Could Fracking Save Colombias Oil Industry?
Despite being wracked by nationwide anti-government protests the prospects for Colombias beaten-down oil industry are improving. Most of the protests and blockades of major roads have been ended allowing onshore drillers to recommence operations. Another important development is the progress of allowing hydraulic fracturing in the strife-torn Andean country. This controversial technique for extracting oil and natural gas has faced strong and lengthy opposition in Colombia. It was touted by crisis-driven president Ivan Duque during late-2018 as a means of resolving a critical problem facing Colombias oil-dependent economy, its lack of proven oil and natural gas reserves. There have been no major hydrocarbon discoveries in Colombia since 2009. Energy ministry data shows (Spanish) that at the end of 2020 proved reserves were 1.8 billion barrels, an 11% reduction compared to 2019, which is sufficient to support six years at the current rate of production, and just under 3 trillion cubic feet of gas with a production life of almost eight years. The direness of the situation is underscored by the petroleum industry is responsible, during 2020, for nearly a fifth of government income, 3% of gross domestic product, and 28% of exports by value. Those numbers highlight just how important it is for the national government in Bogota to boost Colombias economically crucial hydrocarbon reserves if it is to head off a major economic crisis. Fracking has long been held as a solution with it estimated that Colombia holds up to seven billion barrels of recoverable shale oil and 30 trillion cubic feet of shale gas. If those vast hydrocarbon resources can be successfully accessed, they will significantly boost Colombias hydrocarbon reserves and production life, averting a fiscal crisis and giving the economy a healthy boost. Nonetheless, there has been significant opposition to fracking in Colombia. In 2018, the countrys highest administrative court the Council of State established a moratorium against fracking. That was upheld in 2019, but the tribunal found that fracking projects were not banned. In the latest development, a bill aiming to ban fracking and the exploitation of unconventional oil and natural gas deposits in Colombia was effectively sunk (Spanish). Only half of the representatives supporting the bill arrived last Saturday to debate its approval and a vote made last week ended with the bill being delayed. This effectively stymies the implementation of the bill, indicating that it will not be approved by congress, seeing the end of a major hurdle to allowing fracking in Colombia. Earlier this year, the head of the National Hydrocarbon Agency (ANH  Spanish initials), Armando Zamora, stated that he believed the moratorium would be lifted in 2022 once comprehensive fracking regulations had been established. Fracking pilots have been approved and are underway in Colombias Middle Magdalena Valley Basin. It is the La Luna geological formation that is being targeted in the basin. Source: U.S. EIA. La Luna has been compared to the prolific Eagle Ford shale. In 2013 the ANH released survey data to support its claim that the geological formations rock quality is similar to and in some cases better than many North American shale plays. Some sources believe that it could hold hydrocarbon resources of up to 10 billion barrels of oil equivalent, making it a priority target for Colombias energy ministry and hydrocarbon regulator. Related: U.S. Government Considers Making Ransom Payments Illegal  Colombias national oil company Ecopetrol was awarded approval last November for the Kale project near the municipality of Puerto Wilches in the Middle Magdalena Valley Basin. Source: Ecopetrol. The state-controlled energy major expects to invest $80 million to bring the operation online, with Ecopetrol currently establishing the monitoring plan and gaining community approvals. In early April 2021 global energy supermajor ExxonMobil was awarded the only contract from the second unconventional round. Exxon was awarded the rights to the Platero project, also near Puerto Wilches in the Middle Magdalena Valley. The global energy supermajor has committed to investing $53 million in developing the asset with a seven percent local content requirement. The project is focused on exploring the unconventional geological formations of the VMM-37 Block which is 70% controlled by Exxon as the operator, with the remaining 30% held by Canadian oil junior Sintana Energy. VMM-37 Block Middle Magdalena Valley Basin  Source: Sintana Energy. Exxon drilled the A3 Manati Blanco well in 2015 on the block but it was never tested, and operations were suspended pending an environmental permit being awarded. That was blocked because of the controversy surrounding the introduction of fracking in Colombia and the eventual moratorium imposed on the practice. While the latest developments bode well for the future of fracking in Colombia, the ANH is finding it difficult to attract the desired level of interest from foreign energy companies in unconventional oil exploration and production. Exxon submitted the only valid bid during the ANHs April 2021 round, with the two other participants Drummond and Ecopetrol declining to make offers. The uncertainty surrounding the future of fracking in Colombia, coupled with an escalating security crisis and recent nationwide anti-government protests which forced onshore energy companies to shutter production, is weighing on investor sentiment. While most of the oil production shut-in by the anti-government protests and related blockades has been brought back online, considerable political turmoil remains. There are long-standing grievances among various civil society groups which were amplified by the COVID-19 pandemic that Bogota has failed to address. Roadblocks, oilfield invasions, and community protests against Colombias economically vital hydrocarbon sector remain ever-present threats, particularly with the oil industrys social license deteriorating in many communities where it operates. The considerable uncertainty surrounding the future of fracking and Colombias oil industry is being magnified by former leftist presidential candidate and senator Gustavo Petro taking a massive lead in the polls. Those numbers indicate that at this time he will win the 2022 presidential elections. Petros 2018 candidacy and subsequent lead in the polls prior to the May 2018 electoral round unnerved financial markets, the oil industries, and mining industries, notably because he campaigned (Spanish) on a platform of reducing Colombias dependence on oil as well as opposing fracking. It was Ivan Duques eventual victory that saw much of that nervousness dissipate. The sharp increase in political turmoil, Bogotas inability to reactivate the economy, and heightened insecurity are all weighing on the outlook for fracking in Colombia. By Matthew Smith for Oilprice.com  More Top Reads From Oilprice.com: