VZCZCXYZ0002
RR RUEHWEB

DE RUEHSG #0535/01 1591955
ZNR UUUUU ZZH
R 081955Z JUN 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC 5036
INFO RUCNMER/MERCOSUR COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEHQT/AMEMBASSY QUITO 2414

UNCLAS SANTIAGO 000535 
 
STATE FOR WHA/BSC, WHA/EPSC AND EEB/ESC/IEC 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG KNNP SENV TRGY PGOV CI
SUBJECT:  CHILE'S ENERGY HIGHLIGHTS -- MAY 2009 
 
REF:  (A) SANTIAGO 496; (B) SANTIAGO 349; (C) SANTIAGO 189 
 
¶1.  SUMMARY:  This cable provides highlights of activity in the 
Chilean energy sector during May 2009.  The Ambassador participated 
as a panel speaker at the 8th annual ElecGas conference in Santiago. 
 At the event, experts noted new generation projects may create 
transmission bottlenecks for Chile's central grid and result in 
higher electricity prices in Santiago.  In response to Santiago's 
poor air quality, the GOC ordered utilities and industries in the 
capital to stop using diesel fuel and replace it with natural gas by 
August 2009.  On May 13, the bill to create an Energy Ministry was 
unanimously approved by Chile's Senate Mining and Energy Committee; 
it now faces a full Senate vote.  The most recent Chile Oil and Gas 
Report forecasts that the country will account for 4.55 percent of 
Latin American regional oil demand and 2.95 percent of gas 
consumption by 2013.  On May 21, President Michelle Bachelet 
announced a lowering of the maximum fuel tax.  April electricity 
demand in Chile's central and northern grids was higher compared to 
the same period last year.  END SUMMARY. 
 
Ambassador Speaks on U.S. Policy at Energy Conference 
--------------------------------------------- -------- 
 
¶2.  Ambassador Simons gave a speech entitled "The State of Energy in 
the World and the Policies of the United States," at the 8th annual 
conference of ElecGas Energetico in Santiago on May 26.  The purpose 
of ElecGas is to share information and "know-how" aimed at 
addressing the energy sector's challenges.  Other sessions covered 
the economics of energy, Chile's electricity sector, renewable 
energy options, electricity transmission technologies and 
challenges, energy efficiency, and nuclear energy.  The seminar was 
attended by hundreds of executives, professionals, and technicians 
from Chilean companies, government representatives, academics, and 
market analysts. 
 
Chile's Central Grid May Face Transmission Bottlenecks 
--------------------------------------------- --------- 
 
¶3.  The ElecGas conference also featured discussions about whether 
Chile will be able to transmit enough electricity to meet its 
expanding energy needs.  According to several experts, new coal and 
wind generation capacity set to come online before 2013 could face 
transmission bottlenecks in the northern part of Chile's central 
grid (Sistema Interconectado Central or SIC).  These bottlenecks 
create local power markets, which can lead to higher prices. 
 
¶4.  The principal concern is that, due to fixed transmission 
capacity, thermal plants may have to reduce output to allow new 
renewable capacity to enter the grid.  If there is not enough 
transmission capacity to handle all the new generation capacity, 
higher electricity prices for Santiago may result.  [Note:  As of 
December 2008, SIC managed 9,800 MW of installed generation capacity 
 or about 70 percent of Chile's total installed power (53.9 percent 
hydroelectric, 45.9 percent thermal, and 0.2 percent wind), and more 
than 15,000 km of transmission lines.  End note.] 
 
GOC Issues an Ultimatum on Diesel Use in Santiago 
--------------------------------------------- ---- 
 
¶5.  Chile's use of diesel fuel has increased dramatically over the 
last few years in the wake of natural gas cuts from Argentina.  In 
response to weeks of poor air quality, in mid-May the GOC ordered 
utilities and industries in Santiago to stop using diesel fuel and 
replace it with natural gas by August.  By that time, construction 
of a re-gasification terminal in Quintero will be complete and 
liquefied natural gas (LNG) shipments should be arriving in Chile. 
 
 
¶6.  Environment Minister Ana Lya Uriarte stated that all enterprises 
must now comply with the environmental requirements of their 
operations or face fines and revocation of their permits.  There has 
been a deterioration in air quality and an increase in environmental 
alerts in Santiago since 2004 (4 alerts in 2005, 14 in 2006, 22 in 
2007, and 14 in 2008).  According to Uriarte, "With the return of 
natural gas there will be a substantial improvement of air quality, 
we will recover the environmental gains we had before the [natural 
gas] cuts." 
 
Law Creating New Energy Ministry Moves to Senate 
--------------------------------------------- --- 
 
¶7.  The bill to create an Energy Ministry was unanimously approved 
by Chile's Senate Mining and Energy Committee on May 13.  The 
proposed legislation has been submitted to the full Senate for a 
vote, which may take place in June though no date has been set.  The 
legislation outlines the role and functions of an Energy Ministry, 
including setting policy, managing the gas stabilization fund, and 
regulating the electricity sector. 
Chile's Oil and Gas Report -- Second Quarter 2009 
--------------------------------------------- ---- 
¶8.  The 2009 second quarter Chile Oil and Gas Report forecasts that 
the country will account for 4.55 percent of Latin American regional 
oil demand by 2013, while making no meaningful contribution to 
supply.  Chile's share of gas consumption in 2008 was an estimated 
2.84 percent, with a significant share of production.  By 2013, its 
share of gas consumption is forecast to be 2.95 percent. 
GOC Reduces Maximum Permitted Fuel Tax 
-------------------------------------- 
 
¶9.  During her May 21 State of the Nation address, President 
Bachelet announced that the maximum specific fuel tax would be 
$295/m3.  The tax is currently $230/m3, but by law it could have 
been increased to $390/m3.  [Note:  This tax applies to gas and 
diesel; higher taxes equate to higher fuel prices for drivers.  End 
Note.]  The announcement was applauded by parliamentarians of all 
political parties and by Energy Minister Tokman, who lauded 
President Bachelet's support of all Chileans during the global 
financial crisis. 
 
April Demand Higher in SIC and SING Grids 
----------------------------------------- 
 
¶10.  The April demand for electricity in the SIC grid (serving 
Chile's Central and Southern regions, and predominantly private 
consumers) was 2.1 percent higher year over year (YoY); April demand 
in the SING grid (Northern Chile, mainly industrial users) was 4.1 
percent higher YoY.  Demand in the SING is up 6.9 percent for the 
year, driven by the needs of the region's mining industry.  At the 
end of April, using YoY comparisons, demand had increased in all 
sectors (residential, commercial, industrial).  Notably, demand in 
the mining and agriculture sectors grew 4.7 percent and 5.6 percent, 
respectively. 
SIMONS