Unless major new oil fields are found, Colombia will run out of fuel within six years. The government fails to take action necessary to prevent the potential collapse in employment, exports and development.
In 2012, the Colombian business and economics newspaper Portafolio released two significant and seemingly contradictory news articles. The first published in March bore the headline “Without Oil, Colombian Exports Don’t Grow” whilst the other, printed in June read “Oil and Oil Derived Imports Continue to Increase.”
Any reader could have been forgiven for thinking they were talking about two different countries, two different decades or even two different newspapers with distinct ideologies. Yet it was the same paper running articles just three months apart, reflecting on something which is seriously wrong in Colombia. It is worth stating that these articles, although carrying somewhat misleading headlines also contained a strong element of truth that anyone with links to Colombia should be concerned about.
Colombia, as of February 2014, has 2.2 billion barrels of proven crude oil reserves, a figure which means that the country ranks fifth in South America.
Most of these reserves are allocated to the export market which is currently the fourth most important in Latin America. Export growth has been nothing short of staggering in the last nine years and Colombia has fed its oil exports since 2004 by increasing production by some 77% (that equates to 400 thousand barrels per day).
This year’s target is 1.2 million barrels per day and will again predominately feed into the export market – a fact supported by the production to (national) consumption ratio published by the Oil and Gas Journal last year which indicates that for every 3.31 barrels produced, only one stays in Colombia.
Oil wells running dry
This level of export surplus defies common sense because at only a million barrels per day production Colombia will, according to the British Petroleum 2013 report, run dry in only six years. Increase daily production to 1.2 million barrels, find nothing else and six years will be more like five and half. Short sighted politics and the economic games of the last two government administrations will literally exhaust the country’s reserves.
According to the governmental department UPME, Colombia will be a net oil importer within two election campaigns. Colombia is not Venezuela, which even at 2.7 million barrels per day has a reserve to production ratio of more than 250 years(!).
A further consideration is that the lower quality heavy sour crude with high sulfur content, the type produced in Colombia, as well as neighboring Ecuador and Venezuela, tends to command lower prices on the international market than the light sweet crudes produced elsewhere.
The low quality crude requires further processing at special refineries – and the distinct lack of them in Colombia explains why, despite the country’s current status as net oil exporter, the Colombian consumers pay the prices they do at the pump. According to Bloomberg, 2013 prices relative to wages were already more costly for the average Colombian than the average Argentine, Brazilian Chilean, Mexican or U.S. citizen.
Meanwhile at the pump
A gallon will cost you 21% of your daily salary in Colombia. In Brazil and Argentina this drops to 16% and in the US to a mere 2.4%. If this rises to 25% for example, the quality of life for many already impoverished Colombian families will fall further.
A significant amount of Colombian oil comes back as refined hydrocarbon products with a more expensive price tag. Diesel fuel, especially, needs to be brought in to satisfy home-based demand. In fact, refined oil-derived products top the import list for 2013, as do private transport vehicles which just goes to show how important a car and the ability to run it is to the average Colombian.
On that fact alone, dry wells by 2020 will undoubtedly have a tremendous ripple effect on Colombian society, the economy and business. It is also likely to spell political backlash given that it are the politicians who signed the papers that allowed state-run oil and gas company Ecopetrol, among others, to keep digging. Prices at the pump will rise.
Beyond prices, oil reserve exhaustion is likely to blight the lives of many more families with unsustainable growth arguably fueled by greed, almost certainly fundamental to the near future collapse of the now booming hydrocarbon sector and the sweeping mass unemployment it will entail.
So, what about the future of Colombia’s economy?
Newspaper El Tiempo in 2012 reported a figure of 23,841 people working in the oil sector, some 70% of which are Colombians – where will these people go? And, what of the thousands more that make a living indirectly from petroleum? The lack of economic diversity and investment in the service and creative industries, the bread and butter of more developed nations, will certainly not help them.
Another million dollar question will be who and what will fill in a big chunk of the oil and gas sector’s $4.0 billion (USD, 2011) foreign direct investment once the oil stops coming? Surely, the multinationals will pack up and leave faster than Moses led the Israelites out of Egypt. The new export sales of which $97 out of $100 comes directly from oil will also dry up as will the livelihoods of the new middle classes who reap the rewards from them. And who and what will stop those people falling back into the trappings of poverty?
Some may say at least Colombia has the royalties to fall back on and from there the government can stimulate and re-grow an economy heavily depleted by the absence of oil. That by selling oil cheap the country is “clawing back” badly needed funds for infrastructure projects. That with royalties the government can lift the 46% of Colombians who live on less than US$ 1 a day and the 40.9% which experience what the United Nations Development Programme terms multidimensional poverty, an indicator that takes into account access to health and education – in addition to daily income, out of poverty.
But royalties, as my coming article in Colombia Reports will show, are for many people little more than a pipeline dream. For most people and within as little as six years the question posed will be a simple one: what did we do with our oil while we had some?
The only answer that one could possibly give is that Colombia sold it on the cheap and helped developed world economies build a legacy in their nations at the expense of its own. The sourest taste of this how crude affair is that it really did not need to be this way.
This article is the first of a series on Colombia’s mining and minerals industries