Colombia – Oil & Gas Update

29.05.2012 By: Transfer Latin Business Consultancy based on the Economist

By providing insight into the quantity of its natural oil and gas reserves, Colombia became a hot topic worldwide. In 2007 the country proved to have oil reserves of 1.51 billion barrels (0.12 % of the world's reserves) and natural gas reserves of 0.12 trillion cubic meters (0.07% of the world total), which is enough to be considered one of the largest oil and gas deposits in Latin America. In 2011 Colombia’s output of crude oil had nearly doubled, compared to 2005: from 525,000 barrels a day (b/d) to 914,000 b/d. This production makes Colombia the region's fourth-largest oil producer today, after Brazil, Mexico and Venezuela.

The Colombian government rose up to the challenge to explore the market and benefit as much as possible from the production capacity. Here are some facts: by 2020 Colombia wants to achieve an average oil production of approximately 1.4 million barrels a day. Other sources speak of an anticipated compound annual growth rate (CAGR) of 8.2% for the five-year period 2010-2015, which is expected to drive the market to a value of USD 13.4 billion by the end of 2015. But the expectations and speculations keep on growing: oil consumption between 2010 and 2020 is set to increase by 26.8%, and according to the Agencia Nacional de Colombia HIDROCARBUROS (ANH), the proven oil reserves have potential to increase to more than 6 billion barrels in 2020 while production could increase to 1.63 million barrels a day (presumed national consumption 2020: 359,000 b/d).

Gas production on the other hand is expected to rise gradually, from an estimated 11 bcm in 2010 to 15 bcm in 2018-2020. With demand growth of 47%, this implies peak export potential of 3.62 bcm by 2018. The share of gas consumption in 2010 was 4.28%, while the share of manufacturing was 5.42%.

Because oil is currently Colombia's leading export product and main source of foreign income, (about one third), the Colombian government has made the exploration and production of oil and gas a top priority. It applied several investment incentives and measurements over the last few years, designed to promote and attract foreign investment, buttress employment, and increase economic development.

In previous years for example, the governments of Álvaro Uribe (Colombia’s president from 2002 to 2010) started to license large areas of the country for exploration, while offering income tax exemptions for certain promising industrial sectors. Private firms were not longer required to form partnerships with Ecopetrol, the state oil company. Since 2007 the government even started to sell shares in Ecopetrol, allowing it to increase its capital spending fourfold. Other investment incentives in Colombia are the introduction of permanent free trade zones (this allows competitive business opportunities in the local market), single enterprise free trade zones (this allows companies to establish themselves anywhere in the country) and Plan Vallejo (this import-export system allows service-exporting companies to import capital goods with tariff and sales tax (VAT) exemptions). These measurements taken by the government resulted in a foreign investment growth from USD 278 million in 2003 to USD 4.3 billion in 2011, according to the Colombian Central Bank.

Today investments seem to focus on technology innovation in particular, which appears to be offering enormous possibilities to the oil and gas machinery and services market. Applying new technology while restoring old sources for example is very profitable, as proves the well at the Rubiales field. The well, discovered in 1981, has risen from 8,000 b/d in 2007 to 165,000 in 2011 after modern technical intervention. But there are many needs for a financial injection, as mentioned by Ecopetrol’s Executive Downstream Vice President Pedro Rosales: “The production forecasts of recent years have been far exceeded by reality due to the increase in investments in exploration and production in Colombia and a success rate higher than expected.” This increase has necessitated the upgrade of existing pipeline infrastructure as well as the construction of new pipelines to export the oil. The new oil pipeline which will run from the Casanare Department to the port of Coveñas in order to facilitate oil exports from the Llanos region is a good example. But besides the availability of infrastructure, investments are also needed to promote natural gas utilization and attention should be paid to the upstream sector, pipeline, refinery, LNG and storage sectors.

According to the National Hydrocarbons Agency, Ministry of Mines and Energy, Colombian Oil Company and World Atlas, the best products and services for this industry are:
• Seismic activity services (both two and three dimensional)
• Improved analytical seismic computer codes
• Drilling equipment (including directional drilling), and drilling fluids
• Wellhead equipment (such as Christmas trees, valves, compressors, pumps, piping 
   equipment, safety equipment, well completion, casing, and cementing equipment)
• Improved production stimulation
• Enhanced oil recovery for selected fields in which production is dwindling
• Pipeline design and construction services

In order to oversee the market and to maximize potential, an industry platform had to be created. Nowadays several parties, among which corporate investors, governments, senior industry executives and trade organizations, congregate at the Colombia Oil & Gas Summit and Exhibition (Convention Center, Cartagena de Indias), a yearly event that creates a platform for all existing and potential stakeholders wanting to discover new opportunities and to advance market developments.

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