New Market Research Report: Colombia Oil & Gas Report Q2 2014

From: Fast Market Research, Inc.
Published: Fri May 02 2014

Colombia's energy sector seems to be headed for an inflection point over the medium term. In the past decade we have seen strong liquids production growth, buoyed by improvements to the business and security environment as well as favourable contract terms. However, a tendency toward smaller finds, as well as a recent uptick in attacks on pipelines has begun to suggest some downside pressure on production over the longer term. Unlocking the country's offshore and unconventional resource potential could be a crucial step in helping to bolster its proven reserve levels, supporting greater long-term production gains, though we note that right now such exploration is still at a nascent phase. This implies both significant upside and downside risks to the country's long-term liquids production and reserve growth forecasts.

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Recent trends and developments:

* Colombia's attractive fiscal regime, contract terms and regulatory environment has seen significant growth in foreign investment into its oil sector, helping to propel production growth of more than 70% since the mid-2000s. As of 2013, preliminary monthly data from the EIA show that production has exceeded the 1mn barrels per day (b/d) threshold, and by 2018, we forecast crude, NGL and other liquids production to reach 1.3mn b/d. While we expect the upward trend to continue, we note that growth could slow unless we see the country address its more modest reserves picture, as well as the recent deterioration in the security environment.
* At this stage, we are currently forecasting reserves growth reaching 2.7bn barrels (bbl) by 2018, with modest further growth through the end of our forecast period. While oil discoveries are made on a regular basis in Colombia, discoveries have tended to be of modest size. The country's crude reserves represent about seven years' worth of current supply, but with production growth increasing fast, Colombia has not yet managed to move beyond this level.
* Although most investment has been aimed at tapping Colombia's oil reserves, the effect of rising investment over the past few years has also begun to be 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 an estimated 11.7bn cubic metres (bcm) in 2013 to 14.0bcm in 2018.
* Rising oil demand is fuelling investment in the downstream sector. Ecopetrol's 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 improvements at Ecopetrol's Barrancabermeja refinery should help to increase the plant's yield of gasoline and middle distillates .

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