The importance of oil and gas for Colombia’s prosperity

September 18, 2024

Frank Pearl, president of the Colombian Oil & Gas Association (ACP), talks to The Energy Year about the importance of investment in exploration for the future of Colombia’s oil and gas sector and the measures needed to materialise and advance offshore gas production. ACP is an association representing Colombia’s hydrocarbons sector.

How critical is investment in exploration for the oil and gas sector’s future?
In recent years, oil and gas exploration activity in the country has decreased. In the 2022-2023 period, it fell by 38%. In 2023, 15 wells were drilled, seven fewer than in 2022.
Additionally, the reduction of gas reserves is also concerning. There has been a 50% reduction in the last 15 years. Given the importance of oil and gas for Colombia’s energy security and economy, it is a priority to create regulatory and financial incentives and mechanisms to boost exploration activity where we know we have potential.
It’s important to note that, on average, the time it takes from the signing of an E&P contract until the reserves are commercialised is around six years, so decisive actions need to be taken now to account for the current reserves-to-production ratios, which are around 7.1 years for oil and 6.1 years for gas.
Although we know that the current government has decided not to sign new E&P contracts, it is necessary to remember that the country still has material hydrocarbons potential. Along with the National Hydrocarbons Agency (ANH) and sector companies, we have been working to efficiently materialise the resources identified in the existing contracts.

What measures are needed to advance and materialise offshore gas production?
As of 2023, the volumes discovered in gas provinces in the Colombian Caribbean Sea were around 4.6 tcf [130.2 bcm]. Total recoverable gas resources in this region amount to up to 75-100 tcf [2.12-2.83 tcm], which is equivalent to 37 times the country’s proven natural gas reserves.
In 2022, three wells were drilled in this region, and in 2024, three new wells were forecast – Sirius-2, Buena Suerte 1 and Komodo 1. All of these are in the north Caribbean. These activities represent an investment of more than USD 500 million.
To enable, facilitate and accelerate offshore gas projects, several necessary regulatory, commercial, operational and infrastructural measures are needed. First, an optimisation of the current contractual terms and market regulated mechanisms is required to meet the specific and unique offshore production conditions. The CREG [Commission for Energy and Gas Regulation] is in charge of addressing those needs.
Secondly, gas transportation infrastructure is key to enable the projects, as the gas will ultimately be taken to demand centres. Having sufficient and available gas pipelines to allow efficient transportation of gas between local markets is critical for the development of these ventures.
Moreover, technical regulations from some key entities, such as DIMAR [Colombian Maritime Authority], the ANH and MADS [Ministry of Environment and Sustainable Development], among others, must be aligned and adjusted to the special characteristics of offshore operations (giving priority to matters such as the technical regulation of production, environmental licences required to operate and the handling of water-related environmental requirements).
These operations must also coexist with marine infrastructure already in place.
Lastly, a co-ordinated effort from all the government bodies involved is crucial for timely and congruent decisions, as established by the Projects of Strategic National Interest public policy.

In what ways is natural gas acting as a hinge for Colombia’s energy transition?
Natural gas is key for the energy transition, as it helps to satisfy the growing energy demand in a sustainable way while also reducing greenhouse gas emissions. Gas can also be used in all sectors of the economy, especially in the residential and productive ones. It can be used for power generation in a flexible and reliable way (and as a needed backup for power generated by renewable sources of energy).
Gas is critical in producing heat for important industrial processes. It also brings energy to most Colombian households to, for example, satisfy cooking needs, and is critical for sustainable transportation. For example, we see autogas is gaining traction in the automobile industry.
In Colombia, the main areas of gas production are found in the departments of Casanare, La Guajira and Córdoba. The country’s natural gas network covers 80% of households – this includes 11 million households, and 60% of these are low-income and vulnerable. Natural gas is important and will become increasingly so, which presents an opportunity to strengthen supply while improving people’s wellbeing.

 

How important is local content and know-how for the development of oil-rich regions?
The oil and gas industry in Colombia distinguishes itself by a strong value chain that has a huge impact on regional economies, enhancing the business fabric of the nation. Local services and labour are fundamental in a country such as Colombia and are intrinsically linked with the reduction of the social conflict that still exists in some regions.
Throughout the entire value chain, companies favour the hiring of local labour and local contractors and subcontractors, if they meet certain technical conditions.
Moreover, the industry is strongly committed to the development of local capacities, the creation of jobs, the training and development of personnel, the promotion of social mobility, and knowledge and technological transfer. All of these are key for the advancement and sustainability of the industry and the hydrocarbons production regions.
As an association, our work is not only focused on incentivising investment in the energy sector, making its operations viable and contributing to the strategies that shape the country’s energy security. Another important role we have is to incentivise regional sustainable development and to contribute to the wellbeing of their people via strategic partnerships and projects.
In addition to this, it is important to highlight the impact the sector has on the economy in terms of the acquisition of goods and services across its entire value chain. On average, the oil and gas industry carries out the purchasing of around COP 34 billion [USD 8.5 million] from the nation’s businesses.
This industry is an engine of development for certain regions of the country and their people – it provides opportunities and employment. Through royalties and taxes obtained from oil and gas activities, as well as from the voluntary investment of the industry’s companies, other employment-intensive sectors can also be financed. We have a medium-term strategy, which is to efficiently use the resources of the oil and gas sector to develop other sectors of the economy.

How can the industry contribute to the advancement of Colombia’s energy transition?
We believe that the energy transition cannot be a leap into the unknown. It must be developed in an orderly and timely manner. The energy transition in Colombia should be designed and carried out considering the special features that this country has regarding its economy, resources, infrastructure, consumption habits, biodiversity, environmental potential, human needs and social inequalities.
The energy transition ought to be tailor-made, Colombian-made. In this quest, the oil and gas industry will play a decisive role in the transition, which must not leave anyone behind. It will be a fair energy transition from which all Colombians benefit.
To this end, it is essential to guarantee oil and gas self-sufficiency and make the most of royalties and other revenues that come from the hydrocarbons sector to develop and support the energy transition. Likewise, we must promote investment in decarbonising operations from our sector while still incentivising an optimal energy mix for the country that takes advantage of our rich petroleum industry.
The oil and gas sector is a fundamental part of this fair energy transition that the government aims to implement. The revenues obtained from this sector could be directed towards preparing Colombia’s producing regions for the transition through projects aimed at materialising energy diversification and regional industrialisation.
Companies in the industry are actively investing in the decarbonisation of their operations, especially in the upstream and midstream sectors but also in the downstream by improving fuel quality, increasing biofuels in the mix and expanding the networks for autogas and EV charging.
Lastly, this industry will be key in contributing to a robust and reliable energy mix, serving as a necessary backup for renewable sources of energy while reducing rates of energy poverty nationwide.

How seriously are industry players adopting principles of technology and sustainability?
All of the companies we represent have the most advanced technologies. These companies have even higher standards than those guiding the Colombian industry. The same goes for sustainability, although it is a principle that is being accepted quite seriously in Colombia.
Our companies are committed to environmental principles such as the reduction of methane emissions and decarbonisation. Around 80% of corporate social investment budgets are voluntary, demonstrating the level of commitment that companies have regarding this issue.
However, there is still a long way to go. The problem of CO2 emissions and subsequent decarbonisation schemes encompass far more key players than the extractive industry. In Colombia, this is especially true, as around 70% of greenhouse gas emissions come from the “agriculture, forestry and other land use” sector. The other 30% comes from sectors such as mining, industry and transportation.
We need to work on supply and demand in a comprehensive manner. The conversation around the energy transition, which is quite distorted and disorganised at present, needs to be put in order and based on thorough analysis.

What are ACP’s short-to-medium-term goals in Colombia?
In the short-to-medium term, ACP has a series of ambitious goals. Firstly, we look to protect and strengthen the energy security of the country and the competitiveness of the sector. Secondly, we want to maximise the social impact of the industry and generate environmental benefits. Thirdly, we seek to help shape the national energy strategy with hydrocarbons playing a key role.
We are working to make sure that the industry has the required conditions to operate and grow and thereby contribute to the socioeconomic development of the country. It is essential to work hand in hand with the government and different energy stakeholders to develop favourable and consistent regulations that benefit all.

Read our latest insights on:

• Colombia