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COLOMBIA O&G DEVELOPMENT PANORAMA

Colombia is the largest coal and second-largest petroleum producer in South America, in 2021, it ranked as the fifth-largest crude oil exporter to the United States. This sector contributes around 10 percent to Colombia's GDP and constitutes 20 percent of its exports. As of January 2022, Colombia had 1.8 billion barrels of proved crude oil reserves. The entire crude oil production takes place onshore, mainly in mature fields like Rubiales, Castilla, La Cira, and Chichimene.

The nation predominantly produces associated natural gas, sourced from oil deposits. Given the high demand for natural gas in the oil production process, nearly 50 percent of Colombia's produced natural gas is re-injected to enhance oil recovery efforts, a strategy gaining importance amid declining exploration.

Colombia's constitution asserts state ownership of sub-soil and natural resources; however, qualified local or foreign companies can explore and extract hydrocarbons without being obligated to form partnerships with Ecopetrol. In pursuit of attracting foreign investment, Colombia has implemented advantageous fiscal and tax regimes. Despite these strategic political and financial initiatives, Ecopetrol continues to supervise more than 64% of the nation's oil and natural gas production.

SOUTH AMERICA 2ND LARGEST O&G PRODUCER

CHALLENGES AND DISRUPTIONS OF COLUMBIAN O&G SUPPLY

Despite the 2016 peace agreement between the Revolutionary Armed Forces of Colombia (FARC) guerillas and the government, Colombia's oil industry remains vulnerable to attacks. In 2021 alone, over 30 incidents targeted oil pipelines and infrastructure. Ecopetrol reported 51 oil infrastructure attacks in 2020, causing disruptions of 8,000 b/d and an estimated 14,000 b/d in 2021.

Insurgency groups, such as the National Liberation Army (ELN), persist in launching attacks on the country's energy infrastructure. Operating companies face not only security challenges but also high production costs.. Beyond deliberate attacks, production faced disruptions in 2020 due to social protests (stemming from a tax proposal) and COVID-19 lockdowns. 

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COLOMBIA

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THE PROSPECTS OF FUTURE O&G DEVELOPMENTS

HYDROPOWER & CLIMATE CHANGE : DRIVING OIL AND GAS SURGE

Colombia's energy landscape is primarily shaped by renewable resources, with hydropower accounting for an impressive 73% of total generation. 

The forthcoming Hidroituango project, slated to be Colombia's largest hydropower plant with a 2.4 GW generation capacity by 2025, represents a commendable stride toward sustainable energy. However, despite this push for renewables, the tangible effects of a significant drought in 2020 underscored the nation's need for additional energy sources, leading to heightened LNG imports to fuel natural gas-fired thermal power plants.

In March, Felipe Bayon, the CEO of Ecopetrol, shared the optimistic outlook on offshore developments that could potentially eliminate the need for Venezuelan gas imports and even pave the way for exports by the end of the decade.

Bayon envisions that three promising offshore gas prospects could substantially augment the country's proven reserves by over 70% in the coming years. Notably, a deepwater collaboration between Ecopetrol and Brazil's Petrobras unveiled the Uchuva gas discovery in the past year, with expectations for the first gas production as early as 2026 by leveraging nearby infrastructure.

Additionally, Shell and Ecopetrol independently announced an ultra-deepwater discovery at the Gorgon gas field last year, affirming the extension of a gas province. This development holds the potential to deliver first gas between 2028 and 2029.

In a strategic move, companies are proposing to revive a dormant gas pipeline linking Venezuela's Western region with Colombia. The reactivation of this pipeline signifies not only a substantial economic collaboration but also reflects closer political ties between Venezuela's President, Nicolas Maduro, and Colombia's new President, Gustavo Petro. This proposal, however, carries historical implications, as past friction between the leaders has resulted in suspended trade and the closure of borders.

OFFSHORE DISCOVERIES & VENEZUELAN TIES

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The country's business elite, many entrenched in the oil industry, closely monitor the impact on Colombia's weak currency amid President Petro's policy proposals, surging energy prices, and global inflation.

 

The looming specter of economic collapse in Venezuela, driven by government mismanagement, casts a shadow over Petro's plans. 

"How does Petro plan to finance the shortfall in revenue for the country?" asked right-wing senator Maria Fernanda Cabal. Economists doubt that tourism can take over from the hydrocarbon sector.

Bruce MacMaster, the president of the National Business Association : “When he talks about climate, and cocaine, we are with him. We have also put our lives into these fights. But moving away from fossil fuels too fast and Petro will lose everything: people’s faith, foreign investment, the strength of our currency.”

In recent interviews, neither Environmental Minister Susana Muhamad, Energy Minister Irene Vélez, nor Vice President Francia Márquez fully commit to Petro's campaign pledge of stopping new oil permits, indicating ongoing consultations. Following protests by oil companies, Petro reassures via Twitter that oil production and exploration are "continuing normally" stating, "There is no prohibition."

 

Amidst the internal debates, external factors also play a role. The stance on decarbonization is yet to find regional consensus among Latin American counterparts, with Brazil and Mexico, each producing more oil than Colombia, exhibiting hesitancy towards swift transitions.

INTERNAL BACKLASH AND LACK OF REGIONAL SUPPORT

FINANCIAL COMPENSATION AND ECONOMIC DIVERSIFICATION

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POLITICAL TENSIONS AROUND FOSSIL FUEL PHASE OUT

Colombia's oil industry could undergoing a transformative shift under President Gustavo Petro's leadership committed to steering the nation away from fossil fuels towards greener energy alternatives. President Petro's climate advocacy differs from many left-wing counterparts in Latin America, challenging the conventional view of fossil fuel-generated wealth as a necessary source for social services. ​

 

Highlighting the pressing need for change, Environmental Minister Susana Muhamad emphasized, "Our dependence on fossil fuels sets up the economy for failure if left unaddressed."  Energy Minister Irene Vélez, an activist scholar with a background in extractive economies, is also instrumental in reimagining Colombia's economic landscape without fossil fuel dependence. United by a commitment to solving tangible issues, both ministers navigate the intricate complexities of transitioning Colombia's economy away from oil.

 

In January 2023, Irene Velez affirmed Colombia's decision to forgo new oil and gas exploration contracts at the World Economic Forum in Davos. ​In December 2023 during COP 28 Colombia becomes the first major nation to join the fossil fuel non-proliferation coalition.

 

Petro has voiced the debt-for-climate swaps proposition, using multilateral financial institutions like the World Bank and IMF to alleviate the debt burden of low- and middle-income countries. This financial relief, he proposes, should come in exchange for nature protection and concerted efforts to combat climate change. ​

 

President Petro's ambitious stance positions Colombia to be the first major oil-producing country to cease drilling if he successfully separates the national budget from oil revenue.

POLITICAL WILL THE PHASE OUT OF OIL 

Dollar Bills

DEBT-FOR-CLIMATE SWAPS

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