Chile's natural gas reserves were estimated at 3.5 trillion cubic feet (Tcf) in January 2004. Natural gas production in Chile is low and declining. In 2002, Chile produced 41.7 billion cubic feet (Bcf) of natural gas whilst consuming 230.3 Bcf.

Chile began imports of natural gas from Argentina through new pipelines in 1997. Since then, natural gas’ share in Chile’s energy mix has increased substantially, from 8% of all energy consumed in 1996 to 23% in 2002.

On March 25, 2004, the Argentine government published Resolution 265, which called for restrictions on natural gas exports to Chile in order to conserve gas reserves for domestic use. Between April and June 2004, daily restrictions on exports to Chile fluctuated between 20% and 47% of contracted volumes, depending on domestic demand (see graph). In June 2004, after weeks of negotiations, Argentina agreed to reduce the peak restriction level to 61.4 million cubic feet per day (Mmcf/d), down from 423 Mmcf/d in May 2004.

Gas-fired power plants in northern Chile, particularly those that are unable to switch fuels, have been forced to purchase electricity from third parties in order to meet contractual obligations. Even those power plants which have fuel-switching capabilities have been affected by the restrictions, due to the cost of purchasing other fuels at higher prices.

A total of seven pipelines, all built between 1996 and 1999, link Argentina and Chile: Tierra del Fuego (Methanex); El Cóndor-Posesión; and Patagonia in the south; GasAndes and Gasoducto del Pacífico in the central region; and GasAtacama and Norandino in the north. Tierra del Fuego was the first pipeline to come onstream in 1996. The line connects to the Methanex methanol producing plant in Punta Arenas. The other two southern pipelines, El Cóndor-Posesión and Patagonia, came online in 1999 to serve the same purpose.