Once, the Inca Empire dominated the region around what is today Peru. The conquests and expansion of this civilization, which brought half the continent under Incan domain, were funded by the natural resources beneath its feet.

Today, the path to greatness once again runs through Peru’s vast mineral wealth. Peru’s strength in natural resources has traditionally been focused on mining, yet oil and gas have a history in the country stretching back centuries, and represent a bright future for economic diversification.

In 1863, just three years after Colonel Drake drilled his first well in Titusville, Pennsylvania, Don Manuel Antonio de la Lama drilled the second commercial well in the world in Talara, deep in the heart of Peru’s Amazonian north; blocks that surround this original well are producing to this day.

Many of the hallmarks of 1970s Latin America took their toll on Peru, leading to years of instability, military rule and hyperinflation, effectively nullifying investment in the country. Yet recently, Peru has witnessed a change in fortune, averaging a 6% growth rate in the past 10 years, and 7% in 2011, while inflation has kept steady at a modest 4.7% a year. A decade of political stability and steady growth has brought attention to Peru in all sectors, and hydrocarbons are no exception.

The massive undertaking of bringing Camisea, one of the continent’s largest gas fields, into production in 2004 was the first step in developing Peru’s sizable hydrocarbon potential. The project also highlighted the substantial difficulties that await the sector’s full development; a total of 1,254 kilometers of pipeline was built at heights of up to 4,870 meters across the Andes to transport Camisea’s gas to Lima, in what many believe to be the highest-altitude pipeline ever built.

Economic growth has, naturally, increased Peruvian energy consumption, and domestic production of 70,000 barrels of oil per day (bbl/d) is dwarfed by a daily consumption of 189,000 bbl/d, most of which requires more refined varieties than Peru’s seven refineries can produce. Foreign reserves gained by the country’s vital mining industry are being eaten away by the need to import petroleum products. Despite rising gas production, currently at 1.1 billion cubic feet daily, liquids production in Peru decreased from 93,000 bbl/d in 2002 to 70,000 bbl/d in 2011, despite increased production of associated gas from 4,000 bbl/d to 83,000 bbl/d in the same period, and no significant oil discoveries have been made.

Peru’s modern petroleum industry is small, with only 38 exploration and production (E&P) companies operating 82 blocks in the country’s 15 basins. But a new bidding round of 36 blocks has been announced for November 2012, and has generated widespread international interest.

With such rapid economic growth, the need to introduce reliable legal standards to attract long-term investments to explore, produce and construct the required infrastructure has become obvious. Despite technical and social challenges, Peru’s hydrocarbon sector seems set to boost its activities. For almost every technical and environmental difficulty presented, new companies are being created, ready to supply solutions. For all the issues that remain, a virtuous circle appears to be emerging that should ensure future growth.

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