with Igor Salazar, General Manager, Peru LNG
You were recently appointed as General Manager of PERU LNG after being the Commercial Director for some years. What are the main lessons that you learned in your role as Commercial Director that you want to apply now as the head of the company?
Prior to being Commercial Director I was also a part of the engineering group that launched the PERU LNG project in 2002, so in this sense I have been able to see all of the issues of PERU LNG. From the technical and environmental topics to the commercial side of the business, I think my previous experience has given me a comprehensive perspective of how to operate in the Peruvian context despite some challenges and understand what needs to be done to capitalize on the numerous opportunities that the country has to offer. In my role as Commercial Director it became clear to me how important Peru is becoming as a global energy player and this is represented by its increasing participation in global forums. PERU LNG is truly a flagship project that has placed the country in the international spotlight in terms of the development that it has brought to Peru in making it more competitive on a regional basis.
Now that the project is operational what are your main objectives for the near future?
At the company level we expect to establish a very reliable operation and to ensure that PERU LNG is recognized as a dependable supplier of LNG. Similarly, it is our aim to demonstrate that Peru is a great place for investments and infrastructure projects such as ours. We will achieve this through the level of success of our operations and the contributions that we bring to the country. We want to serve as a positive example to the world that will influence other companies to come to Peru to continue exploring its natural resources with the certainty that their investments are safe and will be profitable with the support of the government and local actors.
Thinking about the execution of the project, from the initial idea of building a LNG terminal to the time when it actually became operational, what would you say have been the main challenges faced along the way and what others do you foresee for the future?
On the technical side the project was a challenge considering that this was the first LNG terminal in Latin America. In this sense it was difficult for us to find the right people to work on the project because there was little previous experience in the region with projects of this nature. Another challenge that we faced were the high environmental, archeological and local community standards that are required by the Peruvian authorities. Additional to this, PERU LNG was financed with capital from several multilateral lenders, such as the World Bank and the Inter-American Development Bank, which added further standards under which we have operated. Collectively, the many requirements necessary to produce a world-class project were very complex, but I am pleased to say that we managed to fulfill our goals within the expectations of all relevant players and today we can say that PERU LNG represents a true success for Peru.
Now that the project is operational, which markets do you foresee will be driving the growth of the company?
We have already sold all of PERU LNG’s production commitment for this year to Repsol. They will be deciding which markets to then export the LNG to, but we are aware that they currently have a contract with Manzanillo in Mexico who is their primary buyer. That contract does not represent the entire volume of LNG, so we expect that they will further analyze their global portfolio to determine which other markets are profitable for them.
The Camisea and PERU LNG projects are showcases of the benefits that the private sector can bring to a country like Peru. Nevertheless, there are currently some discussions regarding export pricing issues that could possibly affect the operations of PERU LNG. How is the company assessing the government’s invitation for talks with stakeholders?
It is our understanding that the issue lies in the upstream activities of the Camisea consortium rather than with our operations with the PERU LNG project. We have a fixed contract with that upstream consortium for specific volumes of natural gas. We believe that with all the investments that the companies involved in the exploration of Camisea and the surrounding areas there should be no problem in supplying local demand. What needs to be understood is that in the oil and gas business demand is never instantly met. There is always an adjustment period that takes a few years depending on the restrictions of the market. For a while there might be an imbalance of expectations amongst the different players, but I am confident that in the end the supply for the local market will be met. What is most important for the country is to ensure that exploratory activities continue in Peru and that Peru creates a welcoming environment for such investments, because it is only through such bold endeavors that Peru’s already extensive resource base be further expanded for the benefit of many generations to come.
Some of the presidential candidates have gone as far to say that the renegotiation of contracts such as the one with PERU LNG would be a priority for them. How is the company assessing this risk which has already impacted the investment climate in the country?
PERU LNG has had successful relations with all of the four administrations that have been chosen by Peruvians in the past decade. As the largest investment in a single project in the country, I am confident that we can expect the same continuity from future administrations.
Speaking about the environmental and social challenges of the country, what is PERU LNG doing to build a sustainable Peru that responsibly harnesses its natural resources to continue flourishing in the years to come?
We have a deep commitment to the environment and communities in our area of operation. One example of a very successful project we carried out in conjunction with the IFC was one that focused on small and medium sized enterprises on the coast of Peru. Essentially the project provided training so that these companies can implement higher standards of safety, operations and environmental responsibility. This allows these companies to become much more competitive in the Peruvian market and also abroad. In most cases, the companies that participated ended up multiplying their sales several times over. Another good example of our social responsibility projects is a program in the highlands aimed to improve the breeding and management of llamas and vicuñas for the local population. In addition, another PERU LNG program focuses on microfinance, in which seed money is lent to local farmers for their agricultural and farming activities.
When you look towards the future, let’s say the next 3 to 5 years, what are your main expectations and ambitions for PERU LNG?
I would like to see the company operating under the highest standards with local personnel in order to become a truly Peruvian operation. At this moment we still have some expats that are training our local employees to transfer knowledge and expertise that is not widely available in Peru. We will continue to study, in conjunction with other stakeholders, opportunities for additional growth such as providing LNG in the domestic market.
What would be your final message to the readers of the Oil & Gas Financial Journal regarding PERU LNG’s commitment to the development of Peru and its energy sector?
PERU LNG will become a very reliable supplier of LNG to the region and considering the amount of investments that are coming into the country’s oil and gas sector, there is no doubt that Peru will become a major player in the natural gas industry. The opportunities for this sector are endless and the country’s political, legal and social stability makes it the perfect place for international companies to invest safely while at the same time expecting positive returns