Chile Drought Threatens Power at Mines as Reservoirs Dwindle

(Updates with comment from professor in fourth paragraph.)

Feb. 15 (Bloomberg) -- Chile’s two-year drought has reduced water levels at reservoirs that supply power dams to 40 percent of capacity, threatening electricity generation for the country’s copper mines.

Levels at reservoir, which also supply water for irrigation, plunged 13 percent in January, Chile’s hottest month, the country’s public water department said in a report yesterday, citing Public Works Minister Laurence Golborne. Summer runs from December through March in the Southern Hemisphere.

The La Nina pattern has brought two years of dry weather to Chile, where dams generate a third of electricity, at a time copper producers are increasing demand for power. Electricity consumption in central Chile, where state-run Codelco and Anglo American Plc operate copper mines, will grow 6 percent a year on average in the next decade, according to data on the website of AES Corp.’s unit in the Andean country.

“If La Nina persists beyond June, it’s foreseeable we’d have a very complex season in terms of energy generation in the second half of the year,” Fernando Santibanez, an agronomy professor at the University of Chile in Santiago, said by telephone today.

Chile’s increasing use of coal, diesel and liquefied natural gas in a bid to cut dependency on hydroelectric dams is increasing power generation costs and reducing the country’s competitiveness, Diego Hernandez, chief executive officer of Codelco, the world’s largest copper producer, said Dec. 6.

The dry spell is also threatening the irrigation of crops in Chile, the world’s largest grape exporter and the second- ranked in avocado exports. Mexico is the top avocado exporter, according to the U.S. Agriculture Department.

Prices

The drought will “undoubtedly” impact the prices of some goods in the short-term, Finance Minister Felipe Larrain told reporters today in Santiago. Golborne said last week that the drought wouldn’t drive up prices of produce and electricity.

The minister is heading a campaign to avoid further forest fires after blazes charred eucalyptus forests on the Pacific Coast, covering Santiago in black smog last week.

Agriculture and people living in rural areas will “undoubtedly” suffer rationing, Santibanez said. “The economic impact of this drought is very high.”

The drought in central Chile contrasts with flash flooding in mountainous areas of the Atacama Desert in northern Chile, where rains have disrupted operations at Codelco and a mine belonging to Zug, Switzerland-based Xstrata Plc.

--Editors: Carlos Caminada, Jasmina Kelemen

To contact the reporter on this story: Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net