Insight: Global energy crunch stirs hope of oil reboot in Peru's Amazon

Frontera Energy

31/03/2022 12:00

By Marcelo Rochabrun
    NUEVO ANDOAS, Peru, March 31 (Reuters) - Peru's government
wants to ramp up oil production in some of its dormant Amazonian
fields as global crude prices soar on supply fears linked to
Russia's invasion of Ukraine.
    Among the areas prime for a reboot is Block 192, the Andean
country's largest - and leakiest - field. Located deep in the
Amazon jungle in northern Peru, the block for decades was one of
the country's leading oil producers.
    It's also the source of extensive ecological damage to the
surrounding forest, a big reason pumping ceased two years ago.
Oil from hundreds of previous spills still permeates the
tropical topsoil, coats native plants and leaks into streams
that flow to the mighty Amazon River. 
    "Here we all live poisoned," said Pilar Rengifo, a resident
of Nuevo Andoas, a hamlet of about 500 residents on the edge of
Block 192. In 2016, state-backed testing of 1,138 people in more
than three-dozen communities in this oil patch, including Nuevo
Andoas, showed that about half had high levels of lead, arsenic
and mercury in their bloodstreams, which the government said was
likely caused by oil exposure.
    Still, Rengifo and other villagers told Reuters they support
oil drilling, a source of steady work, and would favor an even
stronger push in Lima to bring it back despite the risks.
    Surging energy prices have changed the calculus for Peru and
countries across Latin America and beyond looking to reduce
dependence on foreign oil. Western sanctions on Russia, a major
crude exporter, have taken millions of barrels per day out of an
already-tight global market. That's squeezing drivers at the
pump, hurting farmers and merchants, and turbo-charging
inflation.
    Peru imports 80% of its petroleum, gasoline and diesel, a
figure President Pedro Castillo is determined to lower. His
administration has steered troubled state-owned oil company
Petroperu  PET.LM  to restart oil production for the first time
in decades, though it remains under 1,000 barrels a day. At its
peak in 1980, Petroperu's output was about 200,000 barrels a
day, a figure that plummeted amid privatizations that saw the
company halt production to focus on refining and distribution.
    Castillo is also looking to boost domestic production of
natural gas so that the fuel can "reach every home". Last year
he threatened to nationalize the sector but has since softened
his tone.
    Late last year, former Energy and Mines Minister Eduardo
Gonzalez traveled to Houston on behalf of the government to
court potential oil investors, whom he declined to name. He
showed Reuters a document summarizing his pitch, which looked to
reopen drilling in Block 192 and other parts of the Amazon. 
    "The ideal situation is to be self-sufficient in oil," he
told Reuters.
    
    'THE WAR THAT AFFECTS EVERYONE'
    That's a wildly ambitious goal for Peru.
    The Andean nation produces just 40,000 barrels of oil per
day, putting it among the smallest producers in Latin America.
    Block 192 could add another 25,000 barrels a day to the
country's output, according to Peru's Ministry of Energy and
Mines.
    Because Peru's oil fields are small and remote, turning a
profit is expensive. Indigenous communities angered by spills
have often responded by taking over roads, airports or key oil
pipelines.
    Petroperu, meanwhile, is in turmoil amid graft allegations
that led its external auditor to decline to audit its 2021
financial statements. Credit agencies recently downgraded its
credit rating to junk. Former CEO Hugo Chavez has denied
wrongdoing at the company. Acting CEO Francisco de la Torre told
Reuters his top priority is to return the firm to investment
grade.  urn:newsml:reuters.com:*:nL2N2VP1MV.
    Financing is also an issue. Many western lenders are
increasingly reticent to bankroll oil production in the Amazon,
whose preservation is seen by climate scientists as critical to
combating climate change. Peru's part of the rainforest is
second in size only to that of Brazil.
    However, war in Ukraine has put a spotlight on energy
security globally. Leaders across resource-rich Latin American
are bent on shoring up home-grown supplies.
    Ecuador's President Guillermo Lasso is pushing state-owned
Petroecuador to double oil production. Argentina recently
launched plans for a major new natural gas pipeline to increase
domestic capacity. And its state energy firm YPF aims to double
oil output in five years.  urn:newsml:reuters.com:*:nL2N2VO2QI
    Raising output is critical "especially with the global
energy crisis resulting from the war that affects everyone,"
Argentina's Secretary of Energy Darío Martínez said on March 21,
when he announced that monthly oil production was at an 11-year
high of 571,000 barrels per day. 
    Petroperu's de la Torre said Block 192 was key for Peru, as
is a $5 billion expansion plan for the firm's Talara refinery.
    "The role of Petroperu today acquires much greater relevance
than before the war," he told Reuters. "Prices are in the clouds
and there are problems and shortages in the transport of oil to
the southern hemisphere, so imports are more expensive."
  
    BURIED OIL
    Block 192, near Peru's border with Ecuador, is around
512,000 hectares in size, or roughly 5,100 square kilometers,
according to government data.
    The block's most recent operators, Argentina's Pluspetrol
and Houston-based Frontera Energy Corp,  FEC.TO  were both hit
by environmental fines linked to oil leaks there in recent
years. Pluspetrol pulled out of Block 192 in 2015 after more
than a decade there, though the company remains active elsewhere
in Peru. Frontera didn't renew its contract in 2020 after just
five years in operation.
    Pluspetrol, Frontera, Peru's environmental regulator OEFA,
and its Energy and Mines Ministry declined to comment.
    In 2016, Peru's government designated Block 192 an
environmental emergency zone. Since 1997, Peru has seen some
1,000 oil spills, around a quarter of them in Block 192,
according to government data compiled by British charity group
Oxfam.
    Around Nuevo Andoas, the consequences are visible almost
everywhere. Reuters traveled to the village in late February, a
journey of 639 miles (1,028 kilometers) northeast from the
capital.
    The news organization witnessed a fresh spill flowing into a
river from an abandoned storage facility. Elsewhere, oil dripped
from large plastic bags that had been half buried under the
soil, part of haphazard mitigation efforts.
    Locals told Reuters that oil companies often hired them to
clean up leaks, but without providing much training or
protective equipment. One of these former workers, Segundo
Saavedra, 50, said that throwing a thin layer of dirt over
crude-drenched ground was a common practice.
    "If you step on it, you'll see how your foot comes out black
with oil," he said.  
    Interviews with nearly two dozen residents revealed a
community anxious about health and environmental risks, yet
supportive of the jobs and income the industry brings. 
    Villager Rengifo spends much of her time caring for her
11-year-old daughter, Bianca, who cannot walk nor speak. The
mother doesn't know what ails her child because there are no
doctors in town. 
    The mother said life has gotten worse since Frontera pulled
out. Her husband, Marcial Garcia, used to ferry cargo and
passengers as part of a community-owned transport service. Such
work has grown scarce without oil workers coming in and out of
the region. 
    "It was lovely when the oil firm was here," she said.
     
    'OUR DAILY BREAD'
    Oil extracted from Block 192 travels more than 1,100
kilometers (684 miles) by pipeline to the Talara refinery on
Peru's Pacific coast to be refined into gasoline and diesel.
    Meanwhile, Nuevo Andoas lacks even a gas station. Small
variety stores peddle liters to the few people who own vehicles.
    The dearth of fuel in an oil town is symbolic of the
struggles of resource-rich Peru to lift its poorest citizens.
Residents near the country's prolific copper mines - Peru is the
world's No. 2 producer - have long agitated for a bigger share
of this mineral wealth.
    In Nuevo Andoas, nurse Augusto Acosta, the town's most
senior medical practitioner, has worked at the lone clinic for
15 years. He said medicines were donated by oil companies,
resources that have dwindled since those firms packed up.
    Resident Saavedra said he ended up in that clinic in 2016
after being overcome by fumes while cleaning up an oil spill.
Despite the risks, Saavedra wants the oil firms back. He needs
the work, which paid some 1,600 soles ($430) a month.
    "Oil is how we win our daily bread," Saavedra said.
   

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Lot 192: Oil Curse    https://tmsnrt.rs/3HRORue
Lot 192: Oil Curse (Interactive version)    https://tmsnrt.rs/35ZMQin
Peru oil spills    https://tmsnrt.rs/3sSFw0Y
Peru oil spills (Interactive version)    https://tmsnrt.rs/3Cr0hUk
Oil price spike    https://tmsnrt.rs/3wk4JTY
Oil price spike (Interactive version)    https://tmsnrt.rs/3uaavFf
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Marcelo Rochabrun in Nuevo Andoas, Peru;
Additional reporting by Alessandro Cinque in Neuvo Andoas and
Marco Aquino in Lima; Editing by Adam Jourdan and Marla
Dickerson)
 ((marcelo.rochabrun@thomsonreuters.com; +55 11 5644 7768;))