Chile Power Use to Stagnate for 1st Time Since '82, Tokman Says

By Matthew Craze and Heather Walsh

July 24 (Bloomberg) -- Chile's energy consumption will stop growing for the first time in 26 years after Argentina cut natural gas supplies and a drought curbed hydroelectric power, Energy Minister Marcelo Tokman said.

Power usage this year may be the same as last year or even fall, the first time that has happened since 1982 when the economy declined 14 percent, Tokman said in an interview in Santiago. Chile imports two-thirds of its energy needs.

``We are in a very critical situation,'' Tokman said. ``We won't our change our dependence from one day to another.''

The rising cost of energy contributed to an inflation rate that accelerated to 9.5 percent in June and forced the central bank to raise its target interest rate 2.25 percentage points since June last year. There won't be a surplus of power until 2010, Tokman said.

Chile's central bank cut its forecast for economic growth on May 12 citing increased energy prices. The economy will probably expand 4 percent to 5 percent, the bank said in a monetary policy report, less than the 4.5 percent to 5.5 percent forecast in January.

The energy shortage has acted as the ``principal brake'' on Chile's economy this year and last, Finance Minister Andres Velasco said May 23.

Chile suffered a severe recession in 1982 when the country was under the rule of former military dictator Augusto Pinochet, according to central bank statistics.

Argentine Gas Supplies

Chile's energy problems have worsened since 2004 when Argentina shipped less gas to its neighbor, diverting supplies to its own industries and residents.

Chile is only receiving about 5 percent of the natural gas that Argentina agreed to ship under long-term contracts, Tokman said. A unit of Methanex Corp., the world's largest supplier of methanol, had its natural gas supply from Argentina severed last year, Argentine state energy regulator Enargas said on its Web site.

In addition, the third-driest winter in 50 years reduced power supplies from hydroelectric dams, which account for more than half of the total power supply on the country's central grid that serves the capital, Santiago.

The cost of producing a megawatt of energy at a power plant in Santiago rose 527 percent to $207 from $33 in the past year, Tokman said.

Argentina also stopped natural gas shipments to Chilean power generator GasAtacama SA, forcing the company to burn more costlier diesel and coal imports to generate electricity for Chile's copper mines, which are the world's largest.

Rescue Bid

Mining companies including state-owned Codelco, the world's largest copper producer, BHP Billiton Ltd., Anglo American Plc and Xstrata Plc were involved in a deal to rescue GasAtacama from bankruptcy, the Energy Ministry said April 29. The terms of the deal were undisclosed.

Chile is building two liquefied natural gas terminals to solve its energy problems. A terminal being built by BG Group Plc, the third-biggest U.K. natural gas company, and Chile's state- owned Empresa Nacional de Petroleo, may be ready by June 2009, Tokman said.

Another terminal to serve Chile's north being built by Codelco and France's Suez SA will be completed in 2010, easing power shortage in the main copper-producing area, Tokman said.

Tokman, 41, a Berkeley graduate who was named Chile's first energy minister on March 29, 2007, has met with leading experts on nuclear and solar technology to find alternatives.

Magellan Hopes

The government's main hope of becoming self-sufficient in energy lies at the depths of the Magellan Strait, a channel at the tip of the South American continent named after Portuguese discoverer Ferdinand Magellan who used it to access the Pacific Ocean in 1520.

Chile has awarded concessions to Total SA, Greymouth Petroleum Ltd. and Apache Corp. to scour the area for natural gas deposits. Those companies and others will spend $250 million on exploration in the next three years, Mining Minister Santiago Gonzalez said.

Chile may also alleviate the crisis by negotiating with northern neighbors Bolivia and Peru for a natural gas supply deal, said Brian Chase, a strategist at JPMorgan Chase & Co.

Tokman accompanied Chile's President Michelle Bachelet on a visit to California to see Acciona SA's Solar One plant in the Mojave Desert. Solar One's technology, which captures the sun's rays in 182,000 parabolic mirrors, could be used in Chile's Atacama Desert, the driest place on Earth and home to Escondida, the world's largest copper mine, he said.

The government may soon award contracts to explore areas to tap geothermal power in Chile's volcanic Andes mountain range, Gonzalez said July 1. Two of the projects could potentially generate as much as 200 megawatts for Chile's northern power grid, Gonzalez said. Italy's Enel SA is among the interested parties, he said.

``The problem has already been solved in what the government can really do,'' Chase said in a telephone interview. ``All they can do is cross their fingers and provide back up measures in case the situation did spiral out of control.''

To contact the reporters on this story: Matthew Craze in Santiago at mcraze@bloomberg.net; Heather Walsh in Santiago at hlwalsh@bloomberg.net.