The Battle For Water: Iran And Afghanistan's Taliban In Conflict

By RFE/RL staff - May 30, 2023

Water has exposed cracks in the Taliban's fragile relationship with Tehran, with both sides exchanging pointed barbs over scarce supplies before coming to deadly blows along the Afghan-Iranian border.

Tensions remain high following the deaths of troops from both sides on May 27, with Taliban and Iranian officials digging in on their positions with increased military activity and fresh warnings.

But while disputes over water security are expected to intensify between the two drought-stricken countries, both sides appear to be keeping the door open for dialogue on the issue while boosting cooperation in other areas of mutual concern.

The deadly firefight took place across the shared border between southeastern Iran and southwestern Afghanistan, with each side accusing the other of firing first. Social media footage showed Taliban heavy weaponry streaming to the border in the Kang district of Nimroz Province, where officials said one Taliban border guard was killed and several people were wounded after an exchange of heavy gunfire.

Iranian media, meanwhile, said up to three Iranian border guards were killed and several people wounded in its southeastern Sistan-Baluchistan Province, where Iran has worked to fortify its border as tensions over water supplies rose over the past two weeks.

Women crouch in a former basin in Sistan and Baluchistan amid a severe water shortage on May 18.

Following the incident, the Taliban has continued to push back on Iran's claim that it is not honoring a water treaty ironed out by the two sides in 1973.

"The Islamic Emirate of Afghanistan considers dialogue to be a reasonable way for any problem," Taliban Defense Ministry spokesman Enayatullah Khawarazmi said in a statement on May 28, referring to the official name of the Taliban's unrecognized government. "Making excuses for war and negative actions is not in the interest of any of the parties."

Iran has continued its harder line, with national police commander Brigadier-General Ahmadreza Radan saying the same day that "the border forces of the Islamic republic of Iran will decisively respond to any border trespassing and aggression, and the current authorities of Afghanistan must be held accountable for their unmeasured and contrary actions to international principles."

But Iranian officials, too, have expressed the need for a diplomatic solution, with high-ranking security official Mohammad Ismail Kothari describing the dispute as "fighting between children of the same house" while rejecting that Tehran would resort to the "military option."

Big Dam Issues

Water is a precious commodity in both southwestern Afghanistan, one of the country's most productive agricultural areas, and in southeastern Iran, one of several arid areas of the country where water scarcity has fueled public protests.

But with Afghanistan in control of upriver water sources that feed low-lying wetlands and lakes in Iran's southeast, the Taliban finds itself with a rare tool for leverage in its relationship with Tehran.

The problem -- or the solution, depending on which side you consider -- stems from the construction of major dam projects in Afghanistan that in combination with increased drought and other factors have restricted the flow of water to the Sistan Basin.

The border-straddling basin depends on perennial flooding to fill what used to be a vast wildlife oasis and was home to the massive Hamun Lake, which now consists of three smaller seasonal lakes -- Hamun-e Helmand in Iran and Hamun-e Sabari and Hamun-e Puzak in both Afghanistan and Iran.

The longstanding issue of replenishing the basin with water came to the forefront earlier this month following comments by Iranian Foreign Minister Hossein Amir-Abdollahian and President Ebrahim Raisi.

Amir-Abdollahian, in a call with his Taliban counterpart, Amir Khan Muttaqi, demanded the Afghan authorities open the gates of the inland Kajaki Dam that pools water from the Helmand River "so both the people of Afghanistan and Iran can be hydrated."

A view of the hydroelectric Kajaki Dam is seen in Kajaki, northeast of Helmand Province

Shortly afterward, Raisi upped the ante during a visit to Sistan-Baluchistan on May 18 by warning the "rulers of Afghanistan to immediately give the people of Sistan-Baluchistan their water rights." He added that the Taliban should take his words "seriously" and not say "they were not told."

The Taliban has consistently denied the accusation that it was not complying with the 1973 treaty and said that even if the Kajaki Dam were opened there would not be enough water to reach Iran.

But just two days after Raisi's threats, the Taliban appeared to twist the knife by inaugurating a new irrigation project that involved completing the construction of the Bakhshabad Dam on the Farah River, which feeds the Sistan Basin from the north.

Contentious Water Treaty

According to the 1973 treaty, Afghanistan is committed to sharing water from the Helmand River with Iran at the rate of 26 cubic meters of water per second, or 850 million cubic meters per year.

But the accord also allows for less water to be delivered in cases of low water levels, which have been affected by persistent drought and the construction of new dams in Afghanistan, including the Kamal Khan Dam on the Helmand River that was completed in 2021 shortly before the Taliban seized power in Kabul.

Vanished wetlands in the Sistan Basin on the Iranian-Afghan border

The Taliban's deputy prime minister for economic affairs, Mullah Abdul Ghani Baradar, said on May 22 that Kabul was "committed to the water treaty of 1973 but the drought that exists in Afghanistan and region should not be ignored."

"The pain of the people of Sistan-Baluchistan is our pain," he added. "Our hearts melt for them as much as they melt for the people of Afghanistan, but we also suffer from a shortage of water."

Cooperation on the water issue was previously seen as a sign of deepening ties between Afghanistan's Sunni Taliban rulers and Shi'a-majority Iran. In January 2022, the Taliban released water from the Kamal Khan Dam on the Helmand River in Nimroz Province into the Hamun Lake.

While their sectarian differences once made them enemies, their common interests in opposing Afghanistan's Western-backed government and U.S.-led forces in Afghanistan over the past two decades brought them closer.

Since the Taliban returned to power, the militant group has sought to build economic and security ties with Tehran. While Iran has not recognized the Taliban-led government, it has sought to work with the group on the issues of Afghan refugees in Iran and cross-border drug trafficking. In February, Iran formally handed over the Afghan Embassy in Tehran to the Taliban.

In January 2022, the Taliban released water from the Kamal Khan Dam on the Helmand River in Nimroz Province into the Hamun Lake.

Afghanistan's and Iran's water crises require both countries to show a strong hand on the issue of water supplies, both for domestic consumption and to protect their national interests. But experts suggest the benefits of cooperation outweigh an escalation of the conflict.

"Neither country at this point in time needs a really hostile border," Marvin Weinbaum, director of Afghanistan and Pakistan studies at the Middle East Institute think tank in Washington, told RFE/RL.

"Economically it is an issue for both countries -- there would be no agricultural potential in Helmand Province without the water furnished by the dam. And very little of it gets into Iran. And southeast Iran is as dry as any place on the planet."

Weinbaum said neither the Taliban nor Tehran is going to exhibit weakness on the issue of short-term water shortages. "As the climate heats up, this is only going to grow more acute," he said.

But for both countries, Weinbaum said, "economic ties are really what matters the most," along with cooperating on other issues of mutual concern such as preventing the Islamic State extremist group from expanding its foothold in the region.

Ironically, just days after Raisi's threats and the inauguration of a new dam project in Afghanistan, the Taliban's Defense Ministry announced it had reached a new agreement on cooperating with Iran on defense and border issues. And on the day of the firefight that left border guards dead on both sides, officials had met earlier to discuss the water dispute.

After the deadly incident, Iranian and Taliban officials held another meeting to investigate the cause of the "tensions."

Path To Resolution

The construction of dams -- which both Iran and Afghanistan engage heavily in -- and their downstream impact stand out among the causes to discuss.

"What really triggers these disputes?" asked Weinbaum. "The intensification of them is obviously building dams, which represent simply a lower flow than they've been accustomed to and are not happy with."

Vanished wetlands in the Sistan Basin

Other observers suggest the decades-old water-sharing agreement that Iran and the Taliban accuse each other of failing to adhere to holds the answer to resolving the dispute.

The 1973 treaty does allow for the delivery of water from the Afghan side to be lower than the agreed-upon levels under certain circumstances, which would appear to include the drought and climate change that the Taliban has said have limited water supplies.

It also commits the two countries to follow a set course "in the event that a difference should develop in the interpretation" of the provisions set out in the treaty: diplomatic negotiations, turning to the "good offices" of a third party to help mediate a solution, and in the event neither step works, arbitration.

By RF/ERL

UK Activist To Battle UK Government In Court Over Newly Approved Coal Mine

By City A.M - May 31, 2023

• Climate activists are set for a courtroom showdown with the government over a newly-approved coal mine in West Cumbria.
• 
  
• The legal action follows Levelling Up secretary Michael Gove’s decision last December to grant permission for a new coal mine in Cumbria.
• 
  
• West Cumbria Mining is expected to operate the mine at Whitehaven at the former Marchon chemical works site, removing coking coal from beneath the Irish Sea for steel production.

Climate activists are set for a courtroom showdown with the government over a newly-approved coal mine in West Cumbria after a date was set by the High Court for two legal challenges later this year.

The challenges from Friends of the Earth and South Lakes Action on Climate Change (SLACC) will take place in the autumn, over three days between 24 and 26 October.

The ‘rolled-up’ hearing is in practice the same as a trial, in that the court is expected to allow each claimant to argue its case in full.

Friends of the Earth’s lawyer, Niall Toru, said: “We have a strong case against the decision to grant planning permission for this coal mine and look forward to setting it out before the court in October. The secretary of state made a number of significant climate-related errors in allowing this mine to proceed which we believe makes his decision unlawful.“

Carole Wood, chair of SLACC, added: “I am very glad that the court has decided to set aside three days in October for this hearing. Michael Gove’s rationale for approving a new UK coal mine, that would extract and export coal until 2050, was seriously flawed, and involves issues of national and international importance that must be examined.”

The legal action follows Levelling Up secretary Michael Gove’s decision last December to grant permission for a new coal mine in Cumbria, the first deep domestic mine to be built in the UK for over 30 years.

Both climate campaign groups are concerned by the environmental impact of the new mine, with analysis from think tank Green Alliance predicting the mine would produce the same emissions as 200,000 cars each year.

The Climate Change Committee has separately calculated that 85 percent of the coal from the proposed mine is planned for export to Europe.

At the time, Caroline Lucas, Green Party MP for Brighton Pavilion, hammered the decision as a “climate crime against humanity” and predicted the decision will be “challenged every step of the way.”

She said: “When we need a clean, green industrial strategy fit for the future, this Government has backed a climate-busting, backward-looking, business-wrecking, stranded asset coal mine.”

West Cumbria Mining is expected to operate the mine at Whitehaven at the former Marchon chemical works site, removing coking coal from beneath the Irish Sea for steel production.

It is expected to cost up to £165m, with the company aiming for production from the mine starting by 2025.

It will not be used as an energy source, with the government having committed to phasing out coal power generation by 2024 as part of its climate ambitions.

This followed multiple delays as the government pushed for more time to reach a verdict amid turmoil in Westminster in 2022, which saw three different prime ministers take office in Downing Street.

The decision on the Whitehaven mine was made in line with approval from the independent Planning Inspectorate earlier that year, and with the local county council granting approval three years ago for West Cumbria Mining to dig for coking coal until 2049.

The government has been approached for comment.

By CityAM

Argentina says Chinese miner latest to bet big on lithium riches

Reuters | May 31, 2023 |

Salt flat in Argentina. Stock image.

Chinese miner Tibet Summit Resources will invest $1.7 billion to develop two lithium projects in Argentina, the economy ministry said on Wednesday, as the South American country eyes burgeoning demand for the metal used in rechargeable batteries.


The projects in the Arizaro and Diablillos salt flats in Salta province are expected to produce 50,000-100,000 tonnes of lithium, the ministry noted in a statement, without elaborating or saying when they would come online.

Tibet Summit did not immediately respond to a request for comment.

Argentina is the world’s fourth largest producer of lithium, an ultra-light metal in high demand from makers of electric vehicles.

“We want a mining industry that takes advantage of our resources and generates added value and employment,” said Economy Minister Sergio Massa in the statement.

Massa is visiting China, where he met with executives from Tibet Summit.

Last year, Argentina exported around 40,000 tonnes of lithium carbonate, a processed product used in lithium-ion batteries. The country’s growing lithium sector expects to triple shipments in the next few years.

The growth is expected largely due to two lithium projects ramping up production in Jujuy province in Argentina’s arid northwest. One is operated by US-based Livent Corp in Catamarca province and the other by Australia’s Allkem.

The two companies expect to double their current output to about 42,500 tonnes of lithium carbonate each in the next few years, government data show.

Another major lithium project, Cauchari-Olaroz, is expected to come online in June, operated by local firm Exar, which is run by Canada’s Lithium Americas Corp, China’s Ganfeng Lithium and state producer JEMSE.

Exar expects to ramp up lithium carbonate production to around 40,000 tonnes annually beginning next year.

(By Lucila Sigal; Editing by David Alire Garcia and Richard Chang)

Argentina's Vaca Muerta Shale Play Could Produce 1 Million Bpd In 2030

By Rystad Energy - May 31, 2023,

• Crude oil production from Argentina’s burgeoning shale patch, Vaca Muerta, could surge in the coming years and top 1 million barrels per day by the end of the decade.
• 
  
• Lack of takeaway capacity and rig availability could curb production growth.
• 
  
• As of February 20223, Vaca Muerta’s gross oil production reached 291,000 bpd, an annual addition of 76,000 bpd.

Crude oil production from Argentina’s burgeoning shale patch, Vaca Muerta, could surge in the coming years and top 1 million barrels per day (bpd) by the end of the decade – but only if takeaway capacity and rig availability do not limit growth. Rystad Energy’s modeling shows that if production is relatively unimpeded, oil output could realistically grow from 291,000 bpd in February 2023 to more than 1 million bpd in the second half of 2030.

The forecast growth could lift Vaca Muerta’s profile and position it as a leading source of shale production, alongside the likes of the Bakken or Eagle Ford developments, two of the US’ world-class shale basins. It would also help the Neuquen region become a net oil exporter, potentially contributing $20 billion in total revenue by 2030. Crude exports could be making their way to South American neighbors Brazil, Chile and Peru, as well as the US and Europe.

Still, big question marks remain, which could potentially alter our long-term growth outlook. Takeaway capacity constraints linger, and rig availability remains an ongoing concern. The learning curve for operators in the basin has been steep, and they will need to continue this trend to maximize their production potential. If all industry participants work together to address these constraints before they become critical, output could top 1 million bpd sooner rather than later. 

“Vaca Muerta could hold the key to Argentina’s future energy economy following more than a decade of oil production declines. While major challenges lie ahead, reaching the important 1 million barrels per day threshold would change the country’s narrative, reduce its reliance on imports and become a key regional and global oil market player,” says Alexandre Ramos Peon, head of shale research at Rystad Energy.

State of the play

As of February, Vaca Muerta’s gross oil production reached 291,000 bpd, an annual addition of 76,000 bpd. Production from majors – Shell, Chevron, ExxonMobil, and TotalEnergies – increased by 62% in 2022 compared to 2021, followed by other local and international players and YPF, the nation’s state-run giant. Gas output from other local and international players (excluding Tecpetrol) and YPF grew 63% and 43%, respectively, followed by majors and Tecpetrol. In February, daily gas output rose to 1.84 Bcfd (billion cubic feet per day), 15% more than the same month in 2022.

Vaca Muerta's production growth is impressive but not extraordinary, considering it remains a relatively young development. Significant regional developments started just a few years ago and accelerated in 2021 as the industry recovered from the Covid-19 pandemic.

Path to 1 million bpd

Rystad Energy has modeled a theoretical scenario based on existing trends and technologies to forecast total oil production from the shale patch until the end of 2030. In this scenario, we assume new wells that start production from now onwards have the same performance per foot as the average completed and put-on-production (POP) in 2021-2022; oil production from gas wells is negligible; capital re-investment is assured until 2030; linear growth in POP activity in 2023 and onwards. For the operators, we assumed that they adopt two-mile laterals gradually within the next three years. Finally, we considered no downturns in the oil industry, global pandemics, significant macroeconomic changes or political unrest in Argentina until 2030. 

While concerns around growth persist, there are no issues with the quality of Vaca Muerta’s shale oil or its capacity to produce hydrocarbons at scale (after proper stimulation). Its shale is distinguished by its high pressures and substantial thickness. Its oil yield per foot is demonstrably superior to similar horizontal wells in major US shale plays.

Since the development of the play is relatively new, operators needed a period to adapt and find the ‘sweet spots’ when drilling and completing wells. For instance, Vaca Muerta operators have adopted US shale's proppant intensity and stage spacing trends in just a few years – going from 1,500 to 2,500 pounds of proppant per foot and from 250 to 210 feet stage spacing between 2018 to 2022. Additionally, simul-frac operations have been adopted by YPF and Pan American Energy, while Vista has created its first ‘hub,’ which processes hydrocarbons from two of their primary fields.

The next step for Vaca Muerta operators is to standardize using two-plus mile laterals. The caveat is that normalizing extended-reach wells requires drilling contractors to bring into the region high-spec rigs capable of handling that level of workload. This brings us to the first significant bottleneck that could upset Vaca Muerta’s growth potential.

With about 30 active rigs and an average drilling speed of 1.1 wells per rig per month, Neuquen’s Vaca Muerta could expect up to 400 new drilled wells in a year. Assuming the 70-30 oil-gas well completions ratio of 2022, the maximum possible number of oil wells drilled per year will, therefore, be 280. This ratio could, however, change soon, with the President Nestor Kirchner gas pipeline starting operations in June. If no new rigs are brought into the region, Vaca Muerta’s growth rate is set to slow in the next couple of years. Bringing in high-spec rigs could improve drilling rates to less than 20 days per well, like in the Permian Delaware and Bakken.

Neuquen’s oil takeaway capacity is saturated, but several projects are due in the short term. If all these projects materialize as announced, Neuquen should have more than 1 million bpd of evacuation capacity by 2025. It is worth noting that if Argentina wants to become a net oil exporter, the Puerto Rosales oil export terminal in Bahia Blanca – Buenos Aires operated by Oiltanking Ebytem might need to expand in the short term to keep up with Neuquen’s volumes.

By Rystad Energy

Visualizing All New Renewables Projects In The U.S. In 2023

By ZeroHedge - May 31, 2023

• Even though the majority of its power comes from natural gas, Texas currently leads the U.S. in planned renewable energy installations.
• 
  
• New solar power in the U.S. isn’t just coming from places like Texas and California. In 2023, Ohio will add 1,917 MW of new nameplate solar capacity.
• 
  
• According to the data, New Hampshire is the only state in the U.S. that has no new utility-scale renewable energy installations planned for 2023.Join Our Community

Renewable energy, in particular solar power, is set to shine in 2023. This year, the U.S. plans to get over 80% of its new energy installations from sources like battery, solar, and wind.

Visual Capitalist's Alan Kennedy created the map below, using data from EIA, to highlight planned U.S. renewable energy and battery storage installations by state for 2023.

Texas and California Leading in Renewable Energy

Nearly every state in the U.S. has plans to produce new clean energy in 2023, but it’s not a surprise to see the two most populous states in the lead of the pack

Even though the majority of its power comes from natural gas, Texas currently leads the U.S. in planned renewable energy installations. The state also has plans to power nearly 900,000 homes using new wind energy.

California is second, which could be partially attributable to the passing of Title 24, an energy code that makes it compulsory for new buildings to have the equipment necessary to allow the easy installation of solar panels, battery storage, and EV charging.

New solar power in the U.S. isn’t just coming from places like Texas and California. In 2023, Ohio will add 1,917 MW of new nameplate solar capacity, with Nevada and Colorado not far behind.

The state of New York is also looking to become one of the nation’s leading renewable energy providers. The New York State Energy Research & Development Authority (NYSERDA) is making real strides towards this objective with 11% of the nation’s new wind power projects expected to come online in 2023.

According to the data, New Hampshire is the only state in the U.S. that has no new utility-scale renewable energy installations planned for 2023. However, the state does have plans for a massive hydroelectric plant that should come online in 2024.

Decarbonizing Energy

Renewable energy is considered essential to reduce global warming and CO2 emissions.

In line with the efforts by each state to build new renewable installations, the Biden administration has set a goal of achieving a carbon pollution-free power sector by 2035 and a net zero emissions economy by no later than 2050

The EIA forecasts the share of U.S. electricity generation from renewable sources rising from 22% in 2022 to 23% in 2023 and to 26% in 2024.

By Zerohedge.com

Colombia Accuses U.S. Coal Miner Of Funding Paramilitary Group

By Charles Kennedy - Jun 01, 2023,

The current head of Drummond in Colombia and his predecessor will be tried on charges of financing a paramilitary group, Reuters has reported, citing the office of Colombia’s attorney general.

According to prosecutors, there was “abundant evidence” that Augusto Jimenez and Miguel Linares, who headed the company from 1990 and 2012, and from 2013 onwards, respectively, had used company funds for illicit support to a right-wing group.

"Linares Martinez and Jimenez Mejia, between 1996 and 2001, increased the value of a food provision contract with a provider company to obtain additional resources and use them to cover previously-agreed illegal obligations with...the United Self-Defense Forces of Colombia (AUC)," a statement by the attorney general’s office said.

The purpose of the illicit transfers was to secure mining assets operated by the company in areas where the paramilitary group had a presence.

"These accusations are not backed up with credible proof and are based, principally, on false declarations by convicted criminals, who receive payments for testimony," Drummond said in response to the news.

The U.S.-based company is the biggest producer of thermal coal in Colombia, Reuters noted in its report, with total exports of the commodity this year seen at 30 million tons by Miguel Linares.

The news of the charges against Linares and his predecessor comes a day after Drummond’s Colombian unit announced plans to become a net-zero company by 2050. Measures would include switching from gas to electricity at one mine in the country, switching from gasoline to gas for its light vehicle fleet, and emission offsets for the carbon dioxide the company cannot reduce.

"We're looking for projects to see where we can reduce our emissions, how to offset what we cannot avoid and include all our allies in a commitment to reaching carbon neutrality by 2050," Linares told media without mentioning the price tag of the push into carbon neutrality.

By Charles Kennedy for Oilprice.com

Colombia’s President May Have To Rethink His Oil And Gas Exploration Ban

By Matthew Smith - May 31, 2023

• Colombia’s oil and gas industry already suffers from a shortage of proven reserves, a fact that will be made worse if President Petro ends new exploration efforts.
• 
  
• The country’s President hopes to stop new exploration contracts from being awarded and plans to ban hydraulic fracturing in the country.
• 
  
• Colombia’s oil- and gas-dependent economy will face significant turmoil in the coming years if it is unable to replace its proven reserves.

Colombia’s economically crucial energy patch is facing a grave crisis due to its shortage of proven oil and natural gas reserves coupled with leftist President Gustavo Petro’s plan to end awarding new exploration contracts. The Andean country’s hydrocarbon sector was hit particularly hard by the 2020 COVID-19 pandemic and has yet to recover. March 2023 oil production of 771,732 barrels a day was significantly less than the 884,876 barrels per day pumped for the same month four years earlier. Latest developments indicate Colombia’s economically vital oil patch may never return to a pre-pandemic operational tempo and production volumes. As a result of Petro’s plans to end awarding new exploration contracts and ban hydraulic fracturing, investment is falling, drilling activity is in decline, and international energy companies are even exiting Colombia. 

The latest news, which represents a considerable blow to Colombia’s oil industry, is the disappointing announcement from the Ministry of Mines and Energy that the Andean country’s reserves are not growing at the pace required. According to the ministry’s statement (Spanish) oil reserves only expanded by 1.7% year-over-year to a meager 2.074 billion barrels of oil with a commercial life of 7.5 years at the current rate of production. Of greater concern is proven natural gas reserves, which plunged by 11% compared to a year ago to 2.82 trillion cubic feet, only enough to support production for 7.2 years. Those meager reserves are incapable of supporting Colombia’s economically crucial hydrocarbon sector over the long term. The lack of hydrocarbon reserves and their short production life has the potential to roil Colombia’s oil-dependent economy.

A key issue to emerge is that vital capital spending in Colombia’s energy patch is falling. According to the country’s leading industry body, the Colombian Petroleum Association (ACP – Spanish), private investment in exploration (Spanish) during 2023 will fall by a third compared to last year, hitting $650 million to $700 million. That decline is reduced to 4% year-over-year, when increased exploration spending by national oil company Ecopetrol is accounted for, or $1.24 billion compared to $1.29 billion during 2022. Such a sharp reduction in investment will lead to reduced exploration and oilfield development activity thereby weighing on reserves and production volumes at a crucial time for Colombia.

This has been an ongoing problem since the price of oil collapsed in late-2014. Colombia’s oil industry regulator, the National Hydrocarbon Agency (ANH – Spanish initials), released data showing the volume of wells (Spanish) being drilled in Colombia cratered after 2014. During that year, when Brent averaged $98.97 per barrel, 113 wells, 112 onshore and one offshore, were drilled. A year later, in 2015, when Brent averaged $52.32 a barrel, a mere 25 wells, 23 onshore and two offshore, were completed. The volume of wells being drilled plunged to an annual multiyear low of 20 during 2020 when the COVID-19 pandemic caused oil prices to plunge into negative territory for the first time ever and Brent averaged $41.96 a barrel. 

Drilling activity only significantly recovered when oil prices soared, after Russia’s invasion of Ukraine, to a multi-year high of 68 wells, 66 onshore and two offshore. Regulator data shows that 10 wells were completed for the first two months of 2023, and industry body the ACP predicts 55 to 60 exploratory wells will be drilled in Colombia this year. According to the Baker Hughes Rig Count, by the end of April 2023, there were 31 active rigs in Colombia a decrease of three compared to a month earlier and the same number as a year earlier. Those numbers point to a sharp drop in activity in Colombia’s oil patch which doesn’t bode well for higher production or the ability to boost meager reserves. 

This is threatening Colombia’s long-term energy security and the future outlook for the hydrocarbon-dependent economy which is vulnerable to weaker oil prices and declining production. The considerable risks created by a lack of exploration success and meager proven reserves are magnified by many of Colombia’s primary producing oil fields being mature with rising decline rates. That means they are reliant on enhanced recovery methods such as waterflood, and gas injection to sustain production. This is impacting efforts by Bogota, the ANH, and ACP as well as other industry bodies to lift production so that it returns to pre-pandemic levels of nearly 900,000 barrels per day.

Colombian government as well as industry data underscores how dependent the economy is on oil. Official statistics agency DANE shows that petroleum was responsible for (Spanish) a third of exports by value during 2022, while for the same year the hydrocarbon sector was responsible for 2.6% of gross domestic product. Colombia’s oil industry is a key source of income for the national government in Bogota. A decade ago, petroleum, after including dividend income from 88% state-controlled Ecopetrol was responsible for a fifth of fiscal revenue, while that amount has fallen in recent years it amounted to 14% of fiscal revenue for 2022. The proportion of government revenue contributed by Colombia’s oil industry will only increase after Petro’s November 2022 tax hikes.

It is Bogota’s reliance on oil revenues that has sparked speculation that Petro will not proceed with his plan to end hydrocarbon exploration in Colombia. This was fueled by Energy Minister Irene Velez reportedly avoiding answering questions from journalists as to whether the Petro administration will issue new exploration and production contracts after the productive life of Colombia’s proven oil reserves declined. Any immediate move to end oil exploration and production has the potential to damage Colombia’s oil-dependent economy which is an important part of the Andean country’s post-pandemic economic recovery. 

According to the International Monetary Fund, Colombia’s gross domestic product grew by a stunning 11% in 2021 and then 7.5% during 2022, but that will fall to a mere 1% in 2023 with a lack of energy investment and dwindling oil production weighing on the economy. In an effort to assuage the worries of energy investors, the ANH has proposed expanding deadlines, for drilling timetables, for oil and natural gas exploration projects to attract greater interest from foreign energy investors. The regulatory agency also suggested providing energy companies with greater contractual flexibility when forced to declare force majeure. These latest developments indicate that Petro may be rethinking his plan with regard to ending hydrocarbon exploration in Colombia, and even may implement a more gradual and pragmatic policy.

By Matthew Smith for Oilprice.com