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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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Could Fracking Help Save Colombia’s Oil Dependent Economy?

For almost a decade the Andean country of Colombia has been battling to significantly boost its low proven petroleum reserves and lengthen the production life of its economically vital oil industry. After a dearth of major oil discoveries, with the last mega oil discovery being the Caño Limon oil field in 1983 by Occidental Petroleum, the central government and the Colombian Association of Petroleum (ACP-Spanish acronym) believed that fracking could provide a viable solution. There have been numerous attempts by Bogota and the Colombian petroleum regulator, the National Hydrocarbon Agency (ANH-Spanish acronym), to launch unconventional oil exploration and production in the Andean country. 

In 2008 the regulator issued a study to identify the potential for unconventional hydrocarbon deposits in Colombia. By 2012, the Andean country had an environmentally permitted hydraulic fracturing project operating in the department of Boyacá. Then in 2013 and then 2014 the central government issued two decrees giving the green light to fracking despite the opposition of the Comptroller General’s office. In early 2014, at the peak of the last oil market upturn and U.S. shale oil boom, the government attempted to capitalize on Colombia’s considerable unconventional petroleum potential. That year the ANH offered, as part of its Colombia Open Round 2014 comprised of 97 blocks, where 19 type two areas were offered which were prospects for unconventional hydrocarbon deposits.

Before commercial operations could begin at the nine blocks licensed for fracking the State Council, Colombia’s highest administrative tribunal, placed a moratorium on hydraulic fracturing in 2018. This essentially dashed the plans of the Duque Administration to significantly increase Colombia’s dangerously low proven oil reserves and hydrocarbon output using the controversial oil and natural gas extraction technique. The State Council reaffirmed its temporary moratorium in September 2019 but surprisingly, after issuing its initial ruling stated that it did not ban pilot projects. Since then, Bogota and national oil company Ecopetrol have worked feverishly on establishing operational fracking pilots. February 2020 saw Colombia’s government issue Decree 328 setting out the broad requirements for hydraulic fracturing of unconventional oil and natural gas deposits. Resolution 40185 was issued on 7 July 20 providing further guidance on the requirements for unconventional oil and natural gas projects. Earlier this month the ANH finalized the framework and bidding terms (in Spanish) for fracking pilots. Related: The Shift Away From Fossil Fuels Is Inevitable Regardless Of Who Is Elected

The pilots, to be operated by national oil company Ecopetrol, are in the Middle Magdalena Valley which is believed to hold up to seven billion barrels of recoverable shale oil and natural gas. Colombia’s national oil company stated in July 2020 it was seeking to ink a deal with the world’s third-largest publicly traded energy company ExxonMobil. This will allow it to leverage off Exxon’s considerable experience in unconventional oil and natural gas production as well as its advanced technology. Private oil companies including ConocoPhillips, Drummond and Parex Resources are also believed to have developed and submitted plans for fracking pilots in Colombia. Earlier this month, energy minister Diego Mesa stated the first pilot wells were expected to be drilled by the end of 2021. The primary geological formation being targeted is the La Luna shale, described as a cretaceous shale-gas system in which the rock is the source, reservoir, and seal. That formation alone, according to the U.S. Geological Survey, is estimated to hold mean resources of 233 million barrels of shale oil and 639 billion cubic feet of shale gas. 

While there are a wide range of estimates, it is believed Colombia has up to 7 billion barrels of recoverable shale oil and up to 30 trillion cubic feet of recoverable shale gas. If those forecasts prove correct, the successful exploitation of Colombia’s shale oil and natural gas reserves through fracking would be a game-changer for a country which is highly dependent on petroleum production but only possesses limited conventional reserves. The threat posed to Colombia’s economic outlook by it only possessing around six years of proven conventional oil reserves is grave, particularly with investment in crude oil exploration and production remaining low because of sharply weaker oil prices. The forecasts indicating the considerable volume of Colombia’s shale oil and natural gas potential underscores the substantial potential fracking holds for Colombia. If fracking is successfully implemented, the controversial oil extraction technique will secure Colombia’s economic future and energy independence, both important goals for a fragile economy that has been battered by the COVID-19 pandemic.

By Matthew Smith for Oilprice.com

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