Colombian oil industry tumbles amid violent protests
After being rocked by a difficult 2020 where the collapse in oil prices in March 2020 and the coronavirus pandemic severely affected operations, Colombia’s economically vital oil industry is struggling to recover.
Even attempts by the national government of Bogota to revive the economy and crucial parts of the economy, including the hydrocarbon sector, fail to gain traction, mainly due to heightened political unrest and a security crisis. for a long time. The (Spanish) gross domestic product for the first quarter of 2021, despite rising 1.1% year-on-year, was worryingly 9% lower than in the previous quarter, when the Colombian economy was still affected through various measures aimed at controlling the pandemic.
This came following a catastrophic 2020 for Colombia with GDP shrinking by almost 7% due to the severe fallout from the pandemic. The failure of President Duque’s administration to fully reopen the oil industry will have a marked impact on Colombia’s already fragile economy, where oil accounted for a third of all export earnings in the first half of the year. 2020.
Crude oil is also a major source of tax revenue for a cash-strapped Bogota, which faces a budget deficit of nearly 9% of GDP in 2021. To close the tax gap, at the end of April 2021, President Duque introduced a tax reform bill that would have raised taxes for almost all Colombians and most businesses, including the oil and gas sector. This sparked nationwide anti-government protests that lasted around six weeks and resulted in the deaths of 45 protesters at the hands of authority.
Roadblocks and various community blockades that have emerged in response to the tough tactics of the Duque administration have forced onshore drillers to shut down operations in many parts of Colombia, impacting the country’s oil production. Andean. By early June 2021, Colombia’s crude oil production had fallen to a multi-year low of 650,884 barrels per day due to the blockades. This was well below the million barrels per day that Bogota has long considered an ideal level of production and which was only reached in 2013 and again in 2015.
Since then, Colombia’s hydrocarbon production has been declining, which, along with the sharp drop in Brent prices since the oil crash in late 2014, has weighed on the economic performance and revenue of the country’s government in crisis. . Production data from June 2021 (in Spanish) from the Ministry of Mines and Energy shows that the economically crucial hydrocarbon sector is struggling to revive despite the recent rebound in oil prices which saw Brent rise by nearly 5% since the start of 2021. Colombia has pumped an average of 694,151 barrels of crude oil per day in June, 1.33% less than a month earlier, 4.9% less than a year on the other and the lowest oil production in over a decade. Natural gas production, on the other hand, rose 9.75% month-over-month to 1.065 million cubic feet per day, although it was 2.83% lower than in the same period. one year earlier.
Source: Colombian Ministry of Mines and Energy, US EIA.
Colombia’s total hydrocarbon production for the month averaged 877,751 barrels of oil equivalent per day, 1.33% less than in May 2021 and 4.47% less than a year more early.
It is important to note that the number of operational platforms continues to increase slowly. Baker Hughes’ international rig tally shows 19 active rigs at the end of July 2021, one more than a month earlier and nearly four times the five active rigs for the same period one year earlier.
Source: Baker Hughes and US EIA.
The increase in the number of drilling rigs bodes well for higher oil production if the security environment does not deteriorate further and anti-government protests reappear.
The latest production figures indicate that Colombia’s economically vital hydrocarbon sector is struggling to reopen despite significantly higher oil prices since the pandemic. The poor performance of June 2021 can be attributed to onshore oil producers who were forced to shut down operations in response to anti-government protests and blockades. The decline in oil production will weigh heavily on an already fragile economy, where GDP fell 6.8% in 2020, and will likely see the economy fail to perform well as predicted by the Colombian central bank. The bank recently raised its GDP growth forecast from 6.5% to 7.5% for 2021, anticipating a faster economic recovery after nationwide anti-government protests over falling unemployment and improved business confidence. This will depend on the ability of the Duque administration to bring violence under control, with 2021 set to be the most violent year in Colombia for a decade, reduce social tensions that have manifested themselves in nationwide protests and attract foreign investments.
Investments by foreign energy companies are essential to increase oil production and increase exploration activity in order to bolster scarce oil reserves. Heightened political unrest, the threat of further anti-government protests, high break-even prices, which average around $ 45 a barrel, and an ongoing security crisis all have a big impact on the confidence of foreign energy investors. Concern over these issues is amplified by polls showing that former leftist guerrilla Gustavo Petro, senator and Colombian presidential candidate against Duque in 2018, will win the next presidential election. Petro in the 2018 vote campaigned on an anti-oil industry platform where he sought to reduce Colombia’s economic dependence on oil and prevent the introduction of hydraulic fracturing in Colombia.
By Matthew Smith for Oil Octobers
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