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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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How Colombia's Booming Cocaine Business Is Driving Rampant Oil Theft

  • Oil theft has soared in Colombia, partially fueled by increased coca cultivation, leading to a scandal involving Ecopetrol, the national oil company.
  • The oil stolen is often converted into a primitive form of gasoline, used in coca processing, contributing to both environmental degradation and the booming drug trade.
  • A network involving businessmen, government officials, and criminal bands has been uncovered, stealing oil worth at least $80 million and causing environmental and economic damage.
Barrels

Surging petroleum theft is weighing on Colombia’s beaten-down oil industry, which is beset by geopolitical headwinds on all sides. While attacks on energy infrastructure in the strife-torn country have plunged over the last decade, the volume of oil being stolen in Colombia is soaring. In the past, petroleum theft has been blamed on the myriad illegal armed bands operating in Colombia with higher oil prices and soaring demand for gasoline to refine coca leaf, a key step in the manufacturing of cocaine, the key drivers. In a stunning development, a massive scandal concerning the theft of millions of dollars of petroleum from Colombia’s national oil company Ecopetrol, which is 88% state-controlled, was exposed. Petroleum theft is a pressing problem in Colombia, with the volume of crude oil and derivative products being stolen regularly surging to record annual highs over the last few years. 

The theft of crude oil and gasoline from Ecopetrol-controlled pipelines is a lucrative activity for Colombia’s illegal armed groups, especially after petroleum prices spiked in the wake of Russia’s invasion of Ukraine. The primary driver for this phenomenon is the surge in Colombia’s coca cultivation and cocaine production, which hit yet another record high in 2021. The United Nations Office On Drugs And Crime (UNODC) reported that the amount of land under coca cultivation soared by 43% compared to a year earlier to a record 504,000 acres. This, the UNODC asserted, saw a record 1.1 million metric tons of coca leaf cultivated, which had the potential to produce 1,400 metric tons of cocaine hydrochloride, a 14% increase compared to 2020.

It is estimated that up to 75 gallons of gasoline is required to turn 600 kilograms of coca leaf into one kilogram of cocaine. In order to produce 1,400 metric tons of cocaine hydrochloride, somewhere in the order of 110 billion gallons of gasoline is required. 

It was estimated that around a quarter of all gasoline sold in Colombia was destined for use in the processing of coca, but a crackdown by authorities on the sale of fuel for illicit purposes forced criminal bands to look for alternate supplies. This is another reason petroleum theft is spiraling ever higher. Data from the Colombian National Police, quoted by Reuters, shows that in 2022, at least 3,447 barrels of oil per day were stolen, more than double the 1,453 barrels recorded for 2019. A sizable portion of the oil stolen in Colombia is converted into a primitive form of gasoline, known as pategrillo or cricket foot, because of its off-green color in makeshift jungle refineries, which are responsible for considerable pollution and environmental degradation. The rudimentary gasoline is then used in remote jungle laboratories to process coca leaves and power the machinery employed in those facilities.

It is not only the surging demand for gasoline to process coca leaves that is driving the sharp increase in petroleum theft. Higher oil prices, with Brent soaring a whopping 68% in 2021, made petroleum theft a profitable activity that is less risky than cocaine trafficking, which can lead to U.S. extradition and harsh prison sentences. The stolen oil, obtained by applying illicit valves to Colombia’s pipelines, is blended with legitimately sourced petroleum, thereby allowing it to be sold onto international energy markets. This is also a popular strategy for selling U.S.-sanctioned Venezuelan oil typically smuggled into Colombia from Maracaibo. The main target for illegal armed groups is the 479-mile 251,000 barrel per day Caño Limon pipeline, which transports petroleum from oilfields in the department of Arauca to the Caribbean port of Coveñas. The 190-mile 85,000 barrel-per-day Transandino pipeline, connecting the Putumayo Basin to the Pacific port of Tumaco, is also frequently targeted. Both pipelines pass through remote regions, which are hotspots for coca cultivation and controlled by illegal armed groups

In a startling turn of events, Colombia’s police uncovered (Spanish) an organized syndicate comprised of wealthy businessmen, government officials, international shipping companies and criminal bands working in cooperation with the last leftist guerilla group the National Liberation Army (ELN – Spanish initials) to smuggle stolen oil. The guerillas siphoned the petroleum from the Caño Limon pipeline through illegally applied valves, with it then shipped to various storage facilities for blending with smuggled Venezuelan crude and legitimate Colombian oil. Documents were falsified to give the final product legal provenance, with some oil being resold to Ecopetrol while other quantities were shipped internationally for sale onto global energy markets. Colombia’s criminal investigation directorate estimates at least $80 million of oil was stolen from Ecopetrol. Authorities are investigating the complex networks that facilitated the theft and sale of the oil, which has seen them seize assets, including oil tankers, trucks, refineries, properties, cars, boats and cash valued at $329 million. 

Oil theft has emerged over the last decade as a genuine problem for Colombia. Soaring demand for gasoline to process coca leaves due to rising record cocaine production is the primary driver of the illegal activity. Significantly higher oil prices since the end of the pandemic and a crackdown by authorities on illicit sales of gasoline makes the theft of oil from Colombia’s extensive network of easily accessible pipelines a profitable low-risk undertaking. Petroleum theft is not only an essential means of obtaining the gasoline required to refine coca leaves but is a profitable enterprise that is far less risky than cocaine trafficking, which attracts violence, extradition to the U.S. and lengthy prison sentences. For those reasons, oil theft, which is responsible for considerable environmental damage, will continue growing and remain a pressing problem for Colombia’s oil industry.

By Matthew Smith for Oilprice.com

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