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Andean Energy Panel: A Closer Examination of Colombia and the Andean Region's Energy Policy

March 14, 2007

Introduction

Global energy demand continues to escalate at an unprecedented rate, with few regions offering as much potential to satisfy consumption needs as the Andes. While attention has largely focused on oil reserves in Venezuela and gas reserves in Bolivia, Colombia also offers an attractive environment for oil and gas exploration. 

To further explore energy policy in the Andean Region, with a specific focus on Colombia, the Americas Society and Council of the Americas convened media and public sector experts to look at energy reform, energy integration, and oil production and exploration. Speakers included: Armando Zamora, Director of the National Hydrocarbons Agency, Colombia; Jonathan Wheatley, Brazilian Correspondent, Financial Times; and Eric Farnsworth, Vice President of the Council of the Americas, Washington. Michele Levy, Senior Director of Public Policy Programs, moderated the discussion. This summary provides an overview of the main points from the discussion.

Background

According to the International Energy Agency, world oil demand in 2007 is expected to increase by 1.45 million barrels per day (bpd) to a total of 86 million bpd. Although lower than initial projections, U.S. and Chinese oil demand are some of the main drivers behind the growth in oil demand. With 75 percent of Latin America’s oil reserves, the Andean Region is an important and strategic source for the U.S., Western Hemisphere, and global energy markets.

Summary

Energy policies differ among the Andean countries, with natural resource endowment playing a large role in policy formulation. Countries that had not originally anticipated the boom in oil and gas prices are now seeking to renegotiate many of the contracts that did not take into account possible price fluctuations. According to our speakers, Colombia offers the best energy contract terms in Latin America and has become a highly attractive market for international investors.  Panelists also emphasized the importance of political agendas that are supportive of investing in exploration and production.

Colombia’s energy reform

Colombian reserves and production of petroleum began to decline sharply in 1988, leading the way for it to become a net oil importer. But, in 2003, a government-backed energy policy program restructured the Colombian state oil company, Empresa Colombiana de Petróleos (Ecopetrol), into a state owned, public stock-holding corporation, Ecopetrol S.A.  Governed by its own by-laws, the Colombian government no longer oversees day-to-day functions. Instead, the Agencia Nacional de Hidrocarburos (ANH) was created to carry out administrative and regulatory functions.  ANH now possesses exploration and license development oversight. With more autonomy, Armando Zamora pointed out that Ecopetrol S.A. has boosted its exploratory activities, allowing Colombia to regain its energy self-sufficiency. He further noted that newly discovered reserves should allow the country to maintain this self-sufficiency until 2020. 

Production and Exploration

Three years after the creation of Ecopetrol S.A. and ANH petroleum production levels have generally stabilized albeit with steady annual increases. In 2006, the company surpassed its annual activity goals and recorded the highest seismic acquisition activity to date. According to Zamora, licensing continues to be high, with more exploration and production contracts being assigned than originally targeted. In 2006, Ecopetrol S.A. drilled 56 wells—14 more than its goal—and recorded the second highest number of wells drilled since 1980.  Net direct foreign investment flows reached the highest level in the last ten years.  Today, Colombia’s petroleum prospects and attractiveness to foreign investors is now on par with Brazil and even more attractive than most other countries in the region. 

Colombia possesses most of the key factors needed for investment, with it only falling short in discrete areas. One area of concern is physical security. But, Zamora emphasized the significant gap between the perceived security environment and the on-the-ground reality.  As a result of cooperation between the armed forces and the government, companies can operate without fear for their safety. He noted that the difference between perceived and actual safety is less pronounced among Latin American and the Southeast Asian investors.

Strategic projects planned for the coming years such as annual bidding rounds, the creation of a petroleum information data bank, and renewed exploration activity should strengthen Colombia’s energy production position. Zamora noted that new high potential basins are being explored in the foothills and the Caribbean, both onshore and offshore. New petroleum frontiers appear to be promising in the Pacific, the Cayos, and Putumayo. 

Energy Integration

Existing infrastructure is being upgraded so that Colombian oil can be provided to Venezuela, Central America, and Ecuador. Jonathan Wheatley highlighted the importance of Colombia’s oil trading with Brazil, particularly as Brazil attempts to position itself as a regional leader for political and economic integration. However, Brazil’s relatively slow growth and its focus on strengthening economic ties outside the region have slowed oil cooperation between the two countries.  

Energy exploration and production will increasingly depend on the willingness of governments to cooperate and forge strategic agreements. Eric Farnsworth noted that energy has historically been one of the key areas of cooperation between the U.S. and the hemisphere.  Speakers agreed that countries generally share political and economic interests in the energy sector. For example, U.S. energy demand complements Colombian investment in exploration projects.  

 


This summary is published by the Americas Society/Council of the Americas, non-partisan organizations founded to promote better understanding and dialogue in the Western Hemisphere, working in collaboration to advance their respective missions.  The Americas Society is a public charity described in I.R.C. Section 501(c)(3), and Council of the Americas, a business league under I.R.C. Section 501(c)(6). The positions and opinions expressed in this publication are those of the authors or guest commentators and speakers and do not represent those of the Americas Society/Council of the Americas or its members or the Boards of Directors of either organization. No part of this publication may be reproduced in any form without permission in writing from the Americas Society/Council of the Americas.