As Colombia ramps up oil exports, it has ‘growing pains’
These are boom times in Colombia’s oil patch.
Currently the seventh-largest foreign supplier of crude oil to the United States, Colombia is on track to play a bigger role — and soon. The South American country is ramping up production and expects to hit 1.5 million barrels a day by 2015. That would be a 50% increase over current output.
It’s a huge turnaround from a decade ago, when Colombia’s oil production was in sharp decline. Leftist guerrillas controlled a third of the country, and Colombia was in danger of becoming a failed state. Since then, improved security, helped along by $7.6 billion in U.S. aid, has attracted oil companies back. Now officials are setting their sights on production levels undreamed of just a few years ago.
“That will put us in the major leagues,” said Mauricio Cardenas, the country’s new mining and energy minister, who has a doctorate in economics from UC Berkeley. After three years at the Brookings Institution, he joined the cabinet last month to help manage the nation’s energy development.
Rising production means another stable source of supply for the U.S., the destination for half of Colombia’s crude exports. The two countries are firm allies and have just signed a trade agreement. Colombia is looking to tap its oil wealth to finance infrastructure, education and social programs to end four decades of civil conflict.
But there is a downside. Labor unrest has hit southeastern Colombia this year, briefly halting production at two big fields and prompting the government to send 400 police to maintain order. Residents near oil fields complain of increasing environmental and road damage.
In an interview with The Times, Cardenas, 49, agreed that the country’s energy industry is experiencing “growing pains.” A comprehensive labor agreement now being drawn up to better define labor rights, community benefits and companies’ obligations to nearby communities should calm the waters, he said.
Explain why Colombian oil production is booming now.
For decades people wondered why Colombia was not a significant oil producer when it was surrounded by countries like Venezuela and Ecuador that were. The oil reserves were there, but not the conditions to attract exploration. With the country’s transformation over the last 10 years, we have been able to bring in many companies, and the results speak for themselves. Colombia is now reaching 1 million barrels a day of production, almost double five years ago.
And suddenly Colombia has become a global coal player as well?
We now produce at an annual rate of 75 million tons per year and by 2015 will reach 100 million tons, nearly all of which we export. That’s not big league in terms of production, as the U.S. and Russia produce several times that amount. But it is in exports. We are in the top five or six global coal exporters. The energy and mining sector will attract a record $10 billion in investments this year.
We are like the last frontier. People realized that this is a country where it’s relatively easy to get coal out of the ground. It’s been a matter of improving security and having a business-friendly government. That’s what has done the trick. The world’s biggest mining companies are all here or on their way. They are positioning for huge growth in coal exports as China and India economies demand it.
But you are experiencing growing pains?
That’s the right phrase. Infrastructure is a real bottleneck. Oil pipelines are close to full capacity and so we are transporting a lot of our oil by truck, which bothers surrounding communities. We are building a new $4-billion pipeline but we need more capacity. In the case of coal, the need is even more dramatic. We need more railroads to ship it all, but there are conflicts over environmental impacts with towns in the right-of-way corridors. One line parallel to an existing railroad is being built and is 80% complete, but we need another one. So it’s a challenge for us.
Labor protests have disrupted oil production on and off since July, despite efforts by the government to mediate. Over what issues?
The [oil fields] create expectations. Communities want to improve their standards of living, have better schools, health services, water and roads. The growth of the energy sector has outpaced the delivery of those benefits, and so communities demand more attention. That’s the origin.
And communities are upset with all those trucks hauling oil and tearing up roads.
That’s part of the equation as well. So we need to develop a new model for these extractive industries with better standards in terms of bringing development to these communities. We are in conversations with the Colombian Petroleum Assn. trade group to come up with a new framework, which will include labor, health, environment, and education and all the aspects that have to be part of it, including what the government’s responsibilities are.
The idea that oil companies come here and just pay taxes and royalties is not a valid proposition. We need to get them involved in the development of these communities. That’s the new model.
After vandals destroyed some of its worker housing, Pacific Rubiales Energy [a Canadian company that is Colombia’s second-largest oil producer] threatened to shut down its oil field and exit the country if the government could not maintain order.
Pacific Rubiales was understandably nervous about things happening at the field, but the police and military were there and able to respond so that at the end of the day, production was not interrupted. I responded by saying we opposed the vandalism but questioned these types of ultimatums by private companies. We are providing the conditions for them to operate without the need of those threats.
Where will Colombia be as an energy producer in 2020?
In terms of coal, we should certainly be producing 150 million tons a year. In oil, we will be producing between 1.5 million and 2 million barrels a day, which will make us a major player. Venezuelan Foreign Minister Nicolas Maduro was here last week and he asked when are we joining OPEC. I responded that we haven’t discussed it. We’d have to look at the pros and cons. We aren’t thinking about that now. But the fact he asked shows people are taking us seriously as an oil producer.
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