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The Chilean Search for Energy Security*

Nelson Altamirano, Ph.D. Visiting Scholar, CILAS-UCSD [email protected]

* Presentation prepared for the `Natural Gas, Energy Policy and Regional Development Conference,' CSIS, March 16,2007

Basic Problem

The Chilean energy matrix depends on

Domestic Hydropower 44% Argentine Natural Gas 37%

So, it is vulnerable to

Climate recurrent changes (La Nina, El Nino) Unilateral Argentinean natural gas cuts

And, affects sustained economic growth

Economic Growth and Energy

Figure 1: Monthly Economic Activity Index, 1996-200 (Average 1996=100)

160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0

M ay O 96 ct M 96 ar Au 97 gJa 97 nJu 98 nN 98 ov Ap 98 rSe 99 pFe 99 b0 Ju 0 lD 00 ec M 00 ay O 01 ct M 01 ar Au 02 gJa 02 nJu 03 nN 03 ov Ap 03 rSe 04 pFe 04 b0 Ju 5 lD 05 ec M 05 ay O 06 ct M 06 ar -0 7

Energy Crisis April98-Nov99

Natural Gas Crisis April04-present

Source: INE Chile

Economic Growth and Energy Shocks

Figure 2:Economic Activity Index Variation, 1998-2007 (%)

8.0

6.0

4.0

2.0

Natural Gas Crisis

annualized accumulated in a year

0.0

M ay -9 O 8 ct -9 M 8 ar -9 Au 9 g9 Ja 9 n0 Ju 0 nN 00 ov -0 Ap 0 r0 Se 1 p0 Fe 1 b02 Ju l02 D ec M 02 ay -0 O 3 ct -0 M 3 ar -0 Au 4 g0 Ja 4 n0 Ju 5 nN 05 ov -0 Ap 5 r0 Se 6 p0 Fe 6 b07

-2.0

-4.0

Energy Crisis

-6.0

Source: INE-Chile

Natural Gas Related Investment 1996-2002

Investment 1996-02 in: 7 pipelines 10 CC plants Distribution and industries Electrical transmission TOTAL $ billion $1.8 $1.5 $2.2

$0.15 $5.65

It requires 15-20 years to recover and risk was minimized. But, if failed!

Sources: Decio Odone, Petrobras, 2006, and Rudolf Araneda, GasAtacama 2006

Chile-Argentine agreement

1996 Agreement 2004-07 Reality

No discrimination among consumers of the same type No discriminatory tax Secured contracts Both governments guarantee the contracts

Chilean consumers discriminated (cuts 20-100%) Export tax 20-120% of price Unilateral cuts Argentine's did not. Chilean's ...

Energy and New Level of Imports

Figure 4: Share of Oil imports in Total Imports, 1 (Percentage)

25.0

20.0

15.0

10.0

5.0

0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Energy Dependency on Foreign Resources

Energy imports higher than total imports of capital and consumption Leading export industries are energy intensive ==> Cheap Argentine natural gas era is over Develop and secure all possible energy alternatives Energy efficiency long-term plan

Security Strategy Confirms Import Dependency: CEN's SIC Plan 2005-2010

Pre 4/04 Add capacity Gas CC plants Transmission Coal fired plants LNG Hydropower Geothermal 7% 4500 MW 7 plants 59% SIC-Arg 14% SING-Arg 13% 38% 36.2% 15.2% 5.7% Post 4/04 5263 MW diesel/gas 4.9%

Southern region to become self sufficient?

Natural Gas: Enap's discovery in Lago Mercedes

Tender exploration of 10 blocks in Magallanes Coalbed Methane, Layne-Raymapu in BioBio

Hydropower: Aysen Project

2430 MW, $3b, Endesa-Colbun `environmental costs on local communities and renewable alternatives' vs. `environmental, social and political costs of Chile not having energy'

Central region to become diversified?

Source: Presentation by Enrique Davila 2006

Consumption Growth 2005-18

Source: Presentation by Enrique Davila 2006

Central region's diversification

Natural Gas:

Colbun's Candelaria 250 MW, 2007-08 Endesa's San Isidro 370 MW, 2007-08 Southern Cross Campanario 120 MW dual, 07

Coal:

AES Ventanas and Guacolda, 450 MW

LNG:

Quinteros, BP-Enap,Endesa, Metrogras, 08

Northern diversification

Diesel:

Electroandina Mejillones Terminal, $10M

Coal:

Electroandina 400 MW, 2009 BHP Billiton 250 MW, 2010

Natural Gas Exploration:

March Resources&CA oil and gas corp, Pica North in Tamarugal Basin

Northern Diversification

LNG:

Suez-Atacama, $300-$350M, 2010 1st phase Codelco- BHP Billiton, Collahuasi, Phelps Dodge ($5.2 M to create consortium) Poniachik: Only one project will proceed Mining firms want competition to ensure minimum price

Conclusion: Energy security domestic strategy

Chile is committed to diversify energy sources and energy suppliers domestically and abroad Domestic hydropower from abundant rainfall southern region should increase generation capacity. Exploration for national natural gas in the South and North is not ruled out.

Conclusion: geopolitics

Argentina has become a non-reliable partner Argentina is still an strategic partner to access Bolivian and Peruvian natural gas resources indirectly Peruvian and Bolivian plans to export electricity to Chile are not within Chile's energy security policies.

Conclusion: energy integration

The 2 LNG terminals will be built. These international prices will become the price of reference for the region. Rather than the Chilean market become more isolated from regional energy deals, the Chilean market will become more attractive to Peruvian or Bolivian natural gas. Depending on how much natural gas Chile finds in the South and North, and how much hydropower generation develops in the South, it may export electricity to Argentina in exchange of natural gas from Bolivia.

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