Last year’s election of Gustavo Petro as President of Colombia was a major shift for a country that had never elected a left-wing head of state before. A former guerrilla fighter, President Petro is now following through on his electoral promises with important new policies related to the fight against drug-trafficking, international relations, and energy. In particular, Petro’s government recently announced that Colombia will not approve any new oil and gas exploration contracts.
A former Minister of Mines and Energy in Colombia remarked, “This shouldn’t come as a surprise to anyone. The government has been consistent about its plan to reform Colombia’s energy policy against fossil fuels and throughout Petro’s campaign it was made clear that they didn’t want to sign any new exploration or production contracts.”
“This shouldn’t come as a surprise to anyone. The government has been consistent about its plan to reform Colombia’s energy policy against fossil fuels.”
Former Minister of Mines and Energy, Colombia
With this policy shift away from fossil fuels, the government aims to maximise the potential that wind and solar have in the country, while promoting sustainable agriculture, production and tourism to boost the economy. The former minister continued, “They say they want tourism, they want agriculture. But the truth is that neither will be able to replace the lost tax revenue from oil and gas.”
It is a widely held belief that Petro’s plans to accelerate Colombia’s energy transition will blow a hole in the country’s finances: in 2021, oil and gas generated USD 1.3 billion in royalties for government coffers and half of Colombia’s export revenue, according to the Colombian Petroleum Association. At present, the country produces approximately 750,000 barrels per day and the Ministry of Mines guaranteed that the 330 hydrocarbon exploitation contracts, of which 117 are already in execution, will be respected.
Energy industry executives in Colombia accept the ultimate destination but did not believe the government had a credible route to get there, one told us, “There is a complete lack of coordination in the government. There are no technical experts involved, they are improvising and they haven’t explained how they will achieve their objectives. This has created unwelcome uncertainty for the industry and its investors.”
“There is a complete lack of coordination in the government. There are no technical experts involved, they are improvising and they haven’t explained how they will achieve their objectives.”
Executive, energy industry, Colombia
Importantly, with limited reserves, reducing exploration activities would force Colombia to import fuel at a high economic cost, believed the industry executive, “On the short to medium term, the energy transition will actually require increased volumes of gas as coal is replaced. If we’re not exploring and producing that means we will need to import the gas, most likely from Venezuela and for sure the tariffs will only go up! According to our estimates, by 2040 Colombia will need twice as much gas as it has today to make the transition at minimum cost. So, while hydrogen is being developed, while carbon capture and storage is being developed on a commercial scale, while batteries and storage are being developed, gas is the most viable alternative. For the government, our gas pays royalties, imported gas is just a cost.”
Petro’s move also puts into question the role of Ecopetrol, the state-owned oil company, which produces 60% of the fossil fuels in Colombia. Petro has already stated that it wants the company to focus on new ways of producing clean energy generation like green energy. The government renewed the board of the company last October to align the company’s goals to those of his administration. The industry executive noted, “Ecopetrol has a plan to vertically integrate in some areas and diversify into others but managing the energy transition will not be easy for them.”
So what is the government to do? Well, to guarantee a smooth green energy transition, Transforma, a Colombian think tank, suggests that the government should progressively phase out subsidies in fossil fuel intensive sectors and use the proceeds for sustainable economic development and diversification, including re-training the workforce for a green energy future. Only time will tell if Petro’s strategy is a failure or an example to be emulated by other countries in the region.