OREANDA-NEWS. An pending deadline in an open season process for new regasification capacity will test Chile?s appetite for LNG against the backdrop of changing economic and regulatory conditions.

GNL Chile, the commercial entity representing shareholders in the Quintero terminal on the central coast, will receive non-binding offers on 25 October for a second expansion of capacity to 20mn m?/d, including the construction of a third storage tank and installations to enable efficient reloading. The $250mn-$300mn expansion project, if approved by shareholders, would be completed in 2020.

The Quintero terminal?s capacity to regasify imported LNG was already expanded from 10mn m?/d to 15mn m?/d early this year.

The deadline for binding offers is 10 December, with gas sales agreements (GSA) to be signed on 9 March 2016.

GNL Chile is offering 3.2mn m?/d of new capacity. The existing shareholders have a right to request the balance of the 5mn m?/d that would be added.

Spain?s Enagas and partner Oman Oil own 40pc of the terminal. Chile?s state-run oil company Enap, Italian Enel-controlled Endesa and Chilean gas distributor Metrogas own 20pc each.

The open season is taking place in parallel to a tender for long-term contracts with electricity distributors that would anchor the development of new power stations.

The deadline for bids in the electricity tender, which would supply regulated customers, is in April 2016. The tender is likely to attract gas-based generation projects above all, with a solid sprinkling of renewables, including solar projects that have been cropping up rapidly in Chile in recent years.

Gas-based combined-cycle plants are considered an efficient back-up for intermittent renewable power because they can be switched on and off more quickly than coal units, which proliferated in Chile in the wake of Argentina?s curtailment of pipeline gas supply a decade ago. At the same time, gas is seen as more politically palatable than coal and big hydroelectric projects, which have run up against fierce opposition from community groups and environmentalists.

Among the generators poised to participate in both the LNG open season and parallel electricity supply tender is Chile?s Colbun, which is already one of three top generators in the central power grid (SIC). Endesa and the SIC?s other main actor, AES unit Gener, could also take part. So could relative newcomers like US-based Duke Energy.

Enap, now primarily an oil refiner with a surplus of LNG, plans to participate in the power tender in conjunction with a foreign partner, pending approval of legislation to expand its mandate.

France?s Engie, the main generator in Chile?s northern grid (SING), could bid in the electricity tender based on planned new capacity in the north, but it would not need access to Quintero for LNG supply. The company already controls Chile?s second LNG terminal at Mejillones and is building a transmission interconnection between the SIC and the SING that will open up new supply opportunities in central Chile.

The same holds true for the El Campesino power project that Chile?s Biobiogenera and France?s EDF are developing in the southern region of Bio Bio. The first 640MW planned unit won a power supply contract in a December 2014 tender, with 600,000 t/yr of LNG to be supplied by US firm Cheniere at the proposed Penco Lirquen floating terminal off Concepcion. The developers plan to participate in the 2016 power tender with a second planned 640MW unit. The LNG for El Campesino would come from the Corpus Christi liquefaction terminal that Cheniere is building on the US Gulf coast.

Proponents say the LNG project and accompanying power supply auction offers investors long-term returns. They hint that Quintero?s second expansion could even be followed by more ambitious growth beyond the facility?s 20mn m?/d design capacity.

But there are potential short-term snags that could delay progress. One is uncertainty over a transmission bill that the executive branch submitted to the Chilean congress last week. The bill is aimed at streamlining the conditions for expansion and stimulating investment in transmission, long considered one of the bottlenecks to increasing Chile?s generating capacity.

The bill is not a prerequisite for moving ahead with the electricity tender, but congressional passage by March would enhance regulatory certainty. So would approval of another bill aimed at lowering electricity tariffs in remote parts of Chile and mandating lower rates in communities that host power stations.

On the broader near-term horizon, investors are keeping an eye on tax and labor reforms, particularly in the context of a slowing economy still driven by the copper industry, creeping inflation and a depreciating currency. A government effort to reform the constitution seems to be off the table for now.

Many investors say while Chile?s economic and political conditions are not ideal at the moment, the energy sector is on a stronger footing than it has been in years. And Chile is still widely perceived by investors as the safest long-term bet in the region.