After being rocked by a harsh 2020 where the March 2020 oil price collapse and the coronavirus pandemic sharply impacted operations Colombia’s economically vital petroleum industry is struggling to recover.
Even attempts by the national government in Bogota to reactivate the economy and crucial parts of the economy, including the hydrocarbon sector, are failing to gain traction primarily because of elevated political turmoil and a long-running security crisis. First-quarter 2021 gross domestic product (Spanish), despite climbing 1.1% year over year, was a worrying 9% lower than the previous quarter when Colombia’s economy was still impacted by various measures aimed at controlling the pandemic.
That came on the back of a disastrous 2020 for Colombia with GDP shrinking by almost 7% because of the severe fallout from the pandemic. The failure of President Duque’s administration to fully reopen the oil industry will have a marked impact on Colombia’s already fragile economy, where petroleum accounted for a third of all export earnings during the first half of 2020.
Crude oil is also a major earner of fiscal income for a cash-strapped Bogota, which is facing a 2021 budget deficit of nearly 9% of GDP. To close the fiscal gap, in late April 2021, President Duque tabled a tax reform bill that would have hiked taxes for almost all Colombians and most businesses including the hydrocarbon sector. That triggered nationwide anti-government protests that lasted roughly six weeks and led to the deaths of 45 protestors at the hands of authority.
The roadblocks and various community blockades which emerged in response to the Duque administrations heavy-handed tactics forced onshore drillers to shutter operations in many parts of Colombia impacting the Andean country’s oil production. By the start of June 2021, Colombia’s crude oil output had fallen to a multi-year low of 650,884 barrels per day because of the blockades. That was well below the one million barrels per day which Bogota has long held as an ideal production level and was only achieved during 2013 and again in 2015.
Since then, Colombia’s hydrocarbon production has been in decline which along with sharply weaker Brent pricing since the late-2014 oil price crash has weighed on the crisis-riven country’s economic performance and government income. June 2021 production data (Spanish) from the Ministry of Mines and Energy shows that the economically crucial hydrocarbon sector is struggling to reactivate despite the recent oil price rally which sees Brent up by nearly 5% since the start of 2021. Colombia pumped on average 694,151 barrels of crude oil daily during June, which was 1.33% less than a month earlier, 4.9% lower year over year, and the lowest petroleum output in over a decade. Natural gas production, on the other hand, rose 9.75% month over month to 1.065 million cubic feet per day although that was 2.83% less than the same period a year earlier.
Source: Colombia Ministry of Mines and Energy, U.S. EIA.
Colombia’s total hydrocarbon output for the month was on average 877,751 barrels of oil equivalent per day, which was 1.33% lower than May 2021 and 4.47% less than a year earlier.
Importantly, the number of operational rigs continues to slowly edge upwards. The Baker Hughes international rig count shows 19 active drill rigs at the end of July 2021, which is one greater than a month earlier and nearly four times the five active rigs for the same period a year earlier.
Source: Baker Hughes and U.S. EIA.
The rising rig count bodes well for higher oil production if the security environment does not deteriorate further, and anti-government protests re-emerge.
ADVERTISEMENT
The latest production numbers indicate that Colombia’s economically vital hydrocarbon sector is struggling to reopen despite significantly higher oil prices since the pandemic. The poor performance during June 2021 can be attributed to onshore petroleum producers being forced to shutter operations in response to anti-government protests and blockades. Diminished oil production will weigh heavily on an already fragile economy, where GDP shrank 6.8% during 2020, and likely see the economy not perform a strongly as Colombia’s central bank anticipates. The bank recently hiked its forecast from GDP growth of 6.5% to 7.5% for 2021 anticipating a faster economic recovery from the nationwide anti-government protests because of falling unemployment and improved business confidence. That will depend on whether the Duque administration can rein in violence with 2021 set to be the most violent year in Colombia in a decade, reduce the social tensions which manifested as nationwide protests and attract foreign investment.
Investment from foreign energy companies is key to driving greater petroleum production and increased exploration activity to bolster meager oil reserves. Heightened political turmoil, the threat of more anti-government protests, high breakeven prices, which average around $45 per barrel, and an ongoing security crisis are all sharply impacting the confidence of foreign energy investors. The concern triggered by those issues is being magnified by polls showing leftist former guerilla Gustavo Petro who is a senator and ran for Colombia’s presidency against Duque in 2018 will win the next presidential election. Petro during the 2018 vote campaigned on an anti-oil industry platform where he sought to reduce Colombia’s economic reliance upon petroleum and prevent the introduction of hydraulic fracturing to Colombia.
By Matthew Smith for Oilprice.com
More Top Reads From Oilprice.com:
- Do Lithium Batteries Pose A Major Fire Hazard?
- Big Oil Unjustly Under Fire For ‘Dirty’ Hydrogen
- China’s Industrial Slowdown Could Kill The Commodity Rally
