayaví, Tambo, Huaytará and Pilpichaca), eight in Ica (Huancano, Humay, Indepencia-Pisco province and El Carmen, Alto Larán, Chincha Alta, Pueblo Nuevo and Grocio Prado-Chincha province) and one in Lima (Cañete). It provides about 550 million cubic feet of transport capacity to the Peruvian market.

The final route of the pipeline is still under consideration but will be finalised by the second quarter of 2007, by which time construction is due to start with completion projected for 2009–2010.

Site selection

Selection of the site for the LNG project required the following criteria:

• oceanic conditions suitable for reliable tanker and berthing operations
• proximity to commercial centres that could provide raw materials and labour
• clear areas of land on the coast with a minimum distance from shore to at least 15m water depth
• elevation of at least 20m to mitigate the effects of tsunami hazard
• minimal environmental sensitivity
• no densely populated areas
• stable soils to prevent damage from Peru’s high level of seismic activity.

Initially 17 sites were evaluated and then a more detailed assessment was applied to the selected few: Pampa Clarita, Punta Corriente and Pampa Melchorita. More extensive studies were conducted at these three potential sites, which included onshore and offshore engineering studies, environmental baseline studies, and geo-technical, archaeological, and socio-economic assessments.

Pampa Melchorita was chosen as the best option based on a number of environmental, technical and economic considerations.

Pampa Melchorita

Pampa Melchorita in the province of Cañete (population of 174,000, mainly in the two towns of Cañete and Chincha) is 169km south of Lima and was selected as the site for the liquefaction facility as far back as 2002. The site has 521ha (1,300 acres) of available land space and is located on a tract of desert land along the Pacific Ocean directly off the Pan-American Highway. It showed positive results from technical studies and no significant archaeological interest.

The LNG site at Pampa Melchorita is located on a steep cliff with a 140m drop to the beach.

Pampa Melchorita is located in what is defined as a subtropical desert climate, characterised as extremely dry with very low levels of precipitation year round. Vegetation is minimal along much of the coastal desert of central Peru, but there are a few small pockets of hilly grasslands and woodlands along semi-dry creeks and small rivers in areas surrounding Pampa Melchorita. MacroConsult of Peru performed various analyses of the potential economic impacts of the Peru LNG export project.

Marine facilities

Marine facilities consist of various projects including a 1.35km-long trestle from the shore to the loading platform. A 1km long marine terminal was constructed to facilitate tankers of capacities ranging from 90,000m³ to 173,000m³. The trestle consists of a steel superstructure supported by steel piles and a concrete abutment. During construction, a 200m rock load-out jetty was positioned along the trestle to aid in breakwater construction.

Because the Peruvian coastline is exposed to long period Pacific swells during parts of the year, a breakwater will provide for safe berthing and will allow the marine facilities to remain accessible all year-round. The breakwater is situated in a depth of approximately 14m of water. It is 800m long and aligns parallel to the coastline and the sea bottom contours. It is built with rocks from a nearby quarry.

An LNG tanker navigational channel was dredged to provide access in and out of the berth area. The channel has a water depth of 15m, a width of 250m and a total length of 3,600m. Where the LNG carriers make turns outside the protection of the breakwater, the channel is 18m deep.

The LNG berth structures consists of a 30m x 30m loading platform, four breasting dolphins and six mooring dolphins. The steel berth structures consists of open grid decks on beams supported by piles driven through jackets.

LNG loading was accomplished by using four 16in speciality pipe-and-swivel LNG loading arms. Three arms will be used for LNG loading and one will be used to return vapour to the plant’s boil-off gas compressors.

Permanent berth facilities are provided to maintain three full-time tugs on location. Tug berths are located immediately adjacent to the northern mooring dolphins. A small utility dock was provided on the north side of the trestle approximately 90m from the loading platform to berth tugs temporarily for refuelling from the plant’s fuel tank. The utility dock also has the facilities and equipment required for spill containment.