Chile’s gas association talks power generation role, sustainable fuels

Chile has around 5GW of natural gas-fired plants, which are helping the country wean itself off coal-fired baseload generation and as non-conventional renewables plants account for a growing share of the capacity pie. 

Many gas-fired units are older than the coal plants being taken offline or converted and will need investment.

The role of natural gas in the generation mix is explored in prospective analysis work carried out by local complex engineering systems institute ISCI and consultancy SPEC.

The central pillar of the ISCI-SPEC research – commissioned by Chile’s natural gas association AGN – looks at what investment may be made through 2040 under different scenarios.

To get the views of AGN on the study and more, BNamericas conducted an email interview with the chamber’s executive president, Carlos Cortés. 

Formed in 2002, AGN has 10 members, representing multiple links of the natural gas and LNG value chain, including transport, distribution, production and trading.  

BNamericas: For AGN, what are the most relevant takeaways from the research?

Cortés: The study represents a fundamental contribution to understanding, with greater clarity and quantitative evidence, the role of natural gas within Chile's energy sector. We highlight two central aspects.

First, the analysis concludes that natural gas not only facilitates but also is instrumental in the integration of renewable energy into Chile's electrical system. The extensive existing infrastructure ensures stability and reliability, especially during periods when renewable sources face limitations, such as when there is water scarcity or lower solar radiation, or low wind availability.

On the other hand, the study projects that if natural gas were phased out by 2035, the electrical system would require investments of around US$26bn in renewable generation and storage, in addition to the US$30bn that closing the coal generation park will cost our country. These costs would translate into an estimated increase of up to 10% in electricity bills.

BNamericas: What was the purpose of the study?

Cortés: The study was conducted to provide background for the discussion on the future of our country's electricity matrix, in a context where a coal generation retirement plan is being designed. 

In particular, this prospective analysis is characterized by identifying economically adapted expansions, that is, those investments the country needs from an economic perspective, also considering key variables to ensure a reliable system with supply security that meets emission standards. Within this framework, we seek to identify how natural gas is used and what its role is in the energy transition.

With the participation of ISCI and SPEC consultants, a very high-level technical approach was ensured, and put into the context of the situation on the ground in Chile.

With a projection horizon that spans from 2024 to 2040, the report offers a broad and detailed view of the relevance of maintaining natural gas as a strategic component in the Chilean electricity mix. Although renewable energies have made notable progress, significant challenges remain for their widespread adoption, particularly in regions where more polluting sources, such as diesel and coal, continue to play a dominant role.

BNamericas: From AGN's perspective, what role do you foresee for gas in the Chilean electric system in the coming years?

Cortés: AGN's vision aligns with natural gas as a necessary pillar in the energy transition toward a more sustainable, secure matrix at affordable costs for all consumers. We consider it essential to utilize and adequately maintain the existing natural gas infrastructure, which helps avoid excessive increases in energy costs for end-users.

Moreover, reducing dependence on highly polluting sources like coal and diesel is a strategic priority. According to the ISCI-SPEC study, natural gas presents itself as a viable alternative to support the energy system, facilitating a gradual and balanced transition.

Particularly in southern Chile, where pollution from firewood use poses serious environmental and public health problems, the need for cleaner and more sustainable energy solutions is evident. Therefore, we foresee that natural gas will continue to play an important role in the transition to more efficient and lower-emission sources.

BNamericas: Nowadays, where does the gas consumed in Chile come from?

Cortés: The natural gas currently reaching our country comes from Argentina through the cross-border gas pipelines connecting our countries, and from the rest of the world as liquefied natural gas (LNG), which arrives at the terminals in Quintero and Mejillones, LNG that has been the backbone of our gas system in recent years.

On the other hand, the gas pipelines connected to Argentina, particularly the Vaca Muerta formation, one of the largest natural gas reserves globally, constitute an increasingly important source for supplying the Chilean market. This diversification of supply contributes to a more secure energy matrix.

BNamericas: Finally, a role for green hydrogen and its derivatives in the energy matrix is emerging in Chile. For AGN, is green hydrogen considered a kind of "threat" or an opportunity?

Cortés: From our perspective, the incorporation of renewable gases, such as green hydrogen and biomethane, represents a strategic opportunity to diversify and decarbonize the energy matrix. We anticipate that these gases will play an increasing role as the country moves towards greater use of renewable energy sources.

Our associated companies are actively involved in developing new technologies and initiatives that allow integrating green gases into the networks, such as the H2GN project led by GasValpo in Coquimbo region, which supplies more than 3,000 homes with a mixture of natural gas and green hydrogen.

Another notable project is the injection of renewable natural gas or biogas into Metrogas’ distribution network in Santiago. This biogas, generated from treated wastewater at the La Farfana plant, produces up to 12 million cubic meters a year, equivalent to the supply for 30,000 homes or 4,500 vehicles using CNG [compressed natural gas], thus avoiding the emission of 22,000t of CO2 per year.

Although the development of technologies associated with green hydrogen still faces challenges in terms of costs and investment, it is expected that appropriate regulations and incentives will drive its implementation in a cost-effective manner. Our goal is to incorporate these gases into the existing natural gas infrastructure, reducing greenhouse gas emissions and maintaining supply security at costs that are accessible for end-users.