Chile to begin LNG exports to Argentina this week

By Antonio De la Jara and Fabian Cambero

SANTIAGO, May 10 (Reuters) -- Chile will begin sending liquefied natural gas (LNG) to Argentina this week in significant quantities for the first time, supplier Engie told Reuters, as trade relations warm between the two South American neighbors.

The regional arm of France's Engie said it would sell around 85 million cubic meters of natural gas to Argentina in a contract to meet demand during the southern hemisphere's upcoming winter.

Chilean state producer ENAP and Argentine state producer ENARSA have been in negotiations in recent months to seal a deal, after Argentina's new business-friendly President Mauricio Macri indicated he was keen to get fuel flowing between the two.

Argentina used to be an important supplier of gas to Chile. In the mid-2000s, after its own supply faltered, the then-leftist Argentine government triggered a diplomatic crisis when it cut off exports to its neighbor.

But Argentina sits atop some of the world's largest untapped shale oil and gas resources and is looking to ramp up production in coming years, at which point Argentina could resume exports to Chile, Macri has said.

In the meantime, the cross-Andean pipes are being used to pump fuel in the other direction. Chile has almost no hydrocarbons of its own but its Pacific-facing ports import gas from outside the region.

Engie declined to give more details on the contract, but a source close to Chilean state producer ENAP said around 1.5 million cubic meters/day of gas will be pumped at a price of $6.90/MMBtu.

The gas will travel from the port of Mejillones in northern Chile, via Engie-controlled E-CL's pipeline, and across the Atacama desert to Argentina.

A second contract, beginning on June 1, will see 3 million cubic meters daily pumped from the central port of Quintero, by Endesa, ENAP and distributor Metrogas, at a cost of $7.20/MMBtu.

Bolivia supplies most of Argentina's gas at a cheaper cost than the Chilean imports, but cannot supply enough to meet peak winter demand, Argentina's energy minister Juan Aranguren was quoted as saying in Argentine media. He added that the supply from Chile would replace gas oil purchases, which are more expensive.

Engie said supplies from Chile would start at the end of this week or next week at the latest, depending on the weather.

"This without doubt is a big step," Engie said.

"The contract is only for this winter season. However, the operation can be repeated in the future depending on the needs of the Argentine system."