On 2 July, the Vizcarra government approved the conformation of the Z-67 and Z-68 oil blocks located in waters offshore from the provinces of Casma, Santa and Huarmey in Ancash region. It also approved contracts for oil exploration and exploitation to be signed between Tullow (based in Ireland and the UK) and Perupetro, as well as authorising Perupetro to sign them.
Fishermen’s organisations, environmental activists, provincial mayors, the Santa Chamber of Commerce and both current and former members of Congress for Ancash have expressed their opposition to this concessions and, more broadly, to all oil-related activity in the region´s coastal waters.
Their main argument is that offshore oil exploration and exploitation will threaten the region’s marine wealth. Ancash is one of Peru’s main fishing centres. They also claim that there have been serious shortcomings in the information and consultation process prior to the approval of these concessions. They demand direct talks with Vizcarra with a view to his repealing the decrees by which the concessions were authorised.
While it is difficult to say how this conflict will pan out, neither Tullow nor the government will have it easy since opposition is broad-based in the region.
Tullow may also have a credibility problem; it was the company that benefited from concessions granted by the Kuczynski government on the very day that Pedro Pablo Kuczynski resigned as president in March 2018 to avoid impeachment on corruption charges. The Vizcarra government subsequently was obliged to withdraw the concessions because of the row over the lack of a proper bidding process and the low royalty rates agreed.
Beyond the particular aspects of the concessions now fueling this conflict in Ancash, the question is whether it makes sense to be promoting oil development when there is a growing consensus that investment should be geared towards clean and more sustainable forms of energy.
Given the global recession caused by Covid-19 and the price wars between Saudi Arabia and Russia, oil demand and prices have also plummeted from an average of US$70 a barrel in 2018 and 2019 to below US $20 in April 2020. Currently the oil price is around US$40 a barrel and the expectation is that it will stay at under US$50 until 2025.
With breakeven prices of US$50 a barrel or more, there is a risk of these and other investments becoming stranded assets, in a context in which the already declining trend in exploration investments will probably become more acute. In fact, some oil majors oil are already writing off billions in assets, forecasting that the current crisis will accelerate the demise of oil and other fossil fuels, leading to clean and sustainable forms of energy becoming the central component of the global energy matrix.
Since Peru is highly vulnerable to global warming, its government arguably should be concerned to reduce risks, not add to them. In spite of formal mitigation pledges in successive United Nations Climate Change Conferences (COP), the Peruvian government seems to be betting on oil production and not promoting a more sustainable matrix.