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.
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.
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.
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