Case study: Adoption of low-sulfur fuel standards in Peru

Published: 2016.02.03
By

Sebastian Galarza, Chris Malins

Rapid population and economic growth in Peru has fueled a sharp increase in the country’s vehicle fleet, raising concerns about air quality. The government has responded with emission standards for vehicles as well as fuel quality requirements, limiting the diesel sulfur content to 50 ppm (equivalent to the Euro IV standard) starting in 2016, and gasoline to 50 ppm sulfur in 2017.

The country’s six existing refineries, some many decades old, have insufficient capacity to meet domestic fuel needs, especially for low sulfur fuel. The government has prioritized modernization of the state-owned Talara refinery, which accounts for 30% of the total refining capacity in the country. The plan includes a refinery expansion to 150% of its current capacity, improving the refinery’s capacity to process heavy crudes, and improving the quality of the diesel and gasoline produced to 50 ppm sulfur or less. The government is also interested in upgrading La Pampilla refinery, which is owned by Repsol. La Pampilla’s refinery is expected to come online in late 2017 and Talara in 2019 or later.

Upgrading both refineries will be expensive: the Talara refinery project is expected to cost $3.5 billion (USD), and La Pampilla’s upgrade will cost over $800 million (USD). Public investment will pay for the majority of the Talara’s upgrade through bonds and loans in international markets and from local sources. A $500 million loan has been secured from the French investment bank Société Générale. Altogether, the government and private actors have come together to secure investment in excess of $4 billion to upgrade Peru’s refineries, and as a result the majority of Peruvians will have access to cleaner fuels and improved air quality.