The Imminent Loss of Its Self-sufficiency and Price-Affordability
Introduction
The birth of the Colombian natural gas industry dates back to 1973 when Texaco discovered around 4 tcf in three nearby non-associated gas fields: on-shore Ballenas/Riohacha and off-shore Chuchupa, located at the northern Colombian coast (i.e. Guajira state). They triggered the development of their closest potential market, the “Coastal Market”, comprised initially by the littoral cities of Santa Marta, Barranquilla and Cartagena. Hence, in 1974 a state-private association founded Promigas to undertake the construction of the gas pipeline linking such fields to the aforementioned cities (a total 410 km distance from Ballenas field to Cartagena city). It came into operation in 1977. Almost two decades later, in 1996, Chuchupa/Ballenas fields were linked to the “Interior Market” by means of a 578 km gas pipeline (from Ballenas to Barrancabermeja city) constructed by the infamous Enron. As it seems to be a universal natural-gas-industry law, lots of gas were discovered in the Interior Market once such pipeline was commissioned: BP struck around 5 tcf associated gas in Cusiana and Cupiagua fields located at the Llanos basin, 240 km East of Bogotá city.
Thus, the country has enjoyed a secure, indigenously-supplied, and price-affordable gas market that last year turned 50 years old. Since recent events seem to jeopardize such stability, the purpose of this article is to discuss how the future looks like for the already mature Colombian gas market.
The Wonder Years: 1973 to 2013
The first issue after Texaco’s natural gas discovery in Guajira, back in 1973, was about setting a price to it. Since the local industry was using fuel-oil produced by Ecopetrol (Colombia’s National Oil Company) that could otherwise be exported, it was decided to set a gas price that would encourage its substitution. So, Resolution 039 of 1975, set a maximum wellhead gas price starting in 1977 (at ca US$4/mmBtu in today’s money) that would be indexed to Colombian FOB fuel-oil prices on a six-monthly basis.
Thus, with the commodity available at a right price, the next task was to develop the mid- and down-stream infrastructure to commercialize it, in principle, in the pertaining influence area: the Coastal region. Almost two decades later, a gas pipeline was built to connect such Guajira fields to the interior of the country whilst at the same time BP announced the discovery of two giant associated gas fields within the Llanos basin located East of the capital city, Bogotá. In 2003, they joined the gas network and private and state-owned agents alike continued in full swing the development of the transport and distribution infrastructure bringing the natural gas to the main interior cities (i.e. Bogotá, Medellín, Cali, Bucaramanga, etc.)
In the middle of such expansion many and diverse events took place, most of them further reinforcing the spectacular growth of the gas industry: the enactment of a new political Constitution (1991); the emergence of a one-year long national power rationing (1992-1993); the passing of a new ‘public services’ law (No.142/1994) that created, among many things, the power and gas watchdog (‘CREG’); the surge (2003) of a new oil&gas upstream regulator (‘ANH’); and the agreement to export gas to Venezuela through a 225 km gas pipeline built by PDVSA (2008-2015).
The Plateau Years: 2014 to 2023
Although it’s a difficult endeavor to set out a date when a market has reached its maturity, let’s say for the sake of it that the Colombian gas market reached it in year 2013 when the Creg issued to consecutive regulations: 088 and 089. The former set free the wellhead natural gas price, that is, revoked Resolution 039/1975 (just prior to this the price was at US$7,7/mmBtu in 2024 dollars). The latter created the Gas Market Operator — GMO (‘Gestor del Mercado de Gas’) charged with creating an electronic platform (“BEC”) to perform two main activities: gathering all the gas market-related information and making it visible and accesible to the general public; and running a gas supply-and-transport trading system. Thus, in 2015 Creg picked up the Colombian Mercantile Exchange (“Bolsa Mercantil de Colombia S.A.”) to perform the GMO role for five years; in 2020, the contract was renewed for the same term. It could be fairly said that both of the original intended goals (transparency and liquidity) have been attained with relative success (see www.bmcbec.com.co).
The ‘relative success’ stems from the criterium to assess it: on the one hand, the indigenous gas supply has, in general, met the domestic demand which has been stable at around 1bcf/d during the 2014-2023 decade; this is a key achievement. But, on the other hand, had the gas price not been liberalized in 2013 the average price during the such decade would have tended towards US$4,8/mmBtu instead of the actual prices that leant to US$6,5/mmBtu or about 35% higher (while the Henry fluctuated around US$3,3/mmBtu during the same period, all prices in 2024 dollars). However, it could be argued that the ‘key achievement’ (let’s name it the volumetric achievement) was precisely due to the second factor: the existence of a right indicator, that is, a true gas market price.
In regards to the supply-demand balance, it should be noted that once the exports to Venezuela ended up in 2015 (with just 40mmscf/d this year from a peak of 200mmscf/d in 2011) a 400mmscf/d-capacity FSRU was commissioned in Cartagena city by 2016 (see www.speclng.com). It was sponsored by three power generators totaling a 2 GW capacity that were compeled by two facts: the first one being that in case of a prolonged drought (the national power system is 80% hydro and 20% thermal) the domestic gas supply would not be enough to meet the national gas demand of all consumers; and the second fact being that a regulation establishes the priority that gas consumers should have in case of insufficient gas supply: power generators are not deemed ‘essential demand’ and so they rank among the first ones to be curtailed when required. The regulator’s rationale for such decision was that power generators have the alternative to run their plants with other fuels (i.e. jet fuel, diesel, fuel-oil). As a consequence, such power generators decided to set up an FSRU: they assumed it would be cheaper to operate their plants with imported natural gas rather than liquid fuels (such assumption was made when oil prices traded above US$100/bl, that is, before their fall in 2015). So far, from 2016 to 2023 the FSRU has not been utilized much: on average only 5% (or just above 20mmscf/d) of its capacity along these eight years. But averages may be misleading: however low its average utilization, its true worth has been proved from September 2023 to date, when amidst an El Niño phenomenon, the FSRU has surged to release the domestic gas supply limitations; in fact, from September 2023 to February 2024 (latest available information), the average utilization has been above 50%, peaking in December at 280mmscf/d.
Conclusion
At its 50-year-old age, the Colombian gas sector has evolved into a mature 1bcf/d-market serving more than 11 million consumers including residences, commerces, industries, refineries, petrochemicals, vehicles, oil fields (to foster Enhanced Oil Recovery) and power generators. A market whose supply has relied on three major declining fields operated by Ecopetrol that has lately been loosing market-share (still above 70%) to companies like Canacol, LNG Energy (formerly Lewis Energy), NG Energy, and a few others.
During the past five years or so, Ecopetrol has been doing ‘announcements of gas discoveries’ (as required by the E&P contracts) in off-shore Caribbean deep-waters; however, such announcements do not mean as yet commercial discoveries. Under the best-case-scenario, it would take at least four years to see any of this gas flowing to the shore.
In the mean time (i.e. 2024-2028), the national gas demand will keep growing at a discrete vegetative pace, but still increasing, and the existing gas fields depleting. Thus, a first solution to the looming domestic gas supply deficit would be to import the required gas via the existing FSRU at Cartagena; it would certainly impact the domestic gas prices. Traders use to say that “the cure for high prices is high prices”; this may well be true when dealing among creditworthy market participants, but when such high prices are to be paid by consumers whose gas and electricity bills represent a big chunk of their total income, the adage may perversely turn into: “the cure for gas and electricity high prices is politicians”. A second possible solution rests on luck, on the luck that new gas on-shore, easy-to-connect discoveries be made in the very short term. But luck is, by definition, haphazardly; not a serious choice to design public policies.
Since the current government is not granting any new E&P areas, the current holders of gas-prone blocks may enjoy the opportunity of taking advantage of a sector that for the first time in its history has become a sellers’ market.
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