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    Chile Gas Consumption Forecast

    January 21, 2022 - Fitch Solutions Sector Intelligence


      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Chile Gas Consumption Forecast

      • 21 Jan 2022
      • Chile
      • Oil & Gas

      Key View: Greater demand from the domestic power sector, as well as Chile's heavy industrial and mining sectors, will boost natural gas consumption over the course of the forecast period (2022 to 2031). Favourable growth drivers include Chile's plans to phase out of coal-fired thermal power in favour of cleaner natural gas, though a weaker outlook for upstream domestic production will result in increased reliance on imports.

      Latest Updates
      • The disruption surrounding the Covid-19 pandemic resulted in a 16.5% contraction in gas consumption in 2020, reflecting weaker electricity consumption from household, business and industrial users amid the Covid-19 outbreak. There was a modest recovery, at at estimated 2.5%, and in 2022 we forecast slightly improved growth of 3.0%.
      • Naturgy Energy Group (formerly Gas Natural Fenosa) reported a 31.1% contraction in gas sales in Chile over 2020 compared with 2019, which it attributes to disruption caused by the Covid-19 pandemic. Sales have continued to decline in 2021, contracting by 15.9% over the first half of the year which Naturgy attributes to lower supplies.
      • Our core outlook remains relatively positive over the medium to long-term and we forecast gas consumption to increase by an annual average of 3.5% between 2023 and 2031, driven by the government’s efforts to move towards cleaner sources of energy and reducing the role of coal-fired power in the market. By 2030, gas consumption will total 7.9bcm.
      Structural Trends

      Following an uncharacteristic contraction in 2020, of 16.5%, due to waning electricity consumption in the wake of the Covid-19 pandemic, natural gas consumption in Chile is expected to increase over the next decade primarily as a result of the government's efforts to expand gas-powered electricity generation capacity. Total gas consumption is projected to increase from an estimated 5.6bcm in 2021 to 5.8bcm in 2022, an increase of 3.0%, before rising further to 7.9bcm in 2031, representing an average annual growth rate of 3.5% from 2023 onwards. Owing to negligible domestic production, the vast majority of this demand will be imported, putting greater financial pressure on state-owned Empresa Nacional Del Petróleo (ENAP).

      Greater demand for gas in the power sector will be a key driving force behind growth in gas consumption over the coming decade. Power demand from mining activities in the country will remain robust over the next decade, as we expect commodity prices to rebound gradually and Chile's abundant copper and gold reserves to attract investment and boost growth in the sector - albeit at a lower rate than in the past.

      To support this growth, we expect a significant expansion in thermal baseload capacity, which will provide a reliable back-up power supply to Chile's fast-growing renewables fleet and hydropower project pipeline. The government is increasingly looking to reduce reliance on coal-fired power generation and instead favouring gas as the thermal feedstock of choice. The government's plans to increase the country's import capacity of LNG and ramp up production of domestic natural gas will help boost the availability of gas feedstock for the power sector.

      Growth Rates Improving Over Long-Term
      Chile - Natural Gas Consumption & Gas-Fired Electricity Generation (2020-2031)

      e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

      The Magallanes region, which suffers from extremely cold temperatures in the winter, is highly dependent on natural gas to provide heating. Costly utility subsidies remain in place for the southernmost area, reaching an estimated USD90mn in 2018. Therefore, the development of shale gas in the region, though still at the early stages, would primarily service the demands of this population as a means of reducing elevated electricity costs, benefitting both ENAP and the affected residents.

      Gas Consumption (Chile 2020-2025)
      Indicator 2020 2021e 2022f 2023f 2024f 2025f
      Dry natural gas consumption, bcm 5.5 5.6 5.8 6.0 6.1 6.3
      Dry natural gas consumption, % y-o-y -16.5 2.5 3.0 3.3 3.0 2.8
      f = Fitch Solutions forecast. Source: JODI, Fitch Solutions
      Gas Consumption (Chile 2026-2031)
      Indicator 2026f 2027f 2028f 2029f 2030f 2031f
      Dry natural gas consumption, bcm 6.5 6.7 6.9 7.2 7.5 7.9
      Dry natural gas consumption, % y-o-y 2.5 3.0 3.5 4.0 4.5 5.0
      f = Fitch Solutions forecast. Source: JODI, ENAP, Fitch Solutions
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.


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