Gasoducto Sur Peruano en Calgary

ENERGY SECURITY AND SOUTH PERUVIAN

GAS PIPELINE PROJECTS

October 2013

2

ProInversión, the promotion arm of Peru Government, seeks investors tohelp construct and operate new natural gas and gas liquids pipelineinfrastructure as well as new power generation facilities in Peru. Fourconcessions are envisaged:

• Two separate concessions of 500MW (+ or – 20%) each of diesel-firedgeneration in the southern coastal region (the Energy Node), to beconnected to the natural gas pipeline once gas is available

• Gasoducto Sur Peruano (GSP), a natural gas pipeline from the existingTGP system to these power generation facilities in the south as well asto other consumers such as potential petrochemicals

• The “Energy Security Project” – additional natural gas and gas liquidspipeline capacity from the Camisea region to Chiquintirca to improvereliability of the overall system

Today we will discuss each of these projects, their economic, strategicrationale and key technical, financial, and contractual considerations

Why we are here today

1. Project background

3. Technical considerations

4. Contract considerations

5. Q&A

2. Project description

Domestic production of hydrocarbons has increased roughly 16% p.a. since 2006 while the consumption of natural gas has increased 37% p.a.

Project Background:

Strong growth in Peruvian energy

production

Source: MINEM

4

Peru Energy Historical Resource Production

-

50

100

150

200

250

300

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

KB

OE

Crude Natural Gas

• Since 2008 the average GDP growth has roughly been 6.5% p.a.

• As of 2012, the gas demand is broken out in the following way:

• Peru LNG (56%)• Power (27%)• Industrial (10%)• GNV (5%)• Residential (1%)

CAGR (06-12): 16%

Hydroelectric Thermal Solar Total

Installed Capacity (MW): 433 356 788

Effective Capacity (MW): 454 327 781Annual Production (GWh): 2,462 820 3,282

Peak Demand (MW) : 395 62 457


Installed Capacity (MW): 2,384 3,409 5,793

Effective Capacity (MW): 2,258 3,155 5,413Annual Production (GWh): 15,734 14,884 30,618

Peak Demand (MW) : 2,102 2,253 4,355


Installed Capacity (MW): 428 527 84 1,039

Effective Capacity (MW): 428 415 80 923Annual Production (GWh): 2,652 709 60 3,421

Peak Demand (MW) : 345 133 479


Installed Capacity (MW): 3,244 4,292 84 7,620

Effective Capacity (MW): 3,140 3,897 80 7,117Annual Production (GWh): 20,849 16,413 60 37,321

Peak Demand (MW) : 2,843 2,448 5,291

Northern Zone

Central Zone

Southern Zone

Peru Total

Source: COES Operational Statistics 2012

Project Background:

Power generation in Peru is divided

into three zones

5

Installed Generation Capacity and Power Generation by Region in Peru

Source: COES Operational Statistics 2012

Project Background:

The central region generates the

majority of Peru’s power

Growth in power generation in Peru since 2006 has averaged roughly 9% p.a.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Eff

ecti

ve C

apac

ity

(MW

)

Po

wer

Gen

erat

ion

(G

Wh

)

North Central South Total - Effective Capacity (MW)

6

CAGR (‘06-’12): 9.1%

Source: Wood Mackenzie’s analysis, COES

Project Background:

The power sector is driving growth

in natural gas consumption

Natural gas demand is expected to grow significantly, led by the power sector

Peru Natural Gas Demand Forecast (2013 – 2033)

7

0

500

1,000

1,500

2,000

2,500

2012 2015 2018 2021 2024 2027 2030 2033

MM

CF

D

LNG Possible Future LNG Electricity - North NGV - NorthOther Users - North Electricity - South Other Users - South

CAGR (’12-’20): 5.1%

CAGR (’20-’33): 2.5%

Project Background:

Highly prospective plays expected to

meet future growth

Reserves

Block 56 57 58 88 TotalNatural Gas (TCF)

Proved (1P) 3.0 0.6 0.0 10.3 142P1 4.0 2.5 2.3 11.9 21

Natural Gas Liquids (MMbbl)

Proved (1P) 216.8 30.8 0.0 515.1 7632P1 293.4 132.3 135.9 614.7 1,176

There are a number of highly prospective plays in Peru that will provide the resources to meet continued demand growth in natural gas

Source: COES Operational Statistics 2012; Note: 2P is inclusive of 1P

8

First exploratory well is expected to be drilled in

block 76 in 2015, Prospective reserves of

around 2-3 tcf are expected

Project Background:

Reserves outlook vs. demand

outlook

Peru has more than enough reserves to meet the expected domestic demand for the next 30+ years

Demand Outlook (2013-2050) - tcf

9

0

24

68

1012

1416

1820

22

Block 57

17

Block 56

21

Block 88

12

Block 58

14

Proved reserves

Probable reserves

Reserves Outlook (2013-2050) - tcf

It is expected that additional reserves will be found and

developed as demand expands and infrastructure bottlenecks

are removed4

02

468

1012

141618

2022

Other users -South

21

Electricity demand -

South

202

Other users -North

19

6

Electricity demand -

North

13

9

LNG

Demand

Source: MINEM, Wood Mackenzie 2013, Upstream Services; Includes blocks: 56, 57, 58, 88 (Block 76 could be incorporated in the future)

0

500

1000

1500

2000

2500

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

mm

cfd

PLNG TGP Gas TGP Gas - Expansion GSP - Aprox. Capacity Production

It is expected that additional reserves will be developed to reverse the expected fall in

production

Production is based on 1P reserves

Project Background:

Infrastructure investment needed to

meet growing gas production

The TGP expansion and the construction of Gasoducto Sur Peruano will drive further development of the Camisea basin

Peru Natural Gas production forecast

10

0

20

40

60

80

100

120

140

160

180

200

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

Kb

/d

TGP - NGL TGP - NGL - Expansion ProductionSource: Wood Mackenzie 2013, Upstream Services; Includes blocks: 56, 57, 58, 88 (Block 76 could be incorporated in the future)

It is expected that additional reserves will be developed to reverse the expected fall in

production

Production is based on 1P reserves

Project Background:

Added take-away capacity also

needed in NGLs

Like natural gas, current natural gas liquids production is infrastructure limited

NGL Production and Takeaway Capacity

11




5. Q&A


Project Description:

Energy infrastructure projects

proposed

PISCOPISCO

LIMA (Lurín)LIMA

(Lurín)

HUMAY

HUANCAVELICA

AYACUCHO

APURIMAC

AREQUIPA

MOQUEGUA

MADRE DE DIOS

TACNA

CUSCO

PUNO

CUSCO

PUNO

CHILECHILE

BOLIVIABOLIVIA

BRASILBRASIL

LAGOTITICACA

LAGOTITICACA

GASODUCTO DE SEGURIDAD ENERGÉTICAGASODUCTO DE SEGURIDAD ENERGÉTICA

AREQUIPA

MALVINAS

TGP (SISTEMA ACTUAL + LOOP COSTA) Gasoducto / PoliductoTGP (SISTEMA ACTUAL + LOOP COSTA) Gasoducto / Poliducto

JULIACAMARCONAMARCONA

ICA

CONTUGAS (SISTEMA ACTUAL)CONTUGAS (SISTEMA ACTUAL)

Pampa Melchorita

Pampa Melchorita

PERU LNG (GASODUCTO)PERU LNG (GASODUCTO)

Loop TGPLoop TGP

ACTUALES

PROYECTADOS

GASODUCTO SUR PERUANOGASODUCTO SUR PERUANO

ANTA

ESPINAR

ZONA DE SEGURIDAD

ENERGÉTICAQUILLABAMBA

CHIQUINTIRCA

POLIDUCTO DE SEGURIDAD ENERGÉTICAPOLIDUCTO DE SEGURIDAD ENERGÉTICA

Km 127

Km 73

ABANCAY

ZONA DE UBICACIÓN DEL POLO PETROQUÍMICO Y DEL NODO ENERGÉTICO

Energy Security and Gasoducto Sur Peruano Projects

13

� Historical failures of the TGP system has had a large financial impact on the country’s economics (~$400,000/day)

� Sense of vulnerability as ~50% of the power produced in Lima depends on a single supply line

� 500 MMcf/d of gas is being re-injected due to limitations in midstream gas processing and downstream markets

� Trigger economic development in Southern Peru and address demographic concentration

Address Socio/Economic Issues

� ~60% of power consumed in the south is generated in the north while demand for peak power in the south is growing

Remedy Regional Power Generation Disparities

Project Background:

Strategic rationale

Energy security

Resolve Infrastructure constraints

1

2

3

4

14

MALVINASChiquintirca

URCOS

a1

a2

bc

QUILLABAMBA

APURÍMAC

PUNO

� The GSP sections from the Point ofConnection (PC) to Mollendo/Ilo whichincludes:

� Section a1: Gas pipeline from the PCto the province of Anta

� Section a2: Gas pipeline from theprovince of Anta to Mollendo/Ilo

� Section b: Gas and liquids pipeline fromthe separation plant at Malvinas to thePC

� Section c: Gas and liquids pipeline fromthe PC to the compression plant atChiquintirca (km 211)

PC

MOLLENDO ILO TACNA


Energy Node & Gasoducto Sur Peruano

Gas Pipeline

Liquids PipelineExisting

15

ANTA

AREQUIPA



5. Q&A



Technical Considerations:

Existing TGP pipeline (NG and NGL)

has limited capacity

17

Existing Transmission System – Natural Gas

Existing Transmission System –Natural Gas Liquids

Km 0: Malvinas PlantCapacity 2000 MMCFD

Discharge Pressure: 147 barg

Km 127:Kepashiato Intermediate Compression Station in constructionto increase capacity to 1,500 MMCFD

Km 211: Chiquintirca Compression Station

Arrival Pressure: 70 barg

32”32”

TgP NG Maximum Operating Capacity with current configuration : 1230 MMSCFD

TgP NGL Maximum Operating Capacity with current configuration: 110 MBPD

Km 0:PS1


Km 108:PS2 Suction Pressure : 16 barg

Discharge Pressure : varies with flow rate

Km 210: Chiquintirca PS3

Inlet Pressure: 7 barg

14”14”

� Pipeline stability protection solutions should be given to protect the pipeline from movements caused by difficult terrains that need to be traversed

Seismic Areas

� Terrain traverses from low to high altitude locations with dramatic slopes that need to be considered; there will be a requirement for slope protection

Terrain Difficulties


The pipelines have a number of

technical complexities

Protected Areas

Archaeological Issues

1

2

3

4

18

� RoW located in jungle, mountain, costal desert where isolated tribes need to be considered for safety and security issues. There will be logistical requirements to avoid issues because of proximity to communities

Right of Way (RoW) Issues

5

�The environmental impact is the most onerous During construction phase

� Numerous archaeological sites in Peru - possibility finding archaeological artefacts during construction


Energy Security

Recommendation Schematic

19

Future Transmission System – Natural Gas

Future Transmission System –Natural Gas Liquids



Km 127:Kepashiato Intermediate Compression Stationto increase capacity to 1,500 MMCFD

Km 211: Chinquintirca Compression Station


32”32”

TgP NG expected Maximum Operating Capacity with current configuration 1230

Energy Security Maximum Operating Capacity (0-73km/73-211km): 2000/1500

Km 0:PS1

Km 108:PS2Km 210:

Chinquintirca PS3

Inlet Pressure: 7 barg

14”14”

Km 73: Derivation Point

32”

36”36” 36”

MMCFD

ExistingNew

TgP NGL Maximum Operating Capacity (with DRA): 130

Energy Security Maximum Operating Capacity/Design of new (without DRA) : 130

KBD

Existing with DRANew

Km TBD:PS2 (New)

24”24” Km 0:PS1 (New)

Note: 1) Design capacity is expected to be 10% above operating capacity


Energy Security

Recommended Installations

20

Energy Security Loop Overview – Recommended Option

Product Recommendation

Natural Gas• 36” NG Loop from Las Malvinas Separation Plant to Chinquintirca• 4 Scrapper Facilities • 8 section valves

Natural Gas Liquids

• 24” NGL Loop from Las Malvinas Separation Plant to Chinquintirca• 4 Scrapper Facilities • 10 section valves• 2 New pumping stations at Las Malvinas Plant close by to Derivation Point

Full System • 2 new control rooms


Energy Security

CAPEX Estimate

21

Energy Security Loop CAPEX Estimate

Cost Breakout Cost ($)

Basic Engineering / Feed Excluded

Surveys 8,000,000

Detailed Engineering and Project Management 42,000,000

Materials - Line Pipe, Major Valves, etc. 370,000,000

Compression and Equipment 17,000,000

Controls : Field Instruments, Sub-Systems, Bulks, SCADA and RTU 19,000,000

Buildings 41,000,000

Construction Works 484,000,000

Estimated Total CAPEX : $981,000,000


Gasoducto Sur Peruano

Recommendation Schematic

22

Gasoducto Sur Peruano System

Mollendo:

275 MMCFD

Ilo:

175 MMCFD

Quillabamba:

50 MMscfd

TgP existing NG Pipeline

NG new Security Pipeline


URCOS

Km76224”

24”

14”

32”

32”

GSP Flow Rates MMCFD:

Inlet of system1 : 500

Quillabamba (Power) : 50

Mollendo (Petrochemicals) : 50

Mollendo (Power) : 175

Ilo (Petrochemicals) : 50

Ilo (Power) : 175



Km 127:Kepashiato Intermediate Compression Stationto increase capacity to 1,500 MMCFD

Km 211: Chinquintirca Compression Station


32”32”Km 73: Derivation Point

32”

36”36” 36”

Note: 1) Design capacity is expected to be 10% above operating capacity

23

Gasoducto Sur Peruano Overview – Recommended Option

Product Recommendation

Natural Gas

• 32” from Point of Derivation from TGP/Energy Security to Mollendo Branch (Km762)• 24” from Km 762 to the end of the pipeline at Ilo• 9 Scrapper Facilities• 27 section valves (blocking and bleeding stations)• 8 branches: Quilibamba, Anta, Apurimac, Espinar, Juliaca /Puno, Arequipa, Mollendo,

Moquegua, Tacna



Recommended Installations



CAPEX Estimate

24

Gasoducto Sur Peruano CAPEX Estimate

Cost Breakout Cost ($)

Basic Engineering / Feed Excluded

Surveys 20,000,000

Detailed Engineering and Project Management 112,000,000

Materials - Line Pipe, Major Valves, etc. 882,000,000

Compression and Equipment Not required

Controls : Field Instruments, Sub-Systems, Bulks, SCADA and RTU 62,000,000

Buildings 16,000,000

Construction Works 1,371,000,000

Estimated Total CAPEX : $2,463,000,000


5. Q&A




Questions?

26

Issue Discussion

Concession 1:Energy Security

• This 30-year Concession will be a single Concession in two Phases.

• Phase 1 will run from the existing natural gas fields in the Malvinas to the Derivation Point at or around KM 73 on the existing TGP pipeline system.

• Pipelines Dimensions: 36-inch for natural gas; 24-inch natural gas liquids

• Phase 2 will run from the Derivation Point to Chiquintirca.• Pipelines Dimensions: 36-inch for natural gas; 24-inch natural gas liquids

• Qualified Bidders have reasonable discretion regarding the pipeline route.

Concession 2:Gasoducto Sur Peruano (GSP)

• This 30-year Concession will be single Concession in two Segments.

• Segment a1 will run from the Derivation Point to roughly Urcos • Pipelines Dimensions: 32-inch for natural gas

• Segment a2 will run from Urcos south to Mollendo and Ilo• Pipelines Dimensions: 24-inch for natural gas

• Qualified Bidders have reasonable discretion regarding the pipeline route.

Key Contractual

Considerations

Questions?

27

Issue Discussion

Bidder Selection

• Minimum technical and financial criteria will be applied to pre-qualify Bidders

• The winning bid will be selected based on the Total Cost of Service

• MINEM and ProInversión propose some processes to help Winning Bidder

manage risks:

• Cost of Service Adjustment Process

• Right of Way Risk

• Local Community Support Risk

Key Contractual

Considerations

Questions?

28

Issue Discussion

Cost of Service Adjustment Process

MINEM and ProInversión recognize it may be challenging for prospective Bidders to estimate the cost of construction of the pipeline owing to the difficult terrain, geotechnical and weather conditions. MINEM and ProInversión propose a process –the Cost of Service Adjustment Process -- by which unexpected events and related cost adjustments might be incorporated into the cost recovery system of the pipeline system.

If, during the course of the construction of the pipeline actual construction costs are determined to be higher than those used to derive the Total Cost of Service, Winning Bidder may petition to adjust the Total Cost of Service. This process would be used, amongst other things, to address such issues as potential cost increases and schedule delays owing to unexpected archaeological finds and the possible related need to re-route the pipeline.

A qualified and independent international engineering firm would review the Adjustment Petition as quickly as is practical and, in conjunction with MINEM/ProInversión, approve re-routing and related modifications in construction costs (and overall Total Cost of Service) as well as potential modifications to the construction schedule

Adjustments to the Total Cost of Service would be limited to 15%

Key Contractual

Considerations

Questions?

29

Issue Discussion

Right of Way Cost Risk

MINEM/ProInversión recognizes that it is challenging for a Bidder to develop an accurate estimate of the cost of acquiring Right of Way for the construction of the pipeline without spending many months discussing ROW issues with the many affected stakeholders in Peru. It is intent of MINEM/ProInversión to limit ROW cost risk and make it easier to Bidders to estimate the overall cost of the pipeline project. MINEM/ProInversión will do so in the following steps:

• MINEM/ProInversión will for each pipeline Concession, provide estimated ROW costs

• Bidder will bid to this estimated cost, such funds to ultimately be placed in escrow from the Winning Bidder

• If total ROW costs exceed the estimated ROW costs, such additional costs will be paid by Bidder but will be added to the winning bid and will be recovered as part of the overall cost recovery mechanism

• If total ROW costs are less than estimated ROW costs, such difference will be distributed to local communities along the route of the pipeline

• It will still be the role of the Winning Bidder to negotiate ROW with appropriate stakeholders in consultation with and with the support of MINEM/ProInversión

Key Contractual

Considerations

Questions?

30

Issue Discussion

Local Community Support

MINEM/ProInversión recognizes that the local Peruvian communities affected by the construction of the pipeline could, in some cases, raise important issues and concerns that could delay the construction of the pipeline. The government will provide a best efforts attempt to facilitate the delivery of the environmental and construction permits and to gain social acceptance of the project in the affected communities

Possible delays in the construction of the pipeline system caused by lack of local community support that lead higher costs will be managed through the Cost of Service Adjustment Process

Possible delays in the construction of the pipeline system caused by lack of local community support that make is impossible for the Winning Bidder to commission the pipeline according to schedule will be considered a force majeure event

Key Contractual

Considerations

� A combination of recovery mechanisms depending on the pipeline segment

� The revenue for the pipelines included in the Security Node will be entirely recovered by the users of the TGP and GSP

� Over time, conversion of the diesel-fired Energy Node to natural gas as well as industrial development creates long-term contract revenues, reducing the need for the surcharge

� “Mechanism of Guaranteed Income” – Law 29970: Peruvian government through this mechanism guarantees the investment recovery in all trenches of the pipelines (natural gas and liquids)

Mechanism of Guaranteed Income

� Ability to collect the surcharges and the tariffs from usersWinning Bidder effectively holds Peru economy risk

Project Background:

Recovery of Cost of Service:

Summary

Most costs recovered from a “surcharge” on users

As contracted volumes on the pipelines increase, the

surcharge declines

31

Concession 1: Energy Security Concession 2: GSP

Product Pipeline b and c Gas Pipeline b and c Gas Pipeline a1 Gas Pipeline a2

Pipeline Tariffs from users

GRPPipeline

Tariffs from users

Payment - all natural gas users in the countryPayment – all liquids users

in the country

The tariff for the liquids security loop is distributed

between all the liquids users and is sufficient to

cover the cost of service of the liquids product pipeline.

Energy Security and Gasoducto Sur Peruano Systems

The tariff for the gas pipelines included in the energy security is distributed between all the users of natural gas

and is sufficient to cover the difference between the cost of service of the gas pipelines and the payment of the users of

the gas at Quillabamba.

The GRP would compensate for the

difference between the cost of service of a2 and the revenue generated from

the users of a2 (generators and others).

Contract consideration:

Remuneration system

There are three different systems that will work in these various concessions to guarantee the payment to the winners of the projects

32

Cost of service of the security pipelines (MM$)

3,005

888

GSP TotalGSP Segment a2

2,117

GSP Segment a1

760

1,166

406

Security loopsSecurity natural gas loops

Security liquid loops

Cost of service of the GSP (MM$)


Estimated Cost of Service

The Cost of Service accounts for Capex/Opex and the tax regime

33

Tariff System

PipelineApplicable

TariffAffected Consumers Tariffs

Impact on end-user price

Product Pipeline b y cSecurity

tariffAll liquids users in the

country$1.1/bbl 2%

Gas Pipeline b y c Security tariff

All natural gas users in the country

$0.5/kcf 9%

Gas Pipeline a1TGP Tariff

Generator users of GSP –segment a1

$1.2/kcf N/A

Regulated Tariff(GSP)

All other users of GSP –segment a1

$2.1/kcf N/A

Gas Pipeline a2

TGP TariffGenerator users of GSP –

segment a2$1.2/kcf N/A

Regulated Tariff

All other users of GSP –segment a2

$2.1/kcf N/A

GRP Tariff All electricity users $0.13¢/kWh 2%

It is assumed that all tariffs are adjusted based on IPP: “Finished Goods Less Food and Energy”


Remuneration system

34

INDICATIVE


Timeline for the pipelines bidding

process

2013 2014

Oct Nov Dec Jan Feb Mar Apr

Contract closure

Activity

Communication to all the qualified participants

Qualification of participants

Responses to the consultation

Consultation of the tender documents

Publication of the final version of the contracts

Roadshow Lima

Roadshow Houston

Roadshow Calgary

Presentation of the legal, technical and commercial proposal

Award of the contract

35


Timeline for the power plants

bidding process

Aug Sep Oct Nov

05. 12. 19. 26. 02. 09. 16. 23. 30. 07. 14. 21. 28. 04. 11. 18.

13/11/2013

30/10/2013

15/10/2013

25/09/2013

17/09/2013

TBD

Activity

Contract closure

Award of the contract

Presentation of the legal, technical and commercial proposal

28/10/2013

Publication of the final version of the contracts

Communication to all the qualified participants

Pre-qualification of Participants and timeline for establishment of consortiums

Responses to the consultation

Consultation of the tender documents

Update to tender documents published16/08/2013

15/11/2013

36


5. Q&A




Questions?

Questions?

38

www.proinversion.gob.pe

[email protected]

Business

Gasoducto Sur Peruano en Calgary