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FNE recommends banning Gasco, Abastible and Lipigas from participating in the distribution of liquefied gas to consumers and proposes regulatory changes to the natural gas business to lower the price of both fuels

08 / 10 / 2021

The FNE today released the Preliminary Report of its sixth Market Study, which addressed the gas market in Chile in the period between 2010 and 2020, focusing on the liquefied petroleum gas (LPG) and natural gas (NG) segments.

In its analysis, the Prosecutor’s Office confirmed the hypothesis raised at the beginning of the study, that the gas market in Chile is not functioning properly from a competitive perspective, and  proposes to the Executive Branch three recommendations to correct these anomalies.

The FNE estimates that, if its recommendations are accepted, the retail price of each liquefied gas cylinder should decrease by around 15% and that the price of natural gas paid by Metrogas customers should fall between 13%and 20%.

The National Economic Prosecutor, Ricardo Riesco, pointed out that “this study confirms that the gas market is not competitive enough and our recommendations seek that this situation change as soon as possible for the benefit of consumers, because we are convinced that prices can be significantly lower in the future if the regulation is adjusted.”


Liquefied gas market

According to the report, in the wholesale distribution of LPG market there is a low competitive intensity and some structural factors that make the risk of coordination between competitors high.

Among these factors are the homogeneity of the product offered (LPG cylinders), the high concentration rates among industry players at the national and local (communal) level, the symmetry of their market shares at the national and local (communal) level, the stability and marked seasonality of LPG demand, the multiple points of contact between competitors at different stages of the supply chain,  the zero entry of new wholesale LPG distributors during the period analyzed and, also, the vertical restrictions between wholesale distributors and retail distributors of LPG, existing in almost all cases exclusivity relationships that prevent free mobility between retail distributors of LPG.

The low competitive intensity observed in the liquefied gas market has meant that between 2014 and 2020 wholesale LPG distributors have increased their margins while their costs have fallen, which means that they have not fully transferred to final consumers the savings they have had in their costs.

In fact, the FNE calculated that, as a result of the low competitive intensity in the LPG market, in that period the wholesale distributors of this input have increased their annual margin from 35% to a range of between 50% and 55% approximately, which is equivalent to US$ 261 million per year in aggregate.

That, in turn, has translated into an additional $181 million each year in the purchase of LPG for end consumers since the end of 2014. This is equivalent to approximately 15% of the current retail price of each liquefied gas cylinder.


Natural gas market

The imperfections of the natural gas market stem mainly from defects in regulation. On the one hand, the FNE found that the rule enshrining the right to open access to NG transmission networks is not precise, which has even led to litigation before the Supreme Court and investigations by the Public Prosecutor’s Office for the refusal of the owners of the networks to grant access to new competitors that would help boost competition and lower prices in this market.

On the other hand, the Prosecutor’s Office detected that an exception contained in the last reform to the Gas Services Law, of June 2017, allowed Metrogas, through Agesa, a vertically integrated company and not subject to regulation, to increase the cost of providing its GN distribution service.

This translated, since February 2017, into an increase of between 13%and 20% in the price of residential natural gas paid by Metrogas customers, equivalent to between US$ 78 and US$ 87 million per year.

Finally, in relation to the impact of horizontal integration, that is, the participation of the same companies in the LPG and NG businesses in the same geographical area, the FNE detected that in these cases the price of gas is approximately 1% more expensive than if they operated independently and that this,  in turn, it could also create a disincentive to the expansion of GN networks. However, given the smaller nature of the effects detected, the FNE ruled out the need to recommend the application of measures in this regard.


FNE Recommendations

Given this diagnosis, the FNE proposes to the Executive Branch three recommendations to improve the conditions of competition in the gas market in Chile, which aim to grant greater access and lower prices in this basic and mass consumption service.

The FNE formulates its recommendations to improve competition based on the current structure and dynamics of the gas industry in our country, in which the prevalence of LPG consumption by the national population constitutes an exception at the level of OECD countries, since an eventual expansion of the NG network,  that necessarily requires an active role, impulse or state promotion, is a definition of public policy of the State of Chile that escapes the scope of attributions of the FNE.



The FNE’s recommendation in the LPG market seeks to encourage competition by prohibiting wholesale distribution companies of this product from participating, either directly or indirectly, in the retail distribution of liquefied gas to final consumers.

In practice, this prohibition is intended to allow retail distributors of liquefied gas (5,600 currently in Chile) to sell gas cylinders of any brand without being “tied” to a wholesale LPG distribution company, which would allow them to freely choose the company that offers them a better price.

In the opinion of the Prosecutor’s Office, this prohibition, in addition to being relatively easy to implement, would encourage wholesale LPG distributors to compete in a greater way, through lower prices, to attract retail distributors to distribute their liquefied gas cylinders, which in turn would encourage the entry of new actors to retail and,  eventually, also the entry of a new wholesale distributor of LPG that can easily and quickly have a retail distribution network of liquefied gas.

The application of this recommendation should be regulated by the Superintendency of Electricity and Fuels (SEC),which,  according to sectoral legislation, should be empowered to apply sufficiently dissuasive sanctions to offenders, without prejudice, in addition, to the application of Chilean free competition regulations.

This change in the LPG market would remove the rigidity that currently exists in the relationship between wholesale companies and retail distributors, which are subject to a number of vertical restraints that are of concern from a competitive point of view, especially since they would allow wholesale LPG distributors to replicate or transmit their low competitive intensity to LPG retail distribution.


Natural Gas

The first recommendation of the FNE in this market is to specify the regime of open access to natural gas transmission networks, through a detailed regulation, either at the legal or regulatory level, of the way in which this system should work, granting powers to the SEC in case of refusal of access and establishing an adequate and expeditious mechanism for conflict resolution.

This is relevant so that, having early and effective access to the networks already installed, new actors can boost competition in the distribution of natural gas and, thus, offer better prices to final consumers in Chile.

The second proposal of the FNE is to modify the calculation of the maximum rate of return of natural gas distributors in accordance with the Gas Services Law, so that the formula considers the profitability of the entire vertically integrated economic group.

That would significantly lower the price of residential natural gas paid by Metrogas customers.

If all these recommendations are applied, the FNE estimates that the impact would be US$ 181 million for consumers in the liquefied gas market, which is equivalent to 15% of its current price, while for natural gas an impact between US$ 78 and US$ 87 million is estimated for Metrogas customers,  which translates into a reduction of between 13%and 20% in the price of this fuel.

“Market studies allow us to review the structure and make a diagnosis of the competitive dynamics of the markets to propose future improvements that translate into benefits for consumers, especially lower prices. Past illegal acts or conduct that have been committed in this market, such as collusion or abuse of a dominant position, can also be the subject of investigations by the FNE, which follow a separate lane from this study and in which we have other very powerful persecutoryinstruments, “explained the Prosecutor.


The FNE study

To develop the study, the FNE collected unpublished  data on the gas market in Chile, obtained from various sources, including market players and sectoral regulators, among others.

Other antecedents were also considered, related, for example, to the operation of wholesale distributors of LPG and NG, as well as to the history and regulation of the sector. In addition, meetings were held with different market players, including wholesale and retail distributors of LPG, NG distributors, experts and state authorities. Finally, Gasco and Lipigas provided economic reports.

The Prosecutor’s Office was advised by academics Juan Pablo Montero, from the Pontifical Catholic University of Chile, and Eduardo Saavedra, from the Alberto Hurtado University. Additionally, Oxford University economist Christopher Decker wrote a report that describes and analyzes public policy alternatives to strengthen competition in Chile’s gas market.

This is the sixth Market Study carried out by the FNE after Life Annuities, Notaries, School Texts, Medicines and Public Procurement. All of them have been incorporated at different levels in improvements made to the regulation of the activities that were the subject of the study.

Even without considering this study, the FNE has estimated that, if the recommendations it has formulated in previous studies to improve competition are applied, the State and individuals could obtain aggregate savings of between US$ 521 million and US$ 1,503 million each year.

This preliminary report will be submitted for public consultation until Thursday, November 4. Those interested can send their comments to the box

At the end of this process, the FNE will publish the final report and send its final recommendations to the Executive Branch to evaluate its implementation.

See Preliminary Report.