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Colombia’s energy sector: high profits and latent security risks

Oilfield Technology,


Colombia’s energy sector is going through a crucial period in time that will define its position in the global market. In 2012, Colombian state oil and gas company Ecopetrol surpassed Brazil’s Petrobras as the firm with the biggest market capitalisation in the region while it is expected that the oil industry will invest up to US$120bln in Colombia over the next 10 years. Yet, pipeline infrastructure security remains a major concern that will continue to threaten the sustainability of the industry. Pipelines, refineries and personnel continue to be a target of attack by rebel groups and organised crime.

Rebel threat groups

The leftist rebel groups Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN) continue to target energy infrastructure. Between late 2012 and early 2013 the number of attacks increased in the context of the ongoing peace talks between FARC leaders and the government and a continuous military offensive against the groups. Although the ELN and the FARC have traditionally operated separately and have tended to fight over territorial control, in February 2013 the two groups announced an alliance against Colombian energy and mining infrastructure as a strategy to fight large and profitable exploration projects.

Focus of attacks

The rebel groups’ coordination is particularly felt in the northeast of the country bordering Venezuela, where both guerrillas have a strong presence. The 780km long Caño Limón-Coveñas pipeline crossing over the northeastern departments of Arauca, Norte de Santander and Sucre is the most frequently attacked pipeline in the country. One of the largest attacks against it took place in February 2013 and disrupted the transport of over 200,000 barrels of crude for several days. The high-capacity Transandino pipeline in the southern border with Ecuador has likewise been the target of attacks in recent months. Although most of the affected assets are usually owned by Ecopetrol, private companies are also impacted by the violence, as in March 2013, when FARC rebels blew up the Mirto-1 oil well operated by US company La Cortez Energy and UK’s Emerald.

Motive for violence

The destruction of energy assets has several objectives: to have an impact on public opinion, to reduce the government’s income and to make company operations in these areas economically unviable. Additionally, it forces the government to use armed forces for protecting the projects instead of fighting the guerrillas directly. Extortion of public and private oil and gas companies is also an important source of income for the rebel groups, who have suffered a reduction in their cocaine incomes. The price that rebel groups charge in clandestine negotiations for not disturbing cargo caravans in the two-day trip between the Casanare and Arauca provinces is reported to go up to US$30k. Furthermore, security measures aimed at protecting personnel against the latent kidnapping risk add up to the variable costs that companies operating in Colombia have to take into consideration. Moreover, the wave of attacks has caused delays in the construction of the Bicentenario pipeline, which is Colombia’s largest oil infrastructure project. However, attacks against the construction site and a more negative perception of the sector amid the attacks against the Caño Limón-Coveñas pipeline have already delayed the completion of the project by at least six months.

Impact on profitability

In general, insecurity has had significant consequences for production. In July 2012 Ecopetrol lowered its production goals from 800,000 to 780,000 barrels a day after four oil wells in the Putumayo region were temporarily suspended as a security measure. Severe environmental damage is also often a by-product of the attacks. In January 2013, an attack against the Caño Limón-Coveñas pipeline caused a spill into the river Margúa, which supplies water to the municipalities of Arauca and Arauquita. Ecopetrol was forced to put a contingency plan in place, which ultimately increased the long-term costs of its operations.

Prospects, risk and reward

There are high expectations that the current peace talks with FARC rebels, as well as a potential new round of talks with the ELN, will ultimately lead to a peace agreement that will reduce the risks for energy infrastructure. However, even if such accord is reached, there is a likelihood that smaller fragments of the rebel groups who oppose the ceasefire will continue to target the sector. Nonetheless, there remains a positive forecast for the country. Amid the ongoing energy boom it will remain a highly attractive market for companies intent on working in a highly profitable, albeit high risk environment. Those which manage to implement adequate risk mitigation measures will be most likely to benefit for the gains promised by the Colombian government.

Author:
Lorena Gutierrez is an Americas specialist from AKE, a global security and risk management firm. For more information on AKE’s services please email: intel@akegroup.com or call +44 (0)20 7816 5454. You can also view the website at www.akegroup.com.

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/09052013/colombia%E2%80%99s-energy-sector-risk-and-reward-271/

 

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