Chile says monitoring BG Group LNG talks with local firms

Mon Nov 12, 2012 11:25am EST

Related Topics

* BG Group and Chile's ENAP, Endesa clash over LNG contract

* Chile energy minister says closely following negotiations

* World No.1 copper producer Chile reeling from power woes

SANTIAGO, Nov 12 (Reuters) - Chile is closely following negotiations between British oil and gas company BG Group Plc and two of its local clients amid a contract dispute centered on liquefied natural gas volumes and prices, Energy Minister Jorge Bunster said on Monday.

BG Group has said production troubles in Egypt could affect its supplies of LNG to Chilean state oil company ENAP and energy generator Endesa Chile, who strongly oppose a potential reduction.

"We're following these negotiations," Bunster told reporters after a press conference. "We hope the issues can be resolved in business conversations, so we're following it closely, with caution."

The brewing contract dispute is another energy headache for miners in world No. 1 copper producer Chile. The Andean country is reeling from high power prices, as key energy projects suffer legal setbacks, and droughts and the availability of few local power sources strain supply.

Chile is seen turning further to LNG and diesel generation as courts increasingly reject coal-fired thermoelectric plants and hydropower projects in pristine Patagonia.

President Sebastian Pinera will be in London on Nov. 15 and 16 as part of a week-long European tour. The presidency declined to comment on whether Pinera would broach the topic during his visit.

VOLUMES, PRICES EYED

ENAP and Endesa Chile have said they are still negotiating with BG, but will not comment on the volumes or prices being discussed. A third client, Metrogas, will not be affected by a potential reduction.

ENAP, Endesa and Metrogas each have an equal stake in GNL Chile, which receives gas via a contract with BG. The contracts stipulate lower prices as of 2013 if the firms ask for a certain fixed volume in the long-term, ENAP has said.

The contract was due to evolve next year from being indexed to Brent crude oil prices to natural gas prices at Henry Hub, the U.S. benchmark natural gas supply point.

A shale gas boom in the United States has driven down prices for Henry Hub cash prices -- they reached a 10-year low of $1.82 per mmBtu in late April -- meaning an indexation switch would deal a blow to BG.

Industry sources and data seen by Reuters suggest very few, if any, cargoes from Egypt have ever been sent to Chile.

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