- Political instability and growing crime in Colombia is weighing on its already-struggling oil industry.
- Colombia still relies heavily on oil and gas for its own energy security as well as for its contribution to the GDP.
- While dwindling supplies and the potential for an upsurge in conflict are driving away foreign investors, Colombia still has a large amount of proven reserves and ongoing interest from existing investors.
Colombia’s dwindling supplies and failure to attract new foreign investment means its oil industry is unlikely to reach pre-pandemic levels this decade according to Rystad Energy. Despite being Latin America’s third-biggest oil producer, after Brazil and Mexico, Colombia’s oil output has dropped to just 730,000 bpd, falling further from 754,000 bpd in 2020. Its gas industry is faring no better. Output has been declining since 2012 and Colombia now produces just 1.07 Bcf/d. Sofia Forestieri, an upstream analyst, explained the situation, “Colombia is in urgent need of additional investments and exploration success as proven resources have dwindled. It must double these resources in the next decade to continue to be energy self-sufficient. Although its exploration sector stayed dormant in recent years, there is some hope from wildcats following a recent acreage offering.”
Yet, instability and crime in the country continue to drive away investment. While the Colombian government officially came to a peace agreement with the Revolutionary Armed Forces of Colombia (FARC) in 2016, there are now fears that conflict could pick up once again. Throughout 2021, we saw civil unrest across the country, with widespread anti-government demonstrations. In addition, violence has been increasing in certain regions, as illegal armed groups and drug trade prevail in the country. In fact, estimates suggest that the cocaine trade may be contributing the same amount or more the GDP than the oil industry, suggesting that the cocaine business is likely to continue to the detriment of oil.
The instability becomes more of an issue because many of the oil and gas resources in Colombia are located in conflict zones. For example, Catatumbo is thought to have around 17 million barrels of unexplored oil reserves, but access is limited due to the unwillingness to invest in the territory.
In addition to crime driving away investment, now a political candidate is stating his opposition to fossil fuel production. Colombian Senator and presidential front-runner Gustavo Petro is calling on the rest of Latin America to move away from fossil fuels. He announced this month that if he is to become president, he’ll start the phasing out of fossil fuels in a shift to creating a knowledge-based, tourism-driven economy.
This does not necessarily mean an end to oil production, with existing activities continuing for around 12 years. However, he would halt new exploration activities in a shift towards renewable energy development, in a bid to tackle climate change alongside many Western powers. Petro hopes that Chile’s president-elect Gabriel Boric, and Brazil’s Luiz Inacio Lula da Silva will join him in creating an alliance in a movement towards “economies that are decarbonized, productive and based on knowledge.”
However, Colombia still relies heavily on oil and gas for its own energy security as well as for its contribution to the GDP. With 1.82 billion barrels of proven crude reserves registered in 2020 and further untapped reserves, a switch to green would mean a sacrifice.
But that doesn’t mean there isn’t still hope for Colombia’s existing oil operations. In December, it held a bid round which saw Canada’s Parex Resources win bids for 18 areas. Other Canadian energy firms Canacol Energy and Frontera Energy also won bids. State-owned Ecopetrol and its Hocol subsidiary took a piece of the action, bidding on five blocks. This suggests that while foreign investors are not flocking to Colombia, it has maintained its appeal with certain investors. Colombian Energy Minister Diego Mesa stated of the bidding round, “Today we received valid bids for 30 new areas out of the 53 on offer.”
Yet another Canadian firm, Calgary-based Arrow Exploration has its hand in multiple projects in Colombia, with operations in both the Middle Magdalena Valley as well as the Llanos Basin. Arrow is looking to expand its portfolio, pursuing value transformative drilling and tie-in activities, recently boosting production by 1000 bpd through a $1.3 million tie-in project.
CEO of Arrow, Marshall Abbott, stated, “We have multiple, near-term catalysts in a jurisdiction that is extremely supportive of our industry, is under-explored and has existing infrastructure in place.” In addition, “Our portfolio contains both development wells, providing low-risk immediately cash-generative growth opportunities, but also higher risk exploration opportunities, which we look forward to drilling,” he said.
While dwindling supplies and the potential for an upsurge in conflict are driving away foreign investors, Colombia still has a large quantity of proven reserves and ongoing interest from existing investors. Canadian firms are expanding their foothold in Colombia, with several companies picking up new exploration developments across the country. However, in the lead-up to the presidential elections, the front-runner’s pledge to move away from fossil fuels must be taken seriously. While existing operations are expected to continue for over a decade, new exploration activities may be halted should Petro come into power.