MercoPress. South Atlantic News Agency

Natural gas shortage crisis brewing in Chile

Current reductions of Argentine natural gas supply which are affecting Chile's industries will not have a negative overall impact on the economy, said Wednesday Francisco Vidal, Minister Secretary General of the Chilean Executive.

He further indicated that Chile is working on solving the "energy supply problem" in the mid and long term, but insisted that natural gas rationing should not have a production cost impact or limit Chilean economy forecasted growth.

Mr. Vidal statement follows demands from the metal and mechanic industries for the creation of a crisis committee to address the "national problem" that the systematic reduction of Argentine natural gas supply is generating.

Abraham Ducasse president of the Chilean Metal and Mechanical Industries Association revealed that so far this week 150 companies have been forced to ration fuel and consequently production, while another forty have simply not operated. "It's time to change the switch and face the fact this is not a problem of the private sector but a full scale national problem involving employment, consumption, economic growth; we need a national committee to manage the crisis", stressed Mr. Ducasse. "We're perfectly aware that national authorities can't force Argentina to respect signed contracts, but the government can't keep looking sideways". Mr. Ducasse stressed that with uncertainty about potential energy restrictions, "nobody can plan before hand because we're all waiting for the supply cuts".

However Mr. Vidal pointed out to remarks from Hernan Somerville, president of the Chilean Production and Commerce Confederation who forecasted that a reduction in Argentine natural gas supply "will not impact Chile's economic expansion in 2005 or job creation". "We have to look at the whole picture. Certainly it's a serious issue and there's an impact, but the Chilean economy is robust and very solid". Mr. Somerville said Chile has sufficient resources and "alternatives such as water, coal or diesel" to face the situation and "must definitively search for a greater reassurance and energy security".

But in spite of the official optimism, Manuel Baquedano from the Environmental Policy Institute warned that with the reduction in natural gas supply, "Chile faces a desolate scenario" since Argentina's restrictions are bound to increase as winter approaches. "The fact that companies are replacing natural gas shortages with alternatives such as diesel or coal will only trigger an increase in contamination indexes and in people's health deterioration", blasted Mr. Baquedano.

In the last ten years Chile moved aggressively towards cleaner fuels such as natural gas particularly from neighbouring Argentina which supplies almost 90% of the country's needs, equivalent to over 50% of its full energy consumption.

The high dependency on an almost only supplier was exposed last year when Argentina unilaterally cut natural gas exports to supply its own domestic market.

This led to serious diplomatic frictions between both countries which were overcome with much patience and bilateral contacts.