Peru’s Oil Industry Is Engulfed In Crisis

A combination of sharply weaker oil prices, inconsistent regulation, the COVID-19 pandemic, and constant conflict in the Amazon where most of Peru’s onshore oil industry is located has triggered a crisis that has brought the industry to the brink of collapse. This was recently recognized by Peru’s National Society of Mining, Oil, and Energy (SNMPE – Spanish initials) which released a media statement (Spanish) asking the central government to implement measures to reverse the crisis. Lima has long downplayed Peru’s considerable oil potential in preference to advancing the Andean country’s mining industry and exploiting its vast mineral wealth.

That saw Peru become the world’s second-largest copper producer and the red metal, which is a vital ingredient in a range of industrial applications, become the country’s top export. The severe economic fallout from the COVID-19 pandemic, with the IMF predicting that Peru’s economy will shrink by a worrying 14%, sees Lima looking to bolster the economy and GDP growth by any means possible. This has sparked a renewed focus on ramping-up activity in Peru’s oil industry.

In October 2020 Peru’s Ministry of Energy and Mines announced it was (Spanish) preparing a series of regulatory proposals aimed at providing greater clarity for the exploration and exploitation of the country’s hydrocarbon resources. While this is designed to attract greater investment and boost activity in Peru’s petroleum industry, it appears to be singularly insufficient to achieve that, particularly considering the latest media release from the SNMPE. A key issue facing Peru’s nascent petroleum industry is the Andean country’s limited proven oil reserves.

At the end of 2018, the last time they were officially measured, the Ministry of Energy and Mines determined (Spanish) Peru only had 344.5 million barrels of proven oil reserves and proven possible and probable (3P) reserves of 660.4 million barrels, some of the lowest of any oil-producing nation in Latin America. The Andean country, however, is believed to possess considerable hydrocarbon potential with Peru assessed to have prospective and contingent petroleum resources of almost 24 billion barrels. Most of that oil potential is contained in the Marañon Basin which is part of the Putumayo-Oriente-Marañon Basin complex that stretches through the Amazon from southeastern Colombia to northeastern Peru.

The U.S. Geological Survey estimated the Putumayo-Oriente-Marañon Basin holds mean undiscovered hydrocarbon resources of 3.5 billion barrels of oil equivalent including just over 3 billion barrels of crude oil. This underscores the tremendous oil potential of the Marañon Basin, which if correctly exploited will give Peru’s economy a solid boost, particularly if oil keeps rallying higher.

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