Are Chinese About to Invest Big Money Into Peru’s Refineries?

On May 23, 2017 Rafael Zoeger, the head of Peru’s state energy agency Perupetro, announced that China National Petroleum Corporation (CNPC) will make a $2 billion-dollar investment in the 3.9 trillion cubic feet of natural gas reserves known as Block 58. Drilling will begin this year, with production to begin by 2023.

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A Major Revenue Stream For Both Peru and CNPC

It is estimated that Block 58 contains somewhere around 3.9 trillion cu ft. of natural gas, which is somewhere in the range of 27.7% of Peru’s total gas reserves. Peru’s current daily output of oil is around 38,3000 bpd, bringing them in at the third-largest reserve in South America. However, this project leaves them as a strong contender for the number two spot. By the end of 2017, the first 60 wells should be drilled.

A Strategic Move

CNPC isn’t just invested in Block 58, but is also a major investor in adjacent Block 57—currently operated by Spain Repso. Only time will tell if CNPC continues to bid on additional reserves throughout Peru and South America. Currently, Block 58’s reserves are slated to be used for power; and to supply a yet-to-be-built petrochemical plant along the Peruvian coast. Any remaining gas, or if the petrochemical plant falls through, will be exported. China will likely require some of this fuel for themselves. However, by the time the reserve is at full speed, plans may have evolved.

Compliance Concerns Are Heightened

Peru relies on their growing global trade relations, and particularly their oil revenue, to fund current and future social welfare programs. While the increased revenue has many projecting the positive ways in which the new income can be applied, it has many worried about costly compliance concerns. Historically, Chinese-owned firms who operate within China have a track record of integrity concerns regarding compliance with environmental policies, labor laws, and revenue transparency. This has many Peruvians demanding strict monitoring and regulation of Block 58. However, Perupetro must be confident in this new partnership, or they would have considered another bid.

Peru currently has Fair Trade Agreements with China and 16 other countries, with oil being one of the many markets they wish to target. This new project is a major undertaking by CNPC, both financially and logistically, but could be quite lucrative for both Peru and CNPC.

American Chamber of Commerce of PeruOverseas Automotive Council Petroleum Equipment Institute
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