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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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Oil Theft Threatens Colombia’s Energy Industry

  • Oil theft has become the latest concern for Colombia’s already struggling oil industry.
  • Cocaine production in Colombia is soaring despite U.S. backed interdiction efforts.
  • Colombia’s unique geographical and geopolitical characteristics facilitate oil theft in the crisis-riven country.
Pipeline colombia

Strife-torn Colombia was sharply impacted by the 2020 pandemic. The Andean nation’s economy contracted 7% while poverty, corruption, lawlessness and violence soared. Those events were indirectly behind a marked increase in the incidence of petroleum theft, which has grown significantly since 2016. Aside from the pandemic there are a wide variety of reasons for rapidly rising oil theft in Colombia. Among the most prominent is gasoline’s crucial role as an ingredient used to manufacture cocaine. The spike in oil theft is occurring at the same time as cocaine production in Colombia is soaring, despite U.S. backed interdiction efforts by Colombia’s national government.  Substantially higher oil prices are also responsible for a significant uptick in petroleum theft worldwide. Ongoing U.S. led crackdowns on narcotics trafficking, along with the stiff sentences imposed on perpetrators, is forcing criminal enterprises to look for other lucrative but less hazardous activities. Rising petroleum theft along with an assortment of other geopolitical headwinds poses a serious threat for Colombia’s oil industry which has yet to recover to pre-pandemic operations. The decades-long U.S.-led war on drugs has done little, if anything, to reduce narcotics trafficking and cocaine production. According to the United Nations Office on Drugs and Crime (UNODC) Colombia’s 2021 cocaine production soared to yet another record high for a third consecutive year. The UNODC report estimated (Spanish) Colombia produced a record 1,400 metric tons of cocaine, which was a worrying 14% greater than 2020. The amount of acreage being used to cultivate coca, the plant whose leaves produce the alkaloid which makes up cocaine hydrochloride, surged by a whopping 43% year over year to 500,000 acres. That occurred regardless of the Duque administration’s efforts to suppress cocaine production, as evidenced by 5,767 cocaine laboratories being destroyed during 2021 compared to 5,226 in 2020.

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Soaring cocaine production is a major reason for the rapid rise in oil theft in Colombia. Gasoline is an important precursor used in the cocaine manufacturing process where it is mixed with coca leaves to extract the alkaloid that eventually becomes cocaine hydrochloride. It takes vast quantities of gasoline, thought to be around 75 gallons, to process the 1,300 pounds of coca leaves needed to produce 2.2 pounds or one kilogram of cocaine paste. Surging cocaine production is causing demand for gasoline to rise exponentially in Colombia at a time when supplies are constrained. Illegal armed groups in Colombia long relied upon smuggled Venezuelan gasoline for use in cocaine production. The near collapse of Venezuela’s oil industry and disintegration of the country’s refining infrastructure has caused that source of supply to dry up. Colombia’s government is focused on combating gasoline smuggling, making it even more difficult for criminal enterprises to obtain the considerable volumes of the fuel required to process coca leaves. There is also the substantial increase in the cost of gasoline to consider. Oil prices have surged since the start of 2022 with the international Brent price up by a staggering 46% to be selling for over $97 per barrel. That is not only placing pressure on the profits that illegal armed groups can generate from manufacturing cocaine but makes it highly lucrative to steal petroleum.

Colombia’s unique geographical and geopolitical characteristics facilitate oil theft in the crisis-riven country. The Andean nation’s mountainous terrain along with a lack of transport infrastructure means pipelines are the only cost-effective means of shipping the oil produced in the strife-torn country to ports, storage and processing facilities. Those pipelines pass through remote regions, many of which are deadly conflict zones where the state’s presence is weak, making them vulnerable to sabotage and the application of the illegal valves used to steal petroleum. A weak Colombian state combined with decades of civil conflict, which has seen armed groups funded by cocaine profits proliferate, further heightens the risk of oil theft in the Andean nation. Then there are the increasingly harsher punishments for narcotics trafficking combined with the U.S. and Colombian governments ramping-up suppression efforts which sees many criminal enterprises looking for lucrative but less hazardous sources of income.

For these reasons oil theft in Colombia is surging and various criminal bands dedicated to the damaging as well as hazardous activity have emerged. A key target is the 220,000 barrel per day Cano Limon pipeline which passes through the Catatumbo region near the border with Venezuela. Catatumbo is Colombia’s second largest coca cultivating area and a dangerous conflict hotspot with many illegal armed groups vying for control of the region’s lucrative illicit economy. These include paramilitary groups, the leftist National Liberation Army (ELN – Spanish initials), FARC dissidents who didn’t accept the 2016 peace deal and remnants of the Popular Liberation Army (EPL – Spanish initials) which demobilized in 1991. Those groups are engaged in coca cultivation, the manufacture of cocaine hydrochloride and various smuggling activities.

Many also are involved in tapping the Cano Limon pipeline with illicit vales to steal oil.

According to data published by Reuters, the volume of petroleum theft Colombia wide between 2016 and 2021 almost doubled. It was estimated that 3,299 barrels of oil per day were stolen during 2021, which is 0.44% of Colombia’s total annual output of 738,000 barrels per day, compared to 1,796 five years earlier. Much of the oil stolen in Colombia is processed in clandestine jungle refineries where it is used to produce a crude form of gasoline called “pategrillo", which is cricket-foot in English, because of its murky green color. That rudimentary gasoline is used to process coca leaves in the production of cocaine paste. Some of that primitive fuel as well as stolen petroleum is smuggled into Venezuela where ramshackle refineries, which run intermittently coupled with a shortage of light oil feedstock, has sparked a chronic shortage of the fuel. Endemic corruption in Venezuela combined with a lack of state control makes it not only easy to smuggle fuels and oil into the floundering OPEC member but also facilitates the sale of those products.

Rising petroleum theft in Colombia comes with immense costs not only for the economically vital oil industry which is foundering in its efforts to return to pre-pandemic production volumes. There are considerable environmental risks with illicit vales associated with oil leaks from Colombia’s pipelines causing considerable damage to sensitive local ecology. That is especially concerning because Colombia is one of the world’s most biodiverse countries. It also drives soaring cocaine production, which is the primary source of revenue for the myriad illegal armed groups operating in Colombia which are responsible for most of the violence occurring in various conflict zones across the country. That violence continues to manifest itself in rising murders as well as massacres in rural Colombia as well as the forced displacement of the civilian population.

By Matthew Smith for Oilprice.com


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