Energy Security and Chile: Policy Options for Sustainable Growth

Abstract

In the past several years, energy security has become a primary concern for Chile, a developing economy with minimal conventional hydrocarbon resources and expanding energy needs. In 2006, 70% of Chile's domestic primary energy consumption came from foreign sources and more than 30% of electricity generated in Chile depends on unstable natural gas supplies from Argentina. Since 2004, Argentine gas exports to Chile have fluctuated between 20-50 percent below contracted volumes. To make matters worse, with dramatic increases in international oil prices, replacing gas-fired electricity with diesel has been rather costly for Chile. Through a focus on Chile's electricity needs, this policy paper examines diverse approaches to addressing Chile's energy crisis and separates them into three sets of policy responses. After careful analysis, this study recommends that Chile 1) continue with policies that facilitate the growth of renewable, alternative energy technologies, 2) begin to implement medium-sized nuclear power plants, 3) increase funding for its new national energy efficiency program, and, finally, 4) continue its commitment to import LNG from Asian countries through terminals constructed on Chile's Pacific coast.