Colombia recently signed a deal with South Korea for the development of several oil projects in Colombia. In an email interview, Eric Farnsworth, vice president of the Council of the Americas, discusses Colombia's oil sector.
WPR: What is the current state of Colombia's oil sector, including extent of reserves and level of infrastructure?
Eric Farnsworth: Simply put, Colombia has enjoyed an energy renaissance over the past decade. As noted in a recent Americas Society/Council of the Americas report on Colombia's energy sector security is vastly improved and successive governments have placed an emphasis on attracting investment through regulatory stability, open trading arrangements and a new, more competitive framework for oil exploration and production. It hasn't hurt that Venezuela's mismanagement of its own hydrocarbons sector has pushed highly talented petroleum engineers, managers and workers to seek their fortunes across the border in Colombia. Former President Alvaro Uribe set the stage for the current boom. Under current President Juan Manuel Santos, oil production has continued to grow, reaching 952,000 barrels per day in August, up 20 percent from a year ago. Proven reserves stand at nearly 2 billion barrels, and exploration continues at an up-tempo pace.
Predictably, infrastructure has lagged behind this rapid growth, particularly the construction of pipelines to transport oil from new fields. Roads, railways and ports are also outdated or overwhelmed. Santos recognizes the need to modernize Colombia's infrastructure, not just for oil, but for all sectors. In April, the Congress passed his National Development Plan, which aims to address infrastructure deficiencies.
WPR: Who are Colombia's major international partners?
Farnsworth: Because many of the oil fields in Colombia are small, the major players tend to be independent oil companies, with the exception of Colombia's state-owned oil company, Ecopetrol. The three largest producers in Colombia are Ecopetrol, Pacific Rubiales (Canada) and Occidental (United States). Other Canadian companies, local Colombian companies, the U.K.'s Perenco and Brazil's Petrobras round out the top 10.
WPR: How is oil revenue likely to impact the country as well as its regional and global relations?
Farnsworth: Though inflation is now for the most part in check, Colombia has fought inflationary pressures that are largely the result of foreign investment in the oil, gas and mining sectors. The Santos administration is currently implementing various measures to ensure the Colombian peso is not overvalued. Santos proposed a series of fiscal reforms that Colombia's Congress passed in June. In addition to limiting Colombia's debt and fiscal spending, new legislation creates a "rainy day fund" with the earnings from oil, gas and mining projects. The fund will be held in dollars outside Colombia, therefore limiting the impact of commodities earnings on the value of the peso. Similar to Chile's copper fund, this stabilization account would be accessed during economic downturns. Also in June, Congress approved the president's proposal to change the allocation of royalties so that producing regions do not benefit disproportionally from the rest of the country; revenues will heretofore be more equally shared nationwide.
I would not anticipate that oil revenue will unduly impact Colombia's regional relations, although large finds will attract additional attention from the United States, Brazil and extraregional producers such as China, South Korea, India and Spain. Asian nations are increasingly interested in Latin American energy resources generally, and Colombia is no different in this regard. So long as transparency and contract stability are honored, the energy sector should be an area that Colombia is able to use to reinforce its relations globally.
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