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Viewing cable 06SANTIAGO2118, CHILE ENERGY PROFILE AND POTENTIAL FOR BIOFUELS

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Reference ID Created Released Classification Origin
06SANTIAGO2118 2006-10-11 12:34 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Santiago
VZCZCXYZ0015
PP RUEHWEB

DE RUEHSG #2118/01 2841234
ZNR UUUUU ZZH
P 111234Z OCT 06
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC PRIORITY 0135
INFO RUEHBR/AMEMBASSY BRASILIA PRIORITY 3325
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHBU/AMEMBASSY BUENOS AIRES 3235
UNCLAS SANTIAGO 002118 
 
SIPDIS 
 
STATE FOR WHA/EPSC - CORNEILLE, EB/ESC/IEC - IZZO 
STATE ALSO FOR S/P -  MANUEL, OES/STC - BATES 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: NA 
TAGS: ECON ENRG EPET EAGR SENV CI
SUBJECT: CHILE ENERGY PROFILE AND POTENTIAL FOR BIOFUELS 
 
Ref: STATE 164558 
 
1. (U) Summary.  Energy security is a top priority for Chile.  It 
has limited domestic energy resources and depends on imports. 
Argentina's own gas crisis forced Chile to encourage new investment 
in energy generation, from both conventional and non-conventional 
sources.  The GOC has implemented an Energy Security Action Plan, 
comprising short and medium-term measures to diversify Chile's 
energy matrix, achieve greater energy independence and encourage the 
efficient use of energy.  End summary. 
 
Energy Matrix Dependent on Fuel Imports 
--------------------------------------- 
 
2. (U) Chile currently imports almost two-thirds (72 percent) of its 
primary energy consumption, according to the Ministry of Mining and 
Energy.  In 2005, 98 percent of oil used was imported, 75 percent of 
natural gas, and 96 percent of coal.  Chile is keenly aware of its 
vulnerability to the volatility of international prices and/or 
supply interruptions.  In 2006, construction began of a liquid 
natural gas import terminal in central Chile, which will start 
receiving imports in 2008.  A second LNG terminal in the north is 
also under consideration.  Long-term plans to import LNG are Chile's 
response to irregularities in the supply and cost of Argentinean 
gas. 
 
3. (U) Over the last few decades, hydropower has been Chile's main 
source of electricity, with oil used to supply industrial and 
residential consumption.  In the mid-1980s, Chile started to 
diversify its energy matrix by importing natural gas from Argentina 
for use in electricity generation and by industries and households. 
Seven pipelines, representing an investment of USD 1.6 billion 
connect Chile to different gas basins in Argentina.  Gas-fired 
plants, with a total capacity of 3,400 MW, were also built at a cost 
of USD 2 billion.  In 2005, the primary electric energy matrix was 
329,283 teracalories, from crude oil (33.5 percent), natural gas 
(23.8 percent), hydroelectricity (20.0 percent), wood and others (14 
percent), and coal (8.7 percent). 
 
Industry Dominates Fuel Consumption 
----------------------------------- 
 
4. (U) The heart of Chile's economy - manufacturing - is dependent 
upon imported energy.  Of the gas Chile imports from Argentina, only 
eight percent is used in Chilean households.  Thus, the unilateral 
Argentinean cutoffs and price fluctuations have had their largest 
impact on industrial production.  Industry responds with diesel and 
coal use, but costs are higher and the environmental impact much 
greater.  In the transportation sector,  there was been a 25 percent 
increase in the consumption of gas and diesel between 1995-2004, 
with diesel consumption increasing by 49 percent (2.062 mil m3 to 
3.072 mil m3) and gasoline use increasing by 7 percent (2.752 mil m3 
in 1995 to 2.938 mil m3 in 2004). 
 
Alternative Energy 
------------------ 
 
5. (U) President Michelle Bachelet has taken measures to ensure that 
15 percent of the new generating capacity installed during her 
government uses alternative energy sources such as mini-hydro, 
biomass, geothermal power, and eolic energy.  At present, only 285.7 
MW (2.4 percent of total installed capacity) is generated using 
these sources - biomass generating 170 MW, (most from cellulose), 
small hydroelectric plants generating 112 MW, and 2 MW from one wind 
farm. 
 
Private Sector System 
--------------------- 
 
6. (U) All electricity generation, transmission and distribution are 
in private hands.  A total of 70 electricity companies operate in 
Chile:  37 distributors, 28 generators, and 5 transmission 
companies.  In 2005, installed generating capacity reached 11,982 MW 
(up from 5,635 MW in 1995 and only 3,324 MW in 1985).  The National 
Energy Commission (CNE) estimates that Chile will need to double its 
present capacity by 2020. 
 
Renewable Energy Projects 
------------------------- 
 
7. (U) In 2005, Chile launched and funded a number of projects in 
renewable energy -- 22 hydro, 12 wind, 11 biomass, and one 
geothermal.  In 2006, a further 19 hydro, 28 wind, 8 biomass will be 
launched with additional with the aim of all the listed projects 
being fully operational by 2010.  Additionally, GOC is not ignoring 
energy generation by renewable sources in the intervening period 
2007-2010.  In September, the GOC held its "1st International 
Investment Meeting on Renewables," which included 80 foreign 
investors from 15 different countries, including a U.S. DOE 
representative, targeting 40 projects.  This meeting was the 
clearest signal yet that the GOC recognized that joint 
public-private efforts are needed to address challenges and 
opportunities in Chile's energy sector. 
 
Investment Incentives/Environmental Standards 
--------------------------------------------- 
 
8. (U) The GOC wants new investment in energy but without 
compromising its environmental standards.  In May 2006, Chile's 
environmental agency (CONAMA) agreed to draft new emissions 
standards, expected by the end of 2006.  New investment in Chile's 
electricity sector has been held back by regulator uncertainly over 
environmental standards, continued fluctuations in the gas supply 
from Argentina, and the risk of tariff reductions due to 
technological developments. 
 
9. (U) In 2005, Chile introduced the so-called "Short Law II" to 
provide incentives for private investment in power generation. 
Long-term contracts between generators and distributors at known 
prices (indexed to fuels costs) are meant to create higher revenue 
certainty for generators and increased security supply for 
distributors.  As of August 2006, the National Energy Commission 
(CNE) had received interest in 62 new investment projects in the 
generating sector (most are hydro), representing a potential total 
increase in capacity to 12,458 MW by 2020.  The GOC's Energy 
Security Plan aims to encourage new investment in generation, using 
both conventional and non-conventional energy sources. 
 
Transportation Infrastructure 
----------------------------- 
 
10. (U) Chile has a modern port and road infrastructure system 
covering most of the major cities in the entire country.  There are 
no flex-fuel vehicles.  Import duties are extremely low in general 
at around six percent.  Additionally, Chile has an extensive network 
of trade agreements further reducing tariffs. 
 
Sugar Industry and Biofuels 
--------------------------- 
 
11. (U) The sugar industry in Chile is a monopoly, which is 
privately owned by a Spain-based company.  Chile is a net importer 
of sugar, and beets are its primary domestic source for sugar.  The 
use of sugar beets as an alternative source of energy is cost 
prohibitive and ineffective, as Chile does not produce enough beets 
to meet current demand. 
 
12. (SBU) At present, Chile does not have a framework to start 
producing biofuels at a commercial level or to invest in this type 
of industry.  At a minimum, before launching an effort to produce 
biofuel commercially, more studies need to be completed, which could 
take years.  Chile's base of corn and sugar beet production 
currently come nowhere close to the potential input demands to 
produce biofuel.  Just as an example, to replace 5 percent of Chile 
annual gasoline use, Chile would need 300,000 hectares of raps, or 
twenty times of the 15,000 hectares grown in the country. 
 
13. (SBU) Comment. Chile's renewable energy projects have the 
potential to see the light of day eventually, given enough sustained 
funding and political interest.  Of the projects proposed, those 
based upon hydroelectricity seem to be the most feasible. 
Geothermal energy has the potential to be a viable energy source for 
Chile, although given current technology the geothermal sources are 
too far away from major urban areas to be of much use.  For the 
foreseeable future, biofuel and energy from biomass will not be 
significant sources of energy for Chile.  The discovery of methane 
hydrates along Chile's continental shelf provides another potential 
source of energy should the technology to exploit this resource 
become available without creating major environmental damage.  The 
near-term increase in Chile's energy capacity, and diminished 
reliance on Argentina as a supplier, will come from the LNG facility 
to open in 2008 and investor interest from recent tenders offered to 
overseas investors. 
 
KELLY