* World No.1 copper mine output to reach 1.3 mln tonnes in 2015
* BHP says selling all copper it contracted in China
* Permit for Chile energy project Kelar seen soon
By Alexandra Ulmer and Fabian Cambero
SANTIAGO, April 7 (Reuters) - The world's biggest copper mine, Chile's Escondida, will gradually boost its production until it stabilizes around 1.3 million annual tonnes between 2015 and the end of the decade, controller BHP Billiton said.
"This year we said we would do 20 percent better than last year, we're three-fourths of the way through our fiscal year which is a June year-end, and we're on track to achieve this year's target," BHP's head of base metals, Peter Beaven, told reporters on Thursday in Santiago ahead of the annual CESCO/CRU World Copper Conference.
The mine's copper output jumped 31.6 percent to roughly 1.076 million tonnes last year, as processing work and higher ore grades boosted production after a strike-hit 2011.
BHP and fellow global miner Rio Tinto , which owns 30 percent of Escondida, have approved plans for a $4.5 billion expansion to propel production at the massive mine.
As supply at Escondida and other key mines is expected to rise, Beaven said it was possible the global copper market tilt into surplus.
In addition to an uptick in production, the copper market is nervously eyeing sagging demand from top metals consumer China.
"We're selling everything that we've contracted to sell in China," Beaven said. "We should see different phases of demand for copper but it will continue longer than steel or something like that."
A wide-spread, surprise port strike in Chile had "limited impact" on BHP, he said, though the company will have to shuffle around some vessels.
A SLUMPING CHILE?
But while Beaven was upbeat about Escondida's future, he struck a far more critical tone about the future of mining in world No.1 copper producer Chile.
Steep power prices, dwindling ore grades, a tight labor market and tricky access to water in the mineral-rich Atacama desert are severely harming Chile's competitiveness, Beaven said.
"The decline in competitiveness could threaten investment," BHP said.
There are no easy solutions to the problems facing the copper industry in Chile, which produces roughly a third of the world's copper, Beaven added.
Energy-intensive miners are especially upset about pricey power. Plans to build hydroelectric dams in pristine parts of Patagonia and coal-fired thermoelectric plants in the Atacama desert have faced major legal setbacks due to environmental concerns, fueling high prices and putting pressure on the government.
"We still haven't seen any material progress on new build," Beaven added in reference to power projects. "We do have Kelar, thankfully."
BHP said in November it had submitted plans for its 540-megawatt, $400 million Kelar natural gas plant project to Chile's environmental impact assessment service for approval.
"We will hopefully get the permit for that very shortly," Beaven said.