Essay Sample on Peru's Tough Decision: Conserve or Export Natural Gas?

Introduction

In the early 2000s, Peru faced a tough decision on whether to conserve its natural gas reserves in the Camisea gas fields for forthcoming domestic usage or to implement a project for exporting liquefied natural gas (LNG) (Leung & Jenkins, 2014). Peru liquefied natural gas (PLNG) is a project that comprises the construction of a natural gas liquefaction plant, a marine loading terminal, and a gas pipeline that links to the Camisea gas fields, which has over 90 percent of Peru's proven natural gas reserves (Reinstein et al., 2011). The total investment was approximated to be USD 3.9 billion, making PLNG the largest single private investment in Peru's history (Leung & Jenkins, 2014). The paper will examine Peru's policy issues and debates that impacted Peru's liquefied natural gas project.

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During the regime of Ollanta Toledo, the administration ratified a project for export of LNG, despite facing strong criticism from the public society. The main concern was that Peru's gas reserve might be inadequate to concurrently satisfy the export needs, and their long-term domestic needs (Leung & Jenkins, 2014). However, the proponents of this policy move claimed it would generate millions of dollars in tax revenues, and spur economic activity from domestic procurement, and local employment. Nevertheless, the cost-benefit analysis (CBA) was implemented to assess the claims of the civic society, and the government to shed light on the policy question (Leung & Jenkins, 2014).

Ecological Impact Assessment of the Camisea Gas Project

The large reserves of gas and natural gas liquids have been discovered in the Camisea region, an area inhabited by native groups. These communities could be exposed to several potential effects, which may lead to alterations in their livelihoods, and socio-cultural characteristics (Shoobridge et al., 1998). In conformity with Peruvian regulation, project developers are mandated to conduct an environmental impact assessment for major infrastructure and development projects. This will ensure that appropriate provision for environmental protection is included in the planning, design, implementation, monitoring, and establishment of the project (Shoobridge et al., 1998). Even though, the project will stimulate economic growth through the export of oil and liquefied gas, the community members around the area where the project was initiated have expressed they're concerned over environmental safety (Shoobridge et al., 1998).

However, in response to the two policy concerns namely; the fear that Peru's gas reserve might be inadequate to simultaneously satisfy the export needs, and their long-term domestic needs, and environmental concerns raised by the indigenous communities residing at Camisea region (Reinstein et al., 2011). A stakeholder consultation program was instituted to improve dialogue, participation, and co-operation between all the major players in the oil and gas sector (Shoobridge et al., 1998). Their major goal has been to map out, deliberate, resolve, and design actions that maximize project profitability, reduce social, cultural, and environmental effects, and contribute to the long term sustainable growth of Peru, and more precisely the Camisea region (Shoobridge et al., 1998). The consultation program was also focused on improving the delivery of social and ecological effects, and contribute to the long term sustainable growth of Peru and the Camisea region (Shoobridge et al., 1998). The stakeholder conference for the Camisea field production facilities comprised of the following activities; deliberating with the indigenous societies of the Lower Urubamba, consulting with native community federations, deliberating with the government, and deliberating with regional and global NGOs (Shoobridge et al., 1998).

There are several policy recommendations of Peru liquefied natural gas project. Peru should ensure a lengthy commitment to market-friendly policies for energy growth. The contenders for the 2011 presidential election should pledge to preserve a favorable investment climate and also severe ecological and social values (Spencer, 2010). The reorganizations that have made Per attractive to oil and gas investors have also defied Peru's ability to regulate and enforce environmental and social standards (Spencer, 2010). Peru should continue to make sure its local market benefits from natural gas produced domestically, including using natural gas to provide electricity to individuals without access to contemporary energy services (Spencer, 2010). Peru should also look to further national energy cooperation as a means to strengthen political and financial relations with its neighbors (Spencer, 2010).

Energy subsidies have been a significant driver of fiscal shortages in many LAC nations in 2011-2013, such as Peru (Di Bella et al., 2015). In oil-producer nations that rank lower on measures of institutional quality, energy grants contributed to greater than average fiscal shortages, signified a higher share of monetary revenues, and their cost was comparable to that of education and health collective (Di Bella et al., 2015). Energy subsidies are a drag on the nation's long term growth and attractiveness, both through diverting resources further from other spending priorities and by discouraging efficiency and improving investment in the energy sector. In the majority of LAC nations, higher electricity expenses can be traced back to the adverse effects of higher grants on investment in the energy sector (Di Bella et al., 2015). Subsidies are the number one factor that distorts market signals, and cause income disparity and, by stimulating energy over-consumption, and worsens the trade equilibrium (Reinstein et al., 2011). Ironically, Peruvian citizens experience high fuel taxes, and prices as a result of the government focusing more on the export of oil and gas at the expense of increasing domestic supply and consumption of this scant resource.

Conclusion

The policy brief has focused on Peru liquefied natural gas and how it sparked an intense debate on fears that there is an inadequate supply of oil and natural gas to satisfy the export needs, and their long-term domestic needs of the Peruvian citizens who face the burden of high fuel tax and prices. The second debate this policy sparked relates to the environmental safety concerns by the community members who reside along the Camisea region. An ad-hoc stakeholder consultation program was established to improve dialogue, participation, and co-operation between all the major players in the oil and gas sector. They designed a raft of measures to ensure the proposed project would reduce social, cultural, and conservational effects, and contribute to the long term sustainable growth of Peruvian citizens.

References

Di Bella, M. G., Norton, M. L., Ntamatungiro, M. J., Ogawa, M. S., Samake, I., & Santoro, M. (2015). Energy subsidies in Latin America and the Caribbean: stocktaking and policy challenges (No. 15-30). International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2015/wp1530.pdf

Leung, L., & Jenkins, G. P. (2014). An economic evaluation of Peru s liquefied natural gas export policy. Energy policy, 74, 643-654. https://cri-world.com/publications/qed_dp_227.pdf

Reinstein, D., Benitez, D. A. B., & Johnson, T. M. (2011). Peru's downstream natural gas sector: a preliminary assessment. https://openknowledge.worldbank.org/bitstream/handle/10986/12529/692890ESW0P1110Gas0Feb07020110final.pdf;sequence=1

Shoobridge, D., Kapila, S., & Fanning, J. (1998). Environmental Impact Assessment of the Camisea Gas Project: the Importance of Local Participation. In 7th GIN Conference, Rome. https://unep.ch/etu/publications/17)%2093%20to%20110.pdf

Spencer, N. (2010). Energy in Peru: Opportunities and Challenges. Americas Society/Council of Americas Energy Action Group. https://www.as-coa.org/sites/default/files/ASCOA_Energy_in_Peru.pdf