Shell, Mobil Quit Peru Gas Project

Royal Dutch/Shell Group and Mobil Corp. have abandoned plans to spend $3 billion on a Peruvian natural gas project after the government balked at their demand for a distribution monopoly and the right to set prices.

President Alberto Fujimori shrugged off the loss of what would have been Peru’s biggest foreign investment. He said Peru will meet its deadline of delivering gas from the Camisea gas field in the eastern Andean foothills to Lima by 2003. He announced plans to split the project into four businesses and sell them in the coming months.

Peru needs the investment the Camisea project would generate. Its trade deficit is widening as mining exports have declined and El Nino has devastated fishing and agriculture, causing the $65-billion economy to shrink in the first half.

“We need that capital,” said Cesar Perez-Novoa, a mining and energy analyst with BBV Continental brokerage in Lima.

For Shell, the world’s largest publicly traded oil company and the lead partner, the decision to abandon Camisea underscores how falling oil prices may be tempering plans to push into tough new markets.

“If the economics just don’t make this doable at the moment, it would be lunacy to push ahead,” said Tony Alves, an analyst with Henderson Crosthwaite. “The oil industry has become more rigorous in terms of how it invests.”

Shell and Mobil said they will remain active in Peru as exploration companies and “are interested in future opportunities.”

Shell, which was the lead partner, at 57.5%, in the Camisea project, and Mobil had already spent $250 million to study the project.

Camisea’s reserves offer Peru the potential to reduce energy imports, improve its balance of payments, reduce electricity prices, create new jobs and attract new industries.

To jump-start Camisea, the government plans to break the project into four businesses: developing the gas field, building a 360-mile pipeline to carry the gas across the Andes, distributing the gas to users and generating energy.

Fujimori, dismissing concerns about delays after the two global energy giants dropped out of the project, said the government has already found a company that wants to replace Shell and Mobil in developing the fields. He did not name the company.

Earlier this week, Shell Group joined with Petrobras, Brazil’s state oil company, to invest $6 billion in oil exploration and production over the next three years, as Brazil opens its closely guarded oil industry to foreign investors for the first time.