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Colombia's fracking plans take on a new urgency

The new administration is turning to shale deposits to hold back the threat of imports

The Colombian government's controversial plans to expand advanced fracking, while keeping a focus on robust environmental regulation, are entering a new phase.

Ecopetrol, the state-owned oil firm, applied for an environmental license on 29 October to begin a pilot fracking project in the central Magdalena Medio region.

Fracking was a highly controversial subject in the lead-up to Colombia's presidential vote in June. Iván Duque, now president, favoured the strategy of using advanced fracking with environmental controls, while the leftist candidate Gustavo Petro supported greater investment in renewables.

Ecopetrol's application will likely re-awaken the debate.

The shift comes as Colombia decides how to deal with rapidly declines in oil reserves. The Asociacion Colombiana del Petróleo (ACP) this year stated Colombia has roughly 1.782bn proven barrels, a sharp fall from 2.6bn barrels in 1997. Production has also fallen from a high of 1.03mn b/d in January 2015, to an average of just 858,897 b/d in 2018 for the year up to September, a slight 0.85pc increase over 2017.

The solution seen by many in the new administration is the country's promising unconventional resources. The ACP claims developing fracking in the Magdalena Medio alone would add 2.4-7.4bn barrels, without even considering the potential in the Cesar-Ranchería basin. At a minimum, 1.3bn barrels are needed to maintain self-sufficiency and delay imports, the ACP says.

If the project is granted a license then Ecopetrol claim first production is forecast for 2024, with initial output of 43,200 b/d, growing to 123,000 b/d in 2028. Production would be close to the Barrancabermeja refinery, which would add 124,000 direct and indirect jobs and add an extra $1bn of royalties to the municipalities every year. In total the project would help generate $8.5bn in annual investment and $15bn in exports.

Former minister of mining and energy, and now president of the Agencia Nacional de Hidrocarburos (ANH), María Fernanda Suárez, has also highlighted the potential for Colombia's natural gas supply. Commercial gas production in September was 962.5 million cubic feet per day, a growth of 3.6pc year-on-year. But residential prices are still rising fast. In 2013, the gas produced in La Guajira sold for an average price of $3.97 per million British thermal units but this year has averaged $4.95 /mBtu, an increase of 24.69pc according to data from El Gestor del Mercado de Gas Natural. The threat next year of El Niño could also drive up prices.

Promigas estimate that in total Colombia has around 30-40 trillion cf of undeveloped unconventional gas, against 3.9 trillion cf of proven reserves, according to the BP Statistical Review 2018. These reserves could potentially transform the country's energy security and avoid liquefied natural gas imports, vital given the geopolitical tensions at the border with its neighbour Venezuela.

Turning heads

Since 2014, there has been interest in the country's unconventional resources but progress has been slow. At the beginning of November, ConocoPhillips' pilot fracking schemes were put on hold indefinitely after inadequate provisions on water usage and environmental concerns were expressed.

The recent Mansarovar Energy Court ruling by the Constitutional Court to reverse a blockade on hydrocarbon development in Cumeral also complicates the situation. The court judged local community consultations (consultas) cannot prohibit oil and gas exploration, because resources are the possession of the Colombian state. The government said previous consultations would be respected but the Mansarovar ruling suggests otherwise.

"The ruling could be reversed or modified, and potentially could even be thrown out on procedural grounds. In the near term, we expect challenges from civil society groups on the grounds that it contradicts previous rulings," says Eileen Gavin, a Latin America analyst at global risk consultancy Wood Mackenzie.

Communities have continued to carry out local consultas despite the verdict and were calling for a national day of protests in December. Investors will no doubt be deterred by the confusion.

Return to violence

Companies will also be wary of the security situation on the ground. The Caño Limón pipeline has been bombed frequently and taken out of action for most of the year. Employees from Canadian mining firm Continental Gold were also killed in September by a splinter group of FARC.

"The security threat is atomising, with multiple violent criminal actors filling the vacuum left by the FARC in remote rural areas that are close to or in the region of extractives sites," says Gavin.

Paramilitary violence has previously affected Drummond and Glencore in the Cesar region-where several fracking sites can be found. The armed ELN group is still very active in the area. "Extractives companies risk being on the front line of a deteriorating security situation," adds Gavin.

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