VZCZCXRO2276
OO RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHNG RUEHNL
RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHSG #0124/01 0382103
ZNY CCCCC ZZH
O 072103Z FEB 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2754
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 SANTIAGO 000124
SIPDIS
SIPDIS
DEPT FOR WHA/BSC
PLEASE PASS TDA G. MANDEL
E.O. 12958: DECL: 02/06/2018
TAGS: ECON ETRD ENRG PREL PGOV CI
SUBJECT: LOOMING ENERGY CRISIS IN CHILE; GOC LOOKING TO U.S. FOR HELP
REF: A. SANTIAGO 98
B. SANTIAGO 21
C. 07 SANTIAGO 1984
D. 07 SANTIAGO 1979
E. 07 SANTIAGO 1931
Classified By: Pol/Econ Counselor Juan Alsace. Reasons: 1.4 (b and d)
Summary
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1.(C) President Bachelet and nearly every Minister with whom Ambassador has met over the past six weeks have
delivered the same message: Chile is facing a serious energy crisis, which is having a negative impact on its economic
growth and investment prospects. Chile would welcome increased bilateral energy cooperation with the U.S across the
board. Chile's near-term energy forecast is indeed bleak -- the country's electricity matrix is dominated by hydropower
and thermal plants with limited spare capacity however, hydropower plants are operating at minimum capacity due to
record low water levels, and Argentina has reduced exports of natural gas to the bare minimum, forcing the entire
thermal infrastructure to switch to diesel. The Ministers of Energy and Interior have said the government is taking
measures to prevent power rationing in the fall/winter months, but that the possibility of blackouts cannot be ruled
out. Reducing energy consumption may be the only short-term solutionmedium and long-term solutions are complicated by
environmental and indigenous opposition to hydro projects, and Bachelet's own moratorium on nuclear power. As the GOC
struggles to develop a coherent energy policy, Post is working with U.S. agencies and the Chilean Ministry of Energy to
increase bilateral cooperation in four target areas: renewable energy, nuclear power for electricity generation,energy
policy formation and energy efficiency. End summary.
GOC sends SOS to Ambassador on Energy
-------------------------------------
2. (C) There has been one consistent message in the Ambassador's meetings with senior GOC officials over the past six
weeks: Chile is facing an energy crisis and is anxious to move forward on a wide range of bilateral energy
cooperation activities with the U.S. From President Bachelet to the Ministers of Foreign Affairs, Finance, Energy,
Mining, and the Secretary General of the Presidency, the message has been the same. Officials have described the
looming energy shortage as ""critical"" and as Chile's ""biggest problem,"" and have enthusiastically welcomed the
Ambassador's general suggestions for areas of increased bilateral energy cooperation.
Energy Situation Bleak at Best
------------------------------
3. (U) Chile's bleak energy forecast is making daily headlines here. Energy Minister Tokman announced February 7 that
the government would take measures to prevent power rationing during the fall/winter months (see para 7). The press is
replete with stories of record-low water levels in hydroelectric plant reservoirs, weather forecasts of no rain,
companies unable to operate due to lack of gas, electricity generating companies running their gas-fired power plants on
diesel, and generators building more coal plants to deal with electricity demand.
4. (C) These press reports get to the crux of Chile's energy predicament: the country imports approximately 70 percent
of its primary energy consumption, and its electricity matrix is dominated by hydropower and natural gas -- a scenario
that makes it particularly vulnerable to weather variability and supply shocks. All indications are that 2008 may be the
toughest year in recent history. Water reserves are down by at least 40 percent (hydropower plant output dropped 25
percent in December alone) and Argentina has committed to providing just a fraction of the necessary gas. Argentina's
Ambassador to Chile, Gines Gonzalez, recently told the Ambassador that Argentina had cut a deal with the GOC by which it
will ""guarantee"" the supply of 1.2 million cubic meters of gas daily during Chile's winter months (June-August).
Although Gonzalez commented that this would be enough to satisfy residential demand, it may not be: Argentina supplied
1.5 million cubic meters daily during the 2007 winter and the country came close to implementing rolling black-outs. In
comparison with 2004, when Argentina was supplying up to 16 million cubic meters per day, current levels represent a cut
of more than 90 percent.
5. (U) There is no easy short-term solution to the looming energy crisis. GNL Quintero, a Liquefied Natural Gas (LNG)
conversion plant the GOC hopes will remedy the gas supply problem, is not scheduled to come on-line until July/August
2009. Peruvian and Bolivian officials have made recent statements to the press that they do not intend to start
exporting gas to Chile. Hydro plants are already operating at minimum capacity, and no new plants are scheduled to start
operations in the near future. Generating companies are running their gas-fired power plants on diesel but may not be
able to so indefinitely diesel is much harder on natural gas-fired plants and requires more maintenance. The only
real remedy over the next year may be for Chile to reduce its energy consumption, a reality the government is just
beginning to discuss publicly.
6. (C) Medium and long-term solutions are also complicated. Proposed hydro projects, including the 2,500 MW Aysen
project in southern Chile, face opposition from international environmental groups as well as local indigenous
populations. At a recent dinner with private sector energy representatives, several businessmen told the Ambassador
the most effective thing he could do to help the energy situation was to get the U.S. environmental groups opposed to
new hydro projects in Chile to ""back off."" Development of new geothermal projects in northern Chile is also facing
opposition from indigenous and environmental groups. Although the GOC is studying the possibility of nuclear power as a
long-term solution, tangible progress is restricted by President Bachelet's campaign promise that Chile would ""not go
nuclear"" during her administration. Private sectoroperators are proposing a substantial increase in coal-fired thermal
plants, but these will also not come on line for several years, and face tough environmental scrutiny.
GOC Energy Policy . . . Or Not?
------------------------------
7. (C) Energy Minister Tokman announced February 7 that the government would be implementing a plan to deal with
potential energy shortages over the next year. The initial details were vague, but the plan includes formation of an
interagency Technical Coordination Committee to review additional measures and to explore incentives to encourage
residential and industrial energy savings. Specific steps mentioned by Tokman include reducing by 10 percent the
voltage in electricity lines allowing electricity generating companies to decrease their required water reserves and
flexible management"" of two major reservoirs and extending daylight savings time to the end of March (Chile usually
ends daylight savings in early March). (Comment: Our initial reaction is that these measures alone will not
significantly change Chile's energy equation over the next several months).
8. (C) Despite Tokman's announcement, many question whether the government has an energy policy. In a recent meeting
with Ambassador and emboffs, senior GOC energy officials said the GOC's energy policy was to facilitate a liberal market
where supply and demand were determined by market forces. One official commented that this approach had seemed to work
until now. Claudio Huepe, Director of Research at the National Energy Commission (CNE), who is charged with formulating
the CNE's energy policy, noted that there is a real debate taking place within the bureaucracy over whether the
government should play a greater role in determining the country's energy matrix. Another official commented that the
government was grappling with how to support research and development without picking winners, and how to support
renewables without subsidies or incentives.
U.S. Assistance: Next Steps
----------------------------
9. (C) Based on the GOC's specific requests and our analysis of the situation, Post has developed a mission-wide action
plan for bilateral energy cooperation with the GOC. Potential activities under the plan are grouped into four target
areas: renewable energy, nuclear power for electricity generation, energy policy formation and energy efficiency. The
plan calls for a broad range of activities involving coordination among several USG agencies, including State, the
Department of Energy, the Department of Commerce, and the Trade and Development Agency, as well as with other non-USG
entities such as the International Energy Agency (IEA) and APEC. A sample of the proposed action plan items includes:
-- Energy Minister Tokman's participation in WIREC and subsequent visit to the National Renewable Energy Laboratory in
Colorado
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technology and joint commercial opportunities
-- GOC delegation to the U.S. to study renewable energy, including biofuels, geothermal, solar, and wind
##############
-- Assistance to the GOC on IEA membership, including an IEA Energy Sector Review for Chile
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Solar House to the GOC
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under the Environmental Cooperation Agreement
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travel to Chile and
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programs.
During his consultations in the U.S. over the next several weeks, Ambassador will conduct a series of meetings with the
aim of developing further U.S.-Chile bilateral energy cooperation in the four target areas.
SIMONS