Oil revenue accounts for around 12% of the Colombian government’s income. This is why pundits have paid close attention to the outcome of the presidential election last week. The winner, leftist Gustavo Petro (“Petro”) is keen to put an end to oil exploration and believes that 12% can come by pivoting towards a greater emphasis on renewable energy, ramping up agricultural exports and stimulating the domestic economy through subsidies.
A petroleum engineer and director of an oil company in Colombia explained, “The Colombian oil sector views the election of Petro with concern and uncertainty. On the one hand, there is sympathy along environmental lines with his views on fracking and offshore oil exploration. On the other, the industry worries Petro does not fully understand or respect how important output is the government’s fiscal health.”
“The Colombian oil sector views the election of Petro with concern and uncertainty … [and] worries Petro does not fully understand or respect how important output is the government’s fiscal health.”
A petroleum engineer and director of an oil company, Colombia
During his campaign, Petro railed strongly against the industry. Curiously, he spent less time acknowledging the importance of the sector to funding Colombia’s generous social welfare programmes and tackling mounting debt.
This is a time when Colombia would do well to take advantage of soaring oil prices, exacerbated by the Ukraine crisis. Indeed, the international oil price has increased by over 60% over the last year – a fiscal boon for Colombia worth some USD 5.6 billion. Gustavo’s threats to end oil exploration means that public finances are likely to deteriorate again in 2023.
Unsurprisingly the Colombian Petroleum Association voiced serious alarm at Petro’s proposals. The industry body warned that ending new oil and gas contracts would jeopardise Colombia’s energy self-sufficiency and could make future energy imports more expensive.
A mechanical engineer who formerly worked for Ecopetrol explained, “Behind the rhetoric, we should remember that Ecopetrol gives the government between 10 and 20% of the national budget. Two big refineries, Cartagena and Barrancabermeja, produce significant amounts of fuel and other refined products of hydrocarbons. Both areas of production would be affected by Petro’s interventionist policies.”
“Two big refineries, Cartagena and Barrancabermeja, produce significant amounts of fuel and other refined products of hydrocarbons. Both areas of production would be affected by Petro’s interventionist policies.”
Petro has stated that upon assuming office he will look to establish a twelve-year deadline for winding down oil contracts, for developments which already have approval. Doing so would require legislative approval and would face major congressional opposition. This is not least due to the fact the incumbent administration of president Iván Duque signed no less than 69 exploration and production contracts during the bidding rounds.
Little surprise then, that the country’s oil sector stood firmly behind the campaign of conservative opponent Rodolfo Hernández. Both of our sources agreed that Petro may be forced to moderate his position after meeting with the head of Ecopetrol but given the expectation of leftist political forces in the country, which propelled his campaign forward, he will be unwilling to tone down his positions on fracking and offshore drilling.
Colombia’s oil sector has been nothing if not resilient and the more radical changes pursued by a populist left-wing government will face fierce opposition in the conservative dominated congress. This should provide some degree of reassurance to markets and to investors.