Energy Crunch Threatens South American Nations

SANTIAGO, Chile — For Chile and Argentina, it was the frostiest of winters, and not just the reading on the thermometer.

During one of the coldest South American winters here in decades, neighboring Argentina cut at least 90 percent of the natural gas it sends to Chile 79 times along pipelines that connect the two countries.

Power plants and factories in this smoggy capital were forced to switch to diesel and fuel oil, which belch more air pollution and have nearly quadrupled the cost of producing electricity. Santiago reported its highest number of dangerous smog days in the past seven years.

Argentina’s actions have chilled relations between the two countries. But the impact of South America’s energy crisis is far broader. Across the region, concerns about energy are roiling national politics, generating tensions between neighbors and emerging as one of the biggest brakes to growth and integration.

Energy is the Achilles’ heel of the governments in Brazil, Argentina and Chile, which are struggling to maintain sufficient natural gas supplies after several years of strong economic growth.

“Bottlenecks in energy supply will be a critical policy concern in Latin America over the next two to five years,” said Christopher Garman, the Latin America director at Eurasia Group, a New York-based consulting firm.

Energy concerns are at the top of the agenda for the region’s incumbent leaders, most of whom have high popularity ratings, thanks mostly to buoyant economies riding a wave of higher commodity prices.

But the steady economic growth has only increased energy demand, while governments have failed for a decade to invest enough in natural gas exploration and new power plants to expand their energy supplies.

President Luiz Inácio Lula da Silva of Brazil is particularly preoccupied with the risk of power shortages that could occur as early as 2009, according to analysts. In an interview in September, he said the region’s gas woes were reason to support new hydroelectric power plants and projects to produce electricity from sugar cane. “I do not want to make Brazil dependent on gas,” he said.

The other alternative is to raise consumer prices or impose austerity measures, something politicians have been reluctant to do. History shows they can help sink a president.

When Brazil suffered an energy crunch in 2000, President Fernando Henrique Cardoso implored consumers to conserve, imposing penalties on those who did not. In the end, a major crisis was averted, but the government’s approval rating dropped by a third, and Mr. da Silva — not Mr. Cardoso’s chosen successor — was elected in 2002.

Néstor Kirchner, Argentina’s president, has steadfastly refused to raise his country’s gas and electricity prices, which are among the lowest in the world, ahead of the Oct. 28 election. Mr. Kirchner’s wife, Cristina Fernández de Kirchner, is the leading candidate to succeed him.

Instead, his government placed winter energy-use restrictions on industries and cut off its neighbor to the west, Chile.

Mr. Kirchner’s strategy has satisfied voters and kept Argentina’s economy humming, for now. But the low gas and power prices have scared away needed foreign investment in energy development and raised fears of runaway inflation.

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