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