Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 15 -- The Peruvian government reported that the six-member Consorcio Camisea has begun production of natural gas at Pagoreni field on Block 56 in the Cuzco region and part of the Camisea gas-condensate project.

The consortium, comprised of Pluspetrol Peru Corp., Hunt Oil, SK Energy, Tecpetrol, Sonatrach, and Repsol YPF SA, said it will initially produce gas at six wells on the block.

The consortium said Pagoreni means an increase in the production of liquids of as much as 45,000 b/d and an increase in gas production from 500 MMcfd to 1.26 bcfd.

Gas is piped to the 450-MMcfd Malvinas gas processing plant near the Camisea fields and is then transported to Pisco, where naphtha, propane, butane, and diesel are extracted.

The consortium said the launch of production from Block 56 marks the exploitation of a new reserve of 3.4 tcf and 227 million bbl of NGL, increasing the Camisea reserves to 14.8 tcf.

Development of Block 56, in which the consortium has invested some $850 million, is also being referred to as the second phase of the Camisea project as it is adjacent to Block 88, which went into production in mid-2004.

Welcomed production
The Block 56 production will be welcome in Peru, which is seeing demand growth for gas. In fact, demand has grown so quickly that the pipeline transporting gas from Camisea to the capital region has reached capacity.

The pipeline is operated by a consortium known as Transportadora de Gas del Peru SA, or TGP. According to the energy and mines ministry, TGP has a contract to increase capacity in the westbound pipeline to 450 MMcfd from the current 290 MMcfd.

Earlier this month, the Peruvian government awarded Conduit Capital Partners LLC subsidiary Kuntur Transportadora de Gas, SAC (Kuntur), a 30-year concession contract to build a southbound 700-km pipeline to carry gas from Camisea to the port of Ilo in southern Peru.

Development and construction cost for the pipeline, known as the Gasoducto Andino del Sur (GAS), is estimated to be $1.4 billion. Construction is due to begin in 2010, with operations expected to begin by yearend 2012.

Conduit said the pipeline will deliver "attractively priced gas that is expected to help spur economic growth in Peru's southern region, which will begin facing power shortages as soon as 2011."