Peru’s natural gas pipeline infrastructure spans just 1,558 kilometers, five times less than Colombia and ten times less than Argentina. Outside Lima, Callao and Ica, which connect directly to pipeline networks, gas must be transported via tanker trucks. This method requires liquefaction, road transport, and regasification, adding substantial costs. By late 2025, residential tariffs in the North concession stood 22% above Lima rates, while commercial and small industrial users in the South paid 2.6 times more and large industrial customers in the North faced tariffs 1.8 times higher.
The government created a compensation mechanism to equalize tariffs for users consuming up to 50,000 cubic meters monthly, pending regulation, with costs charged to FISE. The design excludes higher-consumption regulated customers who could expand demand and generate economies of scale. Without new large users, conditions for progressive tariff reduction and viable new pipeline construction remain absent. The IPE argues the measure fails to address root problems and will become a permanent subsidy threatening FISE sustainability.
A successful tariff equalization strategy should be temporary and part of a comprehensive expansion plan incorporating higher-consumption users while promoting new demand centers to justify pipeline construction. Higher demand would reduce distribution tariffs in subsequent regulatory periods. Once infrastructure develops, equalization could transition to targeted subsidies for vulnerable households, as practiced elsewhere in the region. To protect FISE resources, equalization would be financed through surcharges on Lima and Callao tariffs.
Administrative barriers also impede distribution network investment. Effective timelines for obtaining easements and municipal permits can exceed legal limits by more than 20 times. Only one-third of municipalities maintain cadastral records, while requirements, costs and timelines vary widely across regions. Reducing municipal discretion, strengthening the competition authority Indecopi’s capacity to eliminate bureaucratic barriers, and advancing cadastral development are essential to accelerate network expansion.
Energy security considerations add urgency to expansion efforts. Proven reserves have fallen for nine consecutive years and, at current production rates without new projects, represent approximately 14 years of availability. Lot 58 holds technically viable resources that could extend this horizon to 22 years, though development requires demand, clear rules, contracts and infrastructure to justify investment. Natural gas supplied 35% of national electricity generation in 2025 and maintains lower generation costs compared to diesel, whose average variable generation cost runs nine times higher.
This article was curated and published as part of our South American energy market coverage.
