Booming energy industry draws investors

Over the past decade the South American country of Colombia has experienced unprecedented foreign direct investment (FDI), principally driven by the country’s booming energy sector.

President Juan Manuel Santos has demonstrated his commitment to expanding this FDI, enacting important reform measures to create incentives for international investors and establishing a political climate of stability.

Moreover, President Santos is especially committed to developing the country’s oil and gas sectors, which make up around 30 per cent of Colombia’s GDP, steadily rising at a rate of about 5 per cent with projected sustained growth.

Although in the past the energy infrastructure was a frequent attack target for the country’s guerrilla groups, Santos’ tough policies toward curbing this violence has resulted in a marked reduction in attacks, with only 84 attacks in 2010 compared to hundreds in the early 2000s.

Largely because of these political factors, as well as a decline in reserves, the industry had been struggling prior to 2008. Today, however, oil production in the Latin American country, much of which takes place along the foothills of the Andes and in the jungles of the Amazon, has risen considerably, with crude oil reserves totalling 2 billion barrels this year up 100 million from last year.

Colombia uses its strategic location in the northwestern corner of the South American continent, with ports scattered along the coastline, facing both the Pacific Ocean and the Caribbean Sea, to export the majority of its oil. While the country itself only consumes around 298,000 barrels per day (bbl/d), it can produce up to 951,000 bbl/d, a number which has increased significantly since 2008 at 595,000 bbl/d.

The United States is the biggest consumer of Colombian oil, importing just under half a million bbl/d in 2011. China and Japan are also top export countries for the Colombia’s crude oil. 

Nationally, the number one energy source within Colombia is oil, followed by natural gas and coal, largely utilising hydropower for electricity.  A local leader in power supply is the energy company Enertotal S.A., which has a presence in 117 municipalities locally and more than 19,000 customers.

Providing comprehensive electricity services, Enertotal uses the latest technology in telemetry to allow customers to measure and maximise their energy usage. Its quality service, which includes 24-hour emergency support and constant advice on regulatory, tariff and technical issues, is helping Enertotal thrive within the Colombian market, with the goal of becoming the national leader by 2020.

Another remarkably successful national energy company is Ecopetrol, the largest oil and gas producer, controlling 60 per cent of the petroleum industry. The company, which is among the 25 largest energy companies in the world, ranks 333 on the Fortune Global 500 list.

Although Ecopetrol is state owned, the government is planning to allow foreign investors to buy shares and reduce its stakes to about 80 per cent. Additionally, foreign oil companies are allowed full control in their stakes, which has permitted as many as 70 international companies to compete within Colombia with Ecopetrol in the upstream sector.

Besides the booming oil industry, natural gas also plays an important role in the energy sector with natural reserves of 4.7 trillion cubic feet in 2012, increased from 4 trillion one year before. It was not until 2007 that natural gas production outweighed consumption, allowing for exportation.

With some 3,000 kilometres of pipelines for natural gas, Chevron is Colombia’s top producer, providing the nation with roughly 65 per cent of its needs. Both Chevron and Ecopetrol have export agreements with neighbouring Venezuela.
The third integral component of Colombia’s energy industry after oil and natural gas is coal. The Latin American country is a world leader in coal exports, ranking number four internationally in 2010.

This high level of exporting is in part due to a relatively low consumption of coal within the country compared to production. For example, in 2010, 82 million short tons of coal were produced in Colombia, but only 5.6 million were consumed.
Production also continues to rise, with 2010 setting national records in coal yield and the government expecting these figures to double by 2019.

The largest national coal producer and exporter is the privately owned Carbones del Cerrejón, operating the largest coal mine in Latin America and the largest coal pit in the world, located in La Guajira, a province in the north of the country. The pit produces 32 million tons of coal per year and includes a 150-km railroad as well as a seaport, from where shipping to principally Europe, followed by the United States and other Latin American countries takes place.

Moreover, Cerrejón employs over 10,000 people, 99 per cent of which are Colombian nationals. Its internationally acclaimed social programmes, on which Cerrejón works closely with the Colombian government, seek to promote sustainable and fair development for the locals of La Guajira. Because of Cerrejón’s tremendous profits and success, it has additionally become a considerable source of tax revenue for the federal government.

After Cerrejón, the second-largest producer is the US-based Drummond Company. In 2011, Drummond solidified a partnership with the Japanese firm Itochu Corporation, when the Asian company invested roughly $1.5 billion to expand operations. The goal is to increase exports to Japan and other Asian markets.

The energy industry is a sizable component to Colombia’s recent overall economic success, with coal representing about 15 per cent of all export earnings. The government expects further growth in the energy industry to be consistent with the overall economic rise of Colombia.