Colombia's oil dream is slowly bursting

The President of the Colombian Petroleum Association (ACP), Francisco Lloreda, told reporters during a press conference that a fall in Colombian oil production will be “inevitable” in 2016, when production could fall as low as just 900,000 barrels per day. The ACP predicted that the fall in production would then continue through 2018, possibly resulting in a production drop as high as 220,000 barrels per day. Production in December 2014 finally averaged the government’s goal of 1 million barrels per day, so this decline would represent a loss of 22% of current production levels. Nonetheless, production in 2015 is expected to average out to approximately 1 million barrels per day.

Lloreda also pointed out that 50% of the ACP’s members have indicated that they will cut back on exploration in 2015, meaning that it will be very difficult for Colombia to build up its oil reserves.  He added that the ACP presented Colombian President Juan Manuel Santos with a series of proposals to lessen the impact of the oil crisis on the Colombian economy. The proposals included ways of lowering operational costs, mechanisms to boost exploration, and facilitating the termination of projects that are not viable.

The collapse in oil prices has worried many officials in the Colombian government about how the trend would impact the government’s revenues and their departments’ budgets. However, Colombian Defense Minister Juan Carlos Pinzón should be less worried than the rest of his colleagues. In an interview on Monday, Colombian Finance Minister Mauricio Cardenas told reports that even if a peace agreement is reached with the FARC, the defense budget will be maintained, at least initially. Given the drop in oil revenues, and anticipated spending on post-conflict social programs that could cost as much as $40 billion, money will have to come from somewhere. Barclays analyst Alejandro Grisanti recommended that Colombia shift spending from defense to social programs, but the government clearly does not see it the same way.