Boston, MA -- (SBWIRE) -- 04/29/2014 -- Opposition from environmentalists and the indigenous population, as well as guerrilla attacks on Peru's energy infrastructure have encouraged us to temper our optimistic stance on the country's hydrocarbons sector to a certain extent. That said, we still retain a positive view overall, forecasting that oil and gas production will expand noticeably over our forecast period given the underexplored nature of the energy sector and one of the more favourable business environment's in the region.

The main trends and developments we highlight in the Peruvian oil and gas sector are:

- Overall, we believe Peru's natural gas prospects remain bright, led by the continued development of its Ucayali basin. We note though, that despite its potential, opposition from environmentalists, the indigenous population and even various government ministries to the development of the Amazon-based hydrocarbons has somewhat tempered our enthusiasm in recent quarters. Indeed, combined with the continued security threat posed by the insurgent group, the Shining Path, this had encouraged us to revise down our projections in the last quarter. As such, while we are still currently forecasting fairly robust natural gas production growth - rising from 12.3bn cubic meters (bcm) in 2013 to 15.0bcm in 2017 and 17.8bcm by 2023 - we note that this is likely below potential.
- In terms of gas demand, consumption will continue to rise over the forecast period, though at a slower pace than in the past decade, ensuring the country remains a net gas exporter. Indeed, while we expect consumer demand to continue to make solid gain, with the mining sector set for a slowdown on the back of moderating Chinese demand for Peruvian mineral exports, this will likely temper the expansion. As such, after estimated 2013 consumption of 6.3bcm, we expect gas consumption of 8.0bcm in 2018, just surpassing 10.6bcm by 2023.
- Despite our expectations for sluggish crude production, we anticipate Peru's total liquids output will continue rising - buoyed by natural gas liquids - from a total of 174,390 barrels per day (b/d) in 2013 to 194,600b/d in 2018 and 218,000b/d in 2023. Meanwhile oil demand, which averaged around 169,990 barrels per day (b/d) in 2013, is likely slump over the long term, hitting 172,530b/d in 2018 and 165,740b/d in 2023 as we see increasing efforts to move toward gas-generated energy. This implies the country could become a net exporter of oil over the coming years.
- Peru retains one of the better Risk/Reward Ratings in the region given both the country's highly prospective underexplored acreage and attractive contract terms. We note though, that continued high levels of red tape remain a significant hindrance to the sector, as does the uncertainty regarding the regulatory environment issues surrounding drilling in the Amazon.

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