In the black: Despite limited domestic reserves, production of oil and gas has soared in recent years

A significant milestone was reached in 2012 when Colombia finally surpassed 1m barrels per day (bpd) in crude oil production. However, this achievement masks the fact that at 2012 production levels, the country will run out of oil reserves in less than six years, despite its new status as the third-largest producer of crude in South America. Investment into exploration of hydrocarbons, particularly of non-conventional resources, will be key to sustaining production levels in the medium to long term. Meanwhile, natural-gas-fired thermoelectric plants have been increasingly used in the generation of electricity as the growing economy drives demand higher. Even so, hydroelectricity remains the dominant source of generation, providing Colombia with some of the cleanest and most sustainable electricity in the world.

The government recently reformed the royalty distribution framework to provide all geographic areas, rich in natural resources or not, with the benefits of mineral and hydrocarbons wealth. Finally, the emergence of a rapidly growing biofuels industry has boosted rural agricultural development.

OVERSIGHT: The Ministry of Mining and Energy ( Ministerio de Minas y Energía, MME) has overall responsible for the strategic planning, development and supervision of both extractive industries, though a plethora of agencies and regulators take on more defined roles. The National Office of Mining and Energy Planning (Unidad de Planeación Minero Energé tica, UPME) acts as a steering mechanism under the MME, providing strategic direction and planning as its name suggests. With a mandate to monitor and regulate the sector, the Regulatory Commission of Energy and Gas (Comisión de Regulación de Energía y Gas, CREG), is tasked with creating the conditions to ensure efficient and cost-effective energy security.

Projects in the electricity and hydrocarbons sector must apply for environmental licences from the newly created National Authority of Environmental Licensing (Autoridad Nacional de Licencias Ambientales, ANLA). ANLA is a semi-autonomous entity under the purview of the Ministry of the Environment and Sustainable Development. The agency was created in part to streamline licensing, which has been the target of numerous complaints, as delays in environmental licensing have slowed mining and energy projects.

NATIONAL GRID: The national electricity grid, known as the National Interconnected System, is managed by an autonomous state-owned enterprise, XM, an affiliate of the large, state-owned power generation and infrastructure firm ISA. In fact, several publically owned and operated power generation firms provide significant power to the national grid. XM is also responsible for administering the Wholesale Energy Market and international electricity transactions with Ecuador.

In 2003 the National Hydrocarbon Association ( Agencia Nacional de Hidrocarburos, ANH) was put in charge of promoting investment and negotiating exploration and exploitation contracts with private players. It also acts as the regulator, taking over from the state-owned production giant Ecopetrol. Prior to the change all private firms looking to exploit oil and gas partnered with Ecopetrol. Since the ANH took over, oil production has soared, and it has been used as a model for the National Mining Association. Despite the introduction of freeroaming private players, Colombia still possesses a number of autonomous state-owned oil and gas enterprises, of which Ecopetrol remains the largest.

ECOPETROL: Under the administration of former President Álvaro Uribe the basic structure of the oil and gas industry was drastically altered to allow private companies to exploit hydrocarbons resources without forming a partnership with state-owned Ecopetrol.

Another radical shift prompted by the government was a sell-off of shares in the company over the past five years, to significantly increase capital expenditures. The investment has paid off, as crude oil output nearly doubled between 2005 and 2011. Moreover, Ecopetrol became the largest listed firm in Latin America in January 2013, when it claimed the number one spot by market capitalisation from Brazil’s PetroBras. Much of this is owed to Ecopetrol’s expanding production portfolio, which produces nearly four-fifths of the national total. The company also has significant midand downstream activities through managed subsidiaries that are responsible for its refinery, biofuel and transportation activities. It is a major partner and stakeholder in the Bicentennial Pipeline project, one of the most significant investors in the biofuel industry through Ecodiesel and Bioenergy (see analysis), and it is the largest refiner of oil in the country.

FRIENDLY MARKET: Despite its newly acquired status as the largest listed company on the continent, the recent ascent of its share price is inflated to an extent, especially considering its actual production is dwarfed by that of Petrobras. Its 50% rise in valuation in 2012 was timed amid Petrobras’s three-year slide, which has seen poor financial results cause a significant decrease in its valuation. Nevertheless, private investor interest in Ecopetrol, which remains 80% government-owned, has affirmed the optimism of private firms that the sector can expect more market-friendly policies.

Colombia’s transformation over the past 25 years from an energy market dominated by the state to its current blend of state capitalism mixed with private sector involvement has been accompanied by investorfriendly legislation. Despite the fact that state-owned companies feature heavily in both the hydrocarbons and electricity sectors, their largely autonomous role and the general lack of nepotism on the part of the central government, make Colombia an attractive destination for foreign direct investment.

CRUDE PRODUCTION: Crude oil output finally surpassed the 1m bpd mark in late December 2012, thanks to production increases over the past decade. As of May, production in 2013 had reached 1.01m bpd. Colombia came close to achieving the feat in the late 1990s, when crude oil production reached 849,000 bpd in December 1998. Production then slowed significantly after the turn of the millennium, hitting a decade low in February 2005 with an average of 514,000 bpd, according to data from the UPME.

From 2005 to 2007 oil production stagnated with annual outputs averaging 525,000 bpd, 529,000 bpd and 531,000 bpd, respectively. Colombia’s recent energy revival began in earnest in 2007. Average production increased from 531,000 bpd in 2007 to 944,000 bpd in 2012 as Ecopetrol and the private sector simultaneously boosted their production.

PRIVATE SECTOR: Nicolas Foucart, the general manager of Repsol Colombia, told OBG, “For Colombia to reach President Santos’s goal of producing between 1.1m and 1.2m barrels of crude daily by 2014, the country will first have to increase its reserves. To do this Colombia should focus more attention on exploration. This presents excellent opportunities for companies involved in oil and gas exploration.” The restructuring of the industry in 2003 to allow for private participation outside the scope of Ecopetrol marked a significant change, which, combined with improved security, began to attract investment interest. By 2007 private energy firms were beginning to exploit more than 10,000 bpd and by 2011 they were exploiting an average of more than 100,000 bpd. From 2007 to 2012 private sector production expanded at an average annual rate of 60%, and its contribution to national production increased from 2.5% in 2007 to 12.5% in 2011, according to statistics provided by the ANH.

Moreover, the private sector punched well above its weight in terms of its overall contribution to the expansion of production, as it was responsible for 25.3% of the increase in crude oil production from 2007 to 2011. Despite the significant percentage increase in the private sector, largely due to its low base, it was Ecopetrol that was responsible for the majority of the sector’s expansion. Ecopetrol’s production increased from an average of 517,000 bpd in 2007 to 826,000 bpd in 2012, corresponding to an average annual increase of 9.8%. From 2007 to 2011 the production of crude oil between Ecopetrol and the private sector increased by double digits at an average annual rate of 12.3%, before decelerating to 3.2% in 2012. The ANH has forecast crude oil production to increase by exactly that amount in 2013, with daily production averaging 1.06m bpd for the entire year.

CRUDE RESERVES: The dramatic increase in production over the past five years is part of the reason Colombia has the lowest reserves-to-production ratios (R/P) among the major producers in the continent. According to the BP “Statistical Review of World Energy 2012”, Colombia’s R/P ratio at the end of 2011 stood at 5.9 years, just over half that of Argentina, whose 11.4-year R/P ratio was the second lowest.

Proven reserves stood at 2.26bn barrels of crude at the end of 2011, according to the latest figures available from the ANH. Reserves have been expanding alongside the increase in production at a similar rate over the past five years. In fact, reserves have grown at an average annual rate of 13.8% to reach the current total, from 1.36bn barrels in 2007. Moreover, ANH long-term forecasts indicate that reserves will double at the very least between 2012 and 2030, injecting at the minimum 5.38bn barrels to current reserves, while the higher end of its forecasts see reserves ballooning by as much as 38.79bn barrels during the same period. The agency’s median or base prediction sees 9.13bn barrels added to existing reserves.

Much will depend on the success of exploration activities, particularly with regards to yet-to-be-found resources. The ANH’s highest forecasts would see 10bn barrels of crude oil from non-conventional resources, 10.99bn barrels of light or conventional crude, and 13.03bn of heavy crude added to reserves.

NATURAL GAS PRODUCTION: As was true in the oil sector, percentage increases in the production of natural gas by private firms with ANH contracts outstripped that of Ecopetrol due to the fact that it was growing from a very low base of 0.76m cu feet per day (mcfd) in 2007. Since 2008 natural gas production from the private sector has grown at an average annual rate of 22.9%, reaching 78 mcfd in 2012. Private players grew their portion of total production from less than 0.1% in 2007 to 7.2% in 2012. Meanwhile, Ecopetrol maintained a sizeable annual rate of expansion of 8.4%, as its production rose from an average of 729 mcfd in 2007 to 1.08bn cfd in 2012. Combined, they increased total production from 730 mcfd in 2007 to 1.16bn cfd in 2012. As of May 2013, production figures for the sector overall reached 1.18bn cfd.

NATURAL GAS RESERVES: While current proven crude oil reserves are predicted to last only another six years, natural gas reserves will last significantly longer given current reserve and production levels. According to the ANH, the 6.6trn cu feet (tcf) of natural gas reserves at the end of 2011 should last 17.1 years. However, despite boasting a considerably longer R/P ratio, unlike the oil sector, increases in natural gas production over the past decade have not been matched by similar rises in reserves. Thus, while crude oil’s R/P ratio hovered between 6.8 and 8.4 years between 2001 and 2011, the R/P ratio for natural gas was halved, decreasing from 34.4 years in 2001 to the 17.1 years in 2011. The ANH has estimated that from 2012 to 2030 long-term reserves of natural gas will grow by 2 tcf, while its optimistic forecast would see an increase of 16.2 tcf. Its median estimate predicts an additional 6.2 tcf added to current reserves.

EXPLORATION: With the oil and gas sectors facing stark R/P ratios, oil in its brevity and gas in its consistent decline, exploration is key. Since the ANH took over the negotiation and signing of exploration and production contracts from Ecopetrol in 2003, exploration has expanded significantly. In 2012 the rate of discovery of viable hydrocarbons resources was fairly high, as 45 discoveries were made in the 131 perforated wells, while 58 wells were found dry and the remaining 28 are still undergoing examination, according to the ANH. Hernán Caride, the general manager of PlusPetrol Colombia, told OBG that, “the legal framework consists of clear regulations and transparency, making it very attractive especially when compared to other countries in the region. The potential and facility for investment that Colombia is currently demonstrating is very attractive for the region.”

Over the past decade exploration companies have had a fairly positive drilling record as they have struck oil or gas in 41.1% of all perforated wells from 2000 to 2011, while the number of exploratory wells has begun to increase drastically over the past five years as a result of private sector involvement. In fact, the number of exploratory wells more than quadrupled from an average of 20.7 wells per year from 2000 to 2005 to 89.7 wells from 2006 to 2011. Recently auctioned exploratory concessions have begun to shift in focus towards unconventional resources of shale and other sources of oil as technological advances continue to unearth previously inaccessible resources of hydrocarbons (see analysis).

BIOFUELS: In 2001 Congress passed legislation that structured and supported the development of a sugarcane-based ethanol manufacturing industry. This was followed in 2004 by legislation that provided the same structure and support for biodiesel manufactured from palm oil. Since the implementation of regulating articles, the production of high-grade ethanol and biodiesel has risen alongside a reduced reliance on crude oil, stimulating economic development in rural areas and providing alternative cash crops to the vast number of coca farmers (see analysis).

INFRASTRUCTURE: Colombia relies on six pipelines to transport hydrocarbons from central lying basins to coastal ports and refineries, all of which are at least partly owned or operated by Ecopetrol. As of 2011 the infrastructure network of Ecopetrol alone was capable of handling some 1.2m bpd, significantly more than production in 2012. However, the sporadic location of existing and newly discovered deposits has many pipelines operating under capacity.

A lack of infrastructure has been the industry’s biggest challenge in recent years, though this has more to do with a rapidly improving security situation than it does to dilapidating infrastructure. In fact, new pipeline construction should go some way to resolve the current bottlenecks and could potentially increase total capacity to transport crude via pipeline from its current 1.2m bpd to 2.05m bpd in just five years. As Jaime Valenzuela, VP and country manager for Petrominerales, told OBG, "Colombia has abundant resources in the subsoil; there is no doubt about it. The key points of discussion are on the surface: the country needs to maintain the attractiveness and stability of the rules, increase investment in infrastructure, roads, pipelines, ports, etc., and continue strengthening the alignment of all stakeholders.” The largest pipeline project is the Oleoducto Bicentenario de Colombia (Bicentennial Pipeline), which is being constructed by a seven-company consortium led by Ecopetrol. The 976-km pipeline will run from the eastern plains of Casanare to the Coveñas Maritime Terminal on the northern Caribbean coast. The completion of the first phase of the $4.2bn pipeline has been delayed due to attacks on the existing Caño Limón pipeline in the summer of 2012. As state-owned Ecopetrol is the leading stakeholder in the project, military forces, in lieu of the private security contractors typically hired by private sector companies, are used to secure the pipeline.

PIPELINES: The first phase of the Bicentennial, which connects to the Caño Limón to utilise its spare capacity, had been completed by early August 2013 and will start operations in September, adding an initial capacity of 110,000-150,000 bpd. When the second and third phases are completed, the Bicentennial Pipeline will have a maximum capacity to transport 450,000 bpd. Humberto Calderón Bert, the president of Vetra Group, told OBG, “Transportation costs vary by region, but some can reach as high as $16 per barrel of crude, as much as four times as high as costs in Venezuela. Nevertheless, the country is committed to developing infrastructure and this will help the industry, such as with the Bicentenario pipeline.” Oscar Trujillo, the general manager of Ocensa, a pipeline developer in Colombia told OBG, “The expansion of Ocensa’s Oleoducto Central tube, along with the imminent opening of the Bicentennial pipeline, will contribute to covering the transport needs of heavy and light oil, respectively.”

Another significant pipeline, the Oleoducto del Pacifico (Pacific Pipeline), is being developed by Ecopetrol along with Canada’s Enbridge. Currently, the only existing pipeline to the Pacific coast is the 305-km Transandino Pipeline, with a capacity of 48,000 bpd, which has been the target of attacks from insurgent groups. The new 880-km Pacific Pipeline will add an additional 200,000-400,000-bpd capacity to the Pacific coast by transporting crude all the way from deposits in the central Llanos region, from which crude is currently sent to the northern port of Coveñas.

TRANSPORTATION: Considering that more than onefifth of oil is shipped via Coveñas to Asia, around South Africa’s Cape of Good Hope, developing the infrastructure to transport additional crude to Asia directly across the Pacific Ocean is expected to cut costs significantly in the long term. With studies ongoing, the project cost and construction timeframe are still undecided, though Enbridge told local press in early 2012 the pipeline could be operational by the end of 2016.

Meanwhile, investments to increase transportation and storage capacities of existing pipelines, storage facilities, port terminals and even oil trucks have been made to ease blockages in the short term. Between 2008 and 2011, a total of $2.1bn was spent by various companies to improve the sector’s transportation and infrastructure network through 12 projects, according to Ecopetrol. Even so, basic infrastructure deficits in the country’s road networks can still induce delays.

“Our experience has been in some of the region’s most geographically difficult areas. Colombia, however, has it all in terms of both simple and easy productive areas – the issue is that it is missing the necessary infrastructure. For example, in the Llanos region we face a scarcity of roads, as well as a rainy season that can halt operations,” Caride told OBG. Many companies are forced to rely on transporting crude via truck due to the current lack of pipelines. According to Ecopetrol, an investment of $8bn is required to close the infrastructure gap in the next two decades. Moreover, even though transportation infrastructure is being expanded and upgraded, it remains a prime target for insurgent groups such as the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia, FARC).

SECURITY: While overall security conditions have generally improved, threats remain prevalent. Attacks on pipelines and energy-related infrastructure broadly declined over the past decade but some of that progress was lost in 2011 and in particular in 2012. Several reasons account for this, one of which was explained by Orlando Cabrales, former president of the ANH, who told OBG that, “While security is still an issue for the industry, Colombia is exploring areas that just 10 years ago were unthinkable. We are now going to areas where the guerrillas have traditionally been located.” As the industry continues expanding exploration, production and transportation of energy resources in some of these areas, attacks are beginning to rise slightly after years of continual decrease. Whereas a static industry may have seen the continuation of the initial effect of improved security, the growing extractive industries remain attractive and closer targets. Another explanation for the increase in attacks on infrastructure stems from the recent tactical alteration made by the FARC, which announced in 2012 that the group would halt its kidnapping operations. Formerly, kidnapping of executives and other wealthy individuals was used as not only a source of income but also as a way of waging war against the government. Having publicly declared an end to one of the group’s primary tactics could be a contributing factor to the recent rise in attacks on vital infrastructure.

According to data from the Department of Defence, attacks on pipelines decreased from a high of 184 in 2003 to a low of 31 in 2010. In fact, from 2008 to 2010 attacks remained in the low 30s. However, in 2011 attacks nearly tripled their 2010 levels reaching 84.

Moreover, the January to October period of 2012 recorded 142 pipeline attacks, the worst of any year since the turn of the millennium in that 10-month period. Attacks on energy towers similarly shrank from a high of 483 in 2002 to a low of 39 in 2010. However, attacks nearly doubled in 2011 reaching 73, though in the first 10 months of 2012 only 35 attacks were registered, the second lowest number in the past decade. In January 2013, after the end of a two-month ceasefire declared by the FARC, attacks resumed.

The group used dynamite to destroy a section of the Transandino Pipeline in Putamayo and blew up sections of a smaller line carrying crude to storage facilities associated with the Transandino. In the north of the country, the FARC also threw a bomb onto the rail line of Cerrejon, the largest coal miner, in the Guajira province.

DOWNSTREAM: Refinery operations remain controlled by Ecopetrol, which operates the only two major refineries located in Barrancabermeja and Cartagena. Both of the refineries are in the process of being modernised. The current capacity of the Barrancabermeja refinery stands at 250,000 bpd and is responsible for supplying roughly 80% of the domestic demand for petroleum products. The $3.4bn modernisation project will not only increase capacity to 300,000 bpd, but will also improve fuel qualities and reduce pollutants when the expansion is completed in 2016.

Though its main end-product is gasoline for motor vehicles, the Barrancabermeja refinery also produces diesel, kerosene, jet fuel, propane, base lubricants and a number of other petrochemicals products. Ecopetrol purchased Glencore’s share of the Cartagena refinery in 2009 and has been working to upgrade the facility since. The facility’s capacity is significantly smaller than that of Barrancabermeja with a crude capacity of 75,000 bpd, which it transforms into gasoline, propane gas, and other combustibles for export and local use. The initially proposed $3.7bn budget has been expanded several times, most recently in the third quarter of 2012, to reach $4.8bn.

The project was initially expected to be completed during the first half of 2013, though cost overruns and delays are expected to push that date back into 2014. As of November 2012, 75.2% of the construction was reported as being completed by Reficar, Ecopetrol’s subsidiary and operator of the refinery, significantly less than the targeted project completion of 86.5%. When completed the new refinery is expected to expand capacity to 165,000 bpd with a large portion of the resulting increase marked for export.

In addition to the two main refineries, Ecopetrol operates two smaller refineries that have a total combined capacity of 6000 bpd of crude oil in Orito and Apiay, producing combustibles for local use. Ecopetrol’s current refinery capacity stands at 337,000 bpd of crude oil, a figure which will increase to 477,000 bpd when both upgrades are completed.

ROYALTIES: In 2012 the government passed legislation intended to reform the formula for the distribution of royalties from both the oil and gas and mining sectors. Whereas once royalties from the extractive industries were directly distributed to the administrative departments from which they originated, royalty distribution will now be slowly distributed to the country’s 32 departments in a much more equitable way. The redistribution of royalties is part of a broader socioeconomic agenda to decrease inequality and will impact the majority of administrative budgets in a positive manner amidst a boom in the natural-resourcebased industries (see analysis).

POWER PLAYERS: Historically, the electricity segment has been owned and operated by the state. However, privatisation in 1994 significantly changed the once vertically integrated sector. Since the 1990s, stateowned enterprises have been gradually sold, while the establishment of long-term contracts for private players and an electricity spot market have also served to modernise the sector. Today, state-owned enterprises maintain sizeable market shares within the generation, transmission and distribution segments but operate on a level playing field.

“The passing of reform legislation 20 years ago shaped a stable legal system, suitable for the development of public services. Today, with a market divided between public and private companies, equal opportunities exist for locals and foreigners,” Lucio Rubio, director general of Endesa, told OBG. Luis Fernando Alarcón, general manager of ISA, told OBG, “Colombia has been preparing for the increased demand for electricity. The country has an appropriate regulatory framework, which stipulates that the right to electricity production and distribution is granted by auction.”

SUPPLY & DEMAND: Colombia’s current generation capacity of 14,420 MW is supplied primarily by hydroelectric power, which accounts for just over two-thirds of the total, with the remainder coming primarily from natural-gas- and coal-fired thermoelectric plants. Over the course of the past 20 years supply capacity has grown along with rising demand. With demand likely to expand at even quicker rates over the next two decades, investment into new power generation and transmission facilities is a priority. Maximum demand for energy supplies was 9206 MW as of October 2012. Over the coming 20 years that figure is expected to expand to 15,411-20,772 MW, with the UPME’s median forecast indicating that a supply of 17,935 MW by the end of 2031 will be possible. In the medium term, supply capacities are expected to rise at an average annual rate of 3.3% from 2012-20, with lower- and higher-end projections ranging from 2.4% to 4.4%.

With economic growth picking up the pace over the past 10 years, expectations for energy demand have likewise increased. Between 1991 and 2009 demand for electricity rose on average 2.5% annually, according to statistics from the UPME. Demand grew 1.8% in 2009, 2.7% in 2010 and 1.8% in 2011, while in 2012 demand expanded an estimated 4%.

Meanwhile, future projections indicate the next two decades will see demand for power outpace the previous two. The UPME estimates that from 2012 to 2020 electricity demand will grow between 3.2% and 4.5% – with the UPME’s median projection equalling 3.9%. From 2021 to 2031, it is anticipated that demand will decelerate slightly to around 3.5% growth.

HYDRO: Vast hydraulic resources have historically been the country’s primary source of electricity generation for the national grid, as is true currently. In 2012 Colombia derived 68% of its total electricity generating capacity from the hydroelectric facilities scattered around the country, providing it with what is among the cleanest power generation systems on the planet. While reliance on the relatively cheap and renewable resource has been a crucial factor in the sector’s ability to maintain pace with expanding demand, it also presents inherent risks, such as decreased generation capacity during years of severe drought caused by the recurring El Niño effect (see analysis).

THERMAL: The increased use of thermoelectric power generation facilities was primarily a response to the country’s overreliance on hydroelectric resources, which was leading to power shortages and rationing during unconventionally warm and dry seasons. Most of Colombia’s thermoelectric plants are fuelled by natural gas, though the local supply of coal is also being converted into electric power.

The first thermoelectric plants to come on-line in the privatised era included the 150-MW Flores I in 1994, the 750-MW TEBSA in 1996, the 150-MW Termovalle in 1998 and the 220-MW Termoemcali and 150-MW Paipa IV in 1999. Thermal resources have been coming on-line increasingly since the mid-1990s and currently account for 32% of the supply capacity, compared to 22% in 1991. By the end of 2009 a total of 4429 MW of generation supply capacity was attributed to thermal facilities, according to the UPME.

There are new thermal generation facilities coming on-line in the short term, including GECELCA’s 164-MW coal-fired thermoelectric facility, which is set to come on-line in 2013. The project, referred to as GECELCA III, is the company’s third thermal plant in the country as it already operates the 791-MW combined-cycle TEBSA – which has a total capacity of 918 MW thanks to two smaller vapour turbines – and its proprietary 151-MW TermoGuajira simple-cycle facility. Another thermal facility, Poliobras’s 202-MW Termocol plant, is also expected to come on-line towards the end of 2013. Medium-term facilities coming on-line include GECELCA II, a 250-MW coal-fired plant expected at the end of 2015, and the 88-MW gas fired Termonorte, expected to be operational at the end of 2017.

Despite the introduction of thermal facilities to the national grid, Colombia’s power generation network remains one of the cleanest in the hemisphere as it produces just 130 grams of carbon dioxide per kilowatt hour generated, a figure which is only surpassed within the Americas by Brazil’s 80 grams of carbon dioxide, according to a paper published by ISA XM.

LICENSING: Another pertinent issue affecting the energy and the mining industry has been a slowdown in the issuance of environmental permits and licensing procedures. While environmental licensing typically took an average of six months in the first decade of the new millennium, recent slowdowns now see waiting times stretching to more than a year.

Alejandro Martínez Villegas, president of the Colombia Association of Petroleum, told OBG, “The issues surrounding environmental permits have worsened in recent years and if they are not resolved soon the resulting uncertainty will likely begin to significantly affect the investment climate.”

This point was echoed by Fernando Cardenal, general manager of Transmerquim de Colombia. “Delays in the environmental licensing and increased security issues are the main cause of the delay on oil and gas exploration projects," he told OBG. “Although large companies such as Ecopetrol still have operating budgets to invest in exploration in 2013, the upcoming social unrest makes us foresee an end of year slowdown.” The recently created National Agency for Environmental Licensing was constructed specifically to streamline the process of environmental licensing, though it has yet to make a significant impact.

OUTLOOK: With the current administration pushing to reach 1.2m bpd of crude oil production and equivalents by 2014, recent production increases show no signs of slowing down in the short term. However, maintaining increased production levels will hinge on successful investment in exploratory projects. While short-term production increases can be easily met by expanding yet-to-be-found conventional resources and current producing fields, in the longer term the inclusion of non-conventional resources will almost certainly be necessary to maintain higher production.

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Energy & Utilities chapter from The Report: Colombia 2013

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