In the wake of the COVID-19 pandemic, populist leftism is again sweeping across Latin America. In August 2021 former school teacher and leftwing politician Pedro Castillo won Peru’s presidency having campaigned on a platform centered on economic and social reform. A month ago, former radical student activist Gabriel Boric won Chile’s presidential election to become the youngest president of what is regarded as Latin America’s most developed country. Boric, throughout his campaign, expressed his contempt for neoliberalism along with a desire to finally bury dictator Augusto Pinochet’s legacy. This wave of leftist Latin American leaders is anti-extractivist with Castillo promising to increase Peru’s cut from mining and oil while Boric is determined to reduce Chile’s dependence on resource extraction and ratchet-up environmental regulation. Conflict-torn Colombia could be the next regional country to have a left-wing anti-extractivist president. Former leftwing guerilla senator Gustavo Petro holds a massive lead over his opponents in the country’s political polls.
Petro, who has made no secret of his opposition to resource extraction, is leading with 42% of support in the polls (Spanish) while former Medellin mayor and political moderate Sergio Fajardo is coming second with 18.9%. All Colombian polls show that Petro is in the lead with significantly more support than any other prospective presidential candidate. During the 2018 presidential campaign, which he narrowly lost to rightwing candidate Ivan Duque, Petro voiced his opposition to extractive industries (Spanish) with a plan to end coal mining in Colombia and limit petroleum industry operations. The senator’s plan was to achieve this by not renewing existing coal mining contracts upon expiry and winding down the oil industry once Colombia’s existing crude oil reserves are exhausted. He also outlined his plans to restrict large-scale open pit metals mining and focus on rebuilding Colombia’s agricultural sector.
In a November 2021 interview, with Colombia’s leading daily El Tiempo (Spanish), Petro reaffirmed his opposition to coal and petroleum extraction in the Andean country. The senator stated that his first decision on entering office, if victorious in next year’s presidential election, will be to end contracting for petroleum exploration in Colombia and eventually halt crude oil exports. Petro also outlined his plans to halt coal mining in Colombia, which is the world’s fifth-largest coal exporter, move to a non-extractive economy and considerably reduce the Andean country’s carbon footprint. The senator intends to end petroleum production once Colombia’s existing proven oil reserves of 1.8 billion barrels are drained, which at the current output (Spanish) of around 740,000 barrels per day will be in just over six years.
Petro also opposes hydraulic fracturing in Colombia. The controversial petroleum extraction technique, which allowed the U.S. to become the world’s largest oil producer, is banned in Colombia under a 2018 moratorium established by the country’s highest administrative tribunal the Council of State. The court’s ruling does, however, allow pilot projects. Colombia’s national oil company Ecopetrol has invested in two fracking pilot projects (Spanish), Kale and Platero, in the Middle Magdalena Basin. While Ecopetrol will be the operator U.S. energy supermajor ExxonMobil is partnering with the integrated energy major in the development of those operations. It is important to note that fracking could be the only means for Colombia to develop sufficient proven oil reserves to expand production and support the desired level of economic growth. Despite the Andean country being a major Latin American petroleum producer, it lacks the oil reserves of neighbors like Venezuela, Brazil, and Ecuador, which possess proven reserves of 304 billion, 12 billion, and eight billion barrels respectively. The Andean country’s lack of crude oil reserves along with a dearth of major discoveries poses a major threat to Colombia’s petroleum-dependent economy.
Petro’s plan to end Colombia’s economic reliance on fossil fuels has triggered considerable consternation. Colombia is Latin America’s third-largest oil producer, and the country’s hydrocarbon sector is a key driver of the economy and government revenue. Crude oil is responsible for nearly a fifth of Bogota’s fiscal income, creates over 3% of gross domestic product, and generates a third of Colombia’s export earnings making it the strife-torn country’s single largest legitimate export. Petro’s recent statements come at a crucial time for Colombia’s hydrocarbon sector which is struggling to reactivate after the pandemic. Oil production has fallen sharply because of a marked decline in investment and a range of disruptions related to anti-government protests as well as a deteriorating security environment.
Colombia’s peak industry body the Colombian Petroleum Association (ACP – Spanish initials) estimates that the county’s oil industry only received an investment of $3.1 billion to $3.45 billion during 2021. While that represents, at the bottom end, a notable 51% increase over the $2.05 billion received during 2020 it is still well below the $4.03 billion invested for 2019. According to energy industry consultancy Rystad Energy petroleum investment in Colombia likely will not return to pre-pandemic levels before the end of this decade. That is deeply concerning for an oil-dependent economy that only has 1.8 billion barrels of proven reserves which will only last for 6.3 years. Furthermore, Colombia’s petroleum production is declining, and this will not end until there is a significant uptick in investment and reduced geopolitical risk.
A combination of anti-government protests, rising violence predominantly linked to the cocaine trade, and heightened civil unrest all impacted Colombia’s oil production during 2021. By October, the Andean country was only pumping on average 740,265 barrels of crude oil and 1.1 million cubic feet of natural gas per day giving the country combined hydrocarbon output of 934,554 barrels of equivalent daily. Those numbers for oil represent a 1.5% decrease compared to 2020, a 3.3% increase for natural gas output, and a 0.52% decline in total hydrocarbon production. During the first 10 months of 2021, Colombia produced on average 734,231 barrels of crude oil, just under 1.1 million cubic feet of natural gas, and combined hydrocarbon output of 928,520 barrels of oil equivalent daily. The latest production figures are substantially lower than 2019 when crude oil production averaged 885,863 barrels and natural gas was 1.07 million cubic feet per day and total hydrocarbon output average was just under 1.1 million barrels daily.
Petro’s statements have sparked greater uncertainty for Colombia’s economically crucial petroleum industry. They will function as a disincentive to foreign investment for the industry which will impact industry operations and Colombia’s crude oil output hurting the economy, government revenue, and the value of the peso which is correlated to the Andean country’s earnings from crude oil exports. That could not come at a worse time for a crisis-riven Latin American country which, because of the pandemic and a sharp 7% decline in GDP for 2020, has experienced a considerable increase in poverty, unemployment, crime, and social unrest.
By Matthew Smith for Oilprice.com
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