Historic background

Natural gas is a major source of energy supply in Chile and, according to the plans which are still in operation, the role of natural gas in the Chilean energy scenario will become increasingly relevant in the future. Specifically gas consumption represented 13 percent of the total energy consumption in Chile in 1998 and it is expected that this figure will rise to 28 percent by 2008. In this respect, Chile shares the rest of the world’s trends, and it does for good reasons: “Natural gas is the cheapest source of energy after water” said the Chilean president Mr. Ricardo Lagos in a recent interview.

A good part of Chilean gas expansion arises out of its association with Argentina in the 1995 Agreement Protocol –also known as Energy Integration Protocol- by which both governments agree to establish and pass the necessary laws and regulations to allow “freedom of trade, export, import and transportation” (section 1 of the Protocol).
The protocol viability depended on the existing oil and gas pipelines network which unites the Southern Cone’s national networks and which allows countries such as Argentina or Bolivia to sell their natural gas to Chile, Uruguay or Brazil. The prospects offered by the 1995 Protocol encouraged the investment in extending and improving the regional oil and gas pipelines network.

This pact has worked reasonably well since then, although with some incidents such as the project of Dualde in 2002, which intended to tax the gas exports to Chile; or the strike by the workers of Neuquen the same year, who closed the gas pipelines valves leaving 10 million Chileans in darkness. However, Chile found in Argentina -its principal natural gas provider- the necessary primary energy required to sustain its notable economic growth. This pact has worked so well that Chile has become increasingly dependent on Argentinean natural gas, to the extent that 40 percent of its electricity is originated in natural-gas-fed power plants.

The problem arises.

However, happiness does not last forever in this vale of tears. The Argentinean government was facing problems with its own gas supply and decided to cut gas exports to Chile -announced in April 2004. This decision was against the 1995 Energy Integration Protocol and it damaged Chile’s interests. Tension grew between the countries and the most pessimistic brought to their minds the episode lived during the Beagle Channel dispute. As a remedy, Argentina tried to buy natural gas from Bolivia -which sells at very low rates due to the nature of the country’s oilfields- with the idea of remaining loyal to its main client: Chile. Unfortunately, Argentina did not take into account the old but present enmity between Chile and Bolivia and when Bolivians found out that their precious gas could end up lighting or warming the Chileans, they refused to close any agreement.

And, for one reason or another, Argentinean gas supply cuts to Chile have been maintained for two months to date.

The causes of deficit in Argentinean natural-gas supplies are varied and sometimes obscure. Some say that the corporations that bought former state-owned companies are responsible for this situation. Given the situation of national emergency that the country was undergoing, the Argentinean government imposed a low-pricing system and, therefore, private corporations prefer to export gas to other countries which pay at international rates as this is more profitable than selling it within the country of origin, which pays at national rates. Some others think that there is a real gas deficit as there is little investment in the exploration of new oilfields due to the Argentinean low-pricing system.

Whichever the cause may be, the first problem for the Chilean government appeared: the cut of Argentinean gas supply. The situation was even harder for Chile as it was suffering the consequences of an especially dry year. As a consequence, supply of energy produced in hydroelectric power plants, which are still the main source of energy of the country, suffered. The Chilean government started to look for alternative gas providers such as Indonesia. Furthermore, they thought about generating electricity from oil. This is possible and technically easy, as most of Chilean natural gas fed plants are combined-cycle plants and can work with oil. Unfortunately the cost of using all these kinds of alternative fuel was higher than using Argentinean natural gas and it is the Chilean electricity users who would have to pay the difference.

There is a solution. Just partly effective, though.

Finally, last June the 17th, and after two months of anxious negotiations, the Argentinean government started to be responsive to Chile’s needs. It has recently signed resolution 659, which reduces Chilean’s gas shortage...for the moment. However, this resolution still has certain aspects that the Chilean counterpart finds obscure and contrary to the Integration Protocol, which has been the basis of the Chilean’s gas sector development, cornerstone of its national energy sector, in the last years.

The new resolution allows for an increment of gas exports to Chile as long as Argentinean gas needs are properly satisfied. Furthermore, it allows for the possibility of the Argentinean government terminating, without any further explanation, gas exports to Chile from a private company if it is considered necessary. The Chilean counterpart welcomes the Argentinean resolution because it is a short term solution to their problem, but still views this as a violation of the letter and the spirit of the 1995 Protocol, which has been the basis for the development of the Chilean energy sector since that date. In addition, all the big investments in Chile have been carried out on the basis of this agreement. For this reason Chile will continue pressing for negotiations to continue until there are new agreements more similar to those formulated in the 1995 Protocol.

Going Further

In this world of globalisation with a single market, where corporations operate over national frontiers and even over continents, the price and availability of natural resources in Chile are closely connected with what happens in other countries, no matter how distant they may be.
After the privatisation process of state-owned companies for the energy sector, most of them acquired by powerful international corporations, it has become more difficult for the national governments to regulate their activities. In these circumstances, it is almost impossible for the governments to secure the defence of their national interests, even in a situation of national emergency, given the capacity of manoeuvre and the economic and politic influence of such corporations.

Not so long ago, “reasonable” –not to say low prices for primary energy supplies were taken for granted, and price was not regarded by business and government as an important point to mention in their plans, not only in Latin America but in the whole world. However, nowadays that assumption is becoming increasingly uncertain. Furthermore, the control of energy resources depends more and more on the world political situation and military conflicts. This is more obvious in the case of fossil energy resources, as they are cheap and versatile. These facts can give us a truer understanding of the energy situation than the technical data provided by economists and geologists.
While avoiding exaggerated predictions of energy apocalypse, we must admit that every barrel or cubic metre of energy extracted is one less barrel or cubic metre remaining underground. This, as obvious as it is, does not seem to be present in the minds of our political leaders.

National governments, still elected democratically to look after the interests of the community even in these times of globalisation, will have to study the possibility of adopting alternative technologies or rescue old techniques that were happily forgotten, without neglecting to consider reduction in power consumption and efficiency gains through technological means. These adaptations will be fundamental for the harmonic development of nations.