Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy, international
politics & civilization.
Saturday
Lagniappe
Chile’s Energy
Crisis: No Magical Solution
By
Jeremy Martin
Chile’s energy sector faces a dangerous level of insecurity,
inefficiency and lack of sustainability - but there's no magical
solution.
Diversification
is not only a buzzword for one’s personal investment
strategy, but also the one-word summation of the current
energy policy debate in Chile. More specifically, security,
efficiency and sustainability are the clear-cut pillars of
the government’s strategy as set forth by Minister
of Energy Marcelo Tokman. Unfortunately for Chile and its
citizens, the last three years have seldom found all three
elements satisfactorily combined.
Whether
due to insufficient natural gas supplies, the high price
of oil or the less-than- adequate hydrological levels, Chile’s
energy sector has, in fact, faced a dangerous level of insecurity,
inefficiency, and lack of sustainability. With the country’s
booming economy, driven largely by copper and the mining
sector, the need to address the problem has become urgent.
NO
MAGIC SOLUTION
Each
passing winter has caused a subsequent deepening of the crisis
and made it clear that there is not one magic solution readily
available. And, complicating matters are the two unique electrical
systems in Chile; SIC in the Center and SING in the North.
These two grids face entirely different challenges with SING
having a distinct disadvantage due to a complete lack of
hydroelectric resources.
Indeed,
certain inadequacies of the current system and energy matrix
have led to an intense and spirited debate in the country
within the halls of government and almost all sectors of
the economy. As with any debate, there are divergent opinions.
Many hold out hope for a silver bullet; others are confident
in the system to withstand the shocks; some are championing
specific technologies or projects.
Consequently,
and as one would expect from serious and committed public
and private sector representatives in Chile, several responses
to their energy dilemma have been unveiled. Proposals and
projects have focused on several options for diversification:
liquefied natural gas (LNG); coal; increased hydroelectricity;
non-conventional renewable resources; energy efficiency;
the Magallanes Basin; and, nuclear.
LNG
The
most well-known of the hoped-for silver bullets is LNG. Given
the country’s existing natural gas import and transmission
infrastructure and the reliance developed for the fuel in
terms of power generation - roughly 38 percent of power generation
is gas-fired - this does seem like a natural solution. Beginning
with the commitment of the national government under former
President Ricardo Lagos and state oil company ENAP, an LNG
import terminal - in the Port of Quintero - was the first
move toward diversification of supply. More recently, state
mining company CODELCO and SUEZ Energy also announced their
intentions to fast track an LNG import terminal in the northern
region, at the Port of Mejillones.
Without
question LNG has several potential upsides for Chile including
adding security to their sources of supply as well as plugging
the country into the international natural gas market. Experts
in Chile also point to the flexibility of fuel benefit for
increased gas-fired projects, those predicated upon LNG imports.
Yet, many of the “pros” have been similarly pointed
to as “cons” for LNG in Chile as the global LNG
market tightens, supply becomes scarcer and LNG and natural
gas prices on the international market continue to trend
upwards.
COAL
AND HYDROELECTRIC GENERATION
The
past several months proved to be another winter of discontent
with Argentina taking their cuts in natural gas exports to
a dire level. Choosing not to cut power supplies, Chile’s
electric generators were forced to switch to coal and petroleum
products. In addition to serving as a short-term fix, the
increase in coal-fired power has also caused many generators
to move forward with projects that will use coal as the primary
fuel source. Indeed, some experts indicate that coal will
be the primary fuel source and should be the main option
for diversification for the next few years. Some do worry,
however, about the possible environmental implications of
increased reliance on coal, as well as the costs of conversions.
Chile’s
potential remains great in this area, with five projects
scheduled for completion in the next five years, generating
3,500 MW. Even so, expectations are that hydroelectric’s
contribution to the energy matrix will remain relatively
stable, hovering around 50 percent.
NON-CONVENTIONAL
RESOURCES
Not
surprisingly, non-conventional renewable resources currently
make up a very small percentage of power generation in Chile – only
182MW. As in other countries, and given global energy prices,
renewable energy options have become more attractive in Chile.
The government aims to almost double the installed capacity
from renewable sources and point to adequate legal and regulatory
support (the Ley Corta I and II) to enable these developments;
the Ley Corta II included language aimed at eliminating any
discrimination against renewable projects. Yet, some of the
authorities feel that additional incentive is necessary for
renewable resources and thus the Congress is preparing legislation
to put in place a framework for simplifying implementation
of renewable projects; the legislation remains in a draft
stage in the Chilean Congress.
Another
important element of the effort to increase renewable energy
development is the role of CORFO, the Chilean investment
promotion agency. CORFO is currently funding 53 feasibility
studies for renewable energy projects; many of the projects
will be featured as part of a major renewable energy conference
hosted by CORFO in Santiago in mid- November.
It
should be noted that some government officials, as well as
academics, have expressed their skepticism over the idea
of increasing what they term market-distorting subsidies
for alternative energy. However, on the most basic of levels,
there is a general consensus that the market should guide
investment and thus be the ultimate driver for increased
incorporation of alternative sources into the matrix.
ENERGY
EFFICIENCY
The
old axiom goes that the best source of energy is that which
you do not consume. Or, as they hope to get across to the
public in Chile, efficiency measures can and should be a
key aspect of addressing the energy crisis. In a country
where the energy intensive mining sector serves as the key
economic motor, efficiency is not just a feel-good concept.
Moreover, as underscored by Senate Energy Commission Chairman
Ricardo Núñez, the country’s energy demand
growth currently exceeds the country’s GDP growth,
an imbalance that requires attention by all.
To
confront demand growth, the government, through the ministry
of economy, has embarked on an aggressive public relations
campaign to make citizens aware of the areas where they can
personally reduce their consumption habits. Similar to the
hugely successful Energy Star program in the United States,
the government program hopes to reduce consumption in Chile
by 15 percent in 10 years.
MAGALLANES
BASIN
In
the far south of Chile, and close to the snaking border with
Argentina, lies the Magallanes Basin. What for many years
was an afterthought for the country’s domestic energy
potential has, as with many of the preceding issues, suddenly
gained in importance.
In
an effort to further the development of hydrocarbon resources
in the Magallanes Basin, the Chilean government has undertaken
an aggressive international bidding process to attract private
investment for up to 10 blocks; 7 solely for private bidders
and 3 in partnership with state oil company ENAP. The initial
indications are that all but one of the blocks received bids,
though final technical and economic evaluations remain underway;
the government hopes to have all contracts finalized before
the end of the year. In the words of Minister of Mining Karen
Poniachik - the mining ministry is leading the effort to
develop the Magallanes Basin - the goal is for the Magallanes
Basin to aid with their strategic efforts to assure greater
autonomy for the country.
Skepticism
does exist, however, as to the size and potential for reserves
in the Magallanes Basin, as well as the fact that its geographic
location would not greatly aid with energy supplies for the
demand centers of Santiago and the North. With that said,
Geopark, the only private firm currently operating in the
region, recently announced a new successful natural gas discovery.
Their announcement was surely greeted warmly within the Chilean
government and particularly those championing the Magallanes
Basin effort.
NUCLEAR
Nuclear
energy as an option for Chile’s energy matrix is simultaneously
remarkable and intriguing. The seriousness of the discussion
is underscored by President Bachelet’s recent remarks
at the UN, as well as many public statements made by former
President Lagos and current Senate Energy Commission Chairman
Ricardo Núñez.
Operating
under the principle that all options should be on the table,
the current government has committed itself open to debate
on the issue; the Chilean Senate has also begun an intense
review and plans formal visits to Russia and France to see
their nuclear facilities firsthand. Moreover, the Bachelet
government has stated that they will make a decision on the
viability for nuclear energy prior to departing office in
2010. Certainly a laudable goal, but given the topic under
consideration it will be difficult and perhaps not entirely
useful to place a time constraint on such a critical decision.
ELUSIVE
SOLUTIONS
What
is abundantly clear is that, to date, the proposed steps
toward diversifying Chile’s energy matrix have been
quite diffuse. Moreover, the modified shotgun approach to
their predicament is not embraced by all. Indeed, some feel
that now, during a time of crisis, the continuation of a
consistent approach is required and it is not the time for
experimenting with possible solutions, particularly those
they deem commercially challenging. Nevertheless, those advocating
the status quo concede that the next few years will, despite
the call for minimal change in the nation’s overall
energy strategy, require a significant amount of thinking
outside of the box.
The
exact policy prescription for Chile’s energy sector
remains elusive, but surely will be a combination of several
of the ideas, concepts and projects underway and under debate.
Energy diversification does not appear likely to diminish
as a crucial policy focal point for the country in the short
to medium term.
Fortunately,
it appears that the continued strengthening of national institutions – the
Ley Corta I & II, as well as other minor modifications
have been roundly applauded - as well as a continued rational
and steady approach to the situation will assure that policy
making will remain proactive, sensitive to the near and long
term implications, and grounded in market realities. Do not
think for a minute that Chile will simply sit back until
2010 with their fingers crossed praying for warm winters
and rain - though a rain dance is not an entirely bad idea.
Jeremy
Martin is director of the energy program at the Institute
of the Americas, a non-profit institution based at the University
of California San Diego. He wrote this column for Latin Business
Chronicle. Petroleumworld
not necessarily share these views.
Editor's
note: This
commentary was originally published by Latin
Business Chronicle, on
Monday, October 22, 2007.
Petroleumworld reprint this article in the interest
of our readers.
All
comments posted and published on Petroleumworld, do not reflect
either for or against the opinion expressed in the
comment as an endorsement of Petroleumworld. All comments expressed
are private comments and do not necessary reflect the view
of this website. All comments are posted and published without
liability to Petroleumworld.
Fair use Notice: This site contains copyrighted material the
use of which has not always been specifically authorized by
the copyright owner. We are making such material available
in our efforts to advance understanding of issues of environmental
and humanitarian significance. We believe this constitutes
a 'fair use' of any such copyrighted material as provided for
in section 107 of the US Copyright Law. In accordance with
Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with
Title 17 U.S.C. Section 107, this material is distributed without
profit to those who have expressed a prior interest in receiving
the included information for research and educational purposes.
Petroleumworld has no affiliation whatsoever with the originator
of this article nor is Petroleumworld endorsed or sponsored
by the originator.
Petroleumworld encourages persons to reproduce, reprint, or
broadcast Petroleumworld articles provided that any such reproduction
identify the original source, http://www.petroleumworld.com
or else and it is done within the fair use as provided for
in section 107 of the US Copyright Law. If you wish to use
copyrighted material from this site for purposes of your own
that go beyond 'fair use', you must obtain permission from
the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated.
