How to Get by Without Russian Gas
In 2007, Chile was as dependent on imported natural gas from Argentina as Germany is today on natural gas from Russia. But in the face of a sudden supply shock, the Chilean government was able to mitigate the economic damage and lay the foundation for the country’s shift to renewables.
LONDON/SANTIAGO – In mid-2007, while serving as ministers in Chile’s government, we received the kind of telephone call that every German politician and businessperson now dreads. We were told that natural-gas imports from neighboring Argentina, Chile’s only supplier, would be cut off overnight. Like Germany today, Chile was overwhelmingly dependent on imported gas for generating electricity, fueling industrial plants, and heating homes. The shock therefore could have been devastating; but, thanks to a battery of emergency measures, Chile pulled through.
The episode holds useful lessons for Germany and other European countries that may soon lose access to Russian gas – either because they decide to stop subsidizing Russian aggression or because the Kremlin decides to send its gas elsewhere.
In the 2000s, Chile viewed its use of imported natural gas as the first stage in the transition to a green economy. Following a 1995 agreement with Argentina, Chilean firms and government agencies spent tens of billions of dollars to retool the economy to run on natural gas instead of dirtier power sources such as coal and diesel. These investments resulted in the construction of seven pipelines across the Andes and gas-distribution infrastructure in most large cities. Soon thereafter, gas-fired, combined-cycle power plants sprouted up across the country.
Correction Apr 29, 2022 11:05UTC
In the thirteenth paragraph, a sentence has been changed to show that the Argentine gas shock lowered Chilean output growth by as little as half a percentage point.
Correction Apr 29, 2022 10:08UTC
The thirteenth paragraph of this commentary has been changed to reflect a reduction in Chilean output growth by half of a percentage point.