How Colombia can protect its natural gas supply

As we discussed earlier this week, Colombia is in danger of needing to import natural gas as soon as early next year because of the collapse in hydroelectricity caused by El Niño. On Friday, La República outlined Colombia’s options for securing its natural gas supply in 2016.

According to Juan Carlos Echeverry, president of Colombian state oil company Ecopetrol, Colombia must take advantage of Venezuela’s vast natural gas reserves and develop a closer trade relationship with its neighbor. Echeverry added that Colombia already has an importation contract with Venezuela, which will go into effect as soon as it is needed. Mines and Energy Minister Tomás González also noted that the natural gas pipeline between Cartagena and Sincelejo will come online on the first of December, allowing Colombia to extract an additional 50 million square feet of gas per day from the Sucre and Córdoba fields.

In other oil-related news, El Tiempo reported that the collapse in oil prices has affected not just Ecopetrol’s profits, but also its reputation. Ecopetrol fell from first to third in the annual Merco business reputation rankings, primarily due to the company’s depressed earnings.

Lastly, El Tiempo also reported that the closure of the Colombian border with Venezuela has lead to a sharp decline in Colombian gasoline inventories, in some cases below the minimum level required by Colombian law. This information has allowed industry experts for the first time to appreciate the scale of the gasoline smuggling industry that brought heavily subsidized gasoline from Venezuela to Colombia.

Oil production falls while copper production climbs in Peru

The Peruvian National Society for Mining, Petroleum, and Energy announced that the country’s production of liquid hydrocarbon averaged just 135,000 bpd in September of 2015, a 21% fall in production compared to the same month in 2014. Production fell for both oil and liquid natural gas. Nonetheless, these figures represent a slight increase over production in August of 2015.

In related news, the Peruvian Ministry of Energy and Mines announced the copper production figures for September 2015. Copper production shot up 41% over the same month in 2014, mostly due to the increased copper production by the country’s leading copper producer, the Antamina Mining Company.

Peruvian business journal La Republica reported on a study done by Peru Top Publications that concluded that only half of Peru’s mining project pipeline could feasibly be implemented. The inability to develop these projects could result in the loss of $32 billion in mining investment. The majority of these uncertain projects are still in the exploration phase, and PTP recommended that the country implement new strategies to stimulate the mining industry.

This study shows just how fragile the economic success of the Peruvian mining industry really is. The Peruvian government likes to cite these gaudy numbers about the billions of dollars that the industry brings to the country’s economy, but the government needs to be careful that the ongoing problems of social conflicts between large mining companies and local communities do not cause these investments to disappear.

Colombia's Ecopetrol to take direct control of Rubiales oil field

Earlier this week, the board of directors of Colombian state oil company Ecopetrol announced that the company would take direct operational control of the Rubiales oil field, starting in July 2016. The Rubiales field is the largest in Colombia, with an average daily production of 160,000 barrels of oil. Before, Canadian oil company Pacific Exploration & Production was responsible for the operation of the field, with Ecopetrol receiving 60% of the production and Pacific 40%.  

Pacific CEO Ronald Pantin downplayed the impact that the decision would have on the company, nothing that although the Rubiales field once accounted for almost 80% of the company’s reserves, it now represents less than 11%. He added, “We have a diversified portfolio, with 95 blocks in 7 countries, which represents a base of proven and probable reserves certified on December 31, 2014 of 510.9 million barrels.”

In other news, the Colombian Ministry of Mines and Energy signed an agreement with sixteen extractive sector companies to bring new financial transparency to the oil and mining industries. The outcome of this agreement will be an annual report that Colombian Mining Minster Tomás González said, “will make it possible for the country to have exact, opportune, contextualized, and socially useful information to strengthen transparency in the extractive sector and support sustainable local and national development.”

Signatories to the agreement include the leading lights of the Colombian extractive sector, such as Ecopetrol, Cerrejón, Cerro Matoso, Paz del Río, Mineros S.A., Equion, and Parenco. Civil society leader Fabio Velásquez told El Espectador that this document will allow the country to have an important and informed debate about the roll that the extractive sector should play in the future of the Colombian economy.

Accounting for lost investment in Peru's mining industry

Over the weekend, Peruvian business journal La República reported on comments made by Carlos Gálvez Pinillos, president of the Peruvian National Mining Society, summing up this difficult year for the Peruvian mining industry. According to Gálvez Pinillos, the administration of Peruvian President Ollanta Humala and its “poor capacity for governance” led to the paralysis or suspension of more than 10 mining projects, generating losses of more than $25 billion.

Gálvez Pinillos added that investment in the mining sector fell from $10 billion in 2014 to just $5 billion for this year, and a projected investment of just $2 billion in 2016. He blamed the government’s poor handling of the social conflicts between local communities and mining companies for the collapse in mining investment. He also credited the mining industry for lowering the poverty rates in communities with mining projects. Nonetheless, Gálvez Pinillos made no mention of the collapsing commodity prices that have also had a significant impact on mining investment in Peru.

Despite the high profile of the social conflicts with large mining companies, small farming communities in the Peruvian department of Puno have scheduled a 24-hour strike for this Wednesday to protest illegal mining in their region. According to local protest leaders, illegal mining has polluted the local Ramis River. The protestors are calling on the government to take action against the illegal mining activities.

In related news, HR Ratings explained that the biggest worries for investors in Peruvian debt are related to the country’s mining sector: specifically, the social conflicts between large mining companies and local communities, and the large number of informal miners operating in the country. Nonetheless, Peru enjoys low public debt, strong GDP growth, and a low rate of inflation.

El Niño to produce gas deficit in Colombia in 2016

­­On Friday, Colombian business journal Portafolio reported that, according to projections from Colombian state oil company Ecopetrol, the control will not be able to meet its demand for natural gas in 2016 with domestic production alone. Ecopetrol projects that, in the first quarter of 2016, domestic demand will be 1,331 Gbtu, while the gas on offer will total just 1,089, coming 18% short of meeting the demand.

Naturgas president Educardo Pizano explained that a surge in demand from the country’s energy sector created the imbalance. Alternatives suggested by Pizano and Ecopetrol president Juan Carlos Echeverry include purchasing surplus gas from Venezuela and authorizing environmental licenses for natural gas production from existing coalfields.

Last week, oil leaders and experts from around the region met in Bogotá to discuss options for stimulating the Colombian oil sector. Francisco Lloreda, president of the Colombian Petroleum Association, stressed that the country should focus on not just stimulating the oil sector in the short term, but also on creating a stronger oil industry for long term.

Nonetheless, Colombian vice minister for Energy, Carlos Eraso, enumerated the various measures undertaken by the Colombian government in the last year: “lengthening times for the exploratory phase, freeing up insurance, modifying offshore contracts, and technical regulations for non-conventional drilling.”