Editorial

Colombia's natural gas sector gains momentum

Declining legacy production and growing demand creates a window of opportunity for the right players

Colombia's natural gas sector is gaining prominence in the face of rising demand and fading production from the country's legacy field. The Guajira area, which produced most of the country's gas until 2012, is now producing half of its 2010 peak. Key fields in the Cusiana area, another major gas province, have produced about half of their gas reserves with an estimated 1.7 tcf remaining. La Creciente, discovered by Pacific Rubiales (now Pacific E&P) in 2006, was once thought to be capable of producing 250 mmcfd. The field is producing less than 40 mmcfd and will soon enter decline.

Small onshore gas discoveries provide high returns with short lead times. Canacol has made a string of discoveries and is positioned to produce almost 20% of Colombian gas within five years, with room for growth from continued exploration. The Canadian independent timed its entrance perfectly, securing high priced gas contracts including one above US$8/mmcf. Ecopetrol subsidiary Hocol has also entered the gas market at an opportune time. The company brought Bonga online in December and expects Bullerengue to begin production later this year.

We forecast a supply deficit by at least 2020, or sooner if El Niño weather patterns occur. The country has already begun importing gas through a newly constructed regasification terminal near Cartagena.

Less imports could be needed in the long term if offshore discoveries are developed, but uncertainties remain around the viability of offshore gas. The government will need to incentivize Anadarko to develop their Kronos and Gorgon discoveries through more favorable fiscal terms. Under current terms, the development is the least attractive in Anadarko's global pre-FID portfolio.

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Offshore is also strategic for Ecopetrol, who will drill five offshore wells this year including two already drilled in partnership with Anadarko. The NOC has a very low proven reserve life for an E&P of its scale, and offshore gas is a potential growth opportunity.

This insight was compiled by Amanda Kupchella, Research Analyst in Latin America Upstream. Our team covers a vast number of industries in the region.