Politics or profit

Is Colombia’s offshore future in doubt?

Colombia’s oil and gas industry has endured a challenging couple of years following a significant deterioration in production due to the Covid pandemic. Despite rising oil prices exacerbated by war in Europe, the country has not tapped any new major oil discoveries in over a decade. Could offshore gas herald a renewed dynamism in the sector? Some pundits believe that Bogotá’s offshore oil potential could rival that of the continent’s leading exporter, Brazil. Barriers stand in the way, most notably in the form of Gustavo Petro (“Petro”), the leftist presidential candidate currently leading polls. Hostile to the industry, the sector is waiting to see whether campaign rhetoric will match political reality.     

An executive at an oil and gas production company based in Colombia explained, “Despite rhetoric and an uncertain policy horizon, major oil and gas companies are continuing offshore exploration in Colombia’s Caribbean shelf. Shell is conducting drilling on the KGG block – if results are positive, the discoveries could be a game changer for the supply of natural gas in Colombia. Shell will partner with Ecopetrol – we can expect confirmation regarding deposit sizes in the next two to three months.”

“Despite rhetoric and an uncertain policy horizon, major oil and gas companies are continuing offshore exploration in Colombia’s Caribbean shelf.”

An executive at an oil and gas production company, Colombia

Colombia’s presidential election is likely to end up in a run-off scheduled for June. Petro wants to end oil production whilst building more economically productive industries, notably in agriculture and manufacturing. But does politics over profit make sense at a time when there are signs that Colombia’s coastal waters hold considerable petroleum potential with four recognised offshore basins along the Caribbean coast and a further situated on the Pacific coast? Offshore oil exploration and production holds many advantages over onshore crude oil operations in Colombia. Key are the risks associated with a volatile onshore security environment and deteriorating social license with most local communities opposed to nearby industry operations. 

A public sector director with extensive knowledge of oil and gas extraction issues in Colombia said, “Hostility from the executive office would be a signal for investors to leave the country. Petro has spoken of substituting all oil production and with those resources thinking about exporting avocados and other agricultural products. This thinking is dangerous because the success of the current model lies in leveraging and rewarding private capital to take on the huge risks involved in developing this sector.” 

“Petro has spoken of substituting all oil production and with those resources thinking about exporting avocados and other agricultural products.”

A public sector director, Colombia

Petro’s campaign rhetoric has conveyed a degree of ignorance in regards not only to the financial dynamics of the oil and gas sector but so too in relation to Colombia’s growing fiscal challenges. The prudence of the country’s central bank means healthy reserves might dampen the impact of populist reforms, but the horizon is complicated in the longer-term.  

The industry’s main players including Ecopetrol, Shell, Oxy-anadarko, Noble Energy, Hocol, Petrobras, who have significant capabilities in this area have all expressed concerns about political hostility against the sector emerging from the Petro camp.   

Naturally, whenever the word “offshore” is uttered, “ESG” follows not far behind. “In relation to concerns, environmental and social issues are always an integral part of doing business today in Colombia”, added the public sector director, “It is understood by most companies and is no longer perceived as an item on a to-do list but as central to the success of the operation.” In politically polarised Colombia, it’s not ESG that’s worrying investors, it’s the next resident of the Casa de Nariño. 

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