- Crude oil is Colombia’s largest export responsible for around a third of the Andean country’s total exports by value.
- Colombia’s lack of proven oil and natural gas reserves, and the absence of large-scale discoveries for two-decades, points to fracking being the only viable means of sustaining its oil industry.
- Colombia’s previous government was in favor of fracking, but the current government is looking to ban the practice altogether.
The controversial hydrocarbon technique hydraulic fracturing, known as fracking, which sparked the U.S. oil boom catapulting that country to become the largest petroleum producer globally, is drawing considerable attention in Latin America. A major fracking boom is underway in the region’s third largest economy, Argentina, which is driving oil and natural gas production to record highs. Mexico is also embracing the controversial hydrocarbon extraction technique to boost economically crucial petroleum output. Fracking is also under consideration in Bolivia, Chile and Uruguay as Latin American economies, hit hard by the 2020 COVID-19 pandemic, struggle to boost growth and government income while reducing soaring poverty. In stark contrast the strife-torn Colombia is seeking to ban fracking with newly appointed leftwing President Gustavo Petro having campaigned on an anti-extractivist platform.
During his electoral campaign Colombia’s first ever leftwing president stated he intended to end contracting for oil exploration and ban fracking in the Andean country. This will sharply impact Colombia’s hydrocarbon dependent economy and potentially cut funding for Petro’s planned programs aimed at alleviating poverty. For over a decade Colombia has punched well-above its weight when it comes to hydrocarbon production. Despite a lack of proven oil reserves, which at the end of 2021 amounted to just over 2 billion barrels sufficient for 7.6 years of production, Colombia is Latin America’s third largest oil producer. The expansion of the oil industry over the last two decades, with annual average petroleum output exceeding one million barrels per day for the first time during 2013, saw petroleum become a key economic driver.
Crude oil is Colombia’s largest export responsible for around a third of the Andean country’s total exports by value. Data from Colombian government statistics agency, DANE, shows the Andean country exported $12.1 billion of crude oil and derivative products for the first seven months of 2022. That represents 35% of all exports, which totaled $34.6 billion, for the period, making petroleum Colombia’s single largest export. The peak oil industry body, the Colombian Petroleum Association, estimated the hydrocarbon sector (Spanish) directly contributed $20 trillion Colombian pesos to government coffers during 2021 which was a considerable increase over the $11.5 trillion generated in 2020 but less than the $26.2 trillion paid during 2019. The industry body believes that amount will rise to over $24 trillion pesos for 2022. Those numbers indicate Colombia’s oil industry is responsible for generating around a fifth of government revenue. That underscores the industry’s importance as a source of fiscal income, especially with the Petro administration planning to hike government spending on social programs in an uncertain economic environment weighed down by runaway inflation and fears of a global recession.
Colombia’s endemic lack of proven oil and natural gas reserves, coupled with an absence of large-scale discoveries for two-decades, points to fracking being the only viable means of sustaining the Andean country’s vital hydrocarbon sector. This is especially the case with Colombia’s proven oil reserves set to expire by around 2030 and sooner if production returns to pre-pandemic levels of around 880,000 barrels per day. Since 2017 Colombia has been facing a natural gas crisis, which forced the country to start importing liquified natural gas in December 2017. That further stresses the need for Bogota to focus on bolstering energy security and expanding hydrocarbon reserves, particularly with proven natural gas reserves of nearly 3.164 trillion cubic feet only capable of sustaining production for eight years.
Fracking has long been seen as a solution to Colombia’s limited proven hydrocarbon reserves. The U.S. EIA estimates Colombia has at least 5.4 billion barrels of technically recoverable shale oil and 20.1 trillion cubic feet of shale gas in the Middle Magdalena and Llanos Basins alone. Colombia’s highest administrative tribunal the Council of State in a July 2022 ruling overturned its moratorium on hydraulic fracturing, established in 2018, and rejected a lawsuit seeking to ban fracking in Colombia. The court found that the rules implemented by the Duque administration, which left office on 7 August 2022 when Petro was inaugurated, for fracking are legal. The decision opened the door for the commencement of commercial fracking operations in Colombia.
Nonetheless, moves are afoot by Petro’s administration to ban fracking in Colombia despite the Council of State of Ruling. The Andean country’s Congress recently held a hearing for Bill 114 of 2022 (Spanish) which seeks to prohibit hydraulic fracturing of the exploitation of unconventional hydrocarbon deposits. The bill is supported by Colombia’s President whose Minister of the Environment and Sustainable Development Susana Muhammad was quoted as stating in local media (Spanish):
“We believe that fracking and unconventional ones are not a path that accelerates the energy transition because it would delay it, has high environmental costs especially in land use, in the use of water and irrigation not known and difficult to know only, as is the impact on the very complex Colombian geology,”
For the bill to proceed it must be debated by a congressional commission and discussed in both chambers before approval and authorization by Colombia’s president.
Rising uncertainty surrounding fracking saw Colombia’s state-controlled energy company Ecopetrol request permission (Spanish) from the industry regulator, the National Hydrocarbons Agency (ANH – Spanish initials), to suspend its two fracking pilots for 90-days. Ecopetrol, which is the operator, partnered with ExxonMobil to develop two fracking projects in the Middle Magdalena Valley, near the municipality of Puerto Wilches, known as Kale and Platero. The pilots are attracting substantial opposition from the local community, primarily over concerns regarding water contamination. A Barrancabermeja court ruled in the favor of a community organization which sought to end the projects on the basis that Ecopetrol had not consulted with the local community as required by Colombian law. The Administrative Court of Santander later overruled that decision finding the request for prior consultation by the local Afrowilches community was inadmissible. Those events indicate that even if Bill 114 of 2022 is not passed into law considerable opposition to fracking will continue in Colombia, making its introduction fraught with uncertainty, thereby deterring the required investment from energy companies.
By Matthew Smith for Oilprice.com
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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…
Published at Fri, 23 Sep 2022 15:00:00 -0700