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GNL Quintero, South America's first liquefied natural gas regasification terminal, will start unloading its first shipment of LNG this week, said Gavin Garcia, chief operating officer of GNL Chile, the consortium in charge of selling the gas to customers in Chile.

The ship, the Methane Jane, which arrived from Trinidad and Tobago with a cargo of 145,000 cubic meters of LNG, berthed on Sunday and the gas will be piped ashore through a 1,850-meter pipeline.

Most of the first shipment will be used for testing and commissioning the terminal, with full operations scheduled to start in late August, said Garcia.

The berthing went "very smoothly" with the ship pointing out to sea, which is normal in case of bad weather or heavy sea swells that could require the ship to leave temporarily, said Garcia.

"The commissioning process always has some degree of uncertainty associated with it but we are looking forward to a smooth process," he said.

Permit problems had threatened to delay the project after the mayor of Quintero, where the regasification plant is located, gave an order to close and vacate the plant, posing a setback for the project just as it was about to receive its first shipment of LNG.

The mayor said GNL Quintero lacked construction permits, but the company said that it hasn't applied for the permits since the plant isn't operational and a local court ruled last week that construction can continue.

The fast-track design of the terminal, using the ship as a floating storage tank piping LNG directly to the terminal, will allow the project to start supplying gas to customers while two large onshore storage tanks are being built.

In the fast-track stage, the terminal will produce an average 5 million cubic meters a day of gas, rising to 6.5Mm3/d once the storage tanks are finished next year.

The project has contracts to supply state oil and gas company Empresa Nacional del Petroleo SA, or Enap; power generator Empresa Nacional de Electricidad SA (EOC), or Endesa; and gas distributor Metrogas SA (MGS), each of which holds a 20% stake in the terminal and a 33.3% stake in GNL Chile.

The terminal, about a 90-minute drive from Santiago, will supply gas to two of Endesa's dual diesel-gas power plants as well as supplying gas for Enap's refineries and Metrogas' clients.

Other companies could contract to buy gas from the terminal in the future or they can buy gas, when it is available, from one of the existing customers.

"We expect the market to respond favorably and see the increased use of natural gas as soon as commercial operations begin by the end of August," said Garcia.

The price of LNG is determined by a confidential formula in each contract, but at around $7 per million British thermal units it is cheaper, and cleaner, than diesel.

"Having a cheaper fuel source will tend to reduce energy costs for everybody and bring environmental benefits to the community at large," said Garcia.

British energy firm BG Group PLC (BG.LN), which has a 40% stake in the terminal, has a 21-year contract to supply the terminal with up to 1.7 million metric tons per year of LNG.

When fully operational, the terminal will have a total capacity of 10Mm3/d, which is equivalent to the maximum amount of gas central Chile used to import from Argentina through two cross-border pipelines.

It was Argentina's move to restrict exports through these pipelines that led Chile's government to charge Enap with developing the LNG project as part of its strategy to diversify energy supplies.

-By Julian Dowling, Dow Jones Newswires; 56-2-820-4241; julian.dowling@dowjones.com