IEEE Power & Energy Magazine - November/December 2014 - 35

For the region to exploit its gas resources in an optimal way,
more coherent long-term planning and institutional coordination
will be necessary.

Chile: Risks and Challenges
in Natural Gas Supply
Chile is one of the most energy-dependent countries in Latin
America and also an interesting case study of successful and
failed attempts to integrate electricity and gas in Chile. Much
hope is being placed nowadays (somewhat naively) on a future
low-priced and abundant supply of unconventional gas from
the United States.
There are two major interconnected power systems, the
northern one (SING) and the central system (SIC); together,
they provide nearly 99.1% of the country's installed generation capacity. The SING system is almost 99.6% thermal and
0.4% hydraulic, while the SIC has a mix of 41.7% hydroelectric, 56.2% thermoelectric, and 2.1% of wind generation
capacity. The SIC, in the central part of Chile, feeds more than
92% of the country's population and has an installed gross
capacity of 14,466 MW as of December 2013 and a maximum demand of 7,283 MW. The SING, in the northern region,
has an installed gross capacity of 3,995 MW with a maximum
demand of 2,243 MW.
As mentioned, Chile is very energy-dependent, with
73% of its primary energy mix coming from abroad. This is
because the country has limited coal, oil, and gas resources.
Its hydro reserves in the Andes Mountains provide, along
with biomass, the most significant local resources, and much
hope has also been placed on future solar energy development in the Atacama Desert, with its abundant solar insolation (6.9 kWh/m2/day). Given these facts, the main power
system grew initially through the development of most of the
low-cost hydro resources in the central part of the country.
Important run-of-river and reservoir plants were developed,
with significant reserves remaining thousands of kilometers
south of the main load. This expansion was coupled with
thermoelectric plants based on imported coal, chosen as the
most economic backup supply option for dry years and since
the local coal resources were of poor heat quality and high in
pollutants relative to imported coal.
The use of natural gas in the country is a recent development with a complex history, which has brought important benefits but also caused much harm. It all started with
Argentinean gas arising as an attractive, abundant, low-cost
alternative. The competitive private power industry in Chile
saw in this resource a great potential to reduce costs and
secure supply. Governments gave their support, and an
energy integration protocol was signed in 1995 between
the two countries. Under that protocol, both governments
november/december 2014

agreed to establish the necessary regulations to allow freedom of trade and the export, import, and transportation of
natural gas. Private investors were strongly behind the process and invested heavily in several pipelines that crossed
the Andes and defined a path for energy development that
would rely heavily on efficient combined-cycle generation
plant technologies. Imports of natural gas for power generation started in 1997 when GasoductoGasAndes, a privately developed transportation pipeline, was inaugurated,
bringing gas from the Neuquén Basin in Argentina to the
central zone of Chile. Industrial and residential consumers
also benefited from this interconnection.
Given the low-cost gas provided by Argentina (US$2 per
million Btu) and its assumed abundant supply, traditional
hydro and coal-fired technologies became uncompetitive,
and plans to expand them were halted. The protocol worked
very well at first, and Chile fully relied on Argentina to provide the necessary energy required to sustain its economic
growth. Gas exports grew steadily, transported through
several pipelines. The thermoelectric generation and petrochemical industries became the main consumers of natural
gas. The arrival of this economic fuel and the efficient generation technologies it enabled led to a significant reduction
in electricity prices in the two main interconnected systems.
Natural gas became a key part of the Chilean energy mix,
contributing 27% of total generation production.
Meanwhile, a severe macroeconomic crisis was growing
within Argentina, coupled with the global crisis that took
place in the early 2000s. Argentina started facing economic
problems, which together with some questionable government
decisions led to an energy deficit. Natural gas prices were
reduced to a third of their previous levels (due to a severe devaluation of the Argentinean peso), and this led to an escalating
demand that was not necessarily backed by investment in the
exploration of new gas fields or in new pipelines. Gas rationing was on the horizon but was considered politically unfeasible. The Argentinean government decided to favor national
supply and did not comply with its international agreements
with Chile and other neighboring countries, such as Uruguay.
Cuts to the gas transfers to Chile started taking place: not only
interruptible but also firm contracted natural gas supply was
curtailed in Chile, negatively affecting the Chilean power generation and industrial sectors. The situation worsened in 2005
with the decision of the Argentinean authorities to prioritize
their domestic market supply in all cases, thus discriminating
against Chilean consumers.
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - November/December 2014

IEEE Power & Energy Magazine - November/December 2014 - Cover1
IEEE Power & Energy Magazine - November/December 2014 - Cover2
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IEEE Power & Energy Magazine - November/December 2014 - Cover3
IEEE Power & Energy Magazine - November/December 2014 - Cover4
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