US embassy cable - 05LIMA3375

UNCLAS LIMA 003375 
 
SIPDIS 
 
STATE FOR E, EB A/S WAYNE, WHA A/S NORIEGA, OES A/S TURNER 
ALSO FOR WHA/AND, WHA/EPSC, EB/IFD/ODF, OES/ENV 
TREASURY FOR U/S TAYLOR, K. KOZLOFF, G. SIGNORELLI 
 
PLEASE PASS TO USAID - LAC, EGAT 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG, SENV, EPET, SOCI, EINV, ECON, ETRD, PGOV, PE 
SUBJECT: CAMISEA GREENLIGHT: REPSOL TO EXPORT LNG 
 
REF: LIMA 2236 AND PREVIOUS 
 
1. (U) SUMMARY: Hunt Oil's liquefied natural gas project 
cleared its last major hurdle to securing financing for its 
planned Peru plant.  On August 1,Spanish firm Repsol agreed 
to buy the 4 million annual tons of LNG for 18.5 years. 
Hunt hopes to secure financing and begin construction of the 
LNG plan by December, with exports to start in 2009.  Repsol 
will probably ship the LNG to its proposed deliquification 
plant in central Mexico to supply the Mexican and western 
U.S. markets. END SUMMARY. 
 
2.  (U) On August 1, Repsol YPF, the Spanish Oil firm's 
Peruvian subsidiary, announced with Peru LNG company (70 
percent owned by U.S. firm Hunt Oil) an agreement for Repsol 
to purchase the liquefied natural gas (LNG) for export 
produced by the Camisea natural gas project (Reftel) in 
Peru.  Hunt's construction of an LNG plant south of Lima 
would be the second, export phase of the Camisea project. 
The Peru LNG liquefaction plant to be built south of Peru 
would export an estimated 4 million tons of LNG every year; 
the agreement spans 18.5 years from the LNG plant's startup. 
 
3.  (SBU) Peru LNG had previously signed an agreement to 
purchase the Camisea gas as it is piped from the Amazon, but 
finding a buyer for the LNG product was the last major 
obstacle to securing financing for the 2.1 billion plant 
construction.  Peru LNG has been exploring financing with 
the IFC, IDB, CAF and EXIM, as well as local bond issuers. 
Barbara Bruce, VP of Hunt Oil's Peruvian subsidiary, told 
Econoff that the Repsol deal would give Peru LNG the needed 
credibility to close on financing. 
 
4.  (U) The deal includes agreement for Repsol to acquire 20 
percent of Peru LNG, as well as Hunt's 10 percent of 
Transportes de Gas de Peru (TGP) and 10 percent of Hunt's 
stake in the Camisea gas fields.  The TGP consortium pipes 
natural gas from the Camisea fields in the Amazon to 
consortium PlusPetrol's Paracas Bay terminal; a planned 
extension of the pipeline would stretch to the LNG plant 
site. 
 
5.  (SBU) Other obstacles to proceeding with construction 
have mainly been resolved. Environmental permitting is 
continuing apace.  Bruce said that Hunt's plan to break 
ground by the end of 2005 is aggressive but still possible; 
LNG exports are still planned to begin in 2009. 
 
6.  (SBU) One unresolved issue is the jurisdiction of the 
plant site for taxing and royalty-sharing purposes.  The 
site lies in a coastal desert straddling the border between 
the Lima and Ica Departments.  The border was never 
adequately plotted in this area, and the lure of property 
taxes and a share in royalties led to a dispute between the 
adjoining provinces in the two departments.  The respective 
regional governments took up the cause, and the boundary 
determination is now in the hands of the Peruvian Congress. 
Gustavo Navarro, Camisea point person in the Ministry of 
Mines and Energy, and Hunt's Bruce told Econoff that it is 
unclear when Congress will act. (Note: Congressional 
commissions are being reorganized and no action is likely 
soon. End Note.) 
 
7.  (SBU) While not yet certain to whom Repsol will sell the 
LNG, Repsol continues to plan for a deliquefaction plant in 
central Mexico that would supply the Mexican and West Coast 
U.S. markets.  Carlos Alfonsi Ciafrelli, new president of 
Repsol YPF, told Econoff that while Repsol's export plans 
have not been finalized, Repsol's priority is to ship the 
LNG to Mexico and the U.S. 
 
STRUBLE