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Colombia 2015 | ENERGY & MINING | REVIEW: ENERGY

The country's oil and gas wells are starting to run dry, and the need for new investment and exploration has never been more important for the country to remain a major force in the industry.

Like many oil producing countries, Colombia is faced with an ever-dwindling supply, and a need to secure its energy future. Compared to its neighbors, Colombia has somewhat stagnated in terms of production and reserves. New technologies, such as enhanced oil recovery (EOR), look like the way forward to sustain the life of the country's wells. The government, along with the private sector, is now looking at new ways to create a sustainable economy and dependable electricity grid for the entire population before the wells dry up. However, a spanner in the works could be the current low global prices for a barrel of oil, which in February 2015 averaged at around $54.06; a considerable drop on February 2014's average price of $105.38 per barrel according to OPEC. The low price globally is affecting investment, as international oil companies are a little more cautious about investment, in such a low price environment. A number of projects around the world are beginning to be commercially questioned in terms of viability if the price remains this low for a prolonged period. This also comes at a particularly bad time for Colombia, which needs new investment to explore new oil and gas reserves, or else use EOR to drill into previously commercially unviable reserves. In 2013, Colombia's proven oil reserves stood at 2.38 trillion barrels and if production rates remained the same at a little over 1 million bpd then the country had 6.5 years of reserves left according to BP. When it comes to gas the proven reserves in 2013 were 5.73 tcf; therefore, with production rates at the time 1.22 bcf, the wells had 12.8 years before they were also dry, assuming production rates remain the same. However, production rates for oil and gas nearly doubled between 2004 and 2013 for oil and gas from 528,000 bpd to over 1 million bpd and 0.61 bcf to 1.22 bcf, respectively. With low oil prices and a rising consumption, the likeliness of production rates rising remains high. Hence, the country's need to find new reserves, develop new technology, or diversify the economy away from hydrocarbons if it doesn't want to become a net importer.

ROUNDS

The oil and gas blocks are run by the National Hydrocarbon Agency (ANH), and throughout the years it has opened tenders, the most recent of which was launched in 2014. The Ronda Colombia 2014 had a different tone to those of the past, as there was more exploratory risk involved in the blocks. This is somewhat in line with the state of the Colombian oil and gas sector, in that the rewards are still there, but the risk is rising. In total, 95 blocks were offered, with 26 contracts signed, representing a 27% subscription rate, in the lowest of the previous seven years; however, while the subscription rate was low, the investments of those contracts were among the highest, at $1.4 billion. The most successful round was the Ronda Colombia 2012, when 115 blocks were offered at a 43% subscription rate, which attracted $2.6 billion in investment.

INFRASTRUCTURE

As new investment flows into the country, much of this is being spent on upgrading infrastructure to increase the value of oil-based products. With low oil prices, any increase in value will be welcome; hence, the expansion of the Cartagena Refinery. The $6.5 billion expansion will increase the refining capacity of the plant to 165,000 bpd from its 80,000 bpd with a conversion factor of 95% of refined products. As of March 31, 2014, the modernization project was 88.9% complete and expected to reach fruition in 1Q2015 according to state-owned Ecopetrol. Another important project by Ecopetrol is the construction of a new refinery in the province of Meta. The $1.5 billion scheme will have a capacity of 40,000 bpd with construction set to begin in 1Q2015, and should be completed before year end. The refinery will supply the region with fuel as well as diluent to Ecopetrol for the transportation of heavy crudes by pipeline. Ecopetrol will supply the refinery; however, volumes have yet to be agreed upon. As the country looks to expand its refining capacity, it is also looking to expand its export and import capacity through the expansion of its ports. Puerto Bahía was inaugurated in 2014 after a $600 million construction project. The port will compliment Coveñas Port and Caribbean operations in the export of crude oil as well as the import of naphtha diluent, which is required for heavy oil transportation.
Colombia is also looking into developing its pipelines to help reduce the cost and improve the efficiency of oil transportation. The Pacific Pipeline (OAP) is one such project currently under examination. The pipeline would run from Llanos 750km west to a terminal near the port of Buenaventura. The initial capacity would be 250,000 bpd of heavy crude with a possibility to expand it 400,000 bpd if necessary. OAP will be designed using the latest technology to transport heavy crude up to 15°API, which would minimize the need for diluents. Another project currently under consideration is an expansion of the Bicentenario Pipeline. The first phase of the pipeline is already operational and transports 110,000 bpd. Phases II and III are planned for completion toward the end of 2015, or the start of 2016 and will take the pipeline capacity up to 450,000 bpd. Once complete, the $4.2 billion pipeline will move heavy crude with an 18°API produced in the Llanos foothills down to the lowlands of Casanre. It is also likely that two large storage tanks, with a capacity of 600,000 barrels each, will be built in Covenas. Any expansion of the line will depend on the completion of Phases II and III, as well as the state of the country's reserves and production. Still, there are large areas of Colombia's territory that remain relatively unexplored, especially offshore. While the environment is not entirely forgiving in deepwater, the reward could be worth it. There is currently only one offshore drilling platform in Colombian waters, operating in one of the country's largest gas reserves. While offshore is more complex and presents more issues than conventional onshore operations, early predictions suggest that reserves in deepwater could increase the country's oil reserves six fold and triple its gas reserves. Over the past decade, 23 offshore areas have been tendered, with 19 still active. During the last round of tenders of Ronda 2014, five out the 13 potential offshore operations were awarded. The main companies pushing for more offshore exploration are Ecopetrol, Petrobras, Repsol, Shell, Anadarko, and Statoil. Ecopetrol especially has set out to explore the deep. In April 2015, it announced to the press, having suffered a 42.7% drop in profits in 2014, that it was shifting its focus to offshore exploration to mitigate falling oil prices. In addition, the company stated that it would not be renewing Pacific Rubiales' lease on Campo Rubiales, a possible indication of Ecopetrol's intentions to take over the field at the end of the lease.

ELECTRICITY

Like many countries in South and Central America, Colombia is blessed with many powerful rivers. According to the World Bank, in 2013 over 70% of the country's electricity came from hydropower, while 26% came from natural gas, 3% from coal, and 1% from wind and other sources. Nonetheless, hydropower in Colombia is largely untapped even though it generates the bulk of electricity. Hydropower currently generates 9GW of electricity, which is less than 10% of the country's total potential of 93GW. The total potential for hydropower could meet national demand seven times over. However, a number of areas that could support dams in Colombia have already been developed, meaning the social and environmental cost of building a dam could far outweigh the benefits. Set to be the largest dam in the country, the Ituango Hydroelectric Power Project is, however, looking to tap the potential of water. Currently under construction, Phase I of the dam should be completed by 2018, while Phase II should be finished in 2022. Built on the banks of the Cauca River, it will generate 2,400MW of electricity and account for 13% of Colombia's total installed capacity. The project will cost $5.51 billion and will generate 8,000 direct and 24,000 indirect jobs during its construction. Also largely untapped as a source of electricity in Colombia is wind. Another renewable blessing for the country comes at the Guajira Peninsula on the north eastern tip of the country, which alone has the potential to generate 21GW of power—this is enough to power the country twice over. However, the current installed wind capacity on the Peninsula is a mere 19.5MW, accounting for only 0.4% of its potential. Both hydro and wind showcase the huge potential Colombia has to produce 100% green electricity. All that is need now is the investment and effort to harness that power.

Carlos Rojas
CARLOS ROJAS
President, Produced Water EcoServices (PWES)
In the past, mining companies discharged their water residue into rivers. Yet as environmental regulations have become more stringent, authorities have limited this practice. Neighboring communities are clearly opposed to the dumping of residual water into the rivers use, whereby most countries aim for zero liquid discharge, with Colombia being no exception. PWES offers an efficient alternative disposal method of re-injecting water into the ground. This method makes sense under certain circumstances, particularly when there is a central production facility handling a high volume of water per day.
Felipe Zárate Gutiérrez
FELIPE ZÁRATE GUTIÉRREZ
Director, FCP Innovación SP
Colombia is one of the most energy-advanced environments in Latin America due to the tariff and regulatory frameworks in place, as well as to the manner in which the large corporations have managed their infrastructures. In terms of waste management, an average of 80% of the waste in major urban areas goes into landfills. We want to reverse the ratio—only 20% should go into landfills. The capacity to transform 80% of any major city´s waste relies on advanced technologies.