Colombia's gas challenge [NGW Magazine]

Natural gas has been fuelling debates within Colombia`s energy segment. Dealing with a decline in its gas reserves and facing the risk of not meeting natural gas demand over the next few years, the South American country is racing against the time to maintain its promise of offering cleaner energy sources, where gas can play an important role. 

In January 2020 the energy ministry announced an energy transition plan through which the use of fossil fuels will be gradually replaced by cleaner energy sources. As part of this transition, natural gas will help reduce coal and oil products. Natural gas generates 8% of Colombian energy, while coal and oil products account for a half. In 2050, natural gas is expected to generate 30% of the country's energy, according to Colombia's government estimates. 

It is an ambitious goal. In October, Colombian gas production increased slightly, according to the energy ministry, to 1.091bn ft³/day in October, a rise of 1.9% compared to September (1.070bn ft³/d). But it was down 1.8% on the year prior figure (1.112bn ft³/d). From January to October last year, the average production of natural gas in Colombia dropped 3.3%.

"The government needs to develop a policy, which is becoming increasingly urgent as proven natural gas reserves dwindle, to the point that it fails to meet expected demand," says Charle Gamba, CEO at Canacol Energy, an independent onshore conventional natural gas exploration and production company in Colombia.

In fact, according to the country’s major energy users’ group Asoenergia, although natural gas demand will be reduced in 2020 by 12% compared with 2019, owing to the Covid-19 pandemic, it will grow in the coming years, perhaps by 8% this year and 2%/yr until 2026.

"The problem lies in the fact that the country's natural gas self-sufficiency is at risk, since the oil and gas reserves indicate that the country might begin to import gas in 2028 if there is an absence of new discoveries. So, the gas supply will depend on the improved recovery of the wells, the intensification of the offshore and the viability of exploiting unconventional resources," said Gamba. 

For Norwegian consultancy Rystad Energy’s vice-president for Latin America Schreiner Parker, mature gas producing fields like onshore Cusiana and offshore Chuchupa demonstrate considerable decline curves over the next decade, and in the case of Chuchupa, this is as high as 20%/year.

Apart from the Gorgon cluster and some smaller finds by Canacol, exploration success in the natural gas space has been limited and the biggest challenge in the short to mid-term will be to find reasonably-priced supplies. He said: "The forecast volume of imported LNG for 2030 stands at 6.48bn m³ and will continue to climb until 2035 reaching a peak volume of 7.65bn m³. For comparison, the total amount of imported LNG in last year was a bare 1.04bn m³. Although spot LNG cargoes from the US are cheap today, the need to lock in long term contracted volumes at set prices will be fundamental to avoid spot price fluctuation over the next 15 years."

Opportunities in shale gas

Parker points out that all eyes will be on the development of Colombian shale in the mid- to long-term. Among the prospects is the La Luna Formation, in the Middle Magdalena Valley Basin. 

"It could provide a sorely needed new source of production in terms of both liquids and natural gas. [State-owned] Ecopetrol, through a 2019 deal with its partner Occidental, now has exposure to Midland Basin shale development in the Permian. The decision to take hard money and human talent to the US shale space is indicative of a desire to learn shale development first-hand before trying 'in country'," Parker said.

Transfers of Permian shale know-how and technology will be invaluable for future development of the La Luna and other shale formations. But "outside technical expertise, there are several other challenges that must be confronted concerning shale development in Colombia, such as the lack of infrastructure from both a road and pipeline standpoint. Colombia will have to work diligently to avoid problems that have stymied shale production in other countries such as Poland," he said.

Yet Colombia's shale gas can provide not only opportunities for the natural gas industry in the country. For project manager Joao Bastos at Brazilian consultancy company PSR, Colombia's power sector might maintain its position as a natural gas buyer as it can support both hydroelectricity during dry seasons as well as renewable energy plants, which are expected to grow at a fast pace in the next years. 

"The fact that the security of electricity supply must be backed up by energy certificates ensures the need for thermal plants in the hydroelectric system. In addition, there is a potential for freight transport and public transport systems, as well as in the industrial energy conversion," Bastos said. 

Another challenge he identified is related to the country's infrastructure for natural gas distribution. Colombia's natural gas network expansion has been timid during the last decade, owing to the uncertainty with respect to gas availability and specific rules of tariff calculation, among other reasons. However, he believes that in the coming years, investments will be made to interconnect the two main gas pipeline systems in order to make gas supply more reliable. 

"The country has two main gas transportation systems, which are independent. Initiatives to incentivise a robust expansion, such as a demand-centred planning process with a long-term horizon, the identification of imports opportunities to support domestic production, and the prioritisation of strategic projects to be auctioned, are being evaluated as part of the country’s drive to modernise the country,'' Bastos concluded.