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GNL Quintero, South America's first liquefied natural gas regasification terminal, is supplying about 75% of central Chile's demand for natural gas after starting commercial operations last weekend.

The terminal received its second shipment of LNG, from Equatorial Guinea, on Sept. 1 and began piping the regasified LNG to residential, commercial and industrial clients in central Chile on Saturday.

The first shipment of gas received in July was used for testing and commissioning the terminal's facilities.

About 25% of central Chile's daily gas demand of around 2 million cubic meters a day during the winter months comes from Argentina via the Gas Andes pipeline, but LNG will eventually replace Argentine gas completely, said Carlos Cortes, executive secretary of the Chilean association of natural gas distributors, AGN Chile.

"LNG supplies are reliable, safe and continuous ... this is a historic moment for Chile in energy terms," Cortes told reporters Thursday.

The Quintero terminal will receive a new shipment of LNG every two weeks from Trinidad and Tobago, Egypt, Equatorial Guinea, and other LNG-exporting countries in the portfolio of U.K. energy company BG Group PLC (BG.LN), which also has a 40% stake in the terminal.

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 also holds a 20% stake in the terminal.

Importing LNG "gives us pluri-independence ... from now on, the Argentina [gas] problem is behind us," said Cortes.

Since the project's main objective, to reduce dependence on piped-gas after Argentina began restricting exports to Chile in 2004, has been met, Chile can now focus on finding new uses for LNG, said Cortes.

These could include using natural gas for transport. Some 5,000 taxis in Santiago are able to run on vehicular natural gas and are expected to start filling up with regasified LNG at designated gas stations in coming weeks, said Cortes.

Moreover, noisy, polluting buses that are part of the Transantiago public transport system could be replaced with gas-powered, quieter buses such as those used in developed countries, said Cortes.

But first, Chile needs new legislation to ensure bus operators have financial incentives, including tax breaks, to invest in gas-powered buses, he said.

Gas distributors also hope to boost residential gas demand by offering clients a greater variety of gas-fueled appliances, such as barbecues, heaters and dryers.

Consumers won't notice much difference in their monthly gas bill, at least for now, but the price, which is calculated according to a formula linked to the Henry Hub gas price, is "competitive," Cortes said without providing more details.

At around US$8 per million British thermal units, LNG is more expensive than the US$1.50/MBtu Chile used to pay for Argentine gas in the 1990s, but cheaper than diesel.

And with the capacity of the LNG terminal set to double by next year, gas distributors are promoting LNG as the answer to Chile's future energy needs.

In a fast-track stage, the design of the terminal, which is about a 90-minute drive from Santiago, has allowed the terminal to start supplying gas to customers while two large onshore storage tanks are still being built. This is possible because a ship, loaded with LNG, is used as a floating storage tank piping LNG directly to the terminal.

In this stage, the terminal will produce an average 5Mm3/d of gas to supply gas to Metrogas' clients as well as two of Endesa's dual diesel-gas power plants and for Enap's refineries.

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

"We want to grow the use of natural gas in the market; we don't see 10 million cubic meters a day as a ceiling but as a floor to keep growing," said Cortes.

And LNG demand is not limited to central Chile. A second LNG regasification terminal is in development in Mejillones, in northern Chile, set to start receiving LNG in early 2010, and Cortes sees potential for a third terminal in southern Chile near the city of Concepcion.

"Natural gas is the fuel of today and the future," Cortes said.

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