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Overview

The Mountains of Southwest China Hotspot stretches over 262,400 km² of temperate to alpine mountains between the easternmost edge of the Tibetan Plateau and the Central Chinese Plain. It lies to the north of the Indo-Burma Hotspot, and to the immediate east of the Himalaya Hotspot, and is bounded in the northwest by the dry Tibetan Plateau, in the north by the Tao River of southern Gansu, and in the east by the Sichuan Basin and the plateau of eastern Yunnan.

The Mountains of Southwest China are characterized by extremely complex topography, ranging from less than 2,000 meters in some valley floors to 7,558 meters at the summit of Gongga Shan (Mountain). The mountain ridges are oriented in a generally north-south direction, perpendicular to the main Himalayan chain. The region includes the Hengduan, Gaoligong, and Nu Shan of western Yunnan; the Nyainqentanglha, Ningjing, Taniantaweng Shan, and others at the southeastern edge of the Tibetan Plateau; the Shaluli, Daxue (including Gongga Shan), Chola, and Qionglai Shan systems of Sichuan; and the Min Shan on the Sichuan-Gansu border. The Ailao Shan and Wuliang Shan of central Yunnan are not part of this hotspot (both are included in the Indo-Burma Hotspot).

The Mountains of Southwest China feed the most species-rich temperate and tropical river systems in Asia. Major river systems that traverse or originate in the hotspot include the Jingshajiang, Yalongjiang, Daduhe, and Minjiang, all branches of the Yangtze River, which empties in the East China Sea. The Lancangjiang (Mekong River), passes through Yunnan Province, Laos, Cambodia, and Vietnam on its way to the South China Sea. The Nujiang reaches the Indian Ocean through Yunnan Province and Burma.

The complex topography results in a wide range of climatic conditions. Temperatures range from frost-free throughout the year in parts of Yunnan and short, frost-free periods at the northern boundary of the region, to permanent glaciers on the high mountain peaks of Sichuan, Yunnan, and Xizang. Annual average rainfall in the region exceeds 1,000 millimeters on southwestern slopes at higher altitudes in Yunnan, while areas of the northwestern part of the region, in the rainshadow of the Tibetan Plateau, rarely receive more than 400 millimeters annually.

Climatic and topographic conditions result in a wide variety of vegetation types across the hotspot, including broad-leaved and coniferous forests, bamboo groves, scrub communities, savanna, meadow, prairie, freshwater wetlands, and alpine scrub and scree communities.

Unique and Threatened Biodiversity

As a result of the dramatic differences in topography, climate and vegetation and the physical barriers between its regions, the Mountains of Southwest China Hotspot has evolved a cluster of distinctive mini-hotspots, each with its own unique flora and fauna.

Plants

This hotspot is arguably the most botanically rich temperate region in the world, even though its species richness is not fully documented. Vascular plant diversity is estimated at about 12,000 species, representing as much as 40 percent of all the species in China. Of these, about 3,500 species (29 percent) and at least 20 genera are endemic, including about 100 endemic ferns and 20 endemic gymnosperms. Two plant families are endemic to the hotspot: the Circaeasteraceae and the monotypic Acanthochlamydaceae.

The region provides a refugium for several ancient plant species found nowhere else in the world, including representatives from the genera Rhododendron, Rhodiola, Kingdonia, and Circaeaster. More than a quarter of the world’s rhododendron species are represented in the Heng Duan Shan, an astounding 230 different species, many of which are endemic and quite rare. Some of the larger rhododendrons can grow as tall as 20 meters or more.

Vertebrates

Birds

Of the more than 600 bird species occurring in the hotspot, only a single bird species is endemic – the white-speckled laughingthrush (Garrulax bieti, VU). Nevertheless, four Endemic Bird Areas (EBAs), identified by BirdLife International, largely overlap with the hotspot and are home to a number of restricted range and endemic species, including the Sichuan partridge (Arborophila rufipectus, EN). While species such as the white-eared pheasant (Crossoptilon crossoptilon) are not technically endemic to the hotspot, they are important species endemic to Southwest China.

The region has the richest variety of pheasants and their relatives in the world, with around 25 species in total, including Lady Amherst pheasant (Chrysolophus amherstiae). Two iridescent monal pheasants, Sclater’s monal (Lophophorus sclateri, VU) and the Chinese monal (L. lhuysii, VU), are perhaps the most brilliant.

Mammals

More than 230 mammal species inhabit the hotspot, although only five are endemic, including the Gaoligong pika (Ochotona gaoligongensis) and Chinese dormouse (Dryomys sichuanensis, EN), the latter known only from the Wanglang Nature Reserve.

The giant panda (Ailuropoda melanoleuca, EN), which is almost entirely restricted to the shrinking forests of this hotspot, is the world's best-known flagship species for conservation. As with several bird species, the giant panda has a range that is not much larger than the boundaries of the hotspot. This species survives in fragmented populations confined to over 40 reserves stretching from western Sichuan to southern Gansu and southern Shaanxi. The red panda (Ailurus fulgens, EN), a smaller relative of the giant panda, is also found in this hotspot.

Other important mammal flagships include the golden monkey (Rhinopithecus roxellana, VU) and the Yunnan or black snub-nosed monkey (R. bieti, EN), which lives at higher altitudes than any other non-human primate (ranging as high as 4,500 meters). These monkeys are among the few truly temperate monkey species in the world. Several distinctive ungulate herbivores are endemic to this hotspot, including the takin (Budorcas taxicolor, VU), an unusual 300-kilogram goat antelope, the red or Bailey's goral (Nemorhaedus baileyi, VU), which is endemic to the Gaoligong Shan, and the Chinese forest musk deer (Moschus berezovskii). These herbivores provide prey for a number of large predators, including the magnificent snow leopard (Panthera uncia, EN).

Reptiles

Given its size and temperate climate, the Mountains of Southwest China hotspot is also home to a surprisingly wide diversity of reptiles and amphibians. There are more than 90 reptile species in the hotspot, comprising a little over 20 lizard species, and nearly 70 species of snakes. About 15 species are endemic, including the Szechwan pit viper (Trimeresurus xiangchengensis) and Kingdonward's bloodsucker (Calotes kingdonwardi).

Amphibians

Amphibians are represented by around 90 species in the hotspot, with the genera Scutiger, Oreolalax and Amolops being particularly well represented. Some of these species occur at very high altitudes; for example, the Xizang alpine toad (Scutiger boulengeri) is found to elevations of more than 5,000 meters above sea level. Of the eight species known to be endemic, three are threatened: Oreolalax liangbeiensis (CR), restricted to Puxiong in Yuexi County, in southern Sichuan province, from 2,850 to 3,000 meters; Scutiger gongshanensis (VU), known from Gongshan and Biluoxueshan, in northwestern Yunnan province; and Rana chevronta (CR), known from Mount Emei, in Sichuan Province, and not recorded since 1983.

Freshwater Fishes

The hotspot has more than 90 freshwater fish species, almost a quarter of which are endemic, including two endemic genera. The majority of fish in the hotspot are from two families, Cyprinidae and Balitoridae, while most of the endemic fish are from two genera, Schizothorax and Triplophysa.

Human Impacts

Despite its inaccessibility due to extreme topography and climate, the Mountains of Southwest China Hotspot is still heavily impacted by human activity. High population growth rates among the inhabitants of the region and immigration from other parts of China have exacerbated the pressures on natural habitat.

Until a 1998 logging ban, one of the most serious threats to the area was intensive commercial logging. Forest cover in Sichuan Province, one of China's main sources of timber, declined from 19 percent in the 1950s to 12.6 percent in 1988. Almost all this loss was in the more remote and mountainous western part of Sichuan, since forests elsewhere in the province were cut long ago. Today, even with the ban on commercial logging, forests are still being logged at a significant rate for firewood collection and house construction, particularly in the bitterly cold high valleys of the region. In some areas, the volume of extraction for these purposes may even exceed past logging harvests.

With the exception of scree slopes and vertical cliffs, areas with no forest cover or that are unsuitable for crops are heavily impacted by large herds of grazing animals, such as yak, sheep, and goats. These animals are brought to the region by nomadic Tibetan herdsmen, who ascend to alpine pastures in the summer and return to the valleys before winter. In some cases, standing forests have been cleared to increase pasture for the growing domestic herds. Both logging and overgrazing have predictably led to serious erosion on steep slopes and to the siltation of rivers.

Emerging threats include dam building on all main rivers in the hotspot, mining, and unplanned mass tourism development, all of which are accompanied by road expansion. For example, the Chinese government has proposed the construction of eight large dams on the upper reaches of the Lancanjiang, or Mekong River, in Yunnan Province. The dams will affect sediment transport and the river's flooding cycle, and will drastically alter ecosystems both upstream and downstream of the sites. As mentioned above, this river flows through Yunnan Province, as well as Laos and Cambodia; the lives and livelihoods of millions of people living in these areas could be affected. Also, increasing access to disposable income and leisure time allows more and more Chinese citizens the opportunity to visit nature reserves and wilderness areas. Controlled tourism can provide an excellent alternative to logging and other harmful land uses; however, the construction of roads, hotels, and cable cars, along with the presence of large numbers of people in wild areas, can all lead to severe habitat degradation.

It has been calculated that the remaining forest cover totals 23 percent of Yunnan Province, 12 percent of Sichuan Province, and 5.1 percent of The Tibetan Autonomous Region (TAR) in 1992. In all, only about eight percent of the original extent of the hotspot remains in pristine condition. Since the 1980s, and particularly from the late 1990s onwards, forest regeneration has been taking place on logged sites and wasteland. This has led to an increase in overall forest cover. However, most of this increase is accounted for by monoculture plantations, including stands of alien species such as the Japanese Pine.

As in many of the hotspots in and around China, the collection of plants and animals for traditional medicinal purposes poses an enormous threat to the long-term viability of species in the Mountains of Southwest China. Among the species affected by this trade are monkeys, snakes, geckos, deer, and bears. Illegal hunting is also a major problem, and skins of protected species are frequently seen on the black market.

Conservation Action and Protected Areas

According to an analysis of protected areas in the World Database of Protected Areas, protected areas in the hotspot cover some 14,000 km² (or 5.3 percent of the area). This coverage drops dramatically, to 1.4 percent of the hotspot, when one considers only those classed in IUCN categories I-IV. Among the best-known and most important protected areas in the hotspot is the 2,000-km² Wolong Nature Reserve in western Sichuan, which is home to the giant panda, and around 4,000 plant species, including the Chinese yew (Taxus chinensis).

Emei Shan, an isolated and protected limestone mountain on the eastern edge of the hotspot, rises to 3,099 meters and is considered to be one of the botanically richest and most diverse mountains in the Northern Hemisphere. The mountain is one of the few places where the Tibetan macaque (Macaca thibetana) can easily be seen. Emei Shan Natural and Historical Heritage Reserve is also the only known site for two threatened amphibians: the aforementioned Rana chevronta, and Batrachuperus londongensis (EN), which is known only from the Longdon River.

Other protected areas include Luoji Shan Nature Reserve, which contains more than 2,000 species of higher plants, including more than 50 species of Rhododendron; and Gaoligong Shan Nature Reserve. Gaoligong Shan has recently been expanded across the Nu Jiang (Salween) and Lancang-Jiang (Mekong) rivers to link with the Bai Ma Xue Shan Nature Reserve and the east bank of the Jinsha River (part of the Yangtze) to create the Three Parallel Rivers World Heritage Site, which provides protection for the many different ridges and valleys and their highly distinctive flora. However, while a number of important areas are already protected in this hotspot, much more remains to be done, with the enormous watershed value of this region in and of itself providing more than adequate justification for increased protection (given that five of the great rivers of Asia originate on the 5,000-meter Tibetan Plateau).

One way of ensuring that the network of protected areas adequately conserves biodiversity is through the conservation and monitoring of Key Biodiversity Areas (KBAs), sites holding populations of globally threatened or geographically restricted species. KBAs are discrete biological units that contain species of global conservation concern and that can be potentially managed for conservation as a single unit. In the Mountains of Southwest China hotspot, Conservation International-China, in collaboration with Peking University and other local partners, is in the process of identifying and delineating KBAs. This work on KBA definition, supported by CEPF, is a refinement of the broad-scale priorities identified during the the 2002 Priority Setting Workshop, hosted by Conservation International (CI) and the World Wide Fund for Nature (WWF) and the Nature Conservancy (TNC). A proposed "EcoPartnership" composed of local biological research institutions, conservation NGOs, universities, and government agencies will aid in the refinement and monitoring of conservation outcomes by providing access to information through a data-sharing network.

A number of Chinese government policies represent hope for conservation in the Mountains of Southwest China. In response to the catastrophic floods of 1998, the government has completely banned logging within most of the hotspot. Other laws include a Land Conversion Program, also referred to as the Grain to Green Policy. This program includes a ban on agriculture on steep slopes, prohibitions against forest clearing for shifting agriculture, and specific species protection laws. The Land Conversion Program has provided important opportunities for biodiversity conservation. In this billion-dollar investment by the Chinese government, currently underway throughout the hotspot, farmers are given subsidies to replant barren slopes. Monocultures of pine and fruit trees have been an initial result, and conservation groups are hoping to work with the government to propagate more diverse native vegetation, and to expand biodiversity-friendly habitat throughout the region.

In addition its high biological diversity, the Mountains of Southwest China hotspot featuresa rich diversity of cultures. The hotspot is home to 16 ethnic groups, including Tibetans, who live in a large portion of the hotspot. In Tibetan culture, sacred landscapes have protected certain areas for centuries. Thousands of villages and monasteries have their own sacred site: a mountain, lake or patch of old-growth forest. However, this tradition has recently been challenged by outside influences and the demand for economic development. Preserving and reviving such a tradition will provide much impetus to protect the biodiversity in this hotspot.

Further Reading

• Fei, Leing, (Ed.). 1999. Atlas of Amphibians of China. Chemgdu: Chengdu Institute of Biology.
• Jorgensen, P.M. & Leon-Yanez, S. (Eds.). 1999. Catalogue of the vascular plants of Ecuador. Monograph. Syst. Bot. Missouri Bot. Gard. 75:i-vii, 1-1181. ISBN: 0915279606.
• Lei, F.-M., Qu, Y.-H., Lu, J.-L., Liu, Y. & Yin, Z.-H. 2003. Conservation on diversity and distribution patterns of endemic birds in China. Biodiversity and Conservation 12: 239-254.
• Mackinnon, J. 1996. Wild China. London: New Holland. ISBN: 1845379209.
• Mackinnon, J., Sha, M., Cheung, C., Carey, G., Zhu, X. & Melville, D. 1996. A Biodiversity Review of China. Hong Kong: WWF International.
• Schauensee, R. M. de. 1984. The Birds of China. Washington D.C.: Smithsonian Institution Press. ISBN: 0198586027.
• Sichuan Vegetation Study Group. 1980. Sichuan Zhibei (Vegetation of Sichuan). Chengdu: Sichuan People's Press.
• Smil, V. 1992. China's environment in the 1980s: Some critical changes. Ambio 21:431-436.
• Wang, W.T., Wu, S.G., Lang, K.Y., Li, P.Q., Pu, F.T. & Chen, S.K. (Eds.). 1993. Vascular Plants of the Hengduan Mountains, Vol. 1: Pteridophyta, Gymnospermae, Dicotyledoneae (Saururacea to Cornaceae). Beijing: Science Press.
• Wang, W.T., Wu, S.G., Lang, K.Y., Li, P.Q., Pu, F.T. & Chen, S.K. (Eds.). 1994. Vascular Plants of the Hengduan Mountains, Vol. 2: Dicotyledoneae (Diapensiacea to Asteraceae) to Monocotyledoneae (Typhaceae to Orchidaceae). Beijing: Science Press.
• Wu, Z.Y. 1988. Hengduan mountain flora and her significance. Journal Japanese Botany 63: 297-311.
• Xiong, J.H. (Ed.). 1989. Flora Sichuanica, Vol. 8: Angiospermae. Chengdu: Sichuan Government Press.
• Xu, J.M. (Ed.). 1991. Flora Sichuanica, Vol. 7: Spermatophyta. Chengdu: Sichuan Government Press.
• Zhao, E. & Adler, K. 1993. Herpetology of China. Oxford, U.S.A.: Society for the Study of Amphibians and Reptiles. ISBN: 0916984281.
• Zhao J., Guangmei, Z., Huadong, W. & Jialin, X. 1990. The Natural History of China. London: Collins. ISBN: 0002190435.
• Zhou, B. K. (Ed.). 1994. Flora Sichuanica. Vol. 11, Spermatophyta.Chengdu: Sichuan Science Press.

Country Profile

Introduction

Peru has achieved a strong economic performance in recent years. The country's gross domestic product (GDP) grew at 6.7 percent in 2005, an increase from the 4.8 percent growth rate of 2004. Analysts predict that the economy will further grow at a 5.1 percent rate during 2006. Despite its high level of economic growth, Peru still suffers from several pressing economic problems. The country’s official unemployment rate as of January 2006 was above 10 percent, and many analysts believe that the actual unemployment rate could be much higher. There is also widespread poverty in Peru, especially amongst the country's rural population.

In January 2006, the International Monetary Fund (IMF) completed its third review of Peru under the Stand-By Arrangement, which makes Peru eligible to receive around $300 million in aid from the IMF. In line with the arrangement, Peru has maintained strong GDP growth and has kept the inflation rate (1.6 percent in 2005) within the country's official target range of 1.5 – 3.5 percent. In addition, the IMF noted Peru’s positive trade surplus and “comfortable” levels of foreign currency. Throughout 2005, the Peruvian economy benefited from high prices for its mineral exports and a good performance from its export-manufacturing and commerce sectors.

Peru is a member of the Andean Community, set up in March 1996 by leaders of Bolivia, Colombia, Ecuador, Peru, and Venezuela. At that time, the five national leaders expressed their intent to move towards a single market along the lines of the European Union, although significant policy differences will need further consideration. The Community is working towards integrating its member countries' energy sectors, particularly in the electricity and natural gas areas, through network interconnections and harmonized regulatory frameworks. In November 1997, Peru joined the Asia Pacific Economic Cooperation (APEC) forum. In December 2005, Peru signed a Trade Promotion Agreement with the United States to help bolster economic growth in both countries.

Oil

Peru has proven crude oil reserves of 930 million barrels, according to Oil and Gas Journal (OGJ). The country produced 110,900 barrels per day (bbl/d) of oil (including crude oil and natural gas liquids) in 2005, a 15 percent increase from the previous year. With the revival in oil exploration, Peru has had new projects brought online, increasing the country’s oil production levels. However, Peru's oil consumption has also grown over the past 20 years, reaching 156,000 bbl/d in 2005. Peru has been a net importer of oil since 1992, with most imports coming from Ecuador and other South American countries.

The largest oil producer in Peru is Argentina-based Pluspetrol, which controls over one-half of the country's entire crude oil production. Other major producers include Occidental Petroleum, Petrobras, and Petro-Tech Peruana. Peru mostly privatized the former state-owned oil company, Petroperu, in 1993. Still, Petroperu continues to control the country's only crude oil pipeline, most of the refineries, and a majority of the retail oil products market.

Exploration and Production

Peru's crude oil production is concentrated in the northern part of the country. In particular, the largest oil blocks are Block 1-AB (Pluspetrol) along the border with Ecuador, Block 8 (Pluspetrol) in the northeastern Amazon region, Block X (Petrobras) in the northwest, and Block Z-2B (Petro-Tech Peruana) off the northwest coast. Block 1-AB and 8 account for over 65 percent of Peru's total crude oil production. Most of crude oil produced in Peru is a heavy, sour variety known as "Lorento," with 20° API and 1.2 percent sulfur content.

In 2005, the Peruvian government signed 15 new exploration and production contracts, and the government hopes to sign an additional 10 by the end of June 2006. Peru awarded the first exploration and production contract of 2006 to Petrolera Monterrico. The award is for Block XX, located in the north. In October 2005, the Peruvian government awarded contracts to Hunt Oil and China National Petroleum Corporation (CNPC) for Blocks 76 and 111, respectively. In March 2005, Global Energy Development, a subsidiary of Harken Energy, signed a new exploration and production contract for Block 95 in the Maranon basin of north-east Peru. The Peruvian government also approved a contract for Burlington Resources in Block 104 of the Maranon basin. Other companies that have recently been awarded exploration contracts in Peru include Nuevo, Energy, Petro-Tech, Petrolifera Petroleum del Peru, and Petrobras.

In June 2005, Petro-Tech announced Peru’s first offshore oil discovery, the San Pedro 1X well, which is located in Block Z-2B. The well had initial production of 1,200 bbl/d. Petro-Tech has plans to drill additional wells on Block Z-2B in order to increase production to 11,000 bbl/d. Petro-Tech also plans to expands its offshore exploration at Blocks 6, 33, 35 and 36. In 2004, Occidental Petroleum announced that it had discovered at least 100 million barrels of recoverable reserves in Block 64, located in the Amazon basin; the company also announced that it would increase its investments in Blocks 101 and 103 in the same area.

Pipelines

Petroperu operates the country's sole crude oil pipeline, Norperuano, which links the export terminal at Bayovar to oil fields in Peru's interior. Norperuano has two branches, one (190 miles) starting at San Jose de Saramuro in the Ucayali basin, the other (160 miles) starting at Andoas in the Maranon basin. Both branches meet at a central pumping station, where they join into a 35-inch system that carries crude oil 340 miles to the Pacific coast. Norperuano has a maximum capacity of 250,000 bbl/d. Currently, the pipeline transports about 80,000 bbl/d of oil.

Downstream Activities

Peru has six major oil refineries, according to OGJ, with total capacity of 192,950 bbl/d. Repsol-YPF controls the largest facility in the country, La Pampilla, located in Lima, with a capacity of 102,000 bbl/d. The other privately-operated refinery in the country is the 3,250-bbl/d Purcallpa, operated by Maple Gas. Petroperu operates the remaining four refineries and the largest network of retail oil products distribution. According to Peru's Ministry of Energy and Mines, refinery utilization in the country was 79 percent in January 2006. The Peruvian government planned to further privatize downstream facilities, but opposition from labor unions and legislators has delayed these efforts.

Natural Gas

According to OGJ (1/1/06), Peru has proven natural gas reserves of 8.7 trillion cubic feet (Tcf), the fifth-largest amount in South America. However, Peru’s Deputy Minister of Mines and Energy has indicated that once seismic work is complete on Block 56, Peru’s proven reserves could increase to 15 -16 Tcf. In 2003, the country produced and consumed 19.8 billion cubic feet (Bcf) of natural gas, a 21 percent increase from the previous year. In coming years, Peru will likely become a net exporter of natural gas as the Camisea project comes fully on-stream (see below). Besides Camisea, the largest concentrations of Peru's natural gas production include the Aguaytia gas field (Maple Gas) in central Peru, Block X (Petrobras) in the northwest region, and Block Z-2B (Petro-Tech) located off the northwest coast. To help mitigate Peru’s high oil import bill, the Peruvian government is looking to implement a plan that will stimulate natural gas consumption in the country. The plan targets public and private transportation, by converting vehicles to run on natural gas.

Exploration and Production

Camisea

The Camisea project consists of several natural gas fields located in the Ucayali basin of southeastern Peru, principally in Block 88 along the Camisea River. Analysts estimated that Block 88 contains 11 Tcf of proven plus probable natural gas reserves and 482 million barrels of associated natural gas liquids (NGLs). An international consortium led by Hunt Oil has developed the upstream portion of Camisea, with production beginning in August 2004. The initial production capacity at Camisea was 450 million cubic feet per day (Mmcf/d) of natural gas and 34,000 bbl/d of NGL. However, output capacity is expected to increase once drilling begins (May 2006) on Camisea’s Block 56, adjacent to Block 88. Transportadora de Gas del Peru (TGP), a consortium led by Techint, constructed and now operates parallel natural gas and NGL pipelines that carry Camisea production to Lima and to a fractionation plant in Paracas. In March 2006, the Camisea pipeline ruptured for the fifth time since start-up in August 2004. The latest rupture occurred a week after E-Tech International issued a report warning of additional leaks and spills due to quality construction issues of the pipeline. A Peruvian regulatory committee fined TGP $915,000 for the previous four spills.

The Camisea project provides natural gas for domestic consumption; however, natural gas production from the Camisea project will eventually exceed domestic demand, so project sponsors would like to export any excess production. Hunt Oil leads the Peru LNG consortium, which broke ground in January 2006 on a liquefied natural gas (LNG) export terminal at Pampa Melchorita, 105 miles south of Lima. The Peru LNG facility will have an operating capacity of 4.2 million tons per year, with most of the production destined for the Western United States and Mexico. Peru LNG plans to build a pipeline to feed natural gas from existing natural gas pipelines to the LNG export terminal. Construction of the pipeline is expected to start in the latter half of 2006 and to be completed as early as 2008, with first exports leaving the terminal in 2009. Peru LNG has also held discussions with ENAP, Chile's state-owned oil company, about exporting LNG to that country. Even though the countries share a land border, trading natural gas via LNG could be more cost-effective than the construction of a natural gas pipeline. Both countries already have plans to build the necessary LNG infrastructure.

Other Developments

In September 2005, Ecuador’s Ministry of Energy signed a Memorandum of Understanding (MoU) with BPZ Energy in which Peru could export up to 1.1 Tcf of natural gas to Ecuador over a 15-year period. Exports of the natural gas could reach Ecuador as early as October 2006. In 2004, BPZ Energy announced that it had reached agreements to send natural gas from its offshore Block Z-1 to power plants in Peru and southern Ecuador. The project would initially supply 74 Mmcf/d of natural gas to three electricity generators in Arenilla, Ecuador, with an eventual extension to Guayaquil. BPZ also planned to construct a gas-fired power plant in Peru that would source gas from the Block Z-1 fields. Analysts estimate that Block Z-1 contains 130 Bcf of proven reserves and at least 3 Tcf of total possible reserves.

Downstream Developments

Pipelines

In November 2005, talks over building a pipeline linking the Camisea project in Peru with northern Chile stalled over a maritime border dispute between the two countries. If talks continue, the project could present an alternative to the aforementioned LNG trading scheme between the two countries. Currently, Chile sources most of its natural gas imports from Argentina, but gas shortages in Argentina have caused several supply disruptions in recent years. The project would depend upon the availability of surplus gas from Camisea, which has already contracted large volumes of future production to domestic needs and LNG export plans. Camisea's operators, though, have stated that there will be enough excess supply for both an LNG terminal and an export pipeline.

LNG

Besides the Peru LNG project, there have been talks about a potential LNG partnership with Bolivia. That country has the second-largest natural gas reserves in Latin America, but it lacks the coastal access necessary to pursue LNG exports. One proposal under consideration would connect the Margarita gas fields in southern Bolivia to the Peruvian port of Ilo. However, the economic and political feasibility of this proposal is in doubt, and there are no concrete plans to date.

Electricity

Peru had 6.0 gigawatts (GW) of installed generating capacity in 2003. In that same year, the country generated 22.7 billion kilowatt-hours (Bkwh) of electric power while consuming 21.1 Bkwh. Even though installed capacity is evenly divided between hydroelectricity and conventional thermal electricity, 82 percent of Peru's total electricity supply is generated by hydroelectric facilities, with thermal plants providing supply only during peak usage, or when natural conditions dampen hydroelectric output. The largest hydroelectric facility in the country is the Mantaro Complex in southern Peru, operated by state-owned Electroperu. Two hydroelectric plants at the complex generate over one-third of Peru's total electricity supply from 900 megawatts (MW) of installed capacity. In February 2006, Egecen S.A. completed construction of the 130-MW, Yuncán hydroelectric plant, located northeast of Lima. The Peruvian government awarded operation rights of the plant to EnerSur, a subsidiary of Brussels-based Suez Energy International.

With the start of natural gas production from the Camisea project, the Peruvian government has encouraged greater investment in gas-fired power plants as a way to reduce reliance upon hydroelectricity. In July 2006, BPZ Energy plans to bring online its 140-MW, gas-fired power plant in Caleta Cruz. Panamanian-owned Empresa de Generacion Electrica de Chilca (Egechilcha), plans to build a 520-MW, combined cycle power plant south of Lima. The plant will use natural gas supplied from Camisea. In September 2004, Etevensa, the Peruvian subsidiary of Spain-based Endesa, began a construction upgrade of a combined cycle, gas-fired turbine (CCGFT) at its existing Ventanilla plant, the largest thermal power plant in Peru. The upgrade project increased the capacity of the facility to 380 MW. Many industrial users and independent power producers have also begun transitioning to natural gas.

Sector Organization

In 1992, the Peruvian government enacted the Electric Power Concession Law, which allowed for the privatization of the electricity sector and promoted competition and efficiency within the industry. In addition, large customers could negotiate for electricity directly with generation and distribution companies. Under the new law, Peru privatized the majority of its electricity sector, but opposition from organized labor and rural areas prevented the government from achieving full privatization. The largest generating company in Peru is Electroperu, majority-owned by the Peruvian government, which operates the Mantaro hydroelectricity complex. According to Peru's Ministry of Energy and Mines, the largest private electricity producers in the country include Edegel, a subsidiary of Endesa, and Egenor, a subsidiary of US-based Duke Energy. Around four-fifths of Peru’s electricity is generated by the private sector, which competes for customers in the electricity market.

The Peruvian government maintains financial interests in the power distribution sector, but private companies now hold majority control over the most important distributors in the country. The largest electricity distributor in Peru is Edelnor, a subsidiary of Endesa. According to Peru's Ministry of Energy and Mines, Edelnor served over 890,000 customers in 2003, mostly in the Lima metropolitan area. The second-largest distributor is Luz del Sur, majority-owned by a consortium consisting of PSEG Global and Sempra Energy; Luz del Sur also operates in the Lima area, providing electricity to 700,000 customers in 2003. Smaller distributors owned by the Peruvian government operate in the rest of the country. The government has begun to offer financial incentives to spread electricity service to rural areas, where coverage remains spotty and unreliable. According to the World Bank, an estimated 70 percent of the rural population is without access to electricity.

Peru has two main power transmission grids, one covering the north and center parts of the country, the other serving the south. An interconnector, owned and operated by Hydro-Quebec International, runs between the two along the Pacific coast. The largest transmission company in Peru is the Colombia-based ISA Group, which controls over half of the transmission grid in the country through its subsidiaries Red de Energia del Peru and Interconexion Electrica ISA Peru. Smaller companies, many of which are state-owned, control the remainder of the grid. Investment in Peru's transmission grid has outpaced actual demand; therefore there is a considerable surplus of spare capacity. Peruvian law ensures that all generating and distributing companies have fair, non-discriminatory access to the national transmission grid.

Regional Integration

Peru has also been in the process of integrating its power grid with those of Ecuador, Chile and Bolivia. These efforts are part of a larger movement by the Andean Community to create a common electricity market. Once the integrated market is operating, the transmission lines will allow for a permanent flow of power between each one of the electric power systems, allowing each country to purchase power under the most favorable conditions. Construction of an interconnector between Peru and Ecuador began in 2003. The transmission line will provide a capacity of 100 megawatts (MW) between the two countries. The Peruvian and Chilean governments have begun negotiations for the construction of an interconnecter between the two countries. The transmission line would allow gas-fired power plants in northern Chile to sell excess electricity supply to Peru, especially when a shortage of rainfall reduces the output of Peru's hydroelectric facilities. Finally, talks of an electricity connection between Peru and Bolivia are in the preliminary stages.

Further Reading

• EIA - Country Information on Peru

U.S. Government

• CIA World Factbook - Peru
• U.S. Commercial Service: "Doing Business in Peru?"
• U.S. Department of Energy's Office of Fossil Energy's International section - Peru
• U.S. State Department Background Notes on Peru
• U.S. State Department Consular Information Sheet on Peru

Foreign Government Agencies

• Fonafe
• Ministry of Energy and Mines

Oil and Natural Gas

• GNLC (Natural Gas of Lima and Callao)
• Graña y Montero
• Hunt Oil
• Maple
• Nueva Energy Company
• Peruana de Combustibles
• Petro-Tech Peruana
• SK Corporation
• Syntroleum Corporation
• Techint
• Vopak Serlipsa
• PeruPetro

Electricity

• Aguaytia Energy Group
• Electrolima
• Electroperú
• Electropuno
• Electro Sur Este
• Empresa de Energia de Bogota
• Empresa de Generación Eléctrica de Arequipa (Egasa)
• Energía del Sur (Enesur)
• Hydro-Québec TransÉnergie
• Interconexión Eléctrica ISA
• Luz del Sur
• Red de Energía del Perú
• Red Eléctrica de Sur
• Transelca