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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…

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Colombia’s Shale Boom Might Be Over Before It Even Started

  • Domestic opposition to fracking continues to grow in Colombia.
  • Colombia has launched fracking pilots at two sites.
  • A recent court decision could end the fracking pilots, and herald the beginning of the end for Colombian shale.

The controversial crude oil extraction technique hydraulic fracturing, known as fracking, has long been touted as a solution to Colombia’s rapidly dwindling petroleum reserves. The strife-torn Latin American country finished 2021 with proven crude oil reserves of 1.8 billion barrels, which was estimated by Colombia’s Ministry of Mines and Energy to be sufficient for just over six years at the post-pandemic rate of oil production. That is of considerable concern for Colombia’s petroleum-dependent economy because crude oil is responsible for generating a third of export income, a fifth of national government revenue and over 3% of gross domestic product. While Bogota has dedicated considerable resources to promoting fracking in Colombia, especially after the U.S. fracking boom truly took-off, to attract the required investment domestic opposition to the oil extraction technique is fierce. That has acted as a considerable deterrent to private investment in unconventional oil and natural gas exploration in Colombia.

A temporary ban on fracking has been in place in Colombia since 2018, although the ruling issued by the State Council, the country’s highest administrative tribunal, does not block pilot projects. That gave the national government including the energy ministry, industry regulator, the National Hydrocarbon Agency (ANH – Spanish initials) and national oil company Ecopetrol considerable hope that fracking will eventually be allowed. For those reasons, Ecopetrol launched two fracking pilots, the Kale and Platero projects located in the Llamos Basin near Puerto Wilches in the department of Santander. Recent events however point to a deteriorating social license for Colombia’s petroleum industry, particularly as community opposition to fracking remains firm which could eventually see the controversial oil extraction technique banned in Colombia. This could not come at a worse time for the strife-torn Latin American country’s oil industry which is struggling to reactivate after the pandemic and continues to be impacted by heightened geopolitical risk. Those risks are further magnified because 2022 is a presidential election year. 

If fracking is permanently banned in Colombia, there is the potential for that event to trigger considerable fallout for Colombia’s oil dependent economy. Hostility to fracking in the strife-torn Andean country is immense. There are fears from many different community groups that it will have a sharp environmental impact in the regions where fracking is allowed, which will be magnified by a lack of appropriate oversight and regulation. Fracking in more developed and heavily regulated jurisdictions such as the U.S. According to the U.S. Geological Survey, or USGS, the primary environmental hazards specifically associated with fracking are surface as well as ground water degradation because of waste liquids disposal and induced seismicity. Fracking uses vast amounts of water, with it estimated that the average North American well consumes between 1.5 million to 16 million gallons of water over its life. That water is typically sourced from groundwater and surface water resources. The chemicals used as part of hydraulic fracturing are harmful and often carcinogenic making their safe disposal a precarious activity. That toxic nature of the chemicals used for fracking means that those vast volumes of water utilized as a crucial part of the process is hazardous to dispose of and poses a significant risk to the environment. For this reason, wastewater from fracking is typically stored deep underground thereby removing it from the freshwater cycle thus impacting local water resources. 

It is those grounds which are responsible for generating considerable hostility to hydraulic fracturing in Colombia, which is the world’s second most biodiverse country after Brazil. A key feature of the resistance to fracking in Colombia are fears among the 40 opposition groups that make up the umbrella organization Alianza Colombia Libre de Fracking (Spanish) that the technique will deplete as well as contaminate freshwater reserves. Those concerns also form the basis of the considerable opposition to fracking from various local community groups. Community groups from the municipality of San Martin in Cesar department, a location rich in shale oil potential, resisted the operation of a fracking project owned by ConocoPhillips. The stiff opposition centered on fears of water resource depletion and pollution by the operation of hydraulic fracturing in the region.

Related: Don’t Expect OPEC+ To Boost Production In June

Significant resistance to fracking also emerged in the municipality of Puerto Wilches where Ecopetrol, with partner ExxonMobil, has two fracking pilots, Kale and Platero. Late last month Kale’s environmental license was approved by National Authority of Environmental Licenses (ANLA – Spanish initials). The Kale project is opposed by an Afro-Colombian community group, known as Afrowilches, who claim that Ecopetrol failed to adequately consult with them as required by Colombia’s law. Drilling at Kale which was scheduled to start during July 2022 is unlikely to go ahead because the First Administrative Court of Barrancabermeja ordered the suspension of the Kale and Platero fracking pilots.

The court found that Ecopetrol had proceeded with the Kale project and the required licenses were granted by government agencies without conducting appropriate consultation with the Afrowilches community as required by Colombian law. The tribunal also suspended the environmental licensing process for the Platero pilot. It is unclear as to exactly how Ecopetrol will proceed with the projects, but Colombia’s national oil company announced it intended to comply with the directions given by the court and work on commencing operations at the pilots. In the wake of the decision there has been a notable uptick in violence and threats against environmental activities in Puerto Wilches. That is a worrying development because Colombia is ranked as the most dangerous country globally for environmental defenders with 65 activists murdered in the violence-riven country during 2020. Any escalation of violence against environmental activists in Colombia will galvanize additional resistance to fracking and accelerate the deterioration of the economically vital petroleum industry’s social license.

Consequently, there are concerns that the decision will prevent the fracking pilots from being developed, essentially spelling the end for fracking in Colombia.

Time is running out for Colombia’s oil industry. Not only does a dearth of proven reserves indicate that production will end in roughly six years, but the leading presidential candidate Senator Gustavo Petro, who is against fracking, plans to end oil exploration in Colombia if elected president in May 2022. That will sharply impact the strife-torn country’s oil dependent economy causing growth to soften and impact government coffers because petroleum is responsible for 3% of gross domestic product, around a fifth of fiscal income and 33% of exports by value.

By Matthew Smith for Oilprice.com

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