Following the drop in commodity prices that started in 2014, Colombia experienced several challenging years of dwindling investment in the energy sector. However, the industry is poised to regain momentum, and support from the administration is already yielding results across multiple segments. A number of measures have been implemented by the government that should improve Colombia’s attractiveness for foreign participation in the energy industry.

After regaining its position as the third-largest oil producer in Latin America, Colombia is seeking to expand its oil and gas resources. Investment in the exploration of hydrocarbons, particularly of non-conventional resources, will be key to sustaining production levels in the medium to long term. Significant milestones have been reached, with a number of new deals signed for offshore exploration and the launch of the first fracking pilot project.

Meanwhile, the government is seeking to transform the energy mix by expanding into renewable sources, while at the same time continuing to strengthen its existing assets in hydro and thermal. By 2022 the government expects to have increased generation capacity to 21,300 MW, with hydroelectricity accounting for 58% of the total; followed by thermal (30%); hydraulic, thermal and wind power generated by smaller plants (6%); wind (5%); and solar (1%). Hydroelectricity will remain the dominant source of energy generation, providing some of the cleanest and most sustainable electricity in the world. As generation capacity increases and new sources of energy continue to be added to the matrix, investment in transport and transmission is beginning to follow suit, bolstering connectivity across both Colombia and neighbouring countries.


The energy sector is overseen by four main government entities: the Ministry of Mines and Energy, which is charged with setting policy for the hydrocarbons and power generation industries; the Mining and Energy Planning Unit (Unidad de Planeación Minero Energética, UPME), responsible for planning long-term energy policy; the National Hydrocarbons Agency (Agencia Nacional de Hidrocarburos, ANH), which regulates and awards exploration and production blocks; and the Energy and Gas Regulatory Commission.

Colombia’s total energy capacity reached 17,326 MW as of early June 2019. This output was split among hydroelectricity (64%), thermal (29%), and plants (7%), including self-generation, wind, small hydro dams and small-scale thermal. Thermal’s contribution is made up of coal (22%) and gas (7%).

Oil & Gas

The first month of 2019 saw oil production reach an average of 898,965 barrels per day (bpd), up 4.5% year-on-year. The increase can be attributed to production across new fields in Frankmave (Puerto López-Meta), Chaman (Puerto Gaitán-Meta), Seje (Puerto Gaitán-Meta), and development and optimisation efforts across many others. Likewise, daily commercial gas production hit 1.1bn cu feet, an increase of about 21.2% over the same period of the previous year and the highest level reached by the country since March 2016.

Despite an increase in activity across the oil and gas sector throughout 2018, with the year concluding with a total of 66 exploratory wells drilled and 723 in development, onshore activity remains a ways off from the record numbers reached prior to 2015.

According to a study released by the Colombian Petroleum Association (Asociación Colombiana del Petróleo, ACP), in 2018 investment in exploration and production (E&P) increased for a second consecutive year to $4.4bn, an increase of 28% on the previous year. The biggest jump was experienced by production, which rose by 54%.

However, investment in exploration dropped by 27%, exacerbating fears over the country’s ability to remain self-sufficient over the long term. According to the study, lower investment in exploration was a result of increased costs and complexities associated with exploration projects, with 13% of programmes in the segment delayed over matters related to environmental licensing processes.

The ACP forecasts investment will increase by 14% to $5bn by the end of 2019, with activities in production taking up the largest share. The $3.9bn allocated to this segment will focus on development drilling, enhanced recovery methods and new developments, resulting in a 2-4% increase in production. On average, there were 129 drills in operation in 2018, up from 78 in 2017. Of the 249 drills in operation in February 2019, 132 were for enabling drilling operations, while 117 were destined for workover activities. The increase in activity in this segment has already had a visible impact on service providers, with drilling companies seeking to increase their capacity to respond to the rise in demand.

Declining Reserves

In 2018 output of oil and gas represented 3.4% of GDP. The most pressing challenge facing the energy sector arises from the steady decline in reserves. Having reached a proven oil reserve peak of 2.3trn barrels in 2014, reserves fell to 1.8trn by 2017. The department of Meta held the biggest share, with 46% of total reserves, followed by Casanares and Santander, each with 11%. Likewise, proven gas reserves have dropped from a peak of 4.8m cu feet in 2014 to 3.9m cu feet in 2017, with the departments of Casanare (58%) and La Guajira (18%) accounting for the largest share.

In the decade leading to 2014 the rapid increase in production was primarily the result of E&P firms arriving in the country’s los llanos (plains) and the Magdalena Valley basins. The firms brought marginal fields on-line, introduced enhanced oil recovery (EOR) techniques to old wells, and found small and medium-sized satellite deposits that were commercially viable given the increasing global oil prices at the time. However, between 2009 and 2019 no significant new onshore oil discoveries were made, and over 70% of Colombia’s oil and gas production came from pre-existing mature blocks. Reserve fluctuations are therefore mainly associated with the application of EOR technology, further illustrated by increased investment in production.


In February 2019 the government launched a permanent process for area allocation, or permanent bidding process, for the adjudication of new blocks, replacing the traditional licensing round model. According to the government, this new model will be more attractive, broad and competitive, as national and international companies will be able to apply on a continual basis for new blocks for conventional operations. The initial phase of the programme offered 20 blocks, including two offshore locations. However, operators will be able to request the incorporation of new areas in addition to those on offer from the ANH. In a similar effort to invigorate the industry, the ANH made adjustments to its model contract for offshore operations. Changes include the designation of an arbitration tribunal to improve legal security, the potential for Colombia to raise its participation by at least 5% in the case of extension of the contract and additional social investment by operators within production regions.


As a result of the continued efforts to revitalise the sector, the beginning of 2019 was marked by a series of mergers and acquisitions across onshore and offshore fields. Canadian oil and gas firm Parex acquired a 50% operating stake in three onshore blocks (Aguas Blancas, Boranda and De Mares) operated by Ecopetrol, located in the Magdalena Valley basin. According to the ANH, the deal includes the drilling of 15 wells for a $150m investment over 12 months. Meanwhile, Canadian energy company Gran Tierra acquired 50% of Vetra Energy’s interest in its Putumayo-8 block, as well as 100% of its Llanos-5 block and 52% in Suroriente, which it shares with Ecopetrol. However, offshore activities took the headline, as four new contracts were signed by Shell, ExxonMobil, Ecopetrol and Noble Energy (see analysis).

Natural Gas

Colombia has 14 primary gas-producing fields located in the four regions of Caribe, Santander, Llanos Orientales and Huila-Tolima. The largest share of Colombia’s natural gas production is utilised by households and industry. Natural gas from producing fields is transported to consumption areas via the National Transport System (Sistema Nacional de Transporte, SNT). Promigas, with a 52% market share, is the largest company in the country focused on the transport of gas. It is targeting an increase in capacity of 100m cu feet, which will enable it to service rapidly growing demand on the Atlantic coast. The project involves a $200m investment for the construction of 180 km of pipes, a new compression station close to Cartagena and the rehabilitation of two existing stations. According to UPME, the country holds sufficient natural gas reserves to last until 2024. The debate over whether the country should focus on developing its potential as a natural gas producer or importer is ongoing as preparation continues for the construction of a second liquefied natural gas (LNG) terminal on the Pacific coast, at an estimated investment of $660m. A number of companies have expressed interest in the project, including Promigas and Grupo Energía de Bogotá. The new facility is expected to be completed by the end of 2023, with about the same capacity and storage as the one located in Cartagena. Construction of the second terminal will need to be accompanied by a gas pipeline from Buenaventura to Yumbo, and will complement the existing Caribbean terminal. Developing the country both as a producer and importer will provide additional energy security, allowing Colombia to rely on multiple sources of gas.

In recent years efforts have been made to convert vehicles from diesel to natural gas in order to help curb emissions and fight air pollution. This can be seen in moves made by the capital’s bus system operator to switch to gas-powered buses in its Transmilenio fleet. According to UPME, the number of vehicles successfully converted to natural gas reached approximately 61,100 in August 2018.


To ensure energy sufficiency and mitigate risks along the Caribbean coast associated with the El Niño weather phenomenon, in 2016 Colombia integrated LNG into its energy mix – a year after a serious energy shortage. New infrastructure development includes a $142m floating storage and regasification unit in Cartagena, as well as a 733-metre pier and a 10-km gas pipeline connecting the terminal with the SNT. With a regasification capacity of 400m cu metres and storage capacity of 170,000 cu metres, the terminal helps meet coastal demand from thermal electric plants such as TEBSA, Zona Franca Celsia, Termocandelaria and Termoflores.

Operated by Sociedad Portuaria El Cayao, the terminal is jointly owned by Promigas (51%) and Chilean company Energía Activa (49%), although Promigas has indicated an intention to purchase the remainder of the shares following an approximately 12% increase in revenue in 2018.

LNG imports during 2018 amounted to 553,000 cu metres, up from 219,000 cu metres in the first year of operations. These levels are expected to increase, with imports reaching about 127,000 cu metres in the first two months of 2019 as production from the hydroelectric system continued to be negatively impacted by the effects of El Niño.


Colombia’s experience in non-conventional hydrocarbons is limited, with a single dry well in operation offshore and an unclear future regarding its fracking ambitions. However, February 2019 marked a pivotal moment for both industries, with the reforms propelled by the ANH increasing the attractiveness of offshore activities, and the release of a report on the viability of fracking activities giving the green light for initial tests. Following these developments, five exploration and production contracts were signed with the ANH, including minimum exploratory programmes and two additional offshore blocks that were put up for bid under its new allocation process.


Under the constitution, departments wield a high level of autonomy over activities that take place in their territory. Though positive in regards to culture, environmental preservation and social development, it is often perceived as detrimental for the development of economic activities, especially for extractive industries. According to the law, firms are required to consult with communities when projects affect the territory, culture or economy of ethnic groups under the previous consultation guidelines, and under popular consultation when indigenous groups are not involved. Though most companies follow this procedure without issue, the limits of the process can be somewhat arbitrary, and a number of projects have been halted or dropped due to backlash from stakeholders.

Reform to the 2011 general royalties system, combined with the drop in commodity prices that followed, also had a negative effect on the willingness of Colombia’s regions to welcome new operations; regions saw their share of royalties fall from 80% to 20%. However, President Iván Duque’s government made it clear that while it recognises the need to remunerate local governments, communities should not have the ability to shut down projects that have been approved by the authorities.

To help incentivise a favourable environment for ongoing E&P, a bill was passed to see establish increase of between 30% to 50% in the share of royalties going to producing regions. Recent deliberations by the constitutional courts appear to give the advantage to operators, as more decisions have been awarded in the favour of companies. The constitutional courts established in October of 2018 that “popular consultations may not halt extractive projects, since decisions over the exploration and exploitation of non-renewable natural resources underground, should be taken by national authorities in coordination with territorial authorities”. Activist groups consider these events harmful to the legal framework that supports the actions of citizens to protect their way of life, while private companies see it a first step towards instituting legal security for investment in onshore projects.


Colombia’s current refining infrastructure is operated by Ecopetrol, including by the Cartagena Refinery (Refinería de Cartagena, Reficar) on the Caribbean coast, and Barrancabermeja in the centre of the country, for a combined production capacity of approximately 400,000 bpd in 2017. Reficar saw production increase from 128,000 bpd in 2015 to 144,000 bpd in 2018, approaching its total installed capacity of 150,000 bpd. New plans to rehabilitate Reficar are expected to increase its total refining capacity to around 240,000 bpd.

Despite improvements in Barrancabermeja’s conversation rate – which increased from 71% in 2014 to 82.5% in 2017 – ageing infrastructure remains a challenge and the refinery struggles to maintain production above 200,000 bpd. Nevertheless, Barrancabermeja is the biggest producer of diesel for local consumption, accounting for 80%. Implementation of new infrastructure has enabled the country to leverage efficiencies in its purchase and mix of crudes, fuel production and exports. Additional efforts to create synergies between the two are ongoing under Ecopetrol’s integrated refinery system, which seeks to leverage Barrancabermeja’s proximity to major producing fields and Reficar’s distance to export and import infrastructure, enabling the efficient transfer of products used in the refining process. This would reduce imports and ensure fuel self-sufficiency. A testament to this is the reduction of diesel imports from Ecopetrol after its new refinery came on-line, from 53% in 2015 to about 5% by the end of 2017.

Under the first plan for supply of liquid fuels developed by UPME, a project is under way for the construction of a pipeline unifying the two refineries, which will replace the current process used for transport of products between the facilities.


Considering Colombia’s large sugar cane industry and position as the largest palm oil producer in Latin America, its biofuel production provides strong opportunity for growth. Production capacity has increased in recent years as the segment has gained ground and established itself as a cleaner alternative to traditional fuels. According to Colombia’s biofuels federation, Fedebiocombustibles, the country has 12 facilities that produce biodiesel, with a consolidated capacity of 906,000 tonnes per year. In this context, installed capacity is well positioned to respond to demand, which stands at approximately 551,629 tonnes per year. In February 2018 the government increased the percentage of biodiesel in the fuel mix from 9% to 10%, with the goal of mitigating some of the impacts of pollution in the country. However, demand has increased, and the biofuel segment has been negatively affected by imports from the US with the progressive implementation of the free trade agreement signed between the two nations in 2012. “As we seek to reduce pollution, it is paramount to continue to increase the use of biodiesel in our fuel to reach 20% or even more, in the coming years,” Jorge Bendeck, president of Fedebiocombustibles, told OBG. “The industry is ready, yet strong political support is necessary.”

There are currently seven production facilities for ethanol, with total capacity reaching 1.7m litres per day against demand of 652,338 litres per day.

Rising Demand

In 2018 the price of gas, electricity and fuel increased by 5.8%, 8.8% and 8.4%, respectively, faster than the country’s overall inflation rate of 3.2%. This was due to a number of internal and external factors, such as the depreciation of the peso, an overall increase in global prices of oil and gas, and the particularly cold winter experienced throughout the northern hemisphere.

In 2018 energy demand in Colombia rose by 3.3% and total distribution reached 69.1 GWh. The agriculture, livestock and fisheries sector is the primary driver of demand, followed by transport and storage. In the first quarter of 2019 demand rose by 4.5%, tracking an increase in broader economic activity. According to UPME, between 2017 and 2031 energy demand is expected to grow by an average of 2.11% annually. After three years of negative growth, in 2018 demand for natural gas increased by 3.2%. Demand was driven primarily by the residential (2.1%) and tertiary segments (8.2%), which can be explained by an increase in the number of users, which grew by over 1m, or 4.8%, in 2018. According to Colombian natural gas association Naturgas, 5m households remain without reliable access to fuel, signalling future scope for expansion. The Subdirectorate for Energy Demand revised its growth projections for energy demand from 3.2% to 3.5% for 2019, and from 3% to 3.5% annually between 2020 and 2022. It is anticipated that this will be driven primarily by improved economic activity and increased investment across the sector. While natural gas coverage has increased in recent years, territories affected by conflict have yet to gain full access to natural gas infrastructure, with coverage in the departments of Nariño, Guaviare and Putumayo standing at approximately 21%, 40% and 55%, respectively.


The country has developed a power sector that relies heavily on large-capacity hydropower units that provide cost-effective electricity. These account for 68% of Colombia’s energy production. When reservoirs are full and the hydroelectric plants are operating at close to maximum potential, the country’s sizeable hydroelectric capacity is more than enough to meet current levels of demand.

Hydroelectric dams with the highest capacity include San Carlos (1240 MW), Guavio (1200 MW) and Chivor (1000 MW), all of which were built before 1995. The combined capacity of the network of dams that feed into the Interconnected National System (Sistema Interconectado Nacional, SIN) is equal to 10,940 MW. The biggest project in place to bolster energy sufficiency in the medium term is Medellín’s Ituango Dam, built by Antioquia-based EPM, which is expected to supply 16% of Colombia’s total energy demand with a capacity of 2400 MW. The $4bn project, to be constructed to the north of Medellín, has faced allegations of fraud and mismanagement, according to international media. In addition, it has structural faults that could lead to significant risk of flooding, causing building work on the dam to be halted in 2018. The discovery of a sinkhole close to the dam construction site at the beginning of 2019 compounded structural concerns. Most recent estimates by EPM conclude that it will not be operational until at least December 2021 – three years behind schedule. The projected shortfall in electricity production caused by the delay in bringing the dam’s turbines on-line may see the authorities accelerate the rollout of renewable power development in order to bridge the expected gap.

The energy crisis the country experienced during the El Niño-triggered drought in 2015/16, coupled with technical failures at two major hydroelectric dams, and an increase in gas prices affecting the financial stability of thermal power plants highlighted the system’s vulnerability. “Prior to the 2016 energy crisis, the price of energy and the consumer price index where closely correlated,” Dafna Siegert, advisory partner at EY Colombia, told OBG. “For 2018 the threat of a new El Niño resulted in hydroelectric dams lowering their perspectives generation capacity, hence the price increase. Going forward, the price of energy will depend greatly on the evolution of the Ituango project,” she said. The government’s response has been to improve energy security through the construction of an LNG import terminal and by diversifying the energy mix to include more renewable energy. While the government aims to reduce the reliance on hydroelectricity to 58% of installed capacity, it is also seeking to attract further investment in the segment.


Colombia’s network of thermal plants have an installed capacity of 5094 MW, split across gas (42%), coal (32%) and other fuels (26%). Following the 2015 and 2016 energy crisis, the sector underwent restructuring. This took place as pressure mounted over the industry’s lack of response to climatic shifts, which prevented hydroelectric assets from meeting demand. One noteworthy example was Electrocaribe, taken over by Superservicios in 2016, which was unable to provide services during the crisis. The polemic over this facility continued well into 2019, as matters related to its COP2.4bn ($820,800) debt remained unresolved. The government plans to sell the asset and hopes to have new owners by the end of 2019.

Despite results in the sector being lower than anticipated during this period, the government continues to see thermal as a reliable source of energy, aiming to increase its share of total generation capacity to 30% by 2022. Under the licensing round held in February 2019, authorities granted 21 new production-sharing agreements to thermal plants.

Renewable Energy

Considering Colombia’s geographic location and abundance of solar and wind resources, potential for renewable energy is strong. However, with its reliance on cheap hydroelectricity and the high costs generally associated with renewables, the country has not historically made use of this potential. As the energy offering becomes increasingly unstable in the face of climate change, and amid depleting gas reserves, problems with the Ituango dam and the shrinking costs of renewable technology, the country is seeking to propel its non-conventional energy segment forward.

With a number of projects at different stages of development and recent issuance of long-term energy contracts, the Ministry of Mines and Energy hopes to increase the share of renewable energy in the mix from 1% in 2019 to 6% by the end of 2022. The primary benefactor of the recent efforts to move towards clean sources of energy is the northern department of La Guajira, which offers strong prospects for solar and wind energy.


Colombia’s electricity network is made up of the SIN and the non-interconnected zones. The SIN accounts for 98.9% of total energy capacity and is made up of all interconnected networks, including the generation system, the national transmission system, the regional transmission system and the local distribution system. It has over 200,000 km of transmission lines, divided into more than 500 circuits, with average power of 62 KVA. The distribution and sale of electricity in Colombia is carried out by 29 network operators, accounting for 1.9% of GDP. UPME identifies the country’s needs in terms of generation, transmission and distribution capacity, and publishes this information in its annual “Generation and Transmission Expansion Plan”.

In an effort to optimise and strengthen energy supply on the Caribbean coast, in 2015 the government awarded the Plan 5 Caribe to Celsia, a division of infrastructure investment company Argos Group. The project, which included the construction of five new substations, the rehabilitation of 11 more and the construction of 50 km of distribution lines, was completed in March 2019 for a total of COP480bn ($164.2m). The company has a number of other projects spread across Valle del Cauca, all related to the construction or rehabilitation of substations.

The Colectora Project, which includes the construction of a substation with a 500-kV capacity and associated transmission lines, is under way to ensure energy output from renewable projects in La Guajira. “Colectora will initially transport 1050 MW, while the potential of wind power in La Guajira is estimated at 15 GW,” Astrid Álvarez, CEO of Grupo Energía Bogotá (GEB), told OBG. According to Á lvarez, the government is planning the construction of a 750-km stretch from the Colectora substation to Cerro Matoso, with a capacity of 4000 MW. The aim is to enable large and stable output from various renewable projects throughout the region. “One of the most important factors that will modernise the sector are challenges in the structure and regulatory framework in the distribution segment,” Siegert told OBG. “This comes as the move to implement smart grids and smart meters is underway,” she said.

Regional Connectivity

As of early 2019 there were two interconnections between Colombia and Ecuador, with a consolidated capacity of 500 MW. While Colombia traditionally exports energy to its neighbour, according to the Ecuadorian authorities, it imported 3150 MWh in 2018. Discussions are ongoing regarding the interconnection project between Panama and Colombia, which broke new ground in 2019. The Panamanian authorities signed a deal with indigenous tribes living along the border, which allows for the development of environmental, social and technical studies along the corridor. The 500-km transmission project is expected to have a capacity of 400 MW and include a 130-km underwater stretch. When this project is completed, Colombia will be connected to the Central American Electrical Interconnection System, giving it beneficial access to six markets in Central America.


With 3% of the country still using costly diesel generators as an energy source, renewables are considered a viable substitute to provide electricity to remote regions. In mid-March 2019 the Ministry of Mines and Energy called for public comment on draft legislation providing subsidy support for off-grid photovoltaic projects in remote and rural communities. The scheme aims to offset operation and maintenance costs for small-scale, off-grid generation capacity in areas not serviced by main power, replacing local liquid fuel-fired generators. The legislation would open avenues for domestic PV service providers to expand their market reach while supported by a solid fiscal base.

Likewise, the programme Colombia E2, spearheaded by business growth management company iNNpulsa Colombia, seeks to support the implementation of innovative solutions in order to increase energy access across La Guajira.


With the new administration’s pro-business, pro-investment stance, in addition to improvements in international prices, the Colombian oil and gas sector is anticipating increased investment over the coming years. Its efforts to diversify and strengthen its energy mix by capitalising on the country’s abundance of renewable sources and further developing its hydropower segment will likely continue to attract the interest of new industry players. As Colombia’s proven oil and gas reserves begin to decline after having reached their peaks, the announcement of new exploration activities and the first fracking pilot project are reassuring signs that the sector is moving in the right direction.