Colombia on the brink of oil decline due to Petro's policies

Colombia is facing the reduction of its hydrocarbon production without being able to meet its energy needs in the short and medium term with the renewable energies of which President Gustavo Petro wants to be the champion. The decision already in place not to grant any more licenses for hydrocarbon exploration will mark a decline in the oil and gas sector: oil production is expected to fall in 2024, while gas production already fell by 7.8% in 2023.

While awaiting the details of the Just Energy Transition(TEJ) Roadmap promoted by President Gustavo Petro, whose implementation has been delayed for almost a year, calculations on the future of Colombia's energy sovereignty are already being affected by the decision of fail the signature of coal, gas and oil exploration contracts. The very existence of this suspension, which applies from January 2023, has been the subject of intense internal discussion between the Ministry of Finance and the Ministry of Mines and Energy. It was confirmed by the Colombian President at the United Nations Climate Change Summit held last December in Dubai (COP 28).

"Colombia has decided not to sign any more exploration contracts in coal and oil and gas," Petro said, in his commitment to reduce greenhouse emissions by 51% by 2030. He specified that the country will continue producing hydrocarbons, because both current exploitation contracts and exploration contracts signed so far continue, but there will be no expansion of new operations. "From these current exploration contracts, there may be more oil and more exploitable coal, but the fact that the political decision is not to sign new contracts means that we have set a time limit," he added. 

Although Petro left open the possibility that the current licenses could temporarily lead to an increase in hydrocarbon production, the truth is that the decline has already begun, before a greater development of renewable energies allows the substitution of some sources for others.

In Colombia, 74% of primary energy consumption is dominated by hydrocarbons (31% oil, 28% natural gas and 15% coal), while renewable energy accounts for 25% (22% hydroelectric energy, 3% other renewable sources), according to data 2020. The opposite occurs in the electricity mix, with 75% of electricity production generated in 2021 from renewable sources (basically from reservoirs and dams).

This last figure suggests that Colombia is within reach of approaching 100% green electricity generation if the government intensifies its energy transition drive. However, given the low use of electric motors in transportation and the low electrification of other sectors, what the country can advance in wind and solar generation will hardly cover the demands of industry and mobility.

It is true that oil production (760,000 barrels per day in 2021) far exceeds domestic consumption (328,000). Therefore, a lower extraction would not affect the country's supply in the medium or even long term, although it would significantly affect the income Colombia obtains from these sales (the sector is 60% dominated by the state-owned Ecopetrol). The deficit, on the other hand, is already a reality in terms of gas, with growing consumption, which in 2020 was 21.5% higher than production.

According to agreement with the Ministry of Commerce, Industry and Tourism, in 2022 oil exports constituted 32.4% of the country's total exports. In 2021, oil revenues would make up 3.4% of GDP and coal revenues 0.7%. The fall in these sales would mean losses for Colombia that the association Colombiana de Petróleo y Gas de Colombia estimates at 18 billion pesos (US$4.59 million) for the period 2022-2026 in fiscal contributions and would amount to 104 billion pesos in 2032 (US$26.5 million).

Petro has decided to promote renewable energies while imposing a contraction of hydrocarbons (perhaps he could have limited it to coal), unlike the line followed by Lula da Silva in Brazil, who with one hand also flies the flag of environmentalism, but with the other rocks the national oil company, Petrobras, seeking the expansion of its business.

The unidirectional path of the Colombian president has fueled the political and social discussion in the country. There are questions that have put special pressure on the government, resulting in a change of leadership at the Ministry of Mines and Energy, where Irene Vélez was replaced in mid 2023 by Andrés Camacho.

Oil and gas

According to agreement with the National Hydrocarbons Agency (ANH), Colombia had proven crude oil reserves of 2,074 million barrels in December 2022, which would allow maintaining the current production level for 7.5 years; in the case of gas, the term would be 7.2 years.

In 2023, natural gas production was 1,546 million cubic feet per day (mpcd), down 7.87% from the previous year. That forced an increase in gas imports, which reached 88.9 mpcd from average annually (imports accelerated in the last months of 2023, with a peak of 278.5 mpcd in December).

As for oil, production increased by 3% in 2023, reaching 777,016 barrels per day, but from then on, according to estimates by the International Energy Agency (IEA), the production result will decrease. This agency foresees a progressive decrease in Colombian production, which in 2028 could have dropped to 620,000 barrels per day (a 20.5% drop in five years). In its report IEA bases its analysis on the fact that the new Colombian government "has changed direction and has stopped licenses for new exploration".

The analysis is a consequence of examining the evolution of well drilling. Exploratory activity clearly declined throughout 2023, with a issue downward trend in new wells, resulting in a cumulative of 41 wells in September (last data available) compared to 59 in the same month of the previous year.

The same trend can be observed in the drilling of wells on development: 454 accumulated in September 2023, compared to 491 in September 2022. This trend is even more pronounced in the drilling activity, where there has been a loss of 19,500 jobs (about 3,000 direct and 16,500 indirect) in the last year.

The decision taken by the Government, if not reversed by a new administration, would mean that in 2032 there will be no more exploratory wells. At the beginning of 2023 there were 118 contracts to start exploration and the last ones expire in eight years (although the exploratory phase can be extended for 18 months and even, in extraordinary cases, for 2 years). The prospect that the Government would not accept any more licenses has led to accelerate some of the already authorized explorations. Among the discoveries is the finding made by Ecopetrol, together with Petrobras, of a gas accumulation in deep waters, 32 kilometers off the Atlantic coast, although the Government is against 'off-shore' fields.

Although Ecopetrol, 88.49% state-owned, has gone so far as to say that Colombia could approach a crude oil production of one million barrels per day, the outlook is in the opposite direction, as the IEA's report points out. This excessive optimism could be interpreted as a desire to influence foreign investment, which will undoubtedly become disinterested in Colombia in the face of a declining sector.

Renewables

The energy transition in Colombia has a good starting position. The country has 69% of the installed electrical capacity and 75% of the electricity generated comes from renewable energies (93% of the capacity is hydroelectric). These percentages have changed little in recent years, because although an effort has been made to extend resource to renewables, the use of other sources has also increased. Renewable capacity reached 13,469 MW in 2022, while production was 63,145 GWh in 2021, the last year analyzed in the report of the International Renewable Energy Agency (IRENA).

Petro's transition plan includes, among other measures, the Withdrawal to the use of the 'fracking' technique (although there were projects, it has not been used in Colombia); the cancellation of open-pit mining; the end of exploration and 'off-shore' exploitation; the elimination of the exemption taxation of companies engaged in fossil fuel industries, and the increase of coal exports (reduction of domestic consumption and sale abroad of the product that is still being extracted).

The political orientation of the Government of the Historical Pact also introduces social components into the plan. One example is the special attention to transition measures in La Guajira. On the one hand, this department produces 22% of the coal extracted in the country (only behind the neighboring department of Cesar, which accumulates 70%); on the other hand, due to its climate with strong winds, it offers opportunities for the development of renewable energies.

The case has a certain social complexity due to the large presence of particularly impoverished indigenous communities. However, although in principle the promotion of these communities is sought, their representatives have presented obstacles because they believe that their traditions will not be respected and their needs will not be met at employment. Other unique Departments are those of goal, where 55% of the oil is produced, and Casanere, with 64% of the gas production.