Southern Chile's flagship industrial project is facing closure because of natural gas shortages, made worse over the years by Argentina allegedly reneging on supply contracts.

Canadian energy company Methanex said the closure is temporary and hoped the methanol producing plant in the port of Cabo Negro, near Punta Arenas in Chile's southern Magallanes region, would be back in operation before the end of the year.

Chilean officials and industry analysts are not so hopeful. Chile is struggling to boost its natural gas production but has limited prospects, scarce local expertise and greatly curtailed financial resources for new energy ventures.

The U.S. Energy Information Administration says Chile's natural gas production dropped from 65 billion cubic feet in 2010 to 52 billion cubic feet in 2011 while consumption increased from 187 billion cubic feet to 199 cubic feet, requiring imports. Proven gas reserves in the country are known to be about 3 trillion cubic feet.

The Punta Arenas methanol plant was hailed as the pride of the Chilean southern region's emerging industry but it ran into problems as Argentina, faced with domestic shortages, began cutting supplies it had contracted to provide Chile.

Argentine officials say the cutbacks in Argentine supplies cannot be helped. Chilean officials have accused Argentina of reneging on their commitments and of not doing enough to meet Chilean gas needs as they promised.

Critics of the Argentine response accused the government in Buenos Aires of an inept handling of the problem.

Methanex Corp., the Canadian firm that has headquarters in Vancouver, said its decision to idle operations in Chile in March was due to lack of adequate natural gas supply for the heavily downsized Cabo Negro plant.

"Because of the continued challenges in the provision of natural gas, we estimate we will not have a sufficient supply to keep our plant in Punta Arenas operational during the Southern Hemisphere winter," Methanex said.

"Our current expectations are that the operation of our plant in Cabo Negro could be relaunched sometime later in the year," Methanex Corp. Chief Executive Officer John Floren said.

The company curtailed its Punta Arenas operations several times over the past few years because of diminishing gas supplies. The one out of four plants at the Cabo Negro complex scheduled to run till March is operating well below capacity.

The plant's low operating rate is likely to produce less than 5 percent of Methanex Corp.'s entire global output in 2013, Methanex said.

In contrast to the situation in Chile, the company's operations elsewhere in the world, including New Zealand and the U.S. state of Louisiana are doing well. The company says it has the potential to increase its operating capacity by nearly 2 million tons over the next two years, which in turn will contribute to cash generation.

Methanex says it has invested more than $1.3 billion in its Chilean project since 1998. The strategically situated plant was meant to enable Methanex to ship methanol by tanker to all its major markets in Asia, South and North America, Europe and South Africa.

The Cabo Negro site originally had four plants, but the company uprooted and relocated one of the units to Geismar, Louisiana.

Chilean Energy Minister Jorge Bunster said he regretted Methanex Canada's decision.

"We know the natural gas production in the Magallanes region has been declining and the Methanex project is based on an abundant provision of natural gas and they will have to assess the convenience of these operations," Bunster said.

"Obviously we would like them to remain but it will all depend if we can find the necessary production and reserves of natural gas," Bunster said, reported by Mercopress.

"Unfortunately we are not an oil or gas producing country," Bunster said.

The suspension of production at the Punta Arenas plant was seen as a further blow to prospects for industrial growth in the area.