BARRIERS TO ENERGY DEVELOPMENT IN SOUTH AMERICA

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BARRIERS TO ENERGY DEVELOPMENT IN SOUTH AMERICA

• Presentation by
• Sergio Ugarte, Northeastern University, Former
  Vice Minister of Energy Of Peru
• South America Promoting Regional Integration
• CLAI, George Washington University - OAS
• March - 2002

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South America - Heart of Darkness ?
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Energy Sector PoliciesRegional Objectives

• To transform South America into a developed
  Region, with standards of living which reflect
  the wealth of the land and the potential of its
  population

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Energy Policy The Value of Energy

• A necessary condition, although not enough for
  social and economic development
• Factor in competitiveness for the cost of goods
  and services
• Impact on Balance of Payments

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Sustainable Development Trilogy
ENERGY
ECONOMY
ENVIRONMENT
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Energy Policies The Challenges

• Reduce the regulatory, thecnical and
  institutional restrictions that limit the
  development of efficient interconnections
• Design of a Regional Energy Market
• Improve overall efficiency to final user
• Design features of a Regional Transmission and
  Exchange System
• Enormous differences in order to understand the
  Region, dispersions are just as important as
  median values.

• Strategic
• Economic
• Social

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The sufficient and economic energy supply is part
of the Region Security.
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Power How far are we?
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Current Situation

• Until the 80s, strong influence and
  participation of the state.
• Last decade marked by profound reforms in almost
  all the region (decentralization, deregulation
  and privatization)
• Mature and well established energy sectors,
  independent regulatory institutions, mostly
  privately power companies.
• Interconnections are happeningbut slowly

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Current Situation (continuation)

• Two well differentiated sub-regions in South
  America
• Southern Sub-Region (Argentina, Bolivia, Brazil,
  Chile, Paraguay and Uruguay) with increased
  degree of integration.
• Northern Sub-Region (Ecuador, Colombia, Peru and
  Venezuela), that must perfect their
  interconnection agreements.
• Peru and Bolivia are the natural hub for the
  whole regional integration. Their alliance and
  partnership is needed.

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Current Situation (continuation)

• Balance between energy sources
• Power generation 80 from hydro sources
• Hydropower complementarity throughout the region.
• Expectance in new natural gas fields in the
  region
• Gas supply is rigid, due to the existence of
  oligopolies or natural monopolies and its demand
  is not yet well developed.
• Gas infrastructure is modest in the region.

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Hydropower complementarity adds enormous value to
the interconnections
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Expectance in new natural gas fields
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EXISTING GAS PIPELINES
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Potential of the Region

• Potential to enlarge economies if power market
  were fully integrated.
• Economic benefits of huge magnitudes by
  inter-fuel substitution and complementary
  characteristics of isolated systems as compared
  with the integrated system.

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What do we lack?

• Interconnection infrastructure facilities are
  weak where existent.
• International trade agreements are not
  consistent, limiting severely the market
  integration.
• Lack of incentives for interconnection expansion
  during initial stages.
• Unclear regulatory definitions of firm
  transmission capacities.
• Regulatory and institutional barriers that
  discriminate against international exchanges with
  regard to the national market

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The economy of the region doesnt grow
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and our infrastructure is deficient
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How do we revert the situation?

• First, it is not just a technical problem, it is
  mainly political.
• Market itself and improved regulations is NOT
  enough to break inertia of an almost a non-growth
  situation.
• States MUST help to build the new infrastructure.
  Private sector cannot meet acceptable discount
  rates for some needed interconnections.
• FIRM POLITICAL WILL FOR INTEGRATION IS NEEDED

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This political decision means

• Acceptance that even under critical conditions
  energy supply could depend form generation
  abroad.
• Leave border conflicts behind.
• Allow international exchanges.
• Guaranteeing non-discrimination and reciprocity
  in dealing with demand and supply from other
  countries.
• Promoting efficiency in the use of resources.
• Allowing open access to national transmission
  systems.

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Developing a network scheme in South America

• Interconnections Transport
• No difference between concepts of transport
  systems for goods, energy or communications

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Problems to be addressed

• Define properly firm transmission concepts.
• Establish short-term gas market in each regional
  hub (Sao Pablo Buenos Aires).
• Organize a spot market for mandatory sales of
  surpluses and deficits
• Promotion of an interruptible gas market
• Remove asymmetries in gas and power regulatory
  systems.
• Higher regulatory risks for investors in an
  integrated regional power and gas scheme.
• Integrated regulation for all businesses that
  converge with the use of same infrastructure.

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Problems to be addressed (cont)

• National regulations compatible with regional
  integration
• Coordination between national transmission
  planning and the development of interconnections
• Legal fairness and protection
• Assurances of fair assignment of revenues between
  national investors and regional ones.
• Elimination of market price regulations which may
  distort the signals of efficient prices.
• Creation of suitable regional institutions
• Homologizing the performance criteria of every
  national system

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Regional Integration will prevent
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CALIFORNIAS DISASTER. LESSONS

• We cannot pretend Bueno, Bonito y Barato (Good,
  Nice and Cheap)

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DEVELOPMENT OF GAS MARKET IN PERU THE CAMISEA
PROJECT
COLOMBIA
ECUADOR
UPSTREAM

• Camisea Gas Fields
• Cryogenic Separation plant in Camisea
• Fractioning of condensates on the coast

PERU
BRASIL
TRANSPORT DISTRIBUTION
Acre
Cryogenic Plant
GAS

• Gas Pipeline Camisea - City Gate in Lima
• Liquids Pipeline - Camisea- Coast
• Gas distribution network in Lima and Callao

Lima
EXPORT OF CONDENSATES
BOLIVIA
LPG
LIQUIDS
Liquid Fractioning
LEGEND
Titicaca Lake
GAS PIPELINE
EXPORT OF LPG
LIQUIDS PIPELINE
CHILE
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Why natural gas massification?Reasons Fuel
Prices
Lima Commercial Clients / Small
Industry January 2001
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14
13
US / 106 BTU
IGV 0.7
DBP 0.7
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TDAP 1.8
Gas 1.8
Electricity
Diesel
LPG
Kerosene
Natural Gas
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LONG TERM VISION OF GAS FOR PERÚ
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Energy Policy The Resources
Camisea 13 TCF Gas 1,870 TWh
Mantaro (840 MW) 6.5 TWh/yr 325 TWh in 50 yrs
5.8
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Energy PolicyThe Resources
Hydroelectric Potential 60 GW 360
TWh/yr 18,000 TWh in 50 yrs
Camisea 13 TCFGas 1,870 TWh
of Electrical Energy
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Colombia
Ecuador
Machala
Zarumilla
Zorritos
Talara
Sullana
Arenal
Piura Oeste
Chachapoyas
Moyobamba
Paita
C.H. Carhuaquero
Tarapoto
Chiclayo Oeste
Brasil
Cajamarca
Guadalupe
Bellavista
Tocache
Trujillo Norte
M. Aguila
Aguaytía
Aucayacu
Pucallpa
C. Del Pato
Tingo María
Caraz
Huánuco
Carhuaz
Chimbote
Huaraz
Der. Antamina
Ticapampa
Paragsha II
Iñapari
Yaupi
Cahua
Paramonga
Carhuamayo
Oroya
Matucana
Zapallal
Pachachaca
Callahuanca
Ventanilla
Huayucachi
Huampaní
Chavarría
Pomacocha
Huinco
Santa Rosa
Océano Pacífico
Mantaro
Moyopampa
Puerto Maldonado
San Juan
Restitución
Huanta
Huancavelica
Quillabamba
Bolivia
Ayacucho
Independencia
Andahuaylas
Ica
San Gaban
Cotaruse
Marcona
San Nicolás
Línea de 220 kV Línea de 138 kV Línea de 66 kV
Moquegua
Chile
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Coming Up Peru-Ecuador connection
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COLOMBIA ECUADOR INTERCONEXION
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Are we clear in our vision of Regional
Interconnection?

• Interconnections are NOT Passage ways. They
  are Axis for Progress
• They converge different network businesses Gas,
  power and telecommunications.
• The evolution of the regulation must take real
  advantage of this reality and it is not.
• Meaning of Progress 70s Access to energy90s
  Access to InternetBut we are in the 21st
  Century now!

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• Convergence
• Power
• Gas
• - Telecommunications

NATIONAL AND CORPORATE STRATEGIC PERSPECTIVE
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DIVERSIFICATION OF TRANSMISSION AND DISTRIBUTION
BUSINESSCompetitiveness and mass marketing of
the telecommunications business by use of the
power transmission and distribution
infrastructureStates RoleTo promote awareness
of the value and potential of the transmission
and distribution infratsructure and its
contribution to the diversification of business
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Convergence Power - Telecommunications
GENERALIZED USEOF OPTICAL FIBERS
USE OF TRANSMISSION AND DISTRIBUTION
SYSTEMS (INFRASTRUCTURE AND RIGHTS-OF -WAY)
DIGITALIZATION OF TELECOMMUNICATIONS
PARTICIPATION OF POWER SECTOR IN
TELECOMMUNICATIONS
Europe End of 80s Latin America
Recent experience
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New Tariff System
SYSTEMS
GAS
POWER
NETWORKS
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THE END