Politics, Business & Culture in the Americas

Colombian Oil: Scraping the Bottom of the Barrel

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With production rates continuing at their current level Colombia will run out of oil within 6.9 years unless new, major oil fields are found. As of 2013, the country had 2.3 billion barrels of proven crude oil reserves, ranking fifth after Venezuela, Brazil, Ecuador, and Argentina in total reserves in South America.

Most of these reserves are allocated to the export market, which is currently the fourth most significant in Latin America. Export growth has been nothing short of staggering in the last nine years and since 2004 Colombia has fed its oil exports by increasing production by 79 percent (equivalent to 400 thousand barrels per day).

This year’s target is 1.2 million barrels per day and will again predominately feed into the export market–a fact supported by the production-to-(national) consumption ratio published by The Oil & Gas Journal last year, which indicates that for every 3.31 barrels produced, only one stays in Colombia.

Unlike Venezuela—which, even at a production rate of 2.7 million barrels per day, has enough oil to last for more than 250 years, according to the June 2013 BP Statistical Review of World Energy – Colombia’s current level of export surplus means that its oil wells will run dry in only six years. If daily production increases to the target of 1.2 million barrels with current reserves—as predicted by Ecopetrol, the largest oil company in Colombia—then six years will be more like five and half. Furthermore, the Colombian government’s mining and energy planning unit, the Unidad de Planeamiento Minero Energético (Mining Energy Planning Unit—UPME), states that Colombia will be a net oil importer within two election campaigns.

Another issue is that the lower-quality, heavy crude oil produced in Colombia—as well as in neighboring Ecuador and Venezuela—has a high sulfur content and tends to command lower prices on the international market than the light crudes produced elsewhere. The lower-quality oil requires further processing at special refineries, and the distinct lack of them in Colombia explains why, despite the country’s current status as net oil exporter, the Colombian consumer pays arguably more than other consumers at the pump. According to Bloomberg, the third quarter 2013 price for a gallon of gas, relative to daily average wage, was higher for the average Colombian than for their Argentine, Brazilian, Chilean, Mexican, or U.S. counterparts.

As Colombia does not have the capacity to refine large amounts of oil, a significant amount of oil gets imported and carries a more expensive price tag. Diesel fuel, especially, has a high sulfur content that needs heavy refining and thus to be imported to satisfy home-based demand. In fact, refined oil-derived products topped Colombia’s import list in 2012—as did private transport vehicles—which just goes to show how important a fueled car is to the average Colombian household.

Given Colombia’s dependency on cars and oil, dry wells will undoubtedly have a tremendous ripple effect on Colombian society, the economy and business by 2020. Oil depletion will also, likely result in a political backlash, given that politicians have allowed state-run oil and gas companies, such as Ecopetrol, to keep digging for oil. Eight years ago, Colombia did not drill more than 20 wells per year; but in 2013 this figure had already almost increased fivefold to 115 wells.

Some may say that at least Colombia has royalties to fall back on that the government can use to stimulate and re-grow an economy exhausted by the absence of oil. But royalties are, for many, little more than a pipe dream.

There are also discussions regarding the development of a legal framework for the use of non-conventional fuels such as shale oil and gas. However, current studies suggest that there are only seven years left of such resources.

With all the known controversies regarding such non-conventional fuels, including environmental damage and detrimental health effects, not to mention the counter effect on coal sales and export, it is difficult to see how any perceived benefits could possibly outweigh the negatives.

The Colombian government, instead of betting the country’s future on shale oil or gas—especially if most of it (as is the case with conventional fuels) is exported to strengthen the economies of developed nations—must focus on designing and operating a sustainable policy framework for the hydrocarbon sector, which will support long term economic growth at minimal social and environmental cost.

Tags: Colombia, Energy Resources, oil
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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
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