Identifier
Created
Classification
Origin
06SANTIAGO2118
2006-10-11 12:34:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Santiago
Cable title:
CHILE ENERGY PROFILE AND POTENTIAL FOR BIOFUELS
how-toVZCZCXYZ0015 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
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
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