Chile receives 70 percent of Argentina's natural gas exports, which go to electrical plants, and cover 37 percent of the country's electricity demand. On April 1, 2007 Argentina decided to reduce its supply of natural gas to Chile by 14 percent - around 2.3 million cubic meters daily. The cut seriously affected the Antofagasta and Atacama regions in the north of the country, which do not have hydroelectric energy sources. The cuts disrupted the regions large mining base, including Chiquicamata, the world’s largest open copper mine. The national copper corporation, Codelco Chile announced they would use diesel to alleviate the natural gas deficit.
The flow of natural gas from Argentina in 1997 came as a blessing for Chile as wholesale prices where considerably lower than other energy sources. However with supply lines being threatened the Chilean government has to seriously examine its energy policy as a net importer of energy.
For decades the Chilean government has realized the importance of energy to support economic growth. In 1997 the Gas Andes pipeline was completed, connecting Argentina's Neuquina basin with Santiago. In 1999, two gas pipelines, the Gas Atacama and the NorAndino pipelines, were completed linking Argentina's Northwest basin to the mining regions in the north of Chile. Although progress has been made by various administrations most notably in the development of hydropower, Chile is now at a cross roads with its energy policy.
History teaches us long term social progress in Chile need to be aligned with long term energy sustainability. How can the Chilean government aim to alleviate poverty without securing the energy to mobilize its industries - which in turn generate employment and exports to fund expenditures in social programs? History also teaches us politicians grapple with decisions that do not provide tangible results during the tenure of their administration. The Chilean government could for example allocate a portion of the surplus from copper exports to fund new energy initiatives. While this might not be a popular decision in the short term it could ensure the long term energy security of the country.
Intertwined with economic and social factors is the issue of environmental protection; making a viable energy policy challenging for any administration. According to forecasts by the International Energy Agency, Latin America will need $1.3 billion in new investments in the energy sector by 2030 in order to deal with increased demand. The reality is that the large majority of that investment will be privately funded.
While Chile can develop a sound energy policy it is impacted by the decisions of its neighbors. Case in point, in May 2005, Bolivia’s Congress approved a new Hydrocarbons Law that levies an additional 32 percent tax on oil and gas production at the wellhead, on top of the existing 18 percent royalty. This has been a controversial decision that divides public opinion. Is the protection of a nations’ natural resources comprise its potential net benefit by disincentivising investment aimed at increasing capacity, efficiency and distribution?
While hydroelectric and gas provide the large majority of Chile’s energy supply, there is significant opportunity for the development of wind, solar, biomass, agro-fuel, wave and geothermal based energy.
Wind. There is only one wind energy plant is in operation in Chile. “Alto Baguales” owned by Empresa Electrica de Aysen is situated in the South of Chile, provides 19,000 families with energy. Companies including Pacific Hydro (Australia) and Meridian Gold (Canada) are proposing projects totalling US$678 million.
Solar. While the north of Chile is probably one of the most suitable places for the exploitation of solar energy applications, it’s use in Chile is restricted to local applications because of the high cost associated with this technology.
Biomass. Biogas projects in Chile have been associated to landfill operations whereby the biogas is extracted from their sites, processed and sold in portable tanks. The use of bio-digesters has been extensively used in swine farms to lower methane emission, re-use the methane and generate carbon credits sold on the international CER (Certified Emission Reductions) market.
Agro-fuel. The Chilean government’s Innovation Agriculture Fund (FIA) will assign US$1 million to agro-fuel investigation and to develop/adapt technologies to produce agro-fuels in Chile. However the logistics of implementing sustainable afro-fuel are considerable. In order to produce the 300,000 cubic meters of ethanol required to replace 10% of gasoline, Chile requires to cultivate an additional 62,500 hectares of corn (now, 100,000 hectares are cultivated for human consumption and animal feed).
Wave. Chile’s 4, 200 kilometers of coastline and geography offers a perfect setting for tidal and wave technologies. Despite these conditions, any efforts to develop this technology have been limited by the lack of incentives and regulations to encourage its development.
Geothermal. Geothermal capacity in Chile is outstanding but drilling and prospecting costs are high. Law 19, 657 of the Ministry of Mines and Energy regulates the concession process.