Elsevier

Energy Policy

Volume 50, November 2012, Pages 192-206
Energy Policy

The potential of natural gas use including cogeneration in large-sized industry and commercial sector in Peru

https://doi.org/10.1016/j.enpol.2012.04.054Get rights and content

Abstract

In recent years there have been several discussions on a greater use of natural gas nationwide. Moreover, there have been several announcements by the private and public sectors regarding the construction of new pipelines to supply natural gas to the Peruvian southern and central-north markets. This paper presents future scenarios for the use of natural gas in the large-sized industrial and commercial sectors of the country based on different hypotheses on developments in the natural gas industry, national economic growth, energy prices, technological changes and investment decisions. First, the paper estimates the market potential and characterizes the energy consumption. Then it makes a selection of technological alternatives for the use of natural gas, and it makes an energetic and economic analysis and economic feasibility. Finally, the potential use of natural gas is calculated through nine different scenarios. The natural gas use in cogeneration systems is presented as an alternative to contribute to the installed power capacity of the country. Considering the introduction of the cogeneration in the optimistic–advanced scenario and assuming that all of their conditions would be put into practice, in 2020, the share of the cogeneration in electricity production in Peru would be 9.9%.

Highlights

► This paper presents future scenarios for the use of natural gas in the large-sized industrial and commercial sectors of Peru. ► The potential use of natural gas is calculated through nine different scenarios.► The scenarios were based on different hypotheses on developments in the natural gas industry, national economic growth, energy prices, technological changes and investment decisions. ► We estimated the market potential and characterized the energy consumption, and made a selection of technological alternatives for the use of natural gas.

Introduction

In the past few years, the widespread use of natural gas as a source of energy has been a hot topic of discussion in Peru; this was part of the agenda during the presidential debates in early 2011. During these debates, the importance of developing a domestic demand for natural gas rather than gas exports was the central theme of discussion. Since 2010, specially, with the new government there have been signs to set the energy policy guidelines aimed at prioritizing the domestic market for natural gas: the formation of a committee devoted to earmarking part of the gas reserves committed to export for use in the domestic market, pipeline construction projects in the south and north of the country, and commitments to expand gas distribution networks, among others (Gestión, 2011a).

The final energy consumption in Peru has been increasing since 1993, over the past 5 years the average annual growth rate was 4.2%. In 2009, final energy consumption was 605,075 TJ (MEM, 2009). The transportation, residential, and industrial–commercial sectors are the largest consumers of energy which represent 37.8%, 24.4% and 21%, respectively. In 2009, the highest final energy consumption was diesel (28.4%), followed by electricity (17.7%), firewood (12.4%), gasoline (8.6%), LPG (7.8%), natural gas (5.3%), residual oil (5.1%), kerosene (4.6%), coal (4.1%) and others (6%).

According to MEM (2009), the energy reserves were 26,471,441 TJ. Natural gas being the largest reserve (45.12%), followed by hydropower (22.54%), natural gas liquids (13.16%), petroleum (11.65%), coal (4.21%) and uranium (3.32%). Although natural gas is the largest reserve, the country has a dependency on energy imports. In recent years, the imports represent on average 30% of the energy supply. In 2009, the largest energy imports were petroleum (73.9%) and diesel (13.3%).

According to the DGE (2010), the peak demand in the Peruvian electricity market was 4322 MW. In the past seven years the demand has increased by 5.9% per year and the power generation has increased by 4.5% per year as well. The greatest growth of power generation has come through thermoelectric plants; mainly because of the great supply of natural gas from Camisea and because investors prioritized this type of technology due its lower initial investment and shorter return on capital. Currently, the power generation in Peru is 43% hydraulic and 57% thermal (DGE, 2010). Regarding the production of electrical energy, in 2000, the participation of the hydraulic generation was 85% and, in 2009 it was 60%.

The residential sector is highly dependent on energy such as firewood, electricity and LPG; in 2009 these accounted for 45.49%, 28.39% and 17.06% of the total consumption, respectively.

In the industrial and commercial sector, the sources of energy used are electricity (32.3%), diesel and residual oil (28%), coal (15.9%), natural gas (15.3%), LPG (8%) and others (0.5%). The use of natural gas in this sector has potential for a wider use, especially as a replacement for fuels such as residual oil, diesel and LPG. Moreover, together with fuel switching projects there is an opportunity to put in place more efficient technologies such as cogeneration, which represents an alternative to lower production costs and still have the ability to selling electricity.

In the literature review there are papers related to the estimate of the potential use of natural gas in industry and commerce. Lemar (2001) estimated the impact of public policies and incentive programs for use of cogeneration in the US industry. Basically the study considers two types of fuel, natural gas and biomass. It also takes reference from penetration factors obtained during the introduction of this technology in the US with Public Utility Regulatory Policies Act (PURPA). Soares et al. (2004) estimated the technical and economic potential of cogeneration in Brazil's chemical industry using natural gas as fuel. Also, it analyzes the impacts of incentive policies on the economic viability of this potential. Szklo et al. (2004) estimated the technical potential for gas fired cogeneration in Brazilian hospitals: an initial work to characterize the energy consumption in hospitals according to their size and level of comfort was carried out. Schwob et al. (2009) estimated the technical potential of natural gas use in the Brazilian ceramic industry focusing on replacing fuel wood for natural gas, including cogeneration.

This paper presents future scenarios for the use of natural gas in large-sized industry and commercial sectors in Peru, based on different hypotheses on developments in the natural gas industry, political policies and national economic growth, energy prices, technological changes and investment decisions.

Section 2 of this paper is an introduction to the natural gas industry in Peru and future pipelines. Section 3 presents the methodology used in this study, including the scenarios analyzed. Section 4 presents the results of the study. Section 5 presents the conclusions.

Section snippets

Natural gas in Peru

The natural gas industry in Peru is relatively new. By 2004, production was just in Talara (Noth west) and Pucallpa (Amazonian), and the natural gas was mainly used as fuel for electricity generation. Between 1983 and 1987 in Camisea, north of Cuzco, the largest natural gas reserves in the country were discovered. In 1988, Peru signed the first agreements to develop the natural gas found in Camisea. However, in 1998, the consortium Shell/Mobil announced its decision to discontinue the Camisea

Methodology and scenarios

To estimate the use of natural gas in large-size industrial and commercial sectors requires a calculation methodology that considers the alternative technologies, regulations, efficiency and economic feasibility of converting the current energy generation process into one that has natural gas as fuel.

In the first part, the model internalizes economic growth and geographical location for future investment in the Peruvian natural gas industry (in this paper, this variable will be internalized by

Scenario results

In this part the introduction of natural gas consumption in the large-sized industrial and commercial sectors are shown. 2010 has been chosen as the base year since the projections are for the 2011–2020 period. The benefits gained by reducing the use and import of residual oil and diesel, also by introducing a new capacity and sell surplus electricity in the electrical system are shown.

Conclusions

The economic analysis shows that in most of the segments analyzed, the use of natural gas has considerable economic advantages. Only in the case of shopping centers and supermarkets, this has been proven not to be viable, because the savings from electricity consumption would not be sufficient to cover the investment of ARS. However, this analysis also shows that efforts to switch current fuel into natural gas requires little investment, compared to those required for cogeneration, and are very

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