Starting in July, 140,000 barrels per day will course through the Bicentenario pipeline which is crucial to meet the country’s oil production that has surged 80 percent in seven years. Fully complete by 2016, the 960-kilometre pipeline will transport 600,000 bpd of mostly heavy Colombian blends by 2016 to the U.S. Gulf Coast refineries and elsewhere. Colombia’s crude output has crossed one million in a few short years, and could reach 1.6 million bpd.
“More than 70 percent of the territory has still not been explored as we had such a violent situation for so long,” Federico Renjifo Vélez, the country’s minister of mines and energy, said in an interview, referring to the country’s long-standing enmity with the Revolutionary Armed Forces of Colombia (FARC). “We have finally secured our territory and that’s why we have a number of companies who want to explore big areas. Because we are neighbours with Venezuela and Brazil, there is expectation that there could be strong potential.” Most Canadian energy analysts expect Alberta oil sands to find a home in Gulf Coast refineries due to declining Mexican and Venezuelan production, but they seem to ignore the Colombian production surprise which could displace some Canadian heavy.
Mexican oil exports to the U.S. have fallen to about 972,000 bpd from 1.4 million bpd during the past six years, while Venezuelan oil exports have also slid by about 25 percent to 906,000 bpd over the same period. During the same period, Colombia’s U.S.-bound shipments have tripled to 401,000 barrels per day, according to the U.S. Department of Energy. By March 2013, it was edging closer to 480,000 bpd. “Despite a 200,000 bpd increase in Canadian bitumen production in 2012, US PADD 3 (Gulf Coast) imports of Canadian heavy oil actually fell by 40,000 bpd in 2012 due to transport constraints,” said the International Energy Agency in a recent report. “Colombia’s oil has filled the gap, reaching a 10 percent share of the U.S. Gulf Coast heavy crude import market.” To be sure, Canadian oil still accounts for a third of all U.S. imports, but Colombian exports could well be nibbling away at Alberta’s piece of the pie.
Pacific Rubiales has emerged as a major player in the country, producing 116,779 barrels per day in the first quarter, mostly through its heavy oil Rubiales, Quifa and Cajua fields in the country. “We continue to benefit from the market and trading advantages currently enjoyed by Colombia heavy oil production, achieving a premium to WTI pricing in the first quarter of almost $8 per barrel on our total crude oil production sales volumes,” said CEO Ronald Pantin, as he announced double-digit production growth in the first quarter.
Venezuela has also had some role to play in Colombia’s oil fortunes. President Hugo Chavez sacked 19,000 oil workers from state-owned Petróleos de Venezuela (PVDSA) in 2003, and many of the disaffected skilled workers hopped over to Colombia where they contributed to a resurging Colombian oil industry. Pacific Rubailes’ Mr. Patin and other top brass, for example, originally worked at the PVDSA. But with Mr. Chavez’s death this year, could Venezuela slowly reverse its brain drain? “We don’t think that Venezuela has a lot of interest in big foreign investment,” said Mr. Velez. “Meanwhile, we have very clear rules, and we have attractive contracts and royalty terms.”
But lack of large oil discoveries has dented optimism although some projects are only just beginning to get under way due to regulatory delays, Francisco Rodríguez, an analyst with Bank of America Merrill Lynch wrote in a June 10 note to clients. FARC’s propensity to blow up pipelines to stir up trouble also remains a concern, although a new round of talks between the government and the Marxist group is under way. “It is certainly possible that Colombia will find large oil deposits capable of sustaining a further significant expansion of its economy,” Mr. Rodriguez said. “However, the results of all of this exploratory activity have been relatively disappointing thus far.” Indeed, the country’s small crude reserves of 2.3 billion barrels — seven years’ worth of current supply — remain a key challenge.
In a bid to raise reserves to 41 billion barrels by 2030, the government has empowered Ecopetrol to seek joint ventures. Colombia also generated US$2.6-billion from 115 exploration blocks last November, auctioned to 37 companies including Exxon Mobil Corp. and Royal Dutch Shell Plc.
In June, Mexico’s president Pena Nieto said he plans to end state-owned Pemex’s 80-year-old monopoly of the country’s oil production this year. Hugo Chavez’s death has also fuelled hopes that Venezuela, home to the world’s largest repository of crude oil, could become more business-friendly over time. Meanwhile, Brazil raised a record US$1.4-billion for its first oil and gas auction in five years in May. “Venezuela is still a mess,” said Darren Engels, vice-president, institutional research at First Energy Capital Corp. “In Mexico, you hear positive things, but that stuff does not happen overnight, as we all know. Brazil looks like it is opening up to transparency and inviting more people in. But Colombia seems to be the leader in South America.”