Impact of El Niño: Electric and gas companies dispute over natural gas from Camisea | REPORT

For energy experts, it is clear that this will result in a resurgence of the followed in the central-southern highlands, where the reservoirs that feed the country’s large hydraulic generation plants are located.

which will mean “a continuation of the problems that the electricity sector is experiencing”, points César Butrón, president of Coes.

And it is that, in situations like this, the call to save the day should be the natural gas. However, the lower availability of this resource to produce energy has motivated the Coes to resort to generation at dieselextremely expensive fuel, whose intensive use has been triggering the spot price either marginal cost of electricity.

AGAINST THE CLOCK

According to Coes statistics, the marginal cost recorded an average of 828.4 S/MWh in the first week of August, a figure 579.8% higher than that registered in the same period of 2022.

This is due to the impact oftwo meteorites at the same time: El Niño, which affects hydrological cycles, and the preventive maintenance of the Camisea plant (which restricts the transport of gas)”, points out Arturo Vásquez, former Vice Minister of Energy.

This is a problem that only impacts electric generators and some free customers (industrial) but which, according to the Ministry of Energy and Mines (Minem)could have a negative impact on the electricity rates of Peruvian households if it becomes structural.

That is, if marginal costs continue to increase due to water stress and lower gas availability, which could “give rise to an inadequate price signal for future tenders for electricity supply in the regulated market (home)”, points out the Minem.

In that sense, the Vice Ministry of Electricity weeks ago launched a controversial proposal (mechanism) to moderate the increase in marginal costs, which has become the discord’s Apple between electric generators and gas companies.

We refer to draft supreme decree that prioritizes the allocation of “interruptible natural gas transportation capacity” for use by the electricity sector in emergencies, like the acute drought that would come.

“This means that, among all the players in the market, there will only be one that will have preference over interruptible volumes, and that one will be the electric generator.”, indicates María Julia Aybar, general manager of Peru LNGone of those affected by the rule.

In the understanding of the exporting company, it is an illegal act because “the Minem cannot give priority to a single actor harming all the others”. What is interruptible gas transportation?

INTERRUPTIBLE TRANSPORTATION:

By definition, the interruptible gas transport It is the one whose service is subject to reductions and interruptions depending on the availability of the Camisea pipeline.

We are talking about the volumes of gas that “no company has wanted to reserve and that they are available for use“, Explain Luis Espinoza, former Vice Minister of Energy.

How much gas are we talking about? The specialists consulted for this report estimate that interruptible gas volumes amount to 140 or 180 million cubic feet per day (mmcfd), that is, 10% to 15% of all the volume that is transported daily through the Camisea pipeline (approximately 1,500 MMcfd).

Such is the volume of gas that Minem is prioritizing for use by the electricity sector, but to whose detriment?

In accordance with current regulations, only the interruptible supply is available big industries either independent consumers of natural gas (such as Peru LNG) and some electric generators, which have requested it, explains Luis Espinoza.

On the contrary, gas distributors, small industries and most thermal generators all have firm transport contracts (which are not subject to outages or interruptions).

This means that all these uses will remain outside the supreme decree of Minem, since it only focuses “in using the interruptible gas from exports to give it to thermal power plants”, notes César Butrón.

This claim has aroused, however, the distrust of a large part of the gas sectorfor a thorny reason.

And it is that, according to what they say, what the Minem norm seeks is to privilege two or three electric companies who have interruptible contracts and who are “in emergency due to his business mismanagement”.

IMPACT ON THE CHAIN

“In short, what Minem is doing is minimizing the losses of two or three companies that played against the system by not wanting to contract firmly. And now the State has to take their chestnuts out of the fire on the pretext that this will prevent the increase in electricity rates? wonders Anthony Laub, founding partner of Laub & Quijandría.

In his opinion, this will cause serious damage to the export of natural gas (Peru LNG), which today generates huge resources for the State in taxes and royalties. And also to the massification of said energy in the north, south and center (Cusco) of the country.

This, because all these concessions are fed by the liquefied natural gas (LNG) that Peru LNG processes at its Pampa Melchorita plant.

So, Quaviia company that distributes LNG from Melchorita in five regions of northern Peru, warns that Minem’s proposal puts the continuity of this service at risk, harming 1 million Peruvians.

“With this type of regulations, which the Executive prepares without a regulatory impact analysis, investors such as the petrochemical company will be deterred, because they will not know when they are going to cut off their gas supply.”, points out Arturo Vásquez.

Worse still, not one but several specialists in the field have calculated and come to the conclusion that the mechanism devised by Minem it will not prevent the marginal costs of energy from continuing to rise.

LGQ, for example, carried out the exercise of allocating all the natural gas available in Camisea to all the power plants in the country and, even so, “Diesel is still needed to generate energy, with which the marginals are not going to go down, ”reveals Laub.

Why then does Minem seek to prioritize the use of gas for thermal generation?

According to Espinoza, it is about avoiding damage to the electricity sector and many free customers, because “If the electric generator is in crisis, it can break its contracts”.

“The underlying issue is that there is no collapse in the contracts because the State stopped allocating interruptible gas for electricity generation and the domestic market; not a matter of marginal cost”, he points out.

The moral, in the end, is that all energy consumers should focus on moderating our consumption to avoid further stress on the system now that El Niño is approaching.