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Rebel attacks hit Colombian oil output

Major improvements have been made, but security issues still bedevil the industry

Colombia is a long way from the days when a brutal, long-running domestic insurgency made it one of the most dangerous places in the world for oil producers to operate. As the government has beaten back rebel groups over the past decade, it has cleared the way for an oil rush that has seen the country emerge as a major regional energy player. But recent months have shown that security problems still bedevil the industry.

The country's oil output, a key driver of economic growth, plunged to its lowest level in nearly two years in April after an attack on the Caño Limón – Coveñas pipeline forced producers to shut in around 70,000 barrels a day (b/d) of production. Crude output was 935,000 b/d in April, down nearly 10% from a record 1.033 million b/d in August last year and the lowest level since August 2012, according to government data. It is the latest sign that rebel attacks on energy infrastructure and deteriorating relations between the industry and local communities have stalled growth in what had been a booming oil sector.

The 220,000 b/d Caño Limón – Coveñas pipeline is a crucial artery for crude to move from oilfields in the interior of the country to export infrastructure on the Caribbean coast. But it runs through rebel strongholds and has been a popular target for attacks for years.

Engineers from the government and state-run Ecopetrol, who owns and operates the line, are well practiced now at responding to such incidents and they are usually able to get the pipeline back up and running within days, if not hours. This time, however, Ecopetrol workers were prevented from reaching the pipeline for more than a month by protesters from the local U'wa indigenous community, forcing a prolonged shut down of much of the country's second largest oil pipeline.

The U'wa demanded the government reroute the pipeline away from their lands and suspend oil and gas operations in the area. The pipeline and oil and gas drilling, they argue, have caused environmental damage and thrust them into the middle of the conflict between leftist fighters and the government, putting their lives and land at risk. In the end, the government agreed to temporarily suspend planned gas exploration operations in the area and to send a team to the area to reconfirm the U'wa's territorial boundaries. The deal allowed a repair crew to finally reach the line.

The episode was emblematic of the problems that have slowed the oil industry. The attacks, protests, blockades and unrest in oil producing regions have repeatedly forced companies to shut in production, slow operations and have prevented companies from expanding into new regions.

The country's rapid rise in oil output has stalled. Production surged from 530,000 b/d in 2007 to slightly more than 1m b/d in 2013. But production of 982,000 b/d through the first quarter of 2014 is less than the same period last year and there are few new projects in the pipeline to drive production higher for the rest of the year.

Rising action

Rebel attacks have intensified in recent months as peace talks between the government and the Revolutionary Armed Forces of Colombia, or FARC, entered a volatile stage and the country's election season got under way, say analysts at Maplecroft, a risk consultancy. Through mid-May there had been 276 insurgent attacks in Colombia, 43 of which targeted energy infrastructure, according to Maplecroft. The number of attacks is roughly in line with same period last year, but, says Maplecroft, "the recent spike in activity underlines the vulnerability of infrastructure and the rebels" capacity to increase operational tempo at will.

There is hope a long awaited Détente could bring some calm the oil patch. Peace talks between the government and rebel groups in the Cuban capital Havana over the past year have yielded the most concrete steps yet towards bringing an end to the decades-long insurgency. In mid-May the two sides reached an agreement to curb the country's bustling drug trade, historically a key source of funding for the rebel groups. The deal has brought the sides closer than they have ever been to reaching a peace deal, president Juan Manuel Santos said.

While a deal would undoubtedly deliver a peace dividend to the energy sector, it wouldn't address deteriorating relations between the industry and the local communities where they operate, which has become a more significant problem in many areas.

Local communities complain that they get the worst of the industry - the disruption that comes with heavy industry, environmental damage, heavy traffic and increased rebel activity - but see little wealth or public service in return. The oil industry operates in some of Colombia's poorest areas, and billions of dollars of investment over the past decade has done little so far to lift those communities out of poverty.

The problem has been compounded by the government's oil royalty reforms in 2011, which funnelled a much greater share of the country's oil revenues away from local governments to the central government. Bogota argued that local authorities were squandering much of the country's oil wealth on frivolous pet projects and corruption. The central government, they said, would be better at spending the country's oil wealth.

The argument had its merits - there were several high-profile cases of mayors frittering away their petrodollars. However, those pet projects and the minimal public services that were funded were all that local communities saw of their oil wealth. Now, with even fewer tangible benefits local communities have little reason to support new oil and gas projects.

Amylkar Acosta, Colombia's mines and energy minister, acknowledged in a speech in May that the royalty reforms have hurt producing regions, leaving them with infrastructure and environmental problems but few funds to fix them. It was the latest sign that the government could revisit the royalty reforms, which would be welcomed by both the industry and local communities.

Companies, though, share in the blame. Local communities often complain companies do not consult with them about their operations, and if they do it is merely a box-ticking exercise. Part of the problem is that residents expect the companies to step into the void left by the government, which most companies are not capable of doing. Still, analysts say, more consistent, sustainable and creative community engagement is needed.

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