Feb. 6 (Bloomberg) -- Codelco, the world's largest copper producer, is facing its biggest risk of mine disruptions from energy shortages since Argentina began cutting natural-gas supplies to Chile in 2004, lawmakers and a union leader said.

Energy prices in Chile, the world's largest supplier of copper, surged 29 percent in 12 months because of a shortage of natural gas from neighboring Argentina. Chilean Energy Minister Marcelo Tokman told Radio Cooperativa on Feb. 4 that an energy shortfall is possible because dry weather has reduced reservoir levels, limiting power production at hydroelectric plants.

``The system is going to be very close to breaking down,'' said Senator Baldo Prokurica, a member of the Senate's mining and energy committee, in a phone interview today. Energy is ``a really serious issue.''

Codelco, which is owned by the Chilean government, is studying ways to make its energy usage more efficient, Mining Minister Santiago Gonzalez, who also is chairman of Codelco, said yesterday when asked about the possibility of energy cuts.

``It's not just a risk for Codelco,'' said Raimundo Espinoza, president of the Federation of Copper Workers, which represents miners' unions at Codelco. ``It's something that could affect the whole country.''

Codelco will be able to avoid energy rationing at its mines in central Chile, Andina and El Teniente, by shutting down non- essential equipment, Espinoza said yesterday in an interview in Santiago. He also is a member of the company's board.

Backup Generators

Codelco may need to use backup generators to ensure supplies to those mines, Senator Jaime Orpis, a member of a congressional mining and energy committee, said in a telephone interview today. Using backup generators will increase costs, Prokurica said.

Utilities will offer incentives to consumers to reduce energy use to help avert electricity rationing, Energy Minister Tokman told Cooperativa on Feb. 4.

Mining companies have to brace for possible energy cuts because natural-gas supplies from Argentina may decline further, Prokurica said.

Water levels in reservoirs used for hydroelectric plants are 40 percent lower than a year ago, endangering energy supplies to central Chile, the most populated area of the country, said Sergio Winter, an analyst at Euroamerica Corredores de Bolsa SA. Until now, hydroelectric power had allowed central Chile to avoid power disruptions even as supplies of natural gas declined.

``There is no gas and there aren't hydro reserves,'' Winter said. ``Things are very tight.''

In northern Chile, where most of the country's copper mines are located, companies already have installed backup generators, Prokurica said. The region had depended more on natural gas than central Chile.

To contact the reporter on this story: Heather Walsh in Santiago at hlwalsh@bloomberg.net.

Last Updated: February 6, 2008 14:16 EST