UPDATE 1-Chile eyes possible energy squeeze, could ration

* Long drought seen hitting hydroelectric generation

* Chile mulls ways to prevent energy shortages (Adds Golborne comments, details on energy industry)

SANTIAGO Feb 3 (Reuters) - Chile may face an energy squeeze by as early as midyear because of drought and high demand, and could resort to rationing if needed, Energy and Mining Minister Laurence Golborne said on Thursday.

Chile relies heavily on hydroelectric power to meet energy needs in the world's top copper producer, and rain shortages force industries to rely on fuel-driven generators which are costly to run.

"We will analyze conditions ... to take measures, which could include a rationing decree if it's necessary," Golborne told reporters only hours after a mishap at a substation triggered a brief blackout in south-central Chile.

Chile was hit by several blackouts last year after a massive earthquake on Feb. 27 damaged transmission infrastructure.

Golborne said local energy costs could rise as international oil prices spike on unrest in Egypt that has spread to Arab countries in the Middle East, the world's top oil producer.

Higher energy costs are seen adding to fast-rising inflation, which has become a concern for the central bank as world food prices exert upward pressure. The central bank is seen by many in the market raising its key rate at its Feb. 17 monetary policy meeting to keep a lid on consumer prices.

Energy shortages and rationing could hit output at several industries, including the crucial mining sector that produces about a third of the world's mined copper. (Reporting by Brad Haynes; writing By Alonso Soto; editing by Jim Marshall)