• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 5 days The United States produced more crude oil than any nation, at any time.
  • 10 days e-truck insanity
  • 5 days How Far Have We Really Gotten With Alternative Energy
  • 9 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 8 days James Corbett Interviews Irina Slav of OILPRICE.COM - "Burn, Hollywood, Burn!" - The Corbett Report
  • 8 days The European Union is exceptional in its political divide. Examples are apparent in Hungary, Slovakia, Sweden, Netherlands, Belarus, Ireland, etc.
  • 10 days Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 10 days "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
Against All Odds American Oil Soars Under Biden

Against All Odds American Oil Soars Under Biden

Under most key metrics, the…

Oil Moves Higher on Fuel Inventory Draws

Oil Moves Higher on Fuel Inventory Draws

WTI crude rallied above $86…

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…

More Info

Premium Content

The Oil Price Slump Crippled Colombia’s Economic Recovery


Colombia is not a country usually associated with crude oil. Low proven petroleum reserves and falling production see Colombia rank well behind many of the global oil heavyweights, yet petroleum has emerged as a crucial economic driver and is responsible for a significant portion of export earnings and fiscal revenues. At the peak of the last oil boom when Brent was trading at over $100 per barrel, Colombia was pumping just over one million barrels daily, giving the economy a notable boost. By 2013, crude oil was responsible for 55% of exports, nearly 5% of GDP, and more than a fifth of government revenues. The rapid growth of Colombia’s oil industry triggered an economic miracle where the strife-torn country experienced strong growth with gross domestic product expanding at rates greater than many of its regional neighbors. During 2011 GDP expanded by 6.9% year over year and in 2013 by 5.1%. Colombia’s economic growth and currency are closely correlated to crude oil prices. The prolonged oil price slump which began in August 2014 has hit Colombia hard. GDP growth plunged, hitting a multiyear low of 1.4% in 2017 while the Colombian peso collapsed losing 37% between 2014 and 2019. The sharp drop in government revenue saw Bogota announce progressively larger budget deficits. After the devastating impact of the COVID-19 pandemic and ongoing oil price slump, there are increasing signs that Colombia’s economic miracle may have abruptly ended.

It is estimated that Colombia’s economy shrank by 8.2% during 2020, while the peso continued its catastrophic tumble, losing 9% over the course of the year. Those events along with a sharp decline in fiscal revenue saw Bogota’s budget deficit blow out to an estimated 9% of GDP. Despite the economy being expected to return to growth during 2021, annual GDP is only expected to expand by around 4%, one of the lowest growth rates growth in Latin America and below those experienced during the last oil boom. The impact of sharply weaker oil prices on Colombia’s economy is multifaceted negatively affecting exports, the balance of trade, government revenue, foreign direct investment, and the value of the Colombian peso. This is weighing heavily on the economy and foreign investment. Between the end of 2014 and 2019, Colombia’s exports declined by 28% to be worth $28 billion. That can be blamed on the sharp decline of crude oil exports, which over the period plunged 44.5% to $15.9 billion. This trend continued during 2020 with data from DANE (Spanish), Colombia’s statistical agency, showing that exports for the first 11 months of the year tumbled by 22.5% year over year because of an unhealthy 45.5% drop in oil exports. The value of the Colombian peso has crashed, losing 52% since the end of 2014 and 7% over the last year alone, seeing it ranked as the worst-performing currency thus far in 2021. Those developments are placing considerable pressure on Bogota’s finances and weighing on foreign direct investment, notably for Colombia’s economically vital hydrocarbon sector.

Related: Could Oil Prices Break $100 Next Year?

During 2020, investment in Colombia’s petroleum industry plunged (Spanish) 49% to $2.05 billion, the lowest level since 2016. Exploration spending plummeted to $350 million, or less than half of the $780 million invested during 2019. As a result, exploration and development activities virtually ground to a halt with only one operational drill rig at the end of May 2020. Even by the end of December 2020, there were only 14 operational rigs which were less than half of the 33 drill rigs reported a year earlier. This is particularly worrying because of Colombia’s limited hydrocarbon reserves. According to the energy ministry (Spanish), the country finished 2019 with 2.036 billion barrels of proven oil reserves with a short production life of just over six years. Those low oil reserves and limited production life threatens Colombia’s economic miracle, especially when it is considered that there have been no major oil discoveries in the Andean country for over a decade.  Those alarming numbers highlight the urgency with which Colombia needs to attract significant amounts of investment for its petroleum industry so as to significantly boost hydrocarbon exploration, oil reserves, and production. The peak industry body the Colombian Petroleum Association (ACP – Spanish initials) anticipates 2021 industry investment of $3.1 billion to $3.45 billion, which at the bottom end represents a notable 51% increase over 2020. Despite that hefty year-over-year increase exploration spending only increases moderately to range between $500 million and $550 million, of which almost half is earmarked for natural gas. While that is greater than 2020, it is still well-below pre-pandemic levels, indicating investment is not recovering as swiftly as required. Much of the anticipated spending will be direct to offshore projects on Colombia’s Caribbean coast, where the Andean country is hoping to replicate Brazil and Guyana’s considerable offshore success. Toward the end of 2020, Colombia’s energy ministry issued regulations governing offshore hydrocarbon exploitation which, along with the allocation of blocks for exploration and production secured an investment of $1.6 billion.

Related: The Oil Deal That Could Break Up Iraq

Regardless of the projected amounts, Colombia is still unable to attract the investment required to adequately expand exploration activity in order to significantly boost oil and natural gas reserves so that it can attain energy security. A range of issues is weighing on Colombia’s appeal as a destination for investment in its oil industry. Key are ongoing security risks in regional areas where central government control is weak. Oil pipelines are a popular target for sabotage, with the Cano Limon-Covenas and Transandino pipelines attracting most of the attacks. During 2020, there were 29 incidents involving the 210,000 barrel a day Cano Limon-Covenas pipeline and a similar number for the 85,000 barrel a day Transandino pipeline. Illegal valves used to syphon crude oil and other products from industry pipelines are an ever-growing problem. Much of that activity can be blamed on the National Liberation Army (ELN – Spanish initials) and FARC dissidents, which view Colombia’s petroleum infrastructure as legitimate targets.

Community blockades and oilfield invasions are also an ever-present hazard. The oil industry lacks a social license to operate in many areas and is perceived by some communities as a major environmental hazard. The ACP recently released a statement (Spanish) condemning the seizure of oilfields in Colombia’s Llanos Basin by different indigenous groups. Community blockades, which are also common, forced Gran Tierra Energy to shutter production at two of its blocks in the Putumayo Basin during 2019 and 2020. It is these hazards that contributed to Occidental Petroleum’s decision to sell its onshore Colombian oil assets in October 2020. Colombia’s high breakeven prices, pegged at $40 to $45 per barrel after-tax, and the discount applied to the heavy and medium sour oil grades produced in Colombia is also a disincentive for foreign energy companies. 

The outlook for Colombia’s economically vital petroleum industry is improving but there is a long way to go before it returns to pre-pandemic levels. A combination of a prolonged oil price slump, high breakeven costs, escalating security risk and growing international demand for sweet light crude oil grades is weighing on investment. For those reasons, Bogota may not be able to successfully reactivate Colombia’s hydrocarbon sector and expand proven oil reserves as well as production to the desired levels. This will sharply impact the economy making it impossible for Colombia to experience the strong rates of growth previously witnessed.

By Matthew Smith for Oilprice.com


More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • George Doolittle on February 10 2021 said:
    Columbia is one of the most powerful coal super powers on Earth so the Columbian economy is hardly hurting at all at the moment.

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News