BMI View : Colombia's energy sector has approach ed an inflection point . While the past decade has witnessed strong production growth due to improvements in the business and security environment, we caution that the country will experience downward pressure on oil production over the longer term. The tendency toward smaller finds, as well as recent increases in pipeline attacks have begun to show signs of decreased investor interest in Colombia's resources, as witnessed in the 2014 licensing round s. Furthermore, sustained lower oil prices have threatened the development of upstream and downstream projects by both national and international investors. Given ongoing below and above-ground challenges, we maintain a cautious stance toward the future of Colombia's hydrocarbon productivity.
|e/f = BMI estimate/forecast. Source: EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||1,022.0||1,009.7||990.5||971.7||948.6||926.0||908.6|
|Refined products production & ethanol, 000b/d||347.2||347.2||377.4||389.0||413.2||422.9||433.1|
|Refined products consumption & ethanol, 000b/d||347.3||357.7||368.1||379.3||391.0||404.5||419.0|
|Dry natural gas production, bcm||10.2||10.3||10.2||10.1||9.9||9.8||9.8|
|Dry natural gas consumption, bcm||7.6||8.3||8.8||9.2||9.7||10.1||10.5|
The key trends and developments in the Colombian oil and gas sector are:
Colombia's attractive fiscal regime, favourable contract terms, and amenable regulatory environment will be unable to secure continued production growth over the next decade. As such, we maintain our downbeat Colombian oil production forecast, as decreased revenues from lower oil prices undermine the ability of producers to maintain output levels. Moreover, the two main oil producers in Colombia, state-owned Ecopetrol and Pacific Rubiales, have both announced significant reductions to their 2015 capital expenditure (capex) plans, weakening upstream prospects throughout the course of our 10-year forecast period. We estimate output will decline by an average of -1.4% year-on-year (y-o-y) through to 2024.
Oil reserves will peak at 2.51bn barrels (bbl) in 2020, falling steadily thereafter in the absence of significant upstream discoveries. Colombia's falling below ground prospectivity will temper investor interest from the international community throughout this period and negatively impact reserves growth. Exploration activity will decline in spite of the country's favourable investment environment.
Major natural gas producers in Colombia have announced significant spending cuts, which will impact ongoing and future upstream developments. Cutbacks will be particularly acute in associated gas fields, which represent the majority of natural production. We expect natural gas production to decline by an average rate of 1.3% y-o-y over the next four years as producers recalibrate their capex within a lower oil price environment. Beginning in 2019, natural gas production will increase modestly by 1.0% y-o-y through to 2024 as crude prices begin to recover, encouraging greater upstream investment.
We believe natural gas consumption growth will outpace production gains over the course of the next decade, averaging 4.0% y-o-y versus 0.8% y-o-y through 2024, respectively. This will undermine Colombia's ambitious export plans, as exhibited by the delay of Pacific Rubiales' 0.5mn tonnes per annum (mtpa) floating LNG project in January 2015. This trend will convert Colombia into a net importer of natural gas by 2018, with the deficit to continue growing thereafter.
Rising oil demand is fuelling investment in the downstream sector. Ecopetrol's refinery in Cartagena, the country's second largest facility, is expected to complete its upgrades by mid-2015. The expansion project, which received a USD2.84bn loan from the US export-import bank, will see the plant's capacity rise from 80,000b/d to 165,000b/d. However, Ecopetrol's Barrancabermeja refinery upgrade project is under threat due to unfavourable project economics, highlighting mounting investment headwinds amid a lower oil price environment.
As the US remains Colombia's primary crude export market, the expected fall in US oil imports on the back of its own oil production boom will threaten Colombian exports. Therefore, an increasing amount of Colombian exports will be sent to Asian importers instead. In this regard, we note that we have seen increased interest, particularly from China and South Korea, in accessing Colombia's crude supplies.