Friday, May 1, 2015

In office after an 8.8 earthquake: the resilience of Chilean energy sector*

Chile is a country highly exposed to extreme natural events. In this note I look  how the F27 earthquake impacted in the energy sector and how its recovery was the result of preparedness, institutional strength, solid construction codes, leadership and the commitment of the private sector, the government, and state companies what enabled a teamwork environment to overcome the emergency and achieve a success reconstruction process.
Chile a country highly exposed to natural disasters

Chile is a country highly exposed to extreme natural events, severe earthquakes, floods, tsunamis, volcano eruptions, and dry seasons are part of its history, and according to the World Risk Report 2014, the country ranks in the position number 26 within the countries more exposed to extreme natural events. Since 1900, Chile has the unfortunate record of registering, among the ten strongest earthquakes, the strongest one in May 22-1960 with a magnitude of 9.5 MMS, known as the Great Chilean Earthquake, which impacted a distance of more than 1,000 km along the Chilean side, with the City of Valdivia as the more severely affected.
USGS ShakeMap for the May 22, 1960 Valdivia earthquake

More recently, on February 27-2010, Chile put a new unfortunate record with the 6th strongest earthquake with a magnitude of 8.8 MMS which affected a vast area of the center and south of the country, bringing vast destruction in the cities of Concepción and Talcahuano, and many others in an extension of 1,000 km.
USGS Shake map of the magnitude 8.8 earthquake offshore Chile February 27, 2010.
Aftermath tsunamy
Both earthquakes were followed by a tsunamy, where the 1960 earthquake brought waves as tall as 25 meters, with the tsunamy traveled across the Pacific Ocean impacting places as far as Hilo in Hawaii, Japan or the Philippines. The 2010 earthquake also triggered a tsunamy with destructive effects in many coastal city areas, and also reached places as far as San Diego in California, and Japan.
February 27-2010 Tsunamy
In terms of casualties, in the 1960s earthquake there is no consensus on the number of deaths, with a figure that goes up to 6,000, and in the 2010 earthquake official records place the number in 525 deaths (where 156 are attributed to the tsunamy and misinformation regarding it likelihood) and 25 missing persons. Given the magnitude, and compared with other earthquakes, the February 27-2010 Chilean earthquake was in the lower range of deaths counts. On January 10-2010, Haiti was hit by a 7.0 MMS earthquake, with huge damage and a terrifying figure of deaths estimates in a range from 100,000 to about 160,000, and the Haitian government speaking on a figure of 220,000 deaths. On March 11-2011, Japan was hit by a 9.0 MMS earthquake and devastating tsunami (the 2011 Tohoku Earthquake), with a death count reaching 15,891. And recently, on April 25-2015 we witnessed the devastating earthquake in Nepal, where the deaths count surpassed 6.762, with a large number of deaths and injured persons still unaccounted.
Economic losses
In the 2010 earthquake, losses to the Chilean economy have been estimated by the Government in US$30 billion. And, from those US$ billions, the damage in energy infrastructure reached US$ 1.6 billion, with most of it accruing to the private sector. Most of the energy sector in Chile is a private industry, except for the State Oil Company (ENAP) and its ownership of a percentage of an LNG terminal. However, a large percentage of private infrastructure, as well as in the energy sector and the State Oil Company, have insurances that cover part of the damage and economic losses. Where the insurance market pays out around US$ 8 billion.
On February 27.201 at 3.34 a.m. the earthquake strikes with an intense shaking that lasted for about three minutes. With it, the main electric system collapsed, and brought 92% of the country´s population to dark in the earthquake and before the tsunami. The lack of information, with mobile and landlines phones congested, being unavailable or destroyed, anxiety, fear, confusion and disinformation start to grow up on the population. Further, the national emergency office (ONEMI), face serious information problems and was complex for it to know and inform about the consequences of the earthquake and tsunamis that hit the coastal towns, only 30 minutes after the first earthquake shock. Anxiety, confusion and chaos describe the first hours after the earthquake. In the morning, with the first rays of sun light was possible to make an assessment of the earthquake and tsunami.
The first objective after a major event like this, is to overcome the emergency, take care of the injured and trapped persons and the casualties, help the afflicted population, and assess an evaluate the damages. The only way to succeed in this endeavor is to be prepared! Once the disaster hits, you need the proper institutional capacity being ready to deliver, with well trained persons, appropriate protocols, equipments, budget and communication systems ready to work. All these, should be seen as the a prerequisite to have an effective arm to confront the urgent needs of the emergency, taking actions, and delivering the information needed by the authorities and the civil society to take the right decisions. Historically, in Chile the armed forces have played a key and leading role in the emergency response to catastrophes, role that was changed and diminished only a few days before the earthquake adding to the confusion in the first hours after the earthquake hits. Risk assessment and preparedness is something that takes decades, and for many decades Chile, might be since the Great Chilean Earthquake and even before, has work to be better prepared to confront a major catastrophe as this. For many decades Chile has work in partnership with leading research centers in developed countries to improve its construction codes and bring the best construction practices to the country. However, once the event knocks your door, anything you have done before will always look as not being enough.
The catastrophe exposed the flaws of the Chilean emergency response system, some weakness on its oversight practices and construction norms, and many other deficiencies. However, this created a learning opportunity on what should be improved to be much prepared when the next catastrophe hits. One of the major issues uncovered immediately after the earthquake, was the lack of a proper information system and the confusion that come out. Everyone who was exposed to the shake knew that this was a major event, and if you were not injured or suffer a major damage in your belongings, you knew that somewhere close to you some huge problems have taken place.
To move forward, to respond to the emergency and begin the reconstruction, an appropriate and positive level of leadership from the highest government authority was fundamental. It was crucial to set priorities, define responsibilities, allocate resources, and to agglutinate and conduct the aid and work coming from civil society, the international community, the private and the public sector. Leadership was key, but also peoples compromise, the sense of urgency and team work.
From catastrophe to action in the energy sector
The Ministry of Energy developed a reconstruction plan focused on restoring the affected services, and to restore the operational capacity that the system has previous to the earthquake. To achieve this, the ministry coordinated and agree targets with the industry, mostly private, to restores operations and services when possible. This was very important in:
  • Electricity
  • Gas
  • Oil
The industry commitment and generosity is important to be recognized, which incurred huge costs, in general beyond their commercial obligations, to move the situation back to normal. For example, to restitute services as soon as possible the energy sector brings work crews from other regions of the country and also from other Latin American countries, where business international relations in the energy community were vital.
A.-. Electricity
The electricity sector was severely affected, and many power generation units, representing more than 6% of the installed capacity have been damaged, and become unavailability for an extended period of up to 6 months. Also some new power generation projects, that were expected to begin operations shortly, were delayed for more than six months because of important damage on their infrastructure.
The following graph illustrates daily electricity demand as well as peak load from January to march for years 2009 and 2010. It clearly displays the collapse of the system, and the lost of energy consumption in the month following the earthquake.
The transmission grid also suffered from extensive damage and losses of essential equipment, the fall of transmission towers and the destruction in substations had to be rebuilt, and a main problem was the shortage of spare parts that were suddenly needed for the repairs.
In distribution, the damage was further with fallen utility poles, where in several villages near the earthquake zone the distribution grid collapsed. Fortunately, most electricity supply, where there was a livable house or industry, was restored within two weeks after the earthquake. However, it took a few months to restore100% of supply, mainly in remote or areas difficult to reach that suffered a significant loss of poles and power lines. The following graph illustrates the evolution of customers without power supply.
Evolution Number of Customers without Power Supply Service
However, through all 2010 the electric grid, mainly the transmission lines and substations, remained under a stressful operating and unstable condition, and this was evident after a sequence of blackouts and brownouts that affected the elect electric system. On March 14-2010 at 8:43 p.m. a problem in a major substation created a blackout that brings back the memories of the February 27 earthquake, when a loss of power supply preceded the earth movement in the areas that were not the epicenter of the earthquake. Also, in the months to come, other blackouts and brownout took place, and the situation become critical between Tuesday 27 and Wednesday 28 of July, what exposed the precarious condition that was facing the electrical system. In part because of the lack of spare parts needed to properly repair the damages of the earthquake, where spare parts were consumed in its entirety with the emergency, but also because of some flaws and lax safety standards and protocols applied in the operation of the system by some players in the industry. At the time, to improve the security and standards of operation of the power sector, the ministry announced seven measures to be implemented by the electric sector, which are mention below.
B. City gas in the area affected by the earthquake
GPS measurement showed that the telluric movement moved the entire city of Concepción 3.04 meters (10.0 ft) to the west. With it, the gas grid in the cities of Concepción, Talcahuano and Hualpén was destroyed. We have a highly devastated area and winter time was coming fast. Gas was key for heating and cooking in an area characterized by cold, humid and rainy winters. At the time, the local gas utility presented a plan to restore gas supply, which will be accomplished in one year in the cities whose gas grid was destroyed. That was not viable for the Energy Minister. And, with his intervention, the understanding, compromise and support of the gas utility, their management and workers, the restitution of the service was accomplished in record time: in one and a half month, instead of 12 months originally planned. Thus, wherever consumption existed, all the residents in the cities of Concepción, Talcahuano and Hualpén have gas before wintertime!
C. Hydrocarbons
The State Oil Company (Enap), his management in a coordinated action with the Ministry of Energy, and despite the destruction of the two main refineries of the country, the damage to storage facilities and pipelines, secured the proper fuel supply for the months to come in the country. The refineries are responsible for over 75% of refined consumed in the country, and with the damage they suffered there was an imminent risk of shortage of supply. It should be recognized the courage of ENAP refinery workers at the time of the 8.8 earthquake, with timely and temperate conduct, the operation of refineries was properly stop which avoided a much bigger crisis, with consequences that could have been very serious for the refineries and the surrounding areas to them. The Hualpén refinery has the record of being the refinery being exposed to an 8.8 MMS earthquake, and to survive to it.
It was in this context, that also should be recognized the prompt response, to contracted shipments of refined products, by the administration of the company and the government, and this was immediately produced the earthquake. Thus, in mid-April the arrival of 140,000m3 of diesel in the oil tanker Northia to the port of Talcahuano Chile guaranteed the supply of fuel to the south of the country until the refineries start to resume their normal operation.
The Aconcagua refinery production activities normalized to 100% capacity on April 21-2010, with the commissioning of its last unit (Coker); and the Hualpén refinery was fully operational in July 2010, but still lacking the implementation of co-generation plant Petropower which did it later.
D. Emergency villages
With the earthquake and tsunami 370,000 homes were damaged, of which 81,444 were destroyed, 108,914 suffered major damage and 179,693 had minor damage. The emergency demanded the construction of emergency homes, known as mediagua, and in two and a half moth 40,000 of them were built. These emergency homes needed some basic facilities, such as electricity and street lighting, if the mediagua was installed in an emergency village. For these purposes was design in record time, including the regulations, and contractual arrangements with electric utilities, municipalities, Ministry of Interior and Regional Government, a system to electrify homes and village, for indoor use and street lighting.
Further, and to provide a better quality of life for most families affected by the disaster, the Energy Ministry invested in an innovative plan, developed with FOSIS, called "Sustainable Quinchos" which consists of communitary cooking facilities with photovoltaic solar panels, intended to save energy in the emergency villages.
E. Communications Protocol
Following the lack of information during the earthquake, and as a result of total blackout on Sunday March 14 at night, the Ministry of Energy designed and implemented the first communications protocol for the energy industry, what was a serious flaw in all sectors and at all levels during the emergency that followed the earthquake. With the earthquake and the March 14 blackout, was evident the need for a communication protocol between the different entities that are part of the energy sector, and design and implemented a national emergency communication protocol involving various departments of the State and all the relevant actors in the energy industry. The Protocol describes in detail the flow of information during a sudden energy disruption or emergency, and establishes the responsibilities and tasks of each authority and institution. It includes the electricity load dispatch centers, Ministry of Energy, Ministry of Interior, ONEMI, National Commission of Energy, electricity and energy oil and gas companies. This protocol was applied in subsequent crisis and demonstrated to be a success.
F. Seven actions to improve security of supply industry
Because of the fragility under which was operating the generation / transmission system the Ministry of Energy demanded from the energy industry to meet international standards. The Minister of Energy with representatives of major energy companies, in power generation, electricity transmission and distribution, agreed on seven areas of improvement:

  1. Endow the load dispatch center (CDEC) with the best technical elements to visualize and analyze online the electrical system. This demanded large investments in monitoring, analysis tools and adequate software and equipments, to anticipate and maneuver in the face of events that may lead to a failure
  2. Deepen the autonomy of the CDEC
  3. Ensure the participation of the CDEC in the planning and the development of the electrical system.
  4. Improve the standards for security of supply
  5. Promote a practice of a permanent training and certification for the workers performing critical activities. Companies should certify maintenance programs, operations and maneuvers.
  6. The expansion of the transmission system should be made respecting the established safety criteria (n-1).
  7. The authority shall ensure that the new transmission lines should be planned with enough time in advance.
G. Energy Security Committee
The Ministry of Energy creates an Energy Security Committee to coordinate joint actions to enable a safer operation of the energy sector as a whole. This is a fora for a permanent dialogue within all stakeholders of the electricity sector (generation, transmission, and distribution) and hydrocarbons sector (oil, gas and coal) to address the issues of relevance for the industry, organized in five commissions or areas: 
  1. Perception of the Electric Industry
  2. Future Supply of SIC electric system 
  3. Future Supply of SING electric system
  4. Security and systems operation
  5. Liquid / gaseous fuels and energy security
H. Is started the process to become members of the International Energy Agency IEA
The IEA is intended to promote coordinated action on energy security among its members. As a way to improve the levels of energy security, confronting the risks of sudden interruptions on energy supply, in 2010 Chile officially applied to begin the process to become an IEA member. Also, the IEA conducted in Chile, at the request of government of Chile represented by the Minister of Energy, its first study of energy security where jointly addressed electricity and fuels, considering different risk situations both from natural and anthropogenic source.
I. Virtual Pipeline
To secure the supply to the VIII region of the country, epicenter of the earthquake, ENAP designed and implemented a "Virtual Pipeline", where with special tanker trucks, LNG was transported from the V region to the VIII region. This initiative provided a backup for Argentinean imported natural gas for residential and commercial consumption, and brought natural gas to the Hualpén Refinery, with an important reduction in its refinery costs. This project starts operations in June 2011.
J. Budget Reallocation
The earthquake demanded budget reallocations in the public sector and in its companies, what unlock important resources that were used in the emergency and reconstruction. In this regard the Ministry of Energy, contributed with the biggest percentage budget cut of all ministries.
In the emergency and reconstruction, leadership at the highest level of the government was critical, but is important to recognize the tremendous and important contribution of the private sector, the public sector, the employees, management, and entrepreneurs. The generosity of all acting as a team, behind a common objective, to overcome the emergency, move ahead with the reconstruction, and bring life back to normal as possible, have been fundamental.
In short, leadership acted as a unifying force to mobilize the key role of the private sector, the government and the state, which generously enabled an environment of compromise and cooperation through the emergency, and make the way for a successful reconstruction.
*On March 11, 2010 with a new government coalition I became the Minister of Energy of Chile, where I thanks Former President Sebastián Piñera for inviting me to his cabinet, and for the opportunity and the privilege to contribute in the energy sector after the earthquake that ravaged the country on February 27, 2010.