IEEE Power & Energy Magazine - November/December 2014 - 39

so as to allow for the infrastructure construction and for
the shale gas liquefaction terminals to be available. The
industry structure described here is potentially a market
changer. The market for electricity supply contracts to regulated consumers in Chile is currently under review by the
government because these consumers have a market share
of approximately 50% and could be used to support potential LNG development through long-term contracts and
adequate indexation formulas. Big consumers such as large
copper mines have even subscribed to supply contracts that
are similar to tolling agreements and that allow for new
combined-cycle plants in Chile.
A final challenge that arises in Chile, similar to the one
described for Brazil, is making take-or-pay LNG contracts
comply with a hydrothermal system in which the hydrology
is variable and unpredictable. This makes it almost impossible to contract defined LNG volumes well in advance-
usually a requirement to access competitive gas prices.
Even existing take-or-pay contracts are difficult to manage, and the Chilean system operators have had to consider
zero-priced gas at times of "spilling" gas conditions. The
government has considered changing its regulation to consider take-or-pay contracts as being similar to hydro reservoirs in order to minimize dispatch risks. Take-or-pay
supplies, although they are essentially rigid contract structures, can incorporate flexibility so as to increase or reduce
the amounts of LNG committed. This flexibility comes
with a cost, however, and normally requires a long lead
time for decision making, a lead time that is sometimes too
long for hydrothermal systems.

Conclusions
Even though the histories and current difficulties of the natural gas sectors in Brazil and Chile are very different, the two
countries' experiences illustrate some of the main obstacles
to promoting greater energy integration within the region.
Opportunities for deeper regional integration are plentiful,
although exploiting them will require surmounting multiple
institutional barriers, both national and international.
Some common elements in the Brazilian and Chilean
stories are the importance of the power sector as a driver
for the development of the natural gas sector and the role
of LNG as a potential "savior" in the face of the countries'
natural gas supply deficits. If, on the one hand, integration
with the global LNG network has been extremely positive for both countries, on the other hand, it is not certain
that the best strategy is for Latin America to remain a net
importer of LNG going forward. Both Brazil and Argentina
have substantial gas reserves, but the insufficiency of the
actual domestic natural gas supply was only identified when
it was too late to take any measures to increase production,
which led to LNG being sought out as an emergency measure. For the region to exploit its gas resources in an optimal way, more coherent long-term planning and institutional

november/december 2014

coordination will be necessary. In particular, the submissive
stance that the natural gas sector has assumed in Brazil has
been unhealthy for the country as a whole, preventing some
win-win solutions from being adopted immediately.
On a brighter note, the very needs of the region are
already driving the search for a solution, and there are several opportunities for gains if one knows where to look.
In particular, the seasonality of Latin America's natural
gas demand tends not to follow international demand patterns, due both to the large participation of hydroelectricity (and the high potential for other renewable sources) in
the region's electricity mix and due to its position in the
southern hemisphere. As a consequence, fully integrating
the region into the worldwide LNG network could bring
substantial gains.

Acknowledgments
This work was supported by Fondecyt 1141082.

For Further Reading
L. A. Barroso, T. Hammons, and H. Rudnick, "Integrated natural gas-electricity resource adequacy planning in Latin America," Int. J. Power Energy Syst., vol. 30, no. 1, pp. 1-14, 2010.
F. Bahamondez. (2014). Gas regulation 2014, Chile
chapter, pp. 32-40. Law Business Research Ltd. [Online].
Available: http://goo.gl/IvzfGt
L. A. Barroso, B. Flach, R. Kelman, B. Bezerra, S.
Binato, J. M. Bressane, and M. V. Pereira, "Integrated gaselectricity adequacy planning in Brazil: Technical and economic aspects," in Proc. IEEE General Meeting 2005, San
Francisco, pp. 1-8.
B. Bezerra, L. A. Barroso, R. Kelman, B. Flach, M. L.
Latorre, N. Campodonico, and M. Pereira, "Integrated electricity-gas operations planning in long-term hydroscheduling based on stochastic models," in Handbook of Power
Systems I, Energy Systems. New York: Springer, 2010,
pp. 149-175.
L. A. Barroso, H. Rudnick, S. Mocarquer, R. Kelman,
and B. Bezerra, "LNG in South America: The markets, the
prices and the security of supply," in Proc. IEEE PES General Meeting, Pittsburgh, 2008, pp. 1-8.
A. L. Diniz, M. E. P. Maceira, M. P. Tcheou, T. N. Santos,
V. S. Duarte, and D. D. J. Penna, "Hydrothermal generation
planning with time-linking constraints on the dispatch of
liquefied natural gas (LNG) thermal plants," in Proc. 17th
Power Systems Computation Conf., 2011, pp. 1-8.

Biographies
Hugh Rudnick is with Pontificia Universidad Catolica de
Chile, Chile.
Luiz Barroso is with PSR, Brazil.
Gabriel Cunha is with PSR, Brazil.
Sebastian Mocarquer is with Systep, Chile.
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