The development of Peru’s energy market has been rife with challenges and opportunities in recent years, as the sector has come under cross-pressures from unique domestic concerns and sweeping structural changes in the global economy. On the one hand, while Peru could once stake a claim to being South America’s largest commercial producer of oil, fuel output has been on a steady and steep decline for more than two decades: according to the BP statistical review, the country accounted for 1.8% of regional oil output in 2017.

On the other hand, the same shifts that have undermined Peruvian petroleum – namely, technological breakthroughs in the extraction and distribution of natural gas and, to a lesser extent, innovations in the capture and storage of renewable energy – have created new markets in a country abounding with natural gas and vast resources in solar, wind and biomass.

Policymakers and investors intent on securing Peru’s energy future are looking to split the difference between these trends. Proposed amendments to the hydrocarbons law could double petroleum production and help to make up the shortfall in domestic supply. Meanwhile, public officials have undertaken negotiations with their counterparts in gas-rich Bolivia to leverage the fact that Peru operates the continent’s only export facility dedicated to liquefied natural gas (LNG).

Recent Performance

Crude oil production totalled 48,900 barrels per day (bpd) in 2018, according to Petroperu, a state-owned enterprise (SOE) that, as of August 2018, maintained a 48% share in the petroleum market. While that output estimate marked a 12.3% increase against the 43,500 bpd registered in 2017, the most recent annual figure remains significantly lower than the volumes achieved in prior decades: petroleum production averaged 76,500 bpd in 2008 and 113,400 bpd in 1998, indicating that oil’s role in the wider hydrocarbons segment continues to contract.

Petroleum’s decline is due in part to an acceleration in the development of the domestic natural gas market, particularly in the last decade. According to provisional figures from sector regulator Perúpetro, LNG production reached 85,500 bpd in 2018, nearly double that of petroleum. That figure marked a 96.5% increase in LNG output against 2008, when production stood at 43,500 bpd. Moreover, natural gas production for 2018 stood at 1.23bn standard cu feet per day (scfd), or roughly 39,800 barrels of oil equivalent per day, nearly four-fold higher than the 327m scfd registered in 2008.

Despite the sizeable rises in natural gas and LNG production, Peru continues to run a significant deficit in the hydrocarbons segment, as the volume of domestic supply falls well short of consumption levels. In August 2018 the head of the National Society of Mining, Petroleum and Energy (Sociedad Nacional de Minería, Petróleo y Energía, SNMPE), Pablo de Flor, announced that Peru had imported 210,000 bpd between January 2017 and June 2018, at a sum cost of $3.5bn, to cover its fuel needs. In 2017 alone oil and diesel imports totalled 45m barrels, accounting for three-quarters of fuel consumed by Peruvians that year.

Sector Policy

In May 2019 the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM) announced the creation of an energy planning office and tasked it with defining five-, 10- and 20-year development strategies for the country’s fuel and electricity production. MINEM has also worked to lower barriers to market entry and enhance intra-sector competition by launching an online, one-stop shop for activities in hydrocarbons, electricity and mining.

Sector stakeholders have encouraged MINEM and other regulatory and development agencies to prioritise additional facets of the local oil market. In “An Energy Roadmap for Peru” the Institute of the Americas – an independent non-profit based at the University of California, San Diego – urged policymakers to rectify the imbalance between available supply and consumer demand of fuel and fuel products. The white paper specifically advises that an assessment be conducted on how natural gas and renewable energies can be used as substitutes for imported petroleum products.

Despite growing pressure to reduce the bill for energy imports and to mitigate greenhouse gas emissions, the minister of energy and mines, Francisco Ísmodes, has stated that he expects the compositional make-up of the country’s energy mix – wherein hydrocarbons constitute roughly 30% of electricity sources – to remain relatively static through at least 2040.

Organic Hydrocarbons Law

In June 2018, in response to declining fuel output associated with global price volatility and persistent permitting delays, the Peruvian Senate approved a series of reforms addressed to the 1993 Organic Hydrocarbons Law (Ley Orgánica de Hidrocarburos, LOH). Should the draft be approved by the Chamber of Deputies, it would effectuate a raft of changes intended to fuel the growth of Peru’s hydrocarbons sector. Broadly, the legislation was written to incentivise new capital expenditures, create a clearer and more accessible regulatory framework – particularly during contract tendering process – and formalise permit auctioning to abet the exploration and development of new deposits.

Foremost among the proposed changes are amendments to extend production leases to cover durations of up to 40 years; to allow concessionaires to renew those leases for an additional 20 years; and to stretch exploration licences to cover up to a decade, with the intent of adding to the country’s known reserves. This last measure is of particular importance to turning around the sector’s fortunes: while Peru is still recognised by market observers as having considerable potential for hydrocarbons production, the value of all exploration activities fell from a high of $785.1m in 2012 to $17.1m in 2017. Boosting exploitation volumes to the level envisioned by advocates of the LOH will depend on finding and developing new reserves.

The amendments to the LOH would also restructure Perúpetro and increase its capacity to negotiate and award licensing agreements to domestic and foreign oil and gas companies. Moreover, the changes would permit the agency more flexibility to negotiate royalties with concessionaires, depending on the geological conditions of the awarded block.

Several other measures are written to incentivise upstream investment. First, the legislation proposes creating tax breaks for foreign oil and gas companies. Moreover, the law’s passage would formally introduce oil and gas auctions similar to those that have been successfully carried out in other countries in the region, including Argentina, Brazil, Colombia and Mexico.

“We hope there will be a consensus in Congress regarding the LOH, as it has been subject to modifications during debate, and we hope it will be favourable towards investment,” Javier Paucar Neira, technical advisor for the hydrocarbons sector at SNMPE, told OBG.

De la Flor projected that the passage of the LOH could entice as much as $6bn in new capital expenditures in the sector and create 2000 direct jobs. Moreover, the head of the SNMPE has expressed hope that investments in new and existing facilities – including the re-opening of up to 4500 wells that closed due to structural unprofitability – could succeed in doubling domestic oil production to 100,000 bpd by 2023.

Environmental Concerns

Alongside its measures to drive expansions of exploration and drilling, the LOH is written to prioritise environmental protection and respect for the rights of indigenous communities. First and foremost, the law includes a mandate that consultation processes be carried out before land is tendered for extraction activities. Moreover, contractors will be obliged to plant trees on land equivalent to three times the area of forest felled during exploration and extraction activities. In addition, 0.25% of oil revenues derived from any given project must be paid to the country’s Environmental Remediation Contingency Fund, which was set up in 2015 to compensate for the environmental externalities of the oil and gas industry.

Contract Disputes

The push to boost production has suffered structural and one-off setbacks. In August 2015 Perúpetro failed to solicit any licensing bids from qualified companies for the country’s largest oil field, Block 192, and eventually conceded an operating licence to the Canadian petroleum company Frontera Energy under a two-year service contract.

More recently, in May 2018 the government cancelled an agreement to grant five offshore contracts to the UK-headquartered multinational Tullow Oil, asserting that the firm had not done due diligence in consulting with local communities or surveying the span of the projects’ potential environmental impacts. Moreover, the decision came amid suspicion about the concession process for the contracts, which had been signed the day before the resignation of former President Pedro Pablo Kuczynski, who faced impeachment in Congress on corruption charges.

Following the cancellation, Tullow Oil announced that it would revise its plans for operations in Peru. Although the contracts’ cancellation was regarded negatively by many sector investors, the decision was largely welcomed by environmentalists as well as fishing communities, which had warned that drilling for oil along the country’s northern coast would imperil important whale-feeding areas.

Civic Concerns

In November 2018 Frontera Energy suspended operations at Block 192 in response to opposition from Mayuriaga activists, who had severed the 1100-km pipeline running from the block to Peru’s lone refinery, spilling approximately 8000 barrels of crude. The attack punctuated a three-year string of more than two dozen acts of sabotage against Petroperú’s pipeline and Frontera Energy’s rigs as communities in Loreto, an Amazonian department adjoining the Ecuadorian border, pushed the national government to increase the provision of public services to the region.

“In the country’s jungle zones there are many demands that have not been met, and the local people use attacks on the pipelines as a way of exerting pressure on the government, which needs to attend to various social causes,” Paucar Neira explained to OBG.

Operations at Block 192 slowed to a trickle for months as protesters refused to let workers access the pipeline and negotiations stalled between officials and indigenous representatives. In February 2019 Frontera Energy announced that it might forego new investments and withdraw from the field, claiming that it had incurred losses of $10m from the pipeline rupture.

Frontera Energy’s contract is currently scheduled to expire in late 2019. Petroperú has expressed interest in purchasing a 40% stake in Block 192, which is estimated to house 130m barrels, equivalent to roughly 30% of the country’s proven reserves. Several oil and gas companies – including Algerian oil SOE Sonatrach, the Spanish company Cepsa, Argentina’s Pluspetrol and Frontera itself – have expressed interest in partnering with Petroperú to develop the allotment.

Alongside events at Block 192 and negotiations of the LOH, in February 2019 MINEM announced that it would allow Petroperú to acquire stakes of up to 10% in exploration and production agreements contracted by the government. The arrangement will ensure that the SOE has a presence in areas like Amazonia and will be able to consult closely with communities that are protesting upstream activities, while the limit on its stakes will not oblige Petroperú to make large investments.

MINEM also announced that contributions from drilling companies would be used to create a social fund, which would be made available to affected communities in the vicinity of the oil fields and the pipeline.

Regional Partnership

There are also major investment planned in the midstream and downstream segments. Yacimientos Petrolíferos Fiscales Bolivianos, (YFPB), a Bolivian energy SOE, plans to invest $400m to build a storage plant in Ilo, a port city near the Chilean border, as well as a 262-km pipeline connecting that facility with processing centres in Bolivia. The infrastructure investment will help YFPB to more readily ship natural gas overseas, while the deal will allow Bolivia – already the continent’s leading exporter of natural gas – to participate in tenders for domestic, industrial and commercial gas use in southern Peru. In exchange, Bolivia would import gasoline, diesel and crude processed in the port city.

“Bolivia is looking for new export markets because Brazil is increasing its renewable energy and gas production, which will reduce its imports from Bolivia,” Rodolfo Zamaolla, director of energy and intelligent systems at Continua Energías Positivas, told OBG. “Bolivia could build a liquefaction plant and export LNG to Peru.”

Negotiations to grant landlocked Bolivia access to the Pacific and to augment Peru’s supply of LNG accelerated when the countries’ energy ministers met in January 2019. Talks also covered the possible establishment of a joint venture between YPFB and Petroperú to commercialise LNG in the border region between the two states.

“We welcome the interconnectivity of Latin American power networks, and today the region should have an integrating network from Patagonia to Mexico,” Juan Miguel Cayo, general manager of Fenix Power, told OBG. “As in other regions, the challenge is regulation, in particular the rules regarding the sale of electricity.”

Natural Gas

In recent years the Peruvian government has vigorously pursued the massification of natural gas distribution in order to connect more domestic households to the energy grid. A central component of that strategy entails the development of the Southern Gas Pipeline, which will run from the natural gas fields at Camisea, in the Andean plateau of Cusco, to the Port of Ilo. The pipeline, which is projected to cover roughly 1000 km and come at a cost of $7.3bn, will also distribute gas to the departments of Apurimac, Ayacucho, Huancavelica, Junín, Cusco, Puno and Ucayali.

Many details, including the definitive route through the mountains, have not been finalised and remain subject to change. However, construction has been issued to tender and is expected to commence in 2019. According to ProInversión, the pipeline is scheduled to be built in three sections and will connect the gas wells to thermoelectric power stations expected to be installed at Quillabambas, Mollendo and Ilo. Those stations are not expected to begin operating until 2023.

“The plans to start the much-awaited Gasoducto del Sur are welcome, as it will bring more energy efficiency to the country’s southern provinces and create an opportunity to extend the petrochemical industry,” Wilson Miranda, general manager of Confipetrol, told OBG.

Given the project’s high costs, the government will need to spend more on extraction to ensure that gas can continue to serve as a core energy resource, according to the Institute of the Americas. Moreover, the institute recommend that upstream and midstream development be complemented by social inclusion measures, both to meet domestic demand in underserved areas and to prevent the sort of civic resistance that has hampered oil development in Amazonia.

In 2018, 58 shipping vessels exported 109bn scf of Peruvian natural gas, against 65 cargoes carrying 119bn scf of gas in 2017, according to the regulator Perúpetro. The vast majority of exports in both periods went to a handful of countries in Europe and East Asia, including Spain, France, the Netherlands, Japan and South Korea.

The decline in exports was mainly attributed to pipeline damage caused by heavy rains and mudslides in the Cusco department. The adverse conditions cut into supplies from Camisea to Peru’s lone liquefaction centre at Pampa Melchorita, a Pluspetrol-operated facility some 170 km south of Lima on the Peruvian coast.


Authorities are also working to develop Peru’s processing capacities in order to reduce the longstanding reliance on imports and promote the consumption of cleaner fuel. Work began in 2014 on major upgrade to Talara, the country’s sole petroleum refinery, under the direction of Spanish engineering firm Técnicas Reunidas. The overhaul was 75% complete as of April 2019 and is expected by Petroperú to conclude in 2020. The $5bn modernisation is set to triple the refinery’s capacity from 30,000 bpd to 95,000 bpd.


Peru’s electricity is supplied chiefly by hydropower and gas-fired thermoelectric plants. The former accounted for 56.3% of electricity generated between January and November 2018, while the latter produced 39.6%, with wind farms and solar parks making up the remainder. Total installed generation capacity stood at 13.4 GW at year-end 2018 and is expected to increase by 159 MW over the course of 2019, as five hydroelectric plants and a biomass plant are brought on-line. Their operationalisation would constitute a much smaller expansion than that achieved in 2018, when the addition of 11 power stations cumulatively boosted the electricity reserve by 551 MW. In 2018 two facilities alone – the Rubí solar plant and the Wayra I wind farm, with 145 MW an 132 MW of generation capacity, respectively – added nearly as much to the energy mix as the six projects slated for 2019.

Nationwide electricity demand is currently estimated at 7 GW, well below the country’s generation threshold. However, taking a longer-term view, the production uptick scheduled for 2019 is regarded as insufficient to the task of keeping pace with growth in electricity demand in high-input sectors like mining and hydrocarbons. The regulator of the country’s national transmission network and energy grid, the Committee for the Economic Operation of the National Interconnected System, projects demand for electricity to increase to 10 GW by 2025, which would begin to strain the distribution system if further investments are not made.


Peru’s energy stakeholders find the evolution of the sector at a crossroads. The passage of the LOH could go a long way towards making the petroleum market more attractive to foreign investors and alleviating the concerns of communities harmed by upstream activities. Simultaneous with such a move towards fuel self-sufficiency, there is ample opportunity for Peru to utilise its unique LNG-export capacity, as well as its own reserves, to take advantage of booming global demand for gas. Lastly, falling technology prices, the development of sophisticated wind and solar atlases, and a domestic legacy of hydropower should form a foundation for Peruvian policymakers and investors to begin a concerted push to more significantly incorporate renewable resources into the country’s energy mix.