Chile Enap, Endesa at Loggerheads with BG Over Gas Supply Contract

   By Graciela Ibanez 
 

Chile's state oil and gas company, Empresa Nacional del Petroleo SA, or Enap, and power generator Empresa Nacional de Electricidad SA (EOC, ENDESA.SN) are at loggerheads with BG Group PLC (BRGYY, BG.LN) over the prices of a liquefied natural gas supply contract.

Neither Enap's operations or Endesa's energy generation are at risk as both companies can use diesel, but the two of them are looking to lower costs by reducing the price at which they buy gas from BG.

BG in 2007 signed long-term contracts with Enap, Endesa and Chile's largest gas distributor, Metrogas, to supply them with LNG at prices indexed to Brent crude oil prices.

From 2013, BG's clients could renegotiate the terms of the deal, if they met certain volume, to have prices indexed at the benchmark Henry Hub, but with the recent U.S. shale-gas production boom, which has sharply lowered Henry Hub prices, BG offered to revise the deal at prices above Henry Hub.

BG also told its Chilean clients that production troubles in Egypt could reduce their gas deliveries.

Metrogas, which supplies gas to some 450,000 residential and industrial clients in Santiago, in July renegotiated its contract with BG at "convenient prices and higher volumes, ensuring supply availability," Metrogas said recently.

BG, Enap, Endesa and Metrogas are all partners in the GNL Quintero SA LNG regasification terminal in central Chile. BG, however, is in the process of divesting its Chilean assets, as the company recently sold a 20% stake in the regasification terminal to Spanish energy company Enagas SA (ENGGY, ENG.MC). It plans to sell its remaining 20% stake in the terminal to Enagas by the end of the year.

Endesa Chairman Jorge Rosenblut said Monday his company is "in talks" with BG, declining to go into further details, while Chilean Energy Minister Jorge Bunster said the government is closely monitoring the negotiations between Enap and BG.

The conflict is "a matter of negotiating the right price," several industry sources have said.

Representatives for BG and Enap declined to comment on the negotiations, but Enap in a recent public statement said it will defend its rights and has hired U.S.-based lawyers as advisers.

The conflict with BG comes at a time when Chile is facing energy supply hurdles that are putting the country's need to nearly double its installed capacity to 30,000 megawatts over the next decade at risk.

Chile's electricity-intensive mining industry could see some of its large planned investments shy away if energy costs, which are already the region's highest, continue to escalate.

Chile is the world's biggest copper producer and the industrial metal accounts for 60% of the country's exports and 15% of gross domestic product.

--Carolina Pica contributed to this article.

Write to Graciela Ibanez at [e-mail]