Just energy transition

Colombia advances in the construction of the energy transition roadmap. The Government has reiterated that it is urgent to decarbonize the economy, but this will only be achieved if efforts are coordinated with the hydrocarbon sector. Why do oil
and gas play a key role in this roadmap?

For just over a year now, one of the debates that floods much of the public policy scenarios is the energy transition. The central Government established in the National Development Plan (PND) to move towards a greener Colombia that supports its economy on clean energies, tourism, and agro-industry. In that equation, it blurred the importance of hydrocarbons for the transition and generated a certain degree of uncertainty that still keeps millions of dollars in royalties, taxes, and dividends in suspense, as well as the energy security of Colombians.

The industry's call is to achieve a truly fair energy transition, which finds in oil and gas an ally with an important role in the roadmap for the next 20 years.

Although the messages have been contradictory, even with conflicting versions within the Executive, the truth is that this debate has brought to the table the importance of oil and gas for the Colombian economy, as well as for financing the energy transition. Part of the discussion is due to the fact that this is a sector that represents just over 3.8 percent of national production, 42 percent of exports, and around 18.1 trillion pesos in taxes, not to mention that it is crucial for the balance of payments, Foreign Direct Investment, and even employment.

The question, then, arises about what the role of the sector is in light of the Government's new policies and why it is imperative to continue promoting investments in the short, medium, and long term in this industry. Hence, the International Energy Agency (IEA) reiterates that it is necessary to “establish measures to reconcile affordable and secure energy growth for Colombia's economic development.”.

The Ministry of Mines and Energy has taken a first step by building a roadmap for the transition. This navigation chart promises to shed light on what role oil and gas will have in the next three years and how the industry can find greater synergies in the short and medium term. However, while a clear guideline is established, it is valid to understand why the country has a window of opportunity if it continues to promote the development, exploration, and production of oil and gas, alongside renewable energies.

According to calculations by Campetrol, the 29.1 percent reduction in drilling activity as of August generated a loss of nearly 10,400 jobs (1,600 direct and 8,800 indirect).

This is highlighted by Nelson Castañeda, president of Campetrol, who states: “for the country's energy matrix to grow and diversify, it is necessary to have the energy backing provided, among others, by hydrocarbons. These are the present and the key piece to achieve a fair and secure transition for the country.”.

More exploration, the priority

According to calculations from the Fiscal Rule Committee, in recent years oil revenue has represented between 10 and 20 percent of the total income of the national Government. These transfers have allowed for the consolidation of an ambitious social protection agenda, which is reflected not only in more monetary transfers for the vulnerable population but also in schools, roads, and hospitals, to mention a few, that have enabled social development in Colombia.

Against this backdrop, industry groups and companies in the sector have called attention to the importance of having clear rules to accelerate their investments, increase their reserves, and explore in strategic areas such as offshore. Julio César Vera, president of Xua Energy, emphasizes that today “the sector is committed to the energy transition, but this, in addition to being just, must be responsible. That is to say, the country must take advantage of the potentials it still has in terms of energy, where oil and gas, called to guarantee the reliability and efficiency of renewable energies, can play a fundamental role as a lever of value in this process.”.

According to the National Hydrocarbons Agency (ANH), today Colombia has proven reserves of oil and gas for 7.5 and 7.2 years, respectively. Hence the need to accelerate investments that accompany the transition promoted by the Government. Vera explains, for example, that “offshore development is essential to guarantee the sovereignty and energy security of the country in terms of gas. Our self-sufficiency could extend beyond 8 years, which would allow more than 38 million Colombians who use gas as their main energy source to continue having this resource as a clean energy source, contributing to the environmental sustainability of the country, reliable and at affordable prices.”.

Thanks to Colombia achieving energy sovereignty, it currently does not depend on oil imports to refine its own gasoline or even gas imports to supply Colombian households. This has guaranteed supply for the millions of vehicles in the automotive fleet and, in addition, to advance towards decarbonization of the economy. Not only because gas is a fuel called to be the main axis of the energy transition, but also because it has been used massively as a vehicle fuel.

The challenges

While at the regional level, the commitment of Latin American countries has focused on promoting a green agenda with low-emission industries, hydrocarbon companies in the region have directed their efforts to accelerate their investments in clean energies, readjust their portfolios, and adapt to change. However, issues such as security in the territories, regulation, and the lack of clear messages have caused the sector to remain waiting for the Government's decisions today.

This has generated, according to calculations from Campetrol, a 29.1 percent reduction in drilling activity as of August, which translated into a loss of nearly 10,400 jobs (1,600 direct and 8,800 indirect). Likewise, this scenario caused the Colombian economy to receive resources from the hydrocarbon sector amounting to around 44.3 trillion pesos in the first half of 2023, compared to nearly 51.4 trillion pesos in the same period of 2022.

Tomás González, director of the Regional Energy Studies Center (CREE), emphasizes that it is necessary to take advantage of the resources that Colombia has, as long as there is demand, the country cannot stop producing hydrocarbons. “If Colombia stops producing oil, it will sacrifice royalties and tax revenues. If we recognize that, it will be easier to advance in the transition at minimal cost.”.

Naturgas joins this call, reiterating that it is imperative to build an agenda that allows natural gas to be the vehicle for a just energy transition. According to its calculations, if all the potential of this fuel is developed, the country would go from having 3 trillion cubic feet of proven reserves, available for 7.7 years, to nearly 60 trillion cubic feet in conventional, unconventional, and Caribbean Sea deposits, which would specifically increase reserves for up to 100 years.

Against this backdrop, the industry's call is to achieve a truly just energy transition, which finds in oil and gas an ally with an important role in the roadmap for the next 20 years. The underlying message is clear: join forces to achieve a decarbonized, prosperous economy with millions of dollars that can be contributed for more transfers, infrastructure, and health.