A Conversation with Simón Gaviria
With no time to lose, Colombia’s newly appointed Director of National Planning has gotten to work on an ambitious agenda.
A Publication of The Dialogue
WASHINGTON—Colombia’s government has developed a roadmap for expanding the country’s oil and natural gas reserves in the medium and long term, focused on offshore exploration and the development of unconventional resources, Deputy Energy Minister Diego Mesa said May 10 at an event at the Inter-American Dialogue. Colombia’s reserves, at approximately 1.8 billion barrels of oil and 3.9 trillion cubic feet of gas, are expected to last only around six and 11 years, respectively, with demand for gas expected to overtake domestic supply by early 2022.
“When we look at reserves, we have a critical situation,” Mesa said. “We need to have a planning pace that is very quick, that has results, soon.” The government has mainly focused on four angles, Mesa added, which are promoting onshore exploration, establishing incentives for enhanced production of mature fields, aggressively promoting Colombia’s offshore areas and developing unconventional resources.
The administration has been moving forward in each of these aspects since President Iván Duque took office last August, Mesa said. For example, the tax reform passed last December established incentives for capital-intensive industries, including oil and gas, which, among other provisions, made the value-added tax for capital equipment in the sector entirely creditable toward corporate income tax, and all levies on financial transactions will be 50-percent creditable for the next two years and 100-percent creditable after 2021.
The government has also modified the offshore contracting model. “We made some important changes, and we were able to sign five [exploration and production] contracts in the last couple of months,” Mesa said. The contracts have been signed with major oil companies, and the administration is working on finalizing four additional contracts. Mesa expects to have a total of nine offshore contracts in the coming months, with exploration campaigns set to start as soon as next year.
However, it is the development of unconventional resources through the hydraulic fracturing technique, or fracking, that could be “a game changer for the Colombian oil and gas sector,” Mesa said.
Though a sensitive political issue due to concerns with the technique’s potentially negative environmental impact, developing unconventional resources could multiply Colombia’s reserves of both oil and gas by four, according to state oil company Ecopetrol and other firms in the country, Mesa said. It would also boost production by nearly 50 percent and bring significant increases in foreign direct investment and fiscal revenues. Importantly, given the state of country’s reserves, it would make Colombia self-sustainable for the next 30 to 40 years, he added.
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