Using economic policies geared towards free trade and privatization, Chile has emerged as one of Latin America's most successful economies. Because of its limited indigenous energy resources, Chile is looking to international partners and imports to help meet its rapidly rising domestic energy demand.

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GENERAL BACKGROUND
Chile has become a shining example of how free trade policies and privatization efforts can fuel economic growth. Chile's economy grew by 7.2 percent in 1996, the largest growth rate of any of the major economies in the Americas. This occurred while the inflation rate in 1996, 7.4 percent, was the second-lowest in Latin America (behind Argentina). Part of this success is Chile's policy of free trade and its openness towards foreign investment. According to the WEFA Group, the five year forecast calls for GDP growth between 5-6 percent per year. The primary risk to the forecast are the strengthening Peso, copper prices, and a possible El Nino adversely affecting agriculture.

While Chile continues to wait to join the North American Free Trade Agreement (NAFTA), in 1996 Chile became an associate member of the Southern Cone Common Market, more commonly known as Mercosur. Argentina, Brazil, Paraguay, and Uruguay are full members of Mercosur, while Chile and Bolivia are associate members. Mercosur is seen as one of the more successful trading blocs and Chile's membership in the organization should only aid Chile's economy. Brazil and Argentina are two of Chile's largest trading partners, with Argentina being especially important to the energy sector.

Chile's privatization efforts have also fueled the economy. In Chile, businesses are predominantly owned and controlled by private interests, even in the energy sector. The exception is the mining sector, which is the single biggest industry in the country. President Frei announced in May 1997 that he would like to see at least a partial privatization of state oil (ENAP) and mining (ENAMI). Codelco, the state copper corporation, is by far Chile's largest company, as well as the world's largest copper company, La Escondida operated by BHP of Australia, is located in Chile's Atacamba Desert. BHP may expand operations with a proposed $460 million investment. While energy demand in Chile has grown at an average rate of over 7 percent since 1986, a significant portion has gone to power the mining sector, particularly in the mining sections located in northern Chile and the large urban areas, such as Santiago, which alone contains over 30 percent of Chile's population.

OIL
Chile's oil demand has doubled in the last 10 years, while crude oil production has declined by two-thirds. This has led Chile to increase its imports of oil dramatically. Argentina supplies about 50 percent of Chile's oil imports, while West Africa, primarily Nigeria, supplies about 25 percent, and Ecuador supplies about 10 percent. With Chile's inclusion in Mercosur, Argentina is expected to increases its share of Chile's imports as tariffs are reduced. Exploration activities have moved offshore with the announcement that two US firms, Seacor/Smit Inc., and Chile's Offshore L.L.C. will spend $9 million initially and $26 million in the future to operate oil and gas rigs. Chile is also expanding its methanol plants with the agreement between Methanex Chile Ltd and Kvaerner to construct a third methanol plant near Punta Arenas, Chile costing $300 million with a capacity of 2700 tons per day. A delayed-coker cogeneration facility costing $237 million by Foster Wheeler Power System Inc., Petrox SA Refinieries de Petroleo, and ENAP is planned for Concepcion, Chile.

NATURAL GAS
The GasAndes natural gas pipeline is open for business. The pipeline carries gas from Argentina's Neuguen Basin, across the Andes Mountains, to Santiago, Chile. The pipeline is 290 miles long, 24-inches in diameter and cost $325 million. The project was headed by Canada's Nova Corporation. A competing TransGas pipeline, a consortium led by U.S. Tenneco has be come stalled as the GasAndes pipeline came to completion.

A second pipeline system is planned for northern Chile at the town of Mejillones from northern Argentina. The Gasoducto Atacama project is backed by U.S. CMS Energy and Chile's Endesa. Endesa plans to build two, 355 megawatt power plants. The pipeline is 575 miles long. The pipeline and power plants are to cost $750 million. Natural gas is to be supplied by Pluspetrol and Astra (93 million cubic feet per day) and Argentina's YPF ( 32 million cubic feet per day). A competing Norgas pipeline proposal backed by ElectroAndina SA and Edelnor may not come to fruition.

Customers for the natural gas include 4 new 350 megawatt power plants, as well as an expanded distribution system in Santiago. Delivery capacity is expected to be 124 million cubic feet per day in 1997, 212 million cubic feet per day in 2000, and 600 million cubic feet per day by 2007. The pipeline is planned to be extended 68 miles to Quillota beginning in July 1997, once the original pipeline is completed.

ELECTRICITY
Significant growth in electricity consumption should be expected for Chile given the rapidly growing industrial base, especially in the mining and chemical industries, as well as in the residential and commercial sector. In 1995, generation capacity was 5.5 gigawatts (5500 megawatts) with nearly 25 billion kilowatthours of production. Approximately three fourths of that was produced with hydroelectric power is expected to expand, most of the additional capacity is expected from natural gas-fired generators. As the table below, prepared by Electricidad Interamericana, indicates, a significant number of gas-fired plants are expected over the next 10 years.

Chile continues to be the model for privatizing the electricity industry and unbundling the generation, transmission, and distribution systems. As early as 1990, less than 10 percent of the industry was owned by the government. Corfo, the state holding company, recently announced that the last government controlled electricity utility, Empresa Electrica de Aysen (Edelaysen) would be privatized in the fall.

Several major competing projects are underway: Chile's Endesa and U.S. CMS recently awarded contracts to construct two 355 megawatt gas-fired, combined-cycle power stations utilizing the Gasoducto Atacama gas pipeline; the Chilgener project (Chilgener is Chile's second largest power generating company) entails building almost 1 gigawatts of capacity (three 330 megawatt plants) in Argentina's Salta province and constructing transmission lines across the Andes Mountains to deliver power into northern Chile's power grid. The total project is expected to cost $600 million; and it was recently announced that Spain's Endesa would be purchasing a controlling 29 percent of Chile's largest electricity conglomerate, Enersis, for $1.2 billion.

Indicative of the rapidly growing demand for electricity are the copper mining expansions in the works: South Korea-based Hyundai Group is conducting a feasibility study to construct a copper smelting complex with 400,000 tons per year capacity, which will include a refinery and electrical plant. Costs are estimated to be between $300-600 million. Canada's RIO ALGOM plans to expand with a $198 million investment. Codelco plans to invest $500 million to increase its copper output from 350,000 tons to 500,000 tons per year. A joint venture between Outokumpu Technology of Finland and Chile's Endesa calls for the construction of a $800 million copper smelter.

RENEWABLES
The joint project between the U.S. National Renewable Energy Laboratory (NREL) and the Chilean government was completed in June, 1997 where several village electric projects utilized off-grid technology. It is hoped that this project would boost the renewable industry.

COUNTRY OVERVIEW
President: Eduardo Frei (as of March 1994)
Independence: September 18, 1810 (from Spain)
Population (1996): 14.4 million: annual growth rate, 1.46%
Location/Size: Southern South America/757,000 sq km (292,000 sq mi), slightly smaller than twice the size of Montana
Major Cities: Santiago (capital), Concepcion, Antofagasta, Puerto Montt, Punta Arenas
Languages: Spanish
Ethnic Groups: European and European Indian (95%), Indian (3%), other (2%)
Religions: Roman Catholic (89%), Protestant (11%), Jewish
Defense: Army, Air Force, Navy, National Police

ECONOMIC OVERVIEW
Currency: Chilean Peso
Market Exchange Rate (8/21/97): US$1 = 413 Pesos
Gross Domestic Product (GDP, 1990 US Dollars) (1996E): $46.7 billion
Real GDP Growth Rate (1996E): 7.2%
Inflation Rate (consumer prices, 1996E): 7.4%
Current Account Balance (1996E): $-2.7 billion
Major Trading Partners: United States, Japan, UK, Brazil, South Korea, Germany, and Argentina
Merchandise Exports (1996E): $15.2 billion
Merchandise Imports (1996E): $16.5 billion
Major Export Products: Copper (40%), manufactured goods, agricultural products
Major Import Products: Crude oil, capital goods, raw materials (50%), consumer goods
Unemployment Rate (1996E): 6.8%
Total External Debt (1996E): $23 billion

ENERGY OVERVIEW
Minister of Energy: Alejandro Jadresic
Minister of Mining: Benjamin Teplizky
Proven Oil Reserves (1/1/97): 300 million barrels
Oil Production (1996E): 23,000 barrels per day (b/d), of which 10,000 b/d is crude oil
Oil Consumption (1996E): 200,000 b/d
Crude Oil Refining Capacity (1/1/97): 192,290 b/d
Net Oil Imports (1996E): 177,000 b/d
Natural Gas Reserves (1/1/97): 3.6 trillion cubic feet (tcf)
Natural Gas Production (1995): 67 billion cubic feet (bcf)
Natural Gas Consumption (1995): 67 bcf
Recoverable Coal Reserves: 1.3 billion short tons
Coal Production (1995): 1.7 million short tons
Coal Consumption (1995): 4.2 million short tons
Electric Generation Capacity (1995): 5.5 gigawatts (gw)
Electricity Generation (1995): 24.5 billion kilowatthours, of which hydroelectricity accounts for almost three-quarters

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995): 0.7 quadrillion Btu
Energy Consumption per Capita (1995): 51 million Btu
(vs. 344 million Btu in U.S.)
Energy-related Carbon Emissions (1995): 10.9 million
metric tons (0.2% of world carbon emissions)
Carbon Emissions per Capita (1995): 0.8 metric tons (vs. 5.4 metric tons in U.S.)
Major Environmental Issues: Air pollution from industrial and vehicle emissions; water pollution from untreated sewage; deforestation contributing to loss of biodiversity; soil erosion; desertification

OIL AND GAS INDUSTRIES
Organization: Empresa Nacional de Petroleo (ENAP)
Major Ports: Santiago, Puerto Montt, Concepcion, Valparaiso
Major Oil and Gas Fields: Posesion, Daniel Este-Dungeness, Skua, Spiteful
Major Pipelines: trans-Andean from Argentina (105,000 b/d), several others proposed (see below)
Major Refineries (crude oil capacity): Concepcion (100,640 b/d, Concon (82,000 b/d), Gregorio (9,650 b/d)

Links to other sites:
1997 CIA World Factbook - Chile
U.S. International Trade Administration, Country Commercial Guide - Chile
U.S. Department of Energy's Office of Fossil Energy's International section - Chile
Consular Information Sheet - Chile from the U.S. Department of State
Opportunities for the U.S. Energy Efficiency Industry in Chile by the Export Council for Energy Efficiency

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Chile Online
LatinWorld's section on Chile

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File last modified: September 18, 1997

Contact:

Lowell Feld
lfeld@eia.doe.gov
Phone: (202)586-9502
Fax: (202)586-9753