DIGGING DEEP
Colombia's energy industry is investing heavily in exploration to find new production sites to meet the country's energy needs.
Colombia's energy industry entered 2018 in a moment of uncertainty. Long the nation's primary source of export revenue, a combination of domestic and international occurrences have dramatically changed the environment in which the energy industry operates. The country's reserves have fallen from 2.3 billion barrels as of 2014 down to 1.6 billion barrels as of the end of 2017—just seven years' worth of production. While the end of the conflict with FARC has eased domestic strife and created a more welcoming business environment, foreign investors are still wary due to frequent local challenges to new drilling operations. And the wider economic climate for oil has worsened at a time when Colombia can ill afford it; the recent fall in oil prices cut into government revenues, limiting the sector's ability to invest in exploration at the moment it needed it most.
Yet despite all of this, 2017 showed some glimmers of hope. State-owned Ecopetrol made some needed discoveries, and the government is working with private firms to increase exploratory activities and natural gas operations to help generate new revenue streams and give Colombia the boost it needs to build the future of its energy industry.
Colombia's crude oil production reached an average of 854,121bpd in 2017, down from the highs of 1 million bpd that it reached in 2013 but, promisingly, above the government's projections of 840,000bpd. December 2017 saw oil production reach over 870,000bpd, up 3.9% over the previous year. Due to continued low oil prices, however, the share of government revenues from oil has fallen steadily from 3.3% of GDP in 2013 to 1.2% in 2015 and almost 0 in 2017. Likewise, oil export earnings, once equal to more than half of Colombia's export income, have fallen to under one-third, putting significant stress on the country's fiscal position. Government deficits rose to 3.6% of GDP in 2017, and the 2018 budget is projected to produce a deficit of 3.1%.
The leading participant in the Colombian oil sector is Ecopetrol, which is majority owned by the state. Selling off part of the company to private investors helped Ecopetrol double production from 2007 to 2014 and become one of the region's most successful oil firms, with investments in several other Latin American companies. Production and revenue stagnated as oil prices fell, but 2017 brought a stronger performance. Ecopetrol reported a net profit of COP6.6 trillion in 2017, a four-year high. The company also saw an important new source of downstream income in its refinery units. Ecopetrol completed an expansion of its Refica refinery in Cartagena in 2016 that allowed the unit to produce high-octane gasoline. Originally planed to cost USD4 billion, the expansion ended up costing twice that number, but with processing capacity of 154,000bpd, it represents a major step forward for Ecopetrol's capabilities. Ecopetrol leaders believe that the refinery will lessen the country's dependence on imports while eventually generating fuel for export, offering a new source of income and increasing profitability.
Ecopetrol's focus for the near future is on implementing a new strategy centered on exploration, international expansion, and operational efficiency. In 2017 the company won auctions for exploratory blocks in Mexico and the US, broadening its portfolio and giving it new options for future production activities. Within Colombia, the company has been aggressive in drilling new exploratory wells and using new seismic and recovery technologies to analyze potential sites. This work paid off with four discoveries in 2017, including a joint discovery with Canadian firm Parex in Santander province. Ecopetrol has announced plans to invest between USD3.5 billion and USD4 billion on exploration and production expansion projects. In early 2018, the Colombian government took the first step toward opening a new market for Ecopetrol by allowing it to incorporate its own electric power subsidiary. The long-term plan is for Ecopetrol to generate and trade its own electricity; while this is still a ways off, its entry in the power sector is a natural expansion of its previous hydrocarbon operations.
To help increase the development of the sector, Colombia is planning to offer up to 15 oil blocks in mid-2018. This is part of a larger strategy that will see the National Hydrocarbons Agency (ANH), the sector's regulatory body, begin to offer blocks with greater frequency to increase private investment and boost production. The 2018 offering will be the first in four years and will include both onshore and offshore projects. Firms expected to submit offers include Colombian Hocol, US Noble Energy, and China National Offshore Oil Corporation subsidiary Nexen Petroleum. While this new bidding process should go a long way toward increasing interest in the sector, many foreign investors are still wary of investing in Colombia due to logistical difficulties and opposition from local residents. Colombia's referendums system allows for communities to block oil development for environmental reasons. Though conflict has largely calmed down from its peak, energy companies still have to deal with armed rebels damaging pipelines; one key Ecopetrol pipeline has been out of commission for a combined total of more than 10 years due to bombings that began in 1986.
Colombia also has proven natural gas reserves of almost 4.8 trillion cubic feet. Ecopetrol is the primary producer in the market, which has seen output rise enough to begin exporting in 2011 but more recently has begun importing LNG to meet expected supply deficits. Natural gas production averaged 908.7 million cbft per day in 2017, with this rising in December to 927.1 million cbft per day on average, up 6% YoY. Industry leaders have hopes to increase production enough to meet domestic demand, but inadequate pipeline volume and a lack of new discoveries stand in the way of this goal. Ecopetrol's exploration projects have found some promising sites for future gas production, but development of these sites is still a while away. Colombia has also begun to debate the merits of hydraulic fracking to extract natural gas from shale fields, but resistance from communities concerned about the environmental impacts of such practices means that Colombia will likely only begin the practice after exhausting all other means of production.
DIGGING DEEP
TABLE OF CONTENTS
Guest Speaker
François-Philippe Champagne, Minister of International Trade, Canada
TBY talks to François-Philippe Champagne, Minister of International Trade of Canada, on making globalization work for all Colombians and Canadians, supporting the environment and mutually progressive causes, and increasing technological and educational ties.
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Juan Gabriel Pérez, Executive Director, Invest in Bogotá
TBY talks to Juan Gabriel Pérez, Executive Director of Invest in Bogotá, on rounding a turning point, the opportunities for foreign investment in infrastructural PPPs, and finding the perfect investors for adding value on a local scale.
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Patricia Tovar, Executive Director, Colombian British Chamber of Commerce (Britcham)
TBY talks to Patricia Tovar, Executive Director of Colombian British Chamber of Commerce (Britcham), on finding new strategies in trying times, supporting Colombians investing in the UK, and the rising importance of ecotourism.
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Orlando Velandia Sepúlveda, President, Agencia Nacional de Hidrocarburos (ANH)
TBY talks to Orlando Velandia Sepúlveda, President of Agencia Nacional de Hidrocarburos (ANH), on Tax Refund Certificates, developing pedagogical programs, and the Territorial Strategy of Hydrocarbons.
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Diego León Vélez Velásquez, General Manager, Ingeniería y Gestión Administrativa (IGGA)
TBY talks to Diego León Vélez Velásquez, General Manager of Ingeniería y Gestión Administrativa (IGGA), on predial management, virtual technical file, and working with different economic models.
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Iván Herrera, Vice President , Business Solutions and Government of Huawei Colombia
TBY talks to Iván Herrera, Vice President of Business Solutions and Government of Huawei Colombia, and Cao Wei, Country Manager of Consumer Business Group of Huawei Colombia, on their growth plans for the country.
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Carlos Alberto García Montes, General Director, National Institute of Roads (INVIAS)
TBY talks to Carlos Alberto García Montes, General Director of the National Institute of Roads (INVIAS), on developing Colombia's road networks, linking intermodal transport, and establishing private partnerships.
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María del Carmen Araujo Grijalva, Executive President, Hidalgo e Hidalgo (HeH) Colombia
TBY talks to María del Carmen Araujo Grijalva, Executive President of Hidalgo e Hidalgo (HeH) Colombia, on contributing to productivity and growth in Colombia, working closely with local communities, and areas of opportunity.
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Santiago José Castro Agudelo, Rector, Universidad La Gran Colombia
TBY talks to Santiago José Castro Agudelo, Rector of Universidad La Gran Colombia, on providing first-rate affordable education, constantly innovating whilst remaining true to one's values, and changing Colombia's risk-adverse culture.
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Andres Hernandez, General Manager, Mareauto Colombia S.A.S,
TBY talks to Andres Hernandez, General Manager of Mareauto Colombia S.A.S, AVIS Colombia, on outgrowing the market by legions, providing customers with an unforgettable experience, and offering a timeless premium service.
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City of Gold
Colombia's regulatory policies are generally regarded as welcoming to foreign investment, as seen by the World Bank's 2018 Doing Business report, which ranked the country's business environment 59th globally. Chief among the country's appeal to foreign investors are its stable political and economic system, rich natural resources, and geographically important location at the crossroads of two oceans and continents.
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