Chile: The Importance of "Nexus Thinking"

Chile: The Importance of "Nexus Thinking"

Paul Sullivan | Professor, NDU. Georgetown NCUSAR
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The country sees renewables as the key to its energy future and is making progress in this direction. Alternative energy sources could also help solve the problem of water, which is becoming increasingly difficult to cope with

Chile has an overall very good record of economic growth development, certainly in comparison to many of its neighbors. It is one of the most successful economies in South America. Comparing Chile of the 1960s with Chile of today brings this to stark clarity. Real GDP per capita (in 2000 dollars terms) was about $4,000 in 1960. Today it is around $15,000. Education, health, infrastructure, poverty rates, and many other aspects of Chile’s overall development drastically improved since those early years. 

A wealth of natural resources

A part of that growth and development was due to sometimes very difficult rationalizations of, and structural changes to, their economy. It also involved a lot of hard work, Chile’s luck with natural resources, and considerable domestic and foreign investment. Chile has done a lot to link overall macroeconomic progress with its exploitation and use of natural resources. Indeed, Chile’s development so far has relied greatly on its natural resources. It produces about 34 percent of global copper production, 35 percent of global production of Lithium. It is a very important producer of iodine, rhenium, arsenic, boron, molybdenum, silver, pumicite, selenium and many other minerals. Its largest exports are copper ore and refined copper, grapes, fish, wine and wood pulp. It is tied with Ecuador for the country in Latin America that relies the most on natural resource exports as a percentage of all exports. These natural resources exports have driven Chile’s development and growth, both upwards and downwards given its heavy reliance on international prices and international demand of its main exports. Diversifying away from this over reliance on minerals and other natural resources could help stabilize the economy during times of commodity price volatility - and in the long run. The Chileans know this. Chile has some excellent and sophisticated economists, business people, military officers and government officials who understand what this may take. However, sometimes politics, like anywhere else, gets in the way of the better ideas. Importantly, minerals extraction and minerals processing, can be very energy intensive. The extraction and processing of minerals can also be very water intensive. Chile imports about 65 percent of its energy. It is also facing down a future of potentially debilitating water shortages. By 2040 it may be the most water stressed country on the planet. Water and energy are needed to keep its present industries moving ahead, and to help build a more prosperous and secure Chile.

Abundant energy but difficult to deliver

Chile has very small known amounts of oil, natural gas and coal. These imports of oil, coal and natural gas come in via very few facilities spaced across the country in very few ports. Most of the largest facilities are to be found in ports not far from the capitol, Santiago. Others are spaced along its 2700 mile coastline. The linkages across these import facilities are limited by geography and investment. Pipeline connections are usually of short distances in this long country, excepting a couple of oil pipelines and the gas pipeline to Argentina. There are only three refineries, with only two significant ones near Valparaiso on the coast near Santiago and in Haulpen in the center of the country. If one of these two goes down the pipeline system could likely not handle the needs for oil movements to the other, and each could not really replace the other. The pipelines from ports to use are also vital. If one of the bigger energy import facilities were damaged it would be quite difficult, if not impossible, to transport the energy from other parts of the country to the part of the country that got its fuel from the damaged facility. Chile has only one substantial LNG facility, Quintero’s near Santiago. If this were damaged significantly, there are limited options for importing LNG into another smaller facility which is some distance from Santiago, and does not have pipeline connections to Santiago. There is a third LNG facility in the works, but politics is getting in the way it seems.

Neighborly relations

Chile’s relations with Peru and Bolivia are often difficult (more so with Bolivia than with Peru, which hampers Chile’s access to natural gas from these two close neighbors, who have significant reserves and potential and actual production capacity of natural gas. At one time Chile imported natural gas from Argentina. Now Argentina imports the natural gas from Chile that Chile imports from various places, including Cheniere’s Sabine Pass LNG facility in Louisiana in the US. Argentina has significant natural gas reserves, which it has hardly developed. It has one of the largest shale gas reserves known in the world, yet it imports natural gas from energy short Chile? Bolivia’s natural gas cannot be delivered to Chile because of political disagreements that go back well over a century. Peru’s natural gas has so far not be exported to Chile in the large amounts that would otherwise be possible for similar political and historical reasons. The economic and energy security situations of Chile, Peru, and Bolivia could be vastly improved if they had normal foreign and trade relations, but the realities of history and the present, and deep divisions among these countries militate against that. This is hardly new in world politics. Chile imports about 86 percent of its refined petroleum from the USA. Second to the US is Japan with about 9 percent. Then smaller amounts come from Colombia and Argentina. The biggest source of its imported crude oil is Brazil, about 62 percent, and the second largest is Ecuador, with about 35 percent.  Chile gets the vast majority of its LNG from Trinidad and Tobago, but recently has been importing more from the US. It also has gets its LNG from Equatorial Guinea and Norway. Chile gets most of its coal from Colombia, the US and Australia, with a bit from New Zealand and Canada. Of course, these sources and percentages can vary a lot over a year - and they certain can vary a lot over many years.

Dependence on imports

Chile is subject to the whims of the oil, gas and coal markets like most any other energy importing country. It is also importing 65 percent of its energy from a limited array of sources, and often over very long distances. It may be better to further diversify Chile’s sources of these fuels in the longer run for energy security, economic security and even for political reasons. Therefore, Chile has not only limited options for ports and facilities to import fossil fuels within its country, it also has few sources of those fuels from outside of the country. It has only tiny amounts of known oil, gas and coal reserves. However, there is some hope drifting about that in the south of the country, which is not far from the shale fields of Argentina, that the geology may show signs of shale oil and gas in some significance in Chile. But for the moment they Chile relies on few import facilities and few sources for those imports.

Investing in renewables

Chile indeed sees the risks to its energy security. It also has a keen sense of the problems that climate change can bring. So it has made increasing investments in solar, wind, geothermal and other renewable energy sources. It recently completed the first geothermal plant for South America in its north. Chile is on the "Ring of Fire", and is a seismic zone. That usually adds up to great geothermal potential capacity, but also significant risks for earthquakes. Chile could develop geothermal further and replace some of its coal, LNG and even oil imports with it. Chile’s Atacama Desert in its north has one of the highest solar radiative areas on the planet. They have built massive solar plants there, and plan to build more. Chile, until recently, had four separate electricity grids going along its thin 2700 miles of land sandwiched between the Pacific Ocean and the Andes.  They have recently connected the northern (SING) grid with the central (SIC) network to move electricity from mostly the north to the south. The biggest users of energy in the north are the minerals companies, and especially the copper companies like Codelco. These new renewable plants and ones to be built in the future could help these northern minerals companies as well as other minerals companies and processing companies in other parts of the country. Chile sees its energy future with a focus on renewables and is moving faster than most countries in this direction. Some sources in Chile say it is looking to have renewables to take up 60 percent of its energy needs by 2040, and even 70 to 100 percent by 2050. These are lofty goals, and the 100 percent one seems pretty much impossible unless transport technologies used in the country change. A more reasonable and possible estimate is about 40-60 percent renewables by 2050. One renewable that many Chileans would like to see reduced over time is the use of wood for cooking, heating and industry. Some of the Chilean cities that use wood as a fuel have some of the worst air pollution not just in Chile, but anywhere. Many renewables (solar and wind in particular) use less water than the typical coal, gas or oil electricity generating plants. And water will become increasingly scarce in Chile if recent projections are accurate. Adding to this that Chile has 35 percent of all of the glaciers in the Southern Hemisphere, and these are melting, the water problems could get much worse than many might think today. Also, moving the water from the south-central parts of the country to the north, the driest area, is an economic non-starter if one is thinking rationally. Desalination and better water demand management will be needed for Chile to make the best of its potential future. It is heading and that direction already, but not without some political tensions and difficulties related to the pricing of water.

The nexus between energy-water-minerals-economy-national security

The best way to look at energy systems is as systems within systems, nested in other systems and connected to other systems. Such systematic nexus thinking is vital for any country, but it is particularly important for Chile. This will become increasingly clear in Chile as the energy-water-minerals-economy-national security nexus becomes increasingly stressed. Chile imports most of its energy. It is likely to become more water stressed. It will likely continue to rely on energy and water intensive industries in the near to medium term. The economic and national security of Chile will rely on its water, energy and minerals industry. These things are all connected. Hence, policymaking may be better served by nexus thinking and making policy based on the linkages as they exist - and may exist in the future. Do I have hope for Chile? Indeed, I do, and possibly more than for any other country in the region - and more than for many other countries in other parts of the world that I have studied.