• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 2 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 7 days If hydrogen is the answer, you're asking the wrong question
  • 1 day How Far Have We Really Gotten With Alternative Energy
  • 11 days Biden's $2 trillion Plan for Insfrastructure and Jobs
Offshore Oil & Gas E&P Staging A Comeback

Offshore Oil & Gas E&P Staging A Comeback

The high success rate of…

Bullish Oil & Gas Producers Remain Under-hedged

Bullish Oil & Gas Producers Remain Under-hedged

Standard Chartered sees oil and…

Is U.S. Shale Production Finally Nearing Its Peak?

Is U.S. Shale Production Finally Nearing Its Peak?

U.S. shale oil production could…

Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

More Info

Premium Content

Colombia’s Oil Industry Is Finally Showing Signs Of Life

  • The fallout from the pandemic and civil unrest across Colombia has left its oil industry in a state of crisis.
  • Colombia’s dire hydrocarbons shortage is weighing heavily on the Andean nation’s petroleum-dependent economy. 
  • Nevertheless, despite those hazards and the risks they pose to Colombia, there are signs that the outlook for the country’s petroleum industry is improving.
Colombia

The last two years, since the COVID-19 pandemic commenced, have been particularly tumultuous for the strife-torn Latin American nation of Colombia. The fallout from the pandemic, along with civil unrest erupting across Colombia during late April 2021 and worsening rural security, are weighing on the Andean country’s economically crucial oil industry. The uncertainty created by those events is magnified by the apprehension regarding the outlook for extractive industries in Colombia, particularly for oil drilling and coal mining, after leading presidential candidate senator Gustavo Petro stated he intended to end oil exploration in the country. A marked decline in foreign energy investment, dwindling proven crude oil reserves and weak production are all threatening Colombia’s economic outlook. There are signs that the future for the conflict-riven country’s petroleum industry is in doubt. A leading indicator of the poor outlook for Colombia’s petroleum industry is weak production, which is not growing significantly and is well below pre-pandemic levels. For November 2021, data from (Spanish) Colombia’s Ministry of Mines and Energy shows the country only pumped an average of 746,845 barrels of crude per day. While oil output was nearly 1% higher month over month it was 2% less than the same period a year earlier and a very worrying 15% less than the 880,211 barrels of petroleum pumped during November 2019.

Source: Colombia Ministry of Mines and Energy, U.S. EIA.

Natural gas production growth remains weak even though President Ivan Duque, on entering office in August 2018, prioritized the development of the fossil fuel. During November 2021 Colombia pumped 1.1 million cubic feet of natural gas per day which was 2.3% lower than a month prior and was flat year over year, although it was 4% greater than for November 2019.

Source: Colombia Ministry of Mines and Energy, Colombia National Hydrocarbons Agency.

Of even greater concern are Colombia’s diminishing proven oil reserves. Despite being Latin America’s third-largest petroleum producer, after Brazil and Mexico which have reserves of 12.7 billion and 5.8 billion barrels respectively, at the end of 2020 Colombia’s proven reserves (Spanish) were a meager 1.8 billion barrels of crude oil. That was a worrying 11% less than a year earlier and represents a staggering 26% lower than the decade peak of 2.445 billion barrels at the end of 2013.

Source: Colombia National Hydrocarbons Agency.

At the current rate of production, which averaged around 736,000 barrels per day for 2021, Colombia only has sufficient proven crude oil reserves for 6.3 years. 

Natural gas reserves are also in decline falling by 6.8% year over year to 2.949 trillion cubic feet, which is nearly half of the 10-year high of 5.727 trillion cubic feet announced at the end of 2012.

Source: Colombia National Hydrocarbons Agency.

Those reserves will provide a further 7.7 years of production at the current output, which averaged 1.1 million cubic feet per day during 2021. 

Colombia’s dire hydrocarbons shortage is weighing heavily on the Andean nation’s petroleum-dependent economy. Crude oil is Colombia’s largest legal export (Spanish) by value, accounting for $12 billion or 33% of all exports for the first 11 months of 2021, earns roughly a fifth of government revenue, and generates 3% (Spanish) of gross domestic product. Soaring natural gas demand, coupled with declining production and Bogota’s plans to expand gas-fired electricity production, sparked a domestic energy crisis which forced Colombia to commence bulk imports of liquified petroleum gas in late-2017. Despite the national government implementing a domestic natural gas price to attract investment, which was more than 60% higher than the Hendry Hub benchmark, Colombia’s gas reserves and production have failed to grow as envisaged. Soaring international natural gas prices, because of the energy crisis in Europe which see the Henry Hub price at over $4.609 per MCF will divert foreign investment from Colombia’s hydrocarbon sector to more attractive jurisdictions. 

Related: Will OPEC+ Actually Deliver The Extra Barrels It Promised?

A lack of foreign capital and energy investment in hydrocarbon exploration and development is a key reason for Colombia’s declining crude oil reserves and weak production. For 2019, prior to the pandemic, $4.03 billion was invested in Colombia’s hydrocarbon sector. That amount plunged to almost half, $2.05 billion, during 2020 crippling exploration and development activities causing a sharp decline in crude oil output which only averaged 781,300 barrels per day, the lowest level since 2009. Despite industry investment rebounding to $3 billion during 2021 Colombia’s crude oil and natural gas production weakened further. During May and June 2021, as anti-government protests raged across Colombia, crude oil production plunged to multi-year lows of 703,478 barrels and 694,151 barrels per day. This development coupled with Colombia’s deteriorating security environment, primarily fueled by rising poverty and soaring cocaine production, caused 2021 annual output to fall by an estimated 6% year over year to an average of 736,000 barrels per day.

Bogota’s inability to reactivate Colombia’s hydrocarbon sector and have it return to pre-pandemic levels is highlighted by the oil-dependent South American country’s rig count. Data from Baker Hughes shows that there were 29 active drill rigs in Colombia at the end of December 2021. 

ADVERTISEMENT

Source: Baker Hughes and U.S. EIA.

That number, while six greater than a month earlier and just over double the 14 rigs at the end of December 2020, is still less than the 33 operational drill rigs for that month in 2019. The 29 operational rigs at the end of December 2022 are significantly less than the 74 rigs recorded in July 2011 at the peak of Colombia’s last oil boom where the country’s proven oil reserves grew 8% to a record of 2.445 billion barrels at the end of 2013. That extremely low reserves growth, despite the considerable investment in rigs and drilling activity, points to the possibility that Colombia does not possess the oil potential the government believes that it has. Even the 2016 peace accord with the largest guerilla group the Revolutionary Armed Forces of Colombia (FARC – Spanish initials) failed to deliver the expected increase in proven oil reserves and production, further supporting that assertion.

Nevertheless, despite those hazards and the risks they pose to Colombia’s oil-dependent economy and energy self-sufficiency, there are signs that the outlook for the country’s petroleum industry is improving. Peak oil industry body the Colombian Petroleum and Gas Association (ACP – Spanish initials) estimates 2022 investment (Spanish) in hydrocarbon operations will reach $4.4 billion, which is 47% greater than a year prior and more than double 2020. While that investment is equivalent to 2019 the ACP anticipates that 2022 exploration spending will exceed $1.1 billion which, if that eventuates, will be the largest amount spent on oil and gas exploration in Colombia since 2014. In January 2022, the energy ministry announced that it had awarded (Spanish) 30 areas to six energy companies as part of Colombia’s 2021 bid round. The contracts, which are in the process of being signed, are expected to generate an investment of at least $148 million.

Those latest developments point to an improving outlook for Colombia’s hydrocarbon sector, although proven reserve and production growth will remain weak for the immediate future. There are also doubts as to the petroleum industry’s long-term viability because Colombia has not had a major oil discovery since 2009. Exploration is constrained not only by rising conflict in oil-rich regions but also because of growing signs that Colombia may not possess the oil potential of its neighbors such as Venezuela and Ecuador. This poses a significant risk for the Andean country’s oil-dependent economy and continued energy self-sufficiency.

By Matthew Smith for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News