Mon, Oct 15, 2007 page11

• Energy crunch threatening South America

  • NY TIMES NEWS SERVICE
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  For Chile and Argentina, it was the chilliest of winters, and not just on the thermometer.

  During one of the coldest South American winters in decades, Argentina almost daily cut more than 90 percent of the natural gas it sends to Chile along pipelines that connect the two countries.

  Power plants and factories in this smoggy capital were forced to switch to diesel and fuel oil, which belch more air pollution and have nearly quadrupled the cost of producing electricity.

  Santiago reported its highest number of dangerous smog days in seven years.

  Argentina's actions have chilled relations between the two countries. But the impact of South America's energy crisis is far broader. Across the region, concerns about energy are roiling national politics, generating tensions between neighbors and emerging as one of the biggest brakes to growth and integration.

  "Bottlenecks in energy supply will be a critical policy concern in Latin America over the next two to five years," said Christopher Garman, the Latin America director at Eurasia Group, a New York-based consulting firm.

  Energy concerns are at the top of the agenda for the region's leaders, most of whom have high popularity ratings, thanks largely to buoyant economies riding a wave of higher commodity prices.

  But the steady economic growth of recent years has increased energy demand, while governments have failed for a decade to invest enough in natural gas exploration and new power plants.

  BRAZIL LOOKS TO CANE

  Brazilian President Luiz Inacio Lula da Silva is particularly preoccupied with the risk of power shortages.

  In an interview last month, he said the region's gas woes were reason to support new hydroelectric power plants and projects to produce electricity from sugar cane.

  "I do not want to make Brazil dependent on gas," he said.

  The alternatives are to raise consumer prices and impose austerity measures. Politicians have been reluctant to do either, and history shows why.

  When Brazil suffered an energy crunch in 2000, for example, then president Fernando Henrique Cardoso implored consumers to conserve, and imposed penalties on those who did not.

  In the end, a major crisis was averted -- but the government's approval rating dropped by a third, and da Silva -- not Cardoso's chosen successor -- was elected in 2002.

  Argentine President Nestor Kirchner has steadfastly refused to raise his country's gas and electricity prices, which are among the lowest in the world, ahead of the Oct. 28 election.

  Kirchner's wife, Cristina Fernandez de Kirchner, is the leading candidate to succeed him.

  Instead, his government placed wintertime energy-use restrictions on industrial customers and cut off its neighbor to the west, Chile.

  Kirchner's strategy has satisfied voters and kept Argentina's economy humming, for now.

  ARGENTINE WOES

  But the low prices for gas and power in Argentina have scared away needed foreign investment in energy development and raised fears of runaway inflation.

  Moreover, while the government refuses to impose on residential consumers to cut back, Argentina's energy demands are rising faster than supplies.

  Power plants have little or no spare capacity and are suffering from a lack of maintenance, increasing the chances of brownouts or blackouts, said Sylvie D'Apote, an analyst with Cambridge Energy Research Associates.

  Argentina's economy, which is expected to grow this year by about 8 percent for a fifth straight year, is struggling with rising inflation pegged by private economists at nearly 20 percent, more than double official government claims.

  The president has publicly denied that there is even an energy crisis, noting that residential consumers have yet to feel a pinch.

  Instead, it is Chile that is being squeezed.

  With few energy resources of its own, Chile had come to rely on Argentina for natural gas. The neighbors signed contracts in 1994, giving Chile a cheap source of fuel and a way to help clean Santiago's notoriously smoggy air.

  Argentine officials now say the Argentine Congress never approved the energy accords, making them nonbinding. The Chileans call that claim ludicrous.

  The energy situation is already contributing to inflation in Chile, which is expected to be 6.4 percent this year.

  CHILE TO DIVERSIFY

  Faced with few options, Chilean President Michelle Bachelet, is moving on several fronts to diversify her nation's energy supplies.

  Two terminals for liquefied natural gas should be completed by mid-2009.

  Chile is also opening up some land for oil and gas exploration, though it historically has found little.

  Bachelet recently received a government-financed study exploring the prospects for building nuclear power plants, which the next government will have to decide whether or not to do.
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