Colombia Oil and Gas Report Q3 2012

BMI View: Colombia’s oil sector has seen impressive levels of growth since the mid-2000s and we expect that positive trend to continue throughout our 10-year forecast period, with oil production expected to surpass 1mn barrels per day (b/d) in 2013. This growth will be driven by an improving security situation, which should allow for expanded exploration activities, improved transport infrastructure and an attractive fiscal regime. Main trends and developments we highlight for Colombia’s Oil and Gas sector are:

An improving security situation and the country’s attractive fiscal regime are likely to continue to attract significant levels of foreign investment into Colombia’s oil sector. Production has grown by more than 70% since the mid-2000s and we expect that upward trend to continue. Production will come close to achieving the government’s 1mn b/d target in 2012 at 990,000b/d before surpassing that target in 2013. By 2016, we forecast production topping 1.34mn b/d, making it one of Latin America’s top oil producers.

Although most investment has been aimed at tapping Colombia’s oil reserves, the effect of rising investment is being felt in the gas sector. Gas production has nearly doubled in the last decade and we see scope for strong growth in the years ahead. Output is forecast to rise from 11.0 billion cubic metres (bcm) in 2011 to 13.5bcm in 2016.

Production will continue to outpace consumption, leaving room for growing levels of exports. The bulk of these exports will continue to flow via pipeline east into Venezuela. However, we are now forecasting small-scale liquefied natural gas (LNG) exports starting 2013. Pacific Rubiales, operator of the country’s largest oil field, will lead the LNG export charge. The company plans to build a 0.7bcm per annum export facility on the Caribbean coast, where it will target regional markets such as Panama, the Dominican Republic and Puerto Rico.

Rising oil demand is fuelling investment in the downstream sector. Ecopetrol’s Bolívar refinery in Cartagena, the country’s second biggest facility, will be upgraded over the course of 2013 and 2014. The expansion project, which received a US$2.84bn loan from the US export-import bank, will see the plant’s capacity rise from 80,000b/d to 165,000b/d. Furthermore, the 50,000b/d expansion of Ecopetrol’s Barrancabermeja refinery should bring the plant’s capacity to 300,000b/d. We see the country’s total processing capacity rising from 336,000b/d in 2011 to 466,000b/d by 2014.

Although the country has been successful attracting rising foreign investment, state-run Ecopetrol will remain the engine of growth. The company plans to spend a total of US$8.5bn in 2012 as part of a broader capital expenditure plan that will see it invest over US$80bn between 2011 and 2020. In 2012, nearly half of the total capex will be channelled into production activities with a further US$2.025bn going towards transport infrastructure and US$1.4bn earmarked for new exploration. Colombia’s dependence on energy prices leads to high volatility in the country’s export revenues. Our assumptions of tight supply due to booming demand in emerging markets is clearly an opportunity for the country. As a result, we assume OPEC basket oil prices to increase from US$107.52 per barrel (bbl) in 2011 to US$111.47/bbl in 2012, thus creating an upside risk for the Colombian macroeconomic outlook.