Oil sector, concerned about its future in Colombia

BOGOTÁ (HPD) — Colombia’s announcement that it will not sign new oil and gas exploration contracts, as part of the plans to advance the energy transition in the country, caused uncertainty in the hydrocarbon industry union.

This decision coincides with the promises made since the electoral campaign by President Gustavo Petro —the first leftist in Colombia—, who came to power in August 2022 with the premise that reducing gas and oil consumption is the key to fight against climate change in Colombia. The country produces less than 1% of the greenhouse gas emissions in the world.

In a nation where close to 40% of exports depend on the hydrocarbons sector, there are questions about the plan that seeks to replace them and which, according to the government, would focus on tourism and clean energy.

Last week, during the World Economic Forum in Davos, the Colombian Minister of Mines and Energy, Irene Vélez, announced the government’s decision not to award new oil and gas exploration contracts, while acknowledging that they have the challenge of achieving the energy transition and “survive as a country” by generating other economies on a local scale.

Francisco Lloreda, executive president of the Colombian Petroleum Association (ACP), told The Associated Press that stopping the new contracts would translate into “less production and therefore lower income for the nation, for the regions and a threat to the future.” security and energy sovereignty of the country.

The ACP calculates that the sector contributes 20% of tax revenue to the government and 76% of the royalties —the payment that the oil companies make to the State for exploiting the subsoil— with which local administrations usually pay for numerous projects in education, infrastructure or health.

After the announcement, Petro tried to calm the debate in the country by reaffirming that current hydrocarbon exploration and exploitation contracts will not be suspended and that Colombia has reserves for internal consumption that would reach a period between 2037 and 2042. The country has more than 300 current hydrocarbon exploration and production contracts, according to a government balance.

“It is a biased report,” says the union spokesman, because in his opinion it confuses proven reserves that have a 90% probability of extracting hydrocarbons, with probable ones that reach 50%, possible ones that are only 10% and the resources contingents that were discovered but are not viable. According to his accounts, the proven reserves would last approximately a decade.

Lloreda believes that the current contracts continue like this, the brake on new explorations will affect them and it will be “a matter of time before the industry withers” in Colombia and companies wonder if they continue to invest and what they would do to seek short-term profitability. and medium term.

In addition to stopping new oil and gas exploration contracts, the government is pushing through Congress a bill to ban fracking, a more expensive technique that involves injecting chemical-laced water with high pressure to release oil and gas from deep rocks. Therefore, the state oil company Ecopetrol suspended millionaire contracts that sought to carry out two pilot fracking projects.

In defense of its strategy, Petro has explained that with a “strong” investment in tourism and the export of clean energy they would manage in the short term to “fill the gaps that the fossil energy on which we have depended can leave.”

Leonardo Garavito, a professor of Tourism and Hotel Business Administration at the Externado University, explained to the HPD that although tourism has been growing significantly in Colombia since the 2000s, it would require tourism exports to double, which It would take at least five years with significant public and private investment and without external factors that, like the pandemic, paralyzed the sector in the past.

While in 2021 the hydrocarbon industry contributed 4% of Colombia’s gross domestic product, the participation of tourism was 1.6%, according to official figures.

The Colombian Association of Travel and Tourism Agencies calculates that between January and September 2022 exports for travel and passenger air transport reached 5,263 million dollars. While the ACP ensures that in all of 2022 exports of oil and its derivatives reached 17,710 million dollars.

Regarding clean energy as a source of resources, the president of Ecopetrol, Felipe Bayón, pointed out from Davos that the company already produces green hydrogen and that his plan is that in 20 years renewable energies represent a large part of the income, although he stressed that the country continues to need hydrocarbon funds while leading the energy transition.

Faced with an expectant sector, the Ministry of Mines has said that it will promote dialogue with citizens and businessmen to achieve a “fair energy transition” in the country.

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