Offshore exploration benefits natural gas exports in Colombia

 

In November 2016 Colombia received its first import of liquefied natural gas (LNG) at the Sociedad Portuaria El Cayao (SPEC) terminal in Cartagena. The cargo, sourced from Trinidad and Tobago’s Atlantic LNG facility, was delivered by a floating storage regasification unit (FSRU) owned by Norwegian firm Höegh Grace. A year after a serious energy shortage due to weak hydroelectric production, the development of the Cartagena terminal provides additional energy security to Colombia’s Caribbean coast.

But LNG is just one piece in a complex gas industry. While Colombia has significant gas reserves of 4.4trn standard cubic feet (scf) – enough to last 10 years at current production – increased domestic demand and pipeline infrastructure challenges mean the coast faces a supply gap in the coming years. Until new projects both onshore and offshore can be brought on-line, LNG could prove vital to meet demand.

Coastal Gas

In 1977 Chuchupa, a shallow water offshore gas field operated by US firm Chevron and Colombian national oil company Ecopetrol, entered into production. With an estimated 2.5trn scf of gas reserves, the field, along with the neighbouring onshore Ballena and Riohacha fields, provided a stimulus for the growth of the natural gas industry on Colombia’s Caribbean coast. Rising oil prices as a result of the 1980s oil crisis led to a government push to diversify away from fuel oil generation and – for Colombia’s north coast at least – natural gas became well placed to become a fuel alternative for power generation. In 2010 Caribbean fields were producing 684,000 scf of natural gas a day, equivalent to over half of the country’s domestic production.

The Barranquilla-based local gas distribution firm Promigás was transformed into a major energy holding company, having installed over 2559 km of gas pipeline as of September 2016, with a transportation capacity of over 960,000 scf per day (scfd). In 2016 the firm transported 47% of Colombian gas, reaching 7.9m consumers. Overall, national gas consumption grew from 5.7bn cu metres of gas per year in 2005 to 10.94bn cu metres per year in 2014, with the Caribbean coast accounting for 37% of demand.

Shortfall

However, as demand for gas on the coast has increased, supply has had difficulty keeping pace. Gas production fell by 13.9% in 2016 to 975m scfd. Following 40 years of production, Chevron’s gas fields have been in decline since 2002. By January 2015 Chuchupa was producing 424.3m scfd, a 12% drop on the previous year’s figure. Despite a $249m joint investment by Chevron and Ecopetrol in May 2014 to optimise production and increase recovery rates, production from Chevron’s three gas fields is forecast to decline to 265,000 scfd by 2020. When the firm shut down one of its units for corrective maintenance for a week in December 2015, 260,000 scfd of gas was cut from the system, forcing local dual-core thermal power plants to switch over to more expensive diesel power.

Coastal Pipeline

The Colombian government has been working to develop solutions given the prospect of Chuchupa’s decline. In the mid-2000s the most obvious solution was to hook up the coastal pipeline network to neighbouring Venezuela, which at the time was experiencing a hydrocarbons boom. In October 2007 the Trans-Caribbean pipeline, linking the Venezuelan city of Maracaibo to the Promigás pipeline at Puerto Ballena, was inaugurated. However, due to souring political relations between the two countries and the stagnation of Venezuelan production, the pipeline has sat idle for a decade with little chance of supply commencing in the short term, despite rising production at Venezuela’s La Perla offshore gas field.

New Fields

However, the oil and gas exploration boom that gathered pace in the 2000s led to the discovery of new gas fields. In December 2007 Canadian firm Pacific Rubiales began supplying gas to the coast from its La Creciente property in Lower Magdalena region via its pipeline to Sincelejo, reaching a production record of 74,900 scfd in 2011. Further south, another Canadian exploration and production company, Canacol Energy, made six major gas discoveries in the Sucre department of over 315bn scf. Capacity at the firm’s Jobo gas-processing facility was expanded from 25,000 scfd in 2014 to 185,000 scfd by March 2016. Over the course of 2017 the firm will supply 90,000 scfd of gas to Sincelejo before the completion of a six-inch parallel pipeline in December 2017, which will boost supply by a further 40,000 scfd.

A second parallel pipeline, being built by Promigás, is scheduled for completion in December 2018, providing an additional 100,000 scfd of transportation capacity and boosting Canacol’s daily production to 230,000 scfd upon completion. Canacol’s gas will play an important role in supplying the coast’s future needs, but with demand for gas expected to grow by 3% per year to hit 582,000 scfd in 2020 and supply from mature fields – including La Creciente – forecast to fall to 262,000 scfd over that period, even the addition of Canacol’s production will leave a 90,000 scfd shortfall.

A Bundle Of Energy

In this respect, LNG has a role to play in the short to medium term. In June 2012 the Energy and Gas Regulatory Commission issued a decree aimed at ensuring reliable gas supply for Colombia, and in February 2014 the tender for the Cartagena LNG terminal was won by SPEC – a consortium partly owned by Promigás (50%), the Chilean private equity fund Americas Energy Fund II (25%) and Colombian private equity fund TAM LNG (25%).

The $500m capex project involved the construction of maritime facilities including a port, pier and pipelines; the construction of an onshore regasification terminal; and a power station with three generators with a 9.2 MW capacity. The FSRU, which has a transportation capacity of 170,000 cu metres of LNG and a regasification capacity of 500,000 scfd, was acquired on a 20-year contract, but SPEC has the option to reduce the length to 15, 10 or five years. These contractual terms were included because it allows the project to reduce its commitment should other large-scale and more commercially viable sources of gas become available in the future.

In particular, LNG will play an increasingly important role in the energy security of the country by providing fuel at times of peak demand. The Mining and Energy Planning Unit – the state agency responsible for planning strategic long-term energy policy – has stated that Colombia will build a 400,000-scfd LNG regasification terminal on the Pacific coast, with the potential receive product from Peru by 2024.

Offshore

However, the long-term viability of the country’s LNG projects looks likely to hinge on the exploration and development of Colombia’s deepwater offshore projects. In December 2014 a joint-venture exploration project led by Brazilian national oil firm Petrobras, and including Ecopetrol, Spanish firm Repsol and Norway’s Statoil announced a major gas discovery from their Orca-1 well in deep waters off the northern tip of the Guajira Peninsula.

Meanwhile, US firm Anadarko Petroleum, in 50:50 partnership with Ecopetrol, completed a 30,000-sqkm, 3D seismic study of its offshore tracts in October 2016. In April 2016 the firm announced that exploration at its Purple Angel prospect in the Caribbean had identified a major gas column with the potential to be the largest gas find in Colombian history, exceeding Chuchupa. The firm has a strong reputation for developing deepwater gas projects, having developed one of the world’s largest offshore LNG projects in Mozambique. The firm has announced that it will drill further wells at Purple Angel in 2018 in an attempt to gauge the size of the resource.

However, given the operational difficulties and huge investments required to bring offshore gas projects to fruition, neither Petrobras nor Anadarko Petroleum are expected to commercialise either project before 2022. Until then, exploration of the Colombia’s deep Caribbean waters will continue, with Ecopetrol involved in a number of other joint ventures with international oil firms, including India’s Oil and Natural Gas Corporation Videsh and Repsol.

Looking Ahead

Of the 35 exploration wells announced by the National Hydrocarbons Agency for 2017, 13 will be spudded in gas targets and five will be located offshore. Having experienced a major boom in oil exploration and production in Colombia over the last 15 years, natural gas now appears to be the resource with the greatest long-term potential.

As demand for the clean-burning fuel increases and pipeline infrastructure expands, a supply shortage between 2019 and 2022 looks likely, despite the growth of Canacol’s onshore gas production. Imported LNG should fill the void; however, recent promising discoveries in the Caribbean highlight the country’s potential as a gas producer as its 1500 km of Pacific coast have barely been explored. With oil firms bullish about the chances of making large-scale discoveries, in the next 10 years, Colombia could well shift from being an LNG importer to a major natural gas exporter.

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The Report: Colombia 2017

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