Chilean Govt. Warns of Possible Gas Shortage

Chile's government is preparing a contingency plan in case a gas shortage in Argentina cuts gas supplies to Chilean electricity generators and gas distributors, Chilean newspaper El Diario reported.

The government wants gas-fired generators to ensure they have sufficient fuel reserves to continue operations if the gas from Argentina is cut off, the paper reported. "Chileans are saying that you next door are playing Russian roulette...and one day you're going to kill us both," a source at Argentine energy company Petrobras Energia told BNamericas.

In 2002, Argentine companies exported 11.4%, or 15 million cubic meters a day, of total national gas production to Chile through four gas pipelines - Pacifico, Gas Andes, Norandino and Atacama - that cross the Andes from western Argentina into Chile. Chile's dependence on Argentina gas was made evident in February 2002 when a labor dispute involving workers at French company Total and Spain's Repsol-YPF cut gas supplies to Chile for about seven hours, nearly forcing electricity rationing. "Chileans are right to be paranoid because it's difficult to depend for gas on a neighboring country, and even more so when that country is Argentina," the source said.

The gas supply is threatened because low prices in Argentina are discouraging private companies from investing in gas exploration to replace depleted reserves. Regulated gas prices in Argentina are "ridiculously" low at US$0.33 per thousand cubic feet, compared to pre-crisis prices of more than US$1, the source said. "If you can choose between drilling an oil well and a gas well, you would logically choose an oil well because the price is US$30 a barrel," the Petrobras Argentina source said.

Argentine President Nestor Kirchner has tied rates increases to the renegotiation of contracts with public utilities, which means that increases would be unlikely until late 2004. However, other government officials have indicated that some increases may be possible after local council elections in November. "The million dollar question is what is going to happen first; will the rates increase or the gas fields lose their pressure?" the source said.

In the worst case scenario, Argentina might have to resort to importing gas from Bolivia, but this would be four or five times higher than the cost of local gas, the source said. However, the source said Chileans have some reasons for consolation: gas reserves are very unlikely to run out before December 2004 and because Chileans pay in US dollars, they are likely to be prioritized by Argentine companies ahead of domestic markets.

The main gas producers in Argentina and their respective shares of the total national gas output are Spanish company Repsol-YPF (31.2%), French company Total (18.5%), and local companies Pluspetrol (11.6%) and Pan American Energy (10.6%), according to figures from Argentina's energy ministry.

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