Will Peru’s Refineries Continue Producing Enough Oil for Domestic Use in the Coming Years?

A challenge that every mined resource faces, are trade deals that potentially export more resources than the country requires to thrive. This isn’t something that occurs overnight, and is almost impossible to renegotiate once it occurs. However, without trade agreements with foreign countries—the financial resources required to mine are not always there. It’s a catch 22, because the taxes and income generated by mining can be invested back into social programs that help developing countries. So, will Peru refineries produce enough to accommodate domestic oil use in Peru?

The Shift Has Already Occurred

Petrol is Peru’s third largest export, following Copper Ore and Gold. Peruvian communities take great care in negotiating safe and ethical mining of all resources with foreign countries, and often invest the taxes earned back in to education and quality of life improvements. As communities continue to thrive, the need for energy increases. As the need for energy increases, the local demand for energy grows rapidly. How swiftly this will occur is difficult to estimate. In Peru, as with many countries who export oil, the shift has already occurred. Importing has now surpassed exporting, driving local energy costs higher. In 2016, Peru exported $35.6B and imported $35.8B, resulting in a negative trade balance of $141M.

It May Get Even Worse

In May of 2017, China National Petroleum Corporation (CNPC) and Peru’s state energy agency Perupetro announced the $2 billion-dollar investment of the 3.9 trillion cubic feet natural gas reserve Block 58. CNPC is also a partial owner of adjacent Block 57. Block 58 alone, accounts for almost 30% of Peru’s total gas reserves. Wells are already being drilled, with production slated for 2023. As a substantial portion of Peru’s oil, exporting even a small fraction of this impressive reserve could continue to drive up local oil prices to astronomically high costs.

Peru Isn’t The Only Country With Unbalanced Import/Exports

Many countries around the world face unbalanced import/export of oil and other natural resources. While not all are in the negative, unbalanced, for example, in 2016 the United States imports 10.1 million barrels per day, and exports 5.2 million barrels per day. While it might sound logical to halt or restrict exporting amounts in excess of demand, it’s not that simple. Both foreign and local investors make handsome profits from their high-priced exported oil profits, and to be fair—so do the local government, communities, and landowners.

The Alternative Energy Debate Continues

There isn’t anyone who isn’t affected by rising energy costs, because almost everything we use and consume on a daily basis requires energy to be produced, and energy to be shipped. Even if made-locally, it has to be transported—and meaning consumers have to pay for the wholesale or retailers increased energy and transportation costs. With domestic oil use in Peru growing, more options in alternative energy continue to be explored.

As will all forms of energy production, the costs associated with implementing energy dependence complicate things. For the foreseeable future, Peru will likely continue to import more oil than they export.

American Chamber of Commerce of PeruOverseas Automotive Council Petroleum Equipment Institute
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