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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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Social Unrest Threatens Oil Operations In Colombia

  • For decades, Colombia’s economically crucial oil industry has been dogged by violence and is responsible for considerable environmental damage in several ecologically sensitive regions.
  • Resentment toward Colombia’s oil industry is prevalent in many rural and indigenous communities.
  • Last week, Local communities blockaded oilfields operated by Emerald Energy a subsidiary of Chinese government-controlled energy company Sinochem.
Colombia

Colombia’s petroleum industry, after decades of rapid growth which saw it become a key driver of the Andean country’s economic miracle, is facing serious headwinds since former guerilla Gustavo Petro became the unitary republic’s first leftwing president. He has made no secret of his commitment to ending Colombia’s reliance on crude oil by ceasing to award new hydrocarbon exploration contracts. This is occurring at a difficult time for the economically crucial industry which is still struggling to recover from the pandemic and is being rocked by frequent violent protests. Those demonstrations, which impact industry operations and production volumes, receive little if any coverage outside of Colombia. They are the result of rising tensions, due to broken promises and environmental incidents, in communities where Colombia’s oil industry operates, notably the vast savannah that forms part of the eastern Andean foothills and Amazon Basin.

For decades, Colombia’s economically crucial oil industry has been dogged by violence and is responsible for considerable environmental damage in many of the country’s ecologically sensitive regions. The hydrocarbon sector has long been seen by leftist guerillas, notably the now demobilized Revolutionary Armed Forces of Colombia (FARC – Spanish initials) and the National Liberation Army (ELN – Spanish initials) as a legitimate target in their struggle against the Colombian state. The petroleum industry became an invaluable source of income for those illegal armed groups as they engaged in campaigns of kidnapping and extortion against industry participants. Long running community opposition to industry operations in many areas where there are petroleum operations has sparked demonstrations, road blockades and oilfield invasions. There are also allegations of collusion between energy companies, elements of Colombia’s defense forces and paramilitary groups to suppress organized labor, environmental defenders and other industry opponents. Related: Barclays Slashes Brent Oil Price Forecast To $92

The underlying element driving community opposition to the petroleum industry is the long history of the national government in Bogota along with industry participants excluding them from the decision-making process for approving new petroleum projects. This includes the right of communities affected by new oil projects to prior consultation and ability to veto certain developments. There are many reasons for this, but the main one is the pressing need for Colombia to significantly boost proven oil reserves and production so that Bogota could reap the tremendous financial rewards offered by petroleum extraction. The pressure to rapidly approve petroleum exploration and development projects was rising because of Colombia’s meagre proven reserves, which at the end of 2021 stood at a mere 2 billion barrels that can only sustain production for another eight years. The desperation to expand Colombia’s proven oil reserves was reaching fever pitch with no major hydrocarbon discoveries for over a decade.

Anti-petroleum industry protests are frequent in Colombia, although they typically receive little coverage outside of the strife-torn South American nation. During 2021, as violent anti-government protests, sparked by Duque’s plans to hike taxes, swept across the Andean country oil companies were forced to shutter wells as demonstrators blockaded roads. This sharply impacted Colombia’s oil production which plunged to 694,000 barrels per day during May 2021 at the peak of the protests. While there have been no major nationwide protests since then, local communities regularly blockade roads and oilfields in eastern and southern Colombia. This has been an especially common problem in the southern departments of Putumayo and Caqueta where at least 39 of the oil contracts awarded by Colombia’s industry regulator the National Hydrocarbon Authority (ANH – Spanish initials) infringe upon indigenous territories.

The latest protests occurred in the southeastern department of Caqueta. Local communities blockaded oilfields operated by Emerald Energy a subsidiary of Chinese government-controlled energy company Sinochem, in the municipality of San Vincente del Caguan, Members of the community set roadblocks and fires near the company’s facilities while threatening to bombard those operations with Molotov cocktails. Colombia’s notoriously brutal anti-riot police, known by their Spanish initials ESMAD, were deployed to protect Emerald Energy’s facilities and break-up the protest. After a violent clash between protestors and police, which left one civilian and a police agent dead, 79 police agents and at least six of Emerald Energy’s workers were captured (Spanish), only to be later released.

The dispute which triggered the violent protests centers around community demands for the construction of a 31 mile, or 50-kilometer road and demands for an annual $1 million payment. In the wake of the violent demonstration, Emerald flagged that it is considering leaving Caqueta after its oilfield and many other facilities were virtually destroyed. According to Francisco Lloreda president of the Colombian Petroleum Association (ACP – Spanish initials) this will see the loss of a $600,000 investment the company was planning to make in local infrastructure. The considerable dissent surrounding Emerald Energy dates back roughly a decade. Communities situated near the driller’s operations as far back as 2017 were expressing concern about the company’s conduct. There have been allegations the Sinochem subsidiary used subterfuge, false promises and even lies to obtain community approval for its oil projects. Nearby communities assert that the company with the assistance of local authorities forcibly entered private land and even coerced affected communities into approving the proposed oilfields that were to be developed. While these claims are unsubstantiated and unproven, they are clearly fueling community anger and opposition to Emerald Energy which erupted as the latest protests. 

These events are fueling anti-government dissent in a volatile region that has long been at the center of Colombia’s decades long civil conflict. The municipality was a stronghold of the Revolutionary Armed Forces of Colombia (FARC - Spanish initials) and the location of peace discussions between the guerilla leadership and Bogota from 1999 to 2002. While the FARC demobilized after a 2016 peace treaty between the guerillas and Bogota was implemented various groups refused to accept the agreement and continue to operate. There are significant concerns that the protest was instigated by dissident FARC groups (Spanish) which are those that did not accept the 2016 peace accord. Colombian Army intelligence recently stated the latest violence was financed by FARC dissidents from the Jorge Briceño' and 'Miller Perdomo' groups. It has yet to be confirmed whether that is the case with many rural and indigenous communities in the region having suffered heavily at the hands of the now defunct FARC and its dissident splinter groups.

The region in Caqueta where Emerald Energy operates, like most parts of remote regional Colombia, suffers from a dearth of basic infrastructure and a weak government presence. There is a long history in Colombia of energy companies committing to building out local infrastructure in the areas where they operate as part of the process of obtaining the required social license. In many cases, promises building out basic infrastructure has been used to incentivize local communities to agree to oil industry operations. There are scores of instances where promised payments have not been made in full and the agreed infrastructure not delivered.

Resentment toward Colombia’s oil industry is prevalent in many rural and indigenous communities, especially where projects have been approved in violation of the residents right to prior consultation. A February 2023 roadblock between (Spanish) Puerto Gaitan and the Rubiales field, Colombia’s most productive oilfield, in Meta Department, cut production by 49,500 barrels per day. Colombia’s national oil company Ecopetrol was forced to reduce output at its 230,000 barrel per day Barrancabermeja refinery by 20,000 barrels per day to 210,000 barrels daily. During January 2023 the ELN threatened oil companies operating in Arauca Department, which has long been a stronghold for the leftist guerillas. This saw SierraCol Energy, which acquired Occidental’s onshore Colombian assets in 2020, and Canadian driller Parex Resources suspend operations. Parex was also forced to shutter assets after a November 2022 attack with explosives on its facilities in the municipality of Tame Arauca.

It is unclear whether Emerald Energy has broken promises to local communities to construct basic infrastructure but clearly the Sinochem subsidiary’s social license has crumbled. This has occurred after a lengthy dispute between the company and various local communities in the areas where it operates in Caqueta which dates back to as early as 2012. The latest protests impacting Emerald Energy are symptomatic of a broader deterioration of the oil industry’s social license in Colombia where there is a long history of animosity among local communities. There will likely be further protests, many of which could flare into violence, as local communities push for their rights to be recognized and rail against ongoing environmental damage and broken promises.

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By Matthew Smith for Oilprice.com

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