The clash between Petro's oil ambition and ecology in Colombia

The eagerness of the Treasury to reach one million barrels of oil per day clashes with Petro's environmental policy. On Monday, during a meeting with a delegation of large investors, Colombia's Minister of Finance, Ricardo Bonilla, uttered a small phrase that not even the most enthusiastic would have expected. After reviewing the sluggish 0.7% growth recorded during the first quarter of the year, Bonilla stated that the Government seeks to boost the daily production of crude oil from the current 770,000 barrels to one million. A surprising paradox for some of the attendees, accustomed to the government's reluctance from day one to signing new contracts for exploration and extraction of hydrocarbons. It is not surprising that the fervor in the announcement by the head of the Treasury has also caused confusion among several observers who have been trying to unravel the government's navigation plan in the petroleum sector for almost two years. Was it a mere gesture to reassure the group of businessmen? Former Minister of Mines and Energy Tomás González affirms that the announcement would imply almost a 50% increase in Ecopetrol's daily production: "The fair energy transition policy published by the ministry last year implies that we will become oil importers starting in 2030." Therefore, the question arises: how does the new announcement align with Petro's idea of getting Colombia out of the hydrocarbon business as quickly as possible? According to Andrés Giraldo, the director of the Economics Department at Universidad Javeriana, the contradiction can only be based on the economic standstill: "Oil has been the main fresh source of fiscal revenue and resources to finance public spending in recent years. From that statement, one can only deduce that the minister is seeing a bleak outlook." The professor elaborates that the goal of an additional 300,000 barrels could only be achieved with increased investment and exploration permits, beyond existing wells, or through fracking, the hydraulic fracturing technique that has essentially been excluded from debate by the government's most ecologically-minded officials. The government, according to the Javeriana academic, is aware of the critical fiscal situation and the statements reflect the urgency to find sources to cover the holes that have opened up in the National Budget. All announcements related to Ecopetrol and the hydrocarbon business are particularly sensitive in Colombia. Since the late 20th century, the country has bet most of its chips on a growth strategy heavily tied to the dollars generated by the oil industry. However, the energy mining bonanza, which had its heyday in the early 2000s, began to decline in 2016. Since then, and despite the price of a barrel of oil remaining above $80 this year, the consensus is clear: the future for hydrocarbons in the medium and long term is not promising, and economic diversification is urgent. Today, the sector accounts for around 1.3% of the GDP and in its best days never represented more than 7%. The sudden shifts, as long as the price of a barrel continues to rise and the country does not find alternative engines, are synonymous with vertigo and usually come with collateral effects. "Minister Bonilla's words make perfect sense for macroeconomic stability," says Frank Pearl, president of the Colombian Association of Oil and Gas (ACP). Pearl points out that foreign direct investment in oil and mining fell by 51% in April: "That's why the most important thing right now is to ensure operational conditions." While the stability in the oil price continues, despite conflicts in the Middle East and Europe, and the restrictions by the Organization of the Petroleum Exporting Countries on supply, in Colombia, security conditions in oil-producing areas have worsened. The ACP president recalls that last year there were an average of three daily blockades by communities unhappy with various situations in oil production areas. "About a month and a half ago, there was a one-week blockade in Meta. The annualized impact on finances, due to the barrels that were trapped, amounted to $10 billion," explains Pearl. A tangle of factors that lead to a new question for Tomás González: "If Bonilla's announcement is indeed true, how will the permits required to reach those activity levels and deliver that production be managed?" The International Energy Agency (IEA) estimates that the country's oil production will sustain the daily average of 770,000 barrels this year. However, the organization has forecasted a decrease of up to 70,000 barrels by the end of 2025. Therefore, the academic from the University of Los Andes wonders about the instruments that the government will use in a context without incentives for investment, no prospects for new contracts, and the possibility of exploiting unconventional resources ruled out. Meanwhile, the president of Ecopetrol, Ricardo Roa Barragán, has put the future of operations in the Permian Basin on hold, whose contract is about to expire. It is an oil field on the border between Texas and New Mexico, which with its strong production has softened the company's regular results in 2023. Roa, who faces several investigations due to his role as Petro's presidential campaign manager, acknowledged in statements to a specialized media outlet: "We are still evaluating. It is reporting good indicators in terms of asset profitability and what it represents for the Group's EBITDA. And, although it may sound strange given that it involves fracking, it is one of the least polluting assets that Ecopetrol currently has in its portfolio." He was referring to a business that has become the leading producer for Ecopetrol with an extra 67,000 barrels extracted from its subsurface in 2023. The statements have indeed caused some confusion within a government that, on one hand, promises to combat fossil fuels and, on the other, announces theoretical exploitation plans to straighten out public finances.