Reinforcement in Colombia’s midstream sector

Where did Cenit direct investments during 2018, and what will the focus be for 2019?
For both 2018 and 2019, our priority is integrity and reliability. Integrity is key because we are subjected to external threats. Number one on that list is security – that means affectations to the infrastructure by third parties. In second place are “geo-threats,” which is the impact of topography – mass movements close to our pipelines that could damage them and consequently, have an impact on the environment.
We also continue working in some of our systems that are obsolete, especially in those stations requiring the replacement of the main equipment in the medium term. A substantial part of 2018 was directed towards increasing reliability and we are, of course, going to repeat this in 2019.
However, for upcoming years, we have a growth vision, within which the priority is to address utilisation at our refineries. In the case of the Cartagena Refinery, we are exploring at least two scenarios. The most conservative one is maintaining the current crude load level of about 150,000 bopd. The second scenario, resulting from the integration of Cartagena’s existing crude plant with the new facility, could reach 200,000 bopd. Cenit has already initiated the necessary engineering studies for both cases.

What is Cenit doing to increase its value to customers?
In the future, we wish to have a bigger role as a logistics operator. This is going beyond the role of owner and operator of our pipelines. We want to offer very efficient options to our system users as well as to the end customers, which are refineries, exporters and distributors of refined products.
For oil producers, it is about reducing total cash costs, specifically by reducing the costs of dilution, knowing that the bulk of our crude oil is heavy. Considering the possibility of higher-viscosity crude oil transportation is imperative. We are already carrying out tests to increase the viscosity in Ocensa up to 700 cSt [centistokes], and up to 1,300 cSt in the case of ODL [Llanos Orientales pipeline]. We are also evaluating the possibility of heating in the pipeline, which would allow us to receive much heavier, viscous crude oil with higher sulphur content.
The other option we are considering is co-dilution, which is replacing the diluent with LPG. We are evaluating in-line dilution solutions in the different stations and not necessarily near the production fields. That would lower the cost of production.
In addition, the company is evaluating the possibility of giving refineries logistics support.

What investment opportunities do you foresee in Colombia’s transport network?
If development of unconventional fields as well as prospective conventional areas in the south of the country – like the Putumayo area – are feasible, this will potentially require the construction of new pipeline sections, for which foreign investment would be more than welcome.
Another potential area for investment is integration of port assets. In Coveñas, as an example, we have the possibility of integrating the individual efforts of operators and companies that own assets in that area. These companies are Ocensa [Oleoducto Central], ODC [Oleoducto de Colombia], Cenit and Bicentenario. I am confident that through asset and operator integration, all companies will generate additional value to their shareholders. The next tasks will include design of the roadmap and agreement of the companies to move ahead with integration by 2020.
We will look for other investment opportunities in the Santa Marta, Buenaventura and Tumaco ports.

Is the company considering bidirectional flow projects in the transport network?
If we look at projected fuel demand, we observe growth for upcoming years at a rate fluctuating between 2.5% and 4%. The entry point we have for fuels today is the Galán system, which presents an inconvenience: It is also the access point for the naphtha used as diluent. We plan to find a reception point for naphtha other than Galán.
We are looking at the Coveñas node, which would imply reversing one of the pipelines that today goes from Galán to Ayacucho, and finally to Coveñas. If we reverse it, we will need to make certain investments to increase pumping capacity and improve the pipeline’s integrity. Our plan is to implement this reversion in 2020.
This decision depends on the engineering progress and whether we can ensure an exit for the products currently sent along the existing route, which include heavy products coming from the Barrancabermeja Refinery. We are now evaluating what other evacuation system we could use to make this reversion.

Is more multi-product infrastructure required in Colombia?
The industry is discussing multi-product pipeline projects, for which the clear necessity of having reliability and strategic storage options is evident, because we want to make sure we can react in ports and large centres in case of a major incident.
Fuel storage capacity in Colombia today is at three and a half days, and the regulator would like to expand it to five to 20 days. This would require an increase in the country’s strategic storage capacity. The UPME [Energy Mining Planning Unit] is very interested in creating the regulatory environment so that these activities are properly remunerated and executed allowing private investment.
This is an opportunity to generate competition, letting new actors enter. Cenit is ready to compete. We have competitive advantages, since we already have a presence in the ports and we own the multi-product pipelines. We will make use of these competitive advantages, but we think it would be positive to allow new actors to enter this market.

What is being done to ensure security across Colombia’s transport network?
The priority regarding this issue is to have a joint approach with the government. Our priority as a company is to have the Caño Limón and Transandino pipeline systems operating continuously, all year long, but this requires a huge effort and a combined strategy of reducing violence and attacks with the help of military forces and other governmental authorities.

What aspects must Cenit consider regarding the products it transports?
Our priority with the current production level is supplying the refineries, and those are designed to handle certain types of crude oil. Thanks to its conversion factor, the Cartagena Refinery can handle heavy crude oil. Barrancabermeja requires lighter crudes. The key is to be able to continuously deliver the expected crude quality to both refineries.
There is another issue, which involves the blends that are exported. The priority for Cenit is to have a high-quality Castilla product that is well received by the markets and suffers very few alterations during delivery. Also, Cenit will need to integrate efforts with shippers and clients to ensure quality of other products such as Vasconia, Magdalena and other blends.
As a logistics operator, Cenit is considering the possibility of blending at the delivery point or port, which is Coveñas, where we have tanks and systems for blending. We could blend the products there, which would allow us to guarantee the delivery of a quality product with high market value.

Can Colombia’s multi-modal transportation system be used to increase efficiency in the oil and gas industry?
If we look at the Cartagena node, we have access to the Magdalena River through the Canal del Dique. Thus, the issue of navigability through the Canal del Dique and the Magdalena River is crucial. This requires investments that are not necessarily carried out by the midstream sector, because this is a channel and a fluvial system used by the country to move a variety of products, and we are just one more actor.
Those investments are truly necessary. We need to find a point of connection on land – be it through railways, a pipeline or tanker trucks – to take the product to the centre of the country and, in this case, to the Barrancabermeja Refinery. We are currently using this system and doing it consistently. We bring imported crude from Cartagena and naphtha to the centre of the country, and through that same route, we bring the fuel oil that is exported through Cartagena.
The railway could be very important in the case of the success of unconventional projects. The demand of inputs such as sands and chemicals can be handled by train. One could also evaluate the possibility of transporting some of the heaviest crude oil by using the railway system.
We have done a trial using the railways for logistics solutions and we did it with pipe transportation. We know what the costs are and how it can reduce transportation times and make movement more efficient. We believe the option of multi-modal transportation is a valid one.

What are the main issues in the midstream sector that should be addressed by regulators?
A key premise in any crude tariff methodology is that safeguards for the investor must exist. This implies not changing the rules. The current methodology should only experience some minor modifications. We need a methodology that does not change throughout time or depend exclusively on the governing administration. Methodologies must be sustainable, so they generate confidence for long-term investments.
As segment leader, Cenit is proposing several small changes. In our talks with the mines and energy ministry, and initially with producers, we have observed that some adjustments could be made to the current methodology. If we consider a pessimistic scenario or a not-so-good scenario in the oil and gas sector, we envision a decline in production. If you look at the current formula for determining tariffs, production is in the denominator of the formula, so when production drops, we have a significant increase in tariffs. We would like to introduce a change in the way volumes are handled.
A second change we are considering is introducing a price or tariff cap. There is a regulated maximum value for tariffs, but depending on the circumstances, we could reach an agreement with producers for more favourable monetary conditions in difficult contexts; a drop-in price, for instance.
Another issue is that today, remuneration is carried out by pipeline section. We want to introduce the concept of a system that involves several sections in one service package. This would also have a positive impact on tariffs.