Natural gas began to flow through Peru’s Camisea 430-mile pipeline on March 15 following a week-and-a-half long shutdown caused by an explosion on the line in a remote jungle area – the fifth break in the line in less than 18 months.

“This rupture has been at the worse possible moment of the point of view of the political climate," said Peru’s vice minister of Energy, Juan Miguel Cayo. “Camisea II is looking for multilateral financing and, obviously, these problems do a great deal of damage to the image of the project to the rest of the world.”

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The second phase of the Camisea project will include construction of a liquefaction plant on the southern coast that will enable Peru to export the gas by the end of the decade, primarily to Mexico. Dallas-based Hunt Oil Co. leads the consortium behind the $2.1-billion project.

Officials with privately held Hunt Oil said they are not worried by the recent developments and believe the second phase of Camisea will remain on track. Carlos del Solar, the general manager of Hunt’s Peruvian subsidiary, said in Lima that the company expects to complete financing by November. The project is on track to be producing an initial output of 600 million cubic feet gas for export by the end of 2009, he added.

“We are moving ahead,” he said. We do not expect any delay in the project as all.”

Related Links: Camisea Project PetroPeru Hunt Oil

The certainty of selling gas to Mexico was dampened, however, even before the rupture. Early this month, Mexican officials in Lima said they were considering buying from less expensive sellers such as Australia, Russia or Bolivia. Mexico’s Energy Minister Fernando Canales told Reuters that the country would decide on its supplier in May.

Peru has proven natural gas reserves of 8.7 trillion cubic feet, placing the country fourth on the list in South America. The Camisea project consists of several natural gas fields located in Amazon jungle region, the primary one being Block 88 along the Camisea River. Block 88 alone is estimated to contain more than 8.7 trillion cu ft of total natural gas reserves and 410 million barrels of associated natural gas liquids.

Since August 2004, the pipeline has transported gas from the country’s vast Camisea natural gas field in the Amazonian jungle to a plant in Lurin, just outside of the capital of Lima. Belgium's Suez-Tractebel S.A. holds the contract for gas distribution which currently serves about 90 businesses and more than 2,000 residences in the capital as well as several electric plants also use the fuel. The liquid natural gas is sent to a fractionation plant on the southern coast near Paracas that converts it into propane, butane, raw naphtha and diesel for both the Peruvian market and for export.

On the afternoon of March 4, an explosion occurred at a leak in the pipeline near the jungle town of Echarati. Pipeline operator Transportadora de Gas del Peru (TGP), a consortium led by Argentina's Techint, reported that more than 750 cubic meters of liquid natural gas spilled. A woman and here two children were burned by the blast, which left a crater in the jungle near Cuzco.

“Was the pipeline construction to blame or was it simply bad luck? Right now, we do not know,” Cayo said.

The pipeline consists of two separate lines. One is a pipe of 32 inches in diameter that transports the gas. It has an internal wall of about 4.5 inches in thickness. A smaller, 14-inch-diameter pipe transports liquids. Its internal wall is only a few millimeters thick.

At the site of the explosion both pipes were buried in the subsoil at a distance of about six meters from each other. While the explosion occurred on the liquids pipe, both were shut down to evaluate for damage but resumed operation Wednesday morning. The energy ministry estimated a loss of more than $2 million per day the pipeline was not in operation.

The most recent explosion has spurred new reviews of the project design and construction by both the Peruvian government and the Inter-American Development Bank, which financed the $1.6 billion project.

The rupture came on the heels of a highly critical assessment of the pipeline by the San Diego-based environmental consultant group E-Tech International. The report was presented last month to the InterAmerican Development Bank in Washington. The study said the pipeline was in danger of rupturing in numerous spots due to the use of inferior piping and shoddy construction methods. The latest explosion occurred in one of six sections that E-Tech identified as likely points of failure.

TGP, a consortium that includes Argentinian oil group Pluspetrol, Hunt Oil, South Korea's SK Corp., Algeria's Sonatrach, Peruvian builder Grana y Montero and French utility Suez., has rejected the report’s findings. The Peruvian government has also questioned the report’s veracity.

“No project in the world has been the subject of as much scrutiny at the international level as Camisea,” Cayo said. “There have been multiple sets of eyes on this project at every phase.”

Since it began transporting gas, there have been five ruptures in the line leading to the spillage of more than 14,000 barrels of liquid gas. Prior to the incident this month, the Peruvian government had warned the operating company that its contract could be cancelled if there were any further problems. TGP has already been fined almost $1 million for previous leaks.

One reason for the air of concern is the politically charged climate in Peru due to the upcoming elections. Peruvians go to the polls on April 9 to elect a new president and congress.

“The gas issue has been politicized even before this latest incident with pipeline,” Del Solar said.” We feel it is going to calm down after the election.”