Officials said the program would focus on finding new sources for gas but would be part of a wider effort to develop hydrocarbon resources in the region. The private sector is likely to be a major player in the exploration, development and production program.

Industry sources said Chile's initiatives had received a boost lately with the news of dramatic discoveries in offshore basins in Brazil and Mexico.

Mexico, already a major producer, has boosted its oil and gas reserves with new discoveries, and Brazil is poised to be the largest oil and gas producer in South America.

Earlier this month Chile's state oil company Enap and Canadian methanol producer Methanex signed a special operating permit with the state for the Dorado-Riquelme natural gas block in the Magallanes region, setting the stage for a new cycle of exploration.

Mining Minister Santiago Gonzalez told reporters the agreement "is a clear sign of the interest that exists in our government to support the development of hydrocarbon projects, and also reinforces the fact that there are exploitable and commercially attractive gas reserves in the Magallanes region."

Investment in the block, located 75 miles from Punta Arenas, the main city in Chile's far south, is expected to continue through 2011 and reach $90 million, Gonzalez said.

Methanex already has four methanol plants in the Magallanes region with a combined annual production capacity of 3.8 million tons, but gas shortages have severely curtailed production. Argentina, the traditional supplier, cut back on supplies to Chile, arguing it needed most of its own gas resources.

The shortage of gas required to run the plants has driven Methanex to explore unconventional methods to find fuel for its underused methanol plants. Last month Methanex revealed it was looking to develop a wind farm to power its methanol production plants -- but also, analysts said, to enhance its green credentials.

Although current plans for increased gas production are mainly concerned with providing fuel for the methanol plants, officials said the overall oil and gas development strategy was to make more gas supplies available for economic development in the region.

Enap said its experts were "convinced" that "there is plenty of gas in the region" that can help Chile overcome its chronic shortages.

The latest Chile Oil & Gas Report from Business Monitor International forecasts that Chile will account for 4.6 percent of Latin American regional oil demand by 2013, while making no meaningful contribution to supply.

As regards natural gas, BMI said, the region in 2008 consumed an estimated 191.3 billion cubic meters, with demand of 254.3 billion cubic meters targeted for 2013, a 32.9 percent growth.

Chile's share of gas consumption in 2008 was an estimated 2.61 percent of the Latin American region, while it had no significant share of production. By 2013, Chile's share of gas consumption is forecast to be 2.65 percent, BMI said. Accurate projections for Chilean gas production in the coming years are still hard to come by.

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