Shale gas most likely solution to Chilean mining industry's energy supply deficit: report

Shale gas may be the solution to one of the most serious problems the mining industry is facing in Chile: extremely high energy prices due to limited supply.

After nearly a decade of paying the highest costs in South America, copper miners in the area are analyzing the use and consumption of shale gas in their processes.  The International Energy Agency (IEA) recently published a report which revealed that Chile has the third largest reserves of the unconventional fuel in South America.

Que Pasa magazine reports that several companies have approached Chile’s Ministry of Energy to explore the possibility of signing Special Contracts of Petroleum Operations (CEOP), similar to those ruling the other end of the country, in the Magallanes Region, which regulate the grating of royalties to extract the resource.

The idea is to develop the country's shale gas industry, which will produce natural gas from shale rock by bombarding it with water and chemicals in a technique known as hydraulic fracturing or "fracking."

According to estimations from the IEA, Chile has 64 trillion cubic feet (TCF) of the fuel, mostly in the south. Although lower than neighbouring countries Argentina (774 TCF, the third largest reserve in the world) and Brazil (226 TCF).  The amount Chile has is more than enough to place the country among the group of 32 nations the IEA identified as having significant reserves of this gas with commercial potential.

In recent weeks, experts have warned that Chile, the top copper producer in the world, will not be able to keep mining for the red metal, gold and other minerals if the country doesn’t find a solution to their pressing energy needs.

Currently, the South American nation imports about 98% of all the fossil fuels it uses.  Shale gas production, which has seen a boon in recent years in the U.S. and Canada, could eventually relieve some of that burden.

Chile’s Ministry of Energy recognizes that the lack of information about shale gas reserves in the country, particularly in the northern area, are diverting investments and making the application process difficult.

However, Centre for Copper and Mining Studies (CESCO) representatives are pressing the government to speed up permit applications as, they say, the nation needs cheaper and more reliable power to mine the country's vast copper reserves, which comprise a third of the world's red metal.

America’s boom

The U.S. shale gas industry has shown to be successful, growing 45% a year from 2005 to 2010. And, as a proportion of America's overall gas production, shale gas has increased from 4% in 2005 to 24% today.

The Economist reports the country now produces more gas than what it needs:

Its storage facilities are rapidly filling, and its gas price — because prices for gas, unlike oil, are set regionally — has collapsed. Last month, it dipped below $2 per million British thermal units, less than a sixth of the pre-boom price and too low for producers to break even.

Whether Chile will be able to get on board the shale gas train, is still to be seen, especially as the industry is as potentially lucrative as it may be dangerous. While little is known about its full environmental impacts, the entire world could supply its entire power needs for the next 200 years, based on the reserves detected so far.

 

Image: Technically Recoverable Shale Gas Resources by Country, Source: Geology.com