OGJ reported that Chile had 3.5 trillion cubic feet (Tcf) of proven natural gas reserves in January 2006. The country has little domestic production, totaling 38.5 billion cubic feet (Bcf) in 2004. ENAP controls all natural gas production in Chile, which occurs mostly in the Magallanes basin. Chile has vigorously explored the country for natural gas reserves, but has so far not met with any significant success.

Despite its lack of domestic reserves, Chile’s natural gas consumption has ballooned in recent years. Historically, low domestic production constrained consumption, with natural gas only constituting 8 percent of total energy consumption (TEC) in 1996. A combination of increasing energy demand, environmental concerns, and the unreliability of hydropower prompted the Chilean government to re-consider its energy policy and encourage the use of natural gas. To that end, Chile began large-scale imports of natural gas for the first time in 1997; since then, the country’s natural gas consumption has increased by an average of 21.7 percent a year, reaching 292.8 Bcf and 26 percent of TEC in 2004.

ENAP operates a network of natural gas pipelines that connect production fields in the Magallanes basin to major consumption center.

Seven pipelines, all built in the late 1990s, link Argentina with Chile. Three in the south; Tierra del Fuego, El Condor-Posesion, and Patagonia supply methanol plants operated by Methanex, the world’s largest methanol producer. Methanex exports most of the methanol produced here to North America and Asia. The Methanex plants have been impacted by the disruption of natural gas imports from Argentina (see below), forcing some plants to shutdown or reduce runs.

In the north, the GasAtacama pipeline runs from Cornejo, Argentina to Mejillones, Chile. Owned by Endesa and U.S.-based CMS, the 580-mile GasAtacama supplies 300 million cubic feet per day (Mmcf/d) to the companies’ Nopel power plant. Also in the north, the 250-Mmcf/d NorAndino, operated by Belgium’s Tractebel, runs parallel to GasAtacama. In the central region, the 290-mile, 310-Mmcf/d GasAndes pipeline, majority owned by Total, connects the Neuquen basin in Argentina to Santiago, Chile. Also in the central region, the 330-mile, 340-Mmcf/d Gasoducto del Pacifico connects Neuquen to central Chile. Majority owned by TransCanada, El Paso, and Gasco, Gasoducto del Pacifico supplies municipal distributors and gas-fired power plants. In April 2006, the Gasoducto del Pacifico consortium submitted an environmental impact study for a proposed extension of the system to connect the main trunk line with the Campanario power plant in Cabrero.

In recent years, repeated disruptions in the flow of natural gas from Argentina to Chile have strained relations between the two countries. In 2004, Argentina suffered an energy crisis, forcing it to cut natural gas exports to Chile. Since then, exports to Chile have fluctuated between 20-50 percent below contracted volumes, with natural gas flows ceasing completely on some occasions. For example, Argentina completely cut exports to Chile for two weeks in August 2006. The import cuts have caused shutdowns at power plants and methanol facilities, as well as forcing consumers to switch to costlier fuels. Along with the cuts in volumes, Argentina has also increased natural gas prices: in July 2006, Argentina increased its natural gas export tax to 45 percent, from 20 percent. Continuing structural difficulties in Argentina’s natural gas sector could lead to continuing supply problems in the future (also see the Argentina Country Analysis Brief ).

In light of the disruption of supplies from Argentina, Chile has pursued alternative sources of natural gas imports. Along with liquefied natural gas (see below), additional natural gas import pipelines are possible. In June 2005, Suez Energy International, a subsidiary of Belgium’s Tractebel, began a formal feasibility study for a pipeline linking Peru’s Camisea natural gas project with northern Chile. The project would feature a 930-mile pipeline system between Pisco, Peru and Tocopilla, Chile, with installed capacity of 810 Mmcf/d. In addition, the pipeline would have connects to the GasAtacama and NorAndio, allowing potential exports to Argentina, if future conditions permitted.

This pipeline is part of the natural gas “ring” proposed by Peru, Chile, Argentina, Uruguay, and Brazil. The ring would utilize new and existing pipelines to link natural gas reserves in those countries, facilitating greater energy integration in the Southern Cone. The ring would also reduce the dependence of some countries, notably Brazil, upon Bolivian natural gas production.

As mentioned above, Chile has begun to pursue LNG as a means to diversify its natural gas supply away from Argentina. In February 2006, ENAP awarded a $400 million tender to BG Group for the construction of an LNG regasification terminal near Quinteros, in central Chile. BG plans to begin construction by the end of 2006 and hopes to bring the plant onstream by 2009. The facility will have an estimated sendout capacity of 330 Mmcf/d. ENAP has already signed supply contracts with large distributors.

There has also been talk of a potential second LNG import terminal. In August 2006, the Chilean government announced that Codelco would lead an effort to develop a terminal in the northern part of the country, which would supply power plants and major industrial consumers. Suez has also floated the idea of building a northern LNG terminal.