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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Colombia’s Cocaine Boom Is Fueling An Unprecedented Spike In Oil Theft

  • Colombia, as the world's largest cocaine producer, faces a 13% increase in coca cultivation, leading to heightened petroleum theft due to the fuel needed for cocaine production.
  • The theft is concentrated in key hydrocarbon sectors located in major cocaine trade regions, affecting pipelines like Caño Limon and Transandino.
  • The situation exacerbates the challenges faced by Colombia's oil industry, including environmental harm and reduced oil output, amidst President Gustavo Petro's policies against new hydrocarbon contracts and fracking.
Colombia

Colombia has a severe problem, cocaine. The South American country is the world’s largest producer of the narcotic, and it continues setting record highs for the cultivation of coca, the drug’s key raw ingredient, and cocaine production. The United Nations Office on Drugs and Crime (UNODC) reported for 2022 (Spanish) that the amount of land cultivated with coca soared 13% year over year to 230,000 hectares. This, the agency believes, possessed the potential to produce a record 1,738 metric tons of cocaine, yet another all-time high. The tremendous amounts of gasoline required to treat coca leaves, coupled with soaring cocaine production and higher oil prices, is causing petroleum theft in Colombia to spiral higher. This is sharply impacting Colombia’s economically crucial oil industry, which is already facing considerable uncertainty and battling heightened geopolitical risk.

Significant elements of Colombia’s hydrocarbon sector, including major producing sedimentary basins, are located in those regions where the cocaine trade dominates local economies. According to the UNODC, Colombia’s departments of Nariño, Norte de Santander and Putumayo dominate the country’s cocaine trade, with 65% of all coca crops concentrated in those provinces. Indeed, Putumayo, which saw coca cropping and the associated conflict explode in 2022, contains the prolific Putumayo sedimentary basin. That department, according to Colombia’s petroleum industry regulator (Spanish) the National Hydrocarbon Authority (ANH – Spanish initials), contains 39 million barrels of proved, or 1P, reserves as well as considerable industry infrastructure. Spiraling cocaine production, especially in Southern Colombia, is impacting petroleum industry operations. 

Surging coca cropping and cocaine manufacturing are driving an insatiable demand for gasoline and the other chemicals required to produce the narcotic. It is estimated that around 75 gallons, or 284 liters, of gasoline, is required to treat the approximately 440 pounds of coca leaves required to produce one kilogram of cocaine hydrochloride. Based on the UNODC’s 2022 estimate, which means 130 million gallons, or 492 million liters, of gasoline was consumed during 2022 to produce 1,738 metric tons of cocaine. This tremendous amount of gasoline combined with soaring oil prices, with Brent up by 3% since the start of 2023, makes it extremely costly for Colombia’s illegal armed groups, which control the Andean country’s cocaine trade, to acquire the required volume of gasoline.

For those reasons, there are considerable incentives for criminal bands to steal oil from Colombia’s extensive network of petroleum pipelines, which are amplified by strict government controls on the sale of large volumes of gasoline. The system of pipelines crisscrossing Colombia not only connects the Andean country’s oilfields to crucial port infrastructure on the Pacific and Caribbean coasts but also passes through remote regions. That network is the only cost-effective and efficient means of transporting crude oil across Colombia’s rugged terrain, where a lack of reliable transportation infrastructure has impeded economic development for decades. Quite a few of those remote areas, where there is little, if any, state presence, are where coca cultivation and cocaine production dominate local economies.

Colombia’s Caño Limon and Transandino, known by their Spanish initials OTA, pipelines are the main targets for petroleum theft. Various criminal bands and illegal armed groups tap the pipelines with primitive valves to extract the oil flowing through them, often leaving pools of environmentally damaging petroleum behind. The 251,000 barrel per day 481-mile long Caño Limon pipeline, which connects Arauca’s oilfields to the Caribbean port of Coveñas, has long been targeted for sabotage by leftist guerillas. The key piece of energy infrastructure passes through remote regions close to Colombia’s porous and conflict-strewn border with Venezuela, including the department of Norte de Santander, where the strife-torn Catatumbo region, Colombia’s third largest coca-growing area, is located. 

For decades, the Caño Limon pipeline was targeted attacks by leftist guerillas from the now defunct Revolutionary Armed Forces of Colombia (FARC – Spanish initials) and National Liberation Army (ELN – Spanish initials). Official records indicate the Caño Limon pipeline has suffered 1,600 attacks (Spanish) since commencing operation in 1986, most of which were bombings, but also includes the application of illicit valves to steal petroleum. While the volume of attacks fell significantly after the government’s 2016 peace agreement with the FARC and further after an August 2023 ceasefire with the ELN, the Caño Limon pipeline remains one of the top targets for oil theft. 

Indeed, the Caño Limon pipeline was at the center of a massive scandal regarding petroleum theft (Spanish) which was revealed in July 2023. A cabal of Colombian businesspeople operating in collusion with criminal bands, including the ELN, were stealing copious quantities of oil from the pipeline. Legitimate provenance for the stolen petroleum was created by falsifying documents allowing the syndicate to sell the oil onto international energy markets. The criminal coalition also mixed U.S.-sanctioned petroleum smuggled from Venezuela with legitimate Colombian oil for sale abroad. The criminal conspiracy existed for many years, with at least $80 million of oil stolen from state-controlled Ecopetrol.

According to Cenit, Ecopetrol’s subsidiary responsible for managing pipelines and related oil transportation infrastructure, there were 715 illicit valves applied to various pipelines (Spanish) across the network during 2022. A portion of those valves were affixed to the Caño Limon pipeline, a long-time target for petroleum theft, although a growing number were found on the 85,000 barrel per day 190-mile-long OTA pipeline. That crucial piece of oil industry transportation infrastructure connects oilfields in Colombia’s Putumayo Basin to the Pacific Coast port of Tumaco. Data from Cenit shows that during the first quarter of 2023, 146 valves were found applied to Colombia’s network of oil pipelines, of which 141 were affixed to the OTA pipeline.

The OTA pipeline passes through remote areas in the departments of Putumayo and Nariño, which rank among the top coca-cultivating regions in Colombia, where cocaine production dominates local economies. For those reasons, coupled with the tremendous amount of gasoline needed to extract the psychoactive alkaloid from coca leaves which is turned into cocaine, the volume of oil being stolen from the OTA pipeline is soaring. The stolen petroleum is processed into a primitive form of gasoline, known as pategrillo or cricket foot because of its off-green hue, in crude jungle refineries with scored of those facilities hidden in the rugged terrain around the Pacific port of Tumaco. This is responsible for growing environmental damage in the region, with oil staining the earth and leaching into water bodies in the areas where those clandestine refineries operate.

Soaring oil theft in Colombia is weighing on the country’s economically crucial oil industry, which is struggling to recover from the COVID pandemic. The latest data from the hydrocarbon regulator, the ANH, shows Colombia is pumping around 788,723 barrels per day compared to around 880,000 barrels per day prior to the pandemic. Rising insecurity, particularly in rural and remote parts of Colombia, is also weighing on oil industry operations. President Gustavo Petro’s decision to cease awarding new hydrocarbon exploration contracts and ban hydraulic fracturing is deterring investment. Soaring petroleum theft, with it estimated that an average of around 3,500 barrels of oil per day are stolen in Colombia or triple the volume reported for 2018, is sharply impacting an economically important oil industry already under considerable pressure.

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By Matthew Smith for Oilprice.com

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