2013-09-18 08:55:05 - Fast Market Research recommends "Colombia Oil & Gas Report Q4 2013" from Business Monitor International, now available
There is growing optimism with regard to the future of Colombia's energy sector; particularly as improving security dynamics and a more liberal business environment have led to increased investment in exploration and production (E&P). The ongoing licensing round and increased interest in the country's offshore potential will also bring increased foreign investment and exploration into the sector, leading to further growth in proven reserves and brightening an already robust long-term production picture.
The main trends and developments for Colombia's oil and gas sector are:
* An improving security situation and the country's attractive fiscal regime are likely to continue to attract significant levels of foreign investment into Colombia's oil sector. Production has grown by more than 70% since the mid-2000s and
we expect that upward trend to continue. Preliminary January-April statistics from the Colombian Ministry of Mines and Energy show that production has slightly exceeded the 1mn barrels per day (b/d) threshold in 2013, and by 2017, we forecast production topping 1.32mn b/d, making it one of Latin America's top oil producers.
* Preliminary results indicate that the country's most recent licensing round was a success. Colombia's energy sector regulatory body, the ANH, reported that it received 106 offers for 50 blocks in its first and second rounds, out of a total of 115 on offer. Of these, 6 are located offshore, with the remainder onshore. However, only 5 of the 31 blocks with unconventional resource potential were awarded. We have slightly reviewed our reserves growth forecast downwards. We now forecast a 50% growth in the country's proven reserves between 2012 and 2017, reaching approximately 3.0bn barrels (bbl). Steady growth is forecasted through the end of our forecast period. While oil discoveries are made on a regular basis in Colombia, discoveries have tended to be of modest size. The country's crude reserves of 2.2bn bbl are about seven years' worth of current supply. With production growth increasing fast, Colombia has not yet managed to move beyond six to seven years of reserves. Nevertheless, we maintain an overall favourable outlook towards oil reserves growth in the country. With increasing foreign investments and if current exploration investments and activities bear fruit, proven oil reserves could be reviewed to the upside.
* Although most investment has been aimed at tapping Colombia's oil reserves, the effect of rising investment is also being felt in the gas sector. Gas production has nearly doubled in the last decade and we see scope for strong growth in the years ahead. Output is forecast to rise from 11.0bn cubic metres (bcm) in 2012 to 13.5bcm in 2017.
* Production will continue to outpace consumption, leaving room for growing levels of exports. The bulk of these exports will continue to flow via pipeline east into Venezuela. However, we are now forecasting small-scale liquefied natural gas (LNG) exports starting 2013. Pacific Rubiales, operator of the country's largest oil field, will lead the LNG export charge. The company plans to build a 0.7bcm per annum floating LNG facility on the Caribbean coast, where it will target regional markets such as Panama, the Dominican Republic and Puerto Rico.
* Rising oil demand is fuelling investment in the downstream sector. Ecopetrol's Bolivar refinery in Cartagena, the country's second biggest facility, will be upgraded over the course of 2013 and 2014. The expansion project, which received a US$2.84bn loan from the US export-import bank, will see the plant's capacity rise from 80,000b/d to 165,000b/d. Furthermore, the 50,000b/d expansion of Ecopetrol's Barrancabermeja refinery should bring the plant's capacity to 300,000b/d. We see the country's total processing capacity rising from 336,000b/d in 2012 to 466,000b/d by 2017.
* Although the country has been successful in attracting rising foreign investment, state-run Ecopetrol will remain the engine of growth. Indeed, the company unseated Petrobras in 2012 to become the largest oil company in South America, according to Platt's 2012 Top 250 Global Energy Company Rankings. The company is also expected to benefit greatly from the most recent licensing round, where Ecopetrol was one of the biggest bidders, securing 11 blocks.
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Colombia's dependence on oil prices leads to high volatility in the country's export revenues. As such, our assumptions of falling oil prices in 2013 and 2014 pose a considerable downside risk. As the US remains Colombia's primary crude export market, an additional downside risk remains the expected fall in US oil imports on the back of its own oil production boom. It's likely, then, that an increasing amount of Colombian exports will be sent to Asian importers instead.
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