The United Kingdom lifted a ban on shale gas production, Norway is looking for oil deep in the Arctic, and the United States is begging drilling companies to produce more.
Many of the world’s largest countries are backing off, or slowing some of their plans to move away from fossil fuels.
But in Colombia it is not like that. Its first leftist president, Gustavo Petro, has banned new licenses for oil exploration in Latin America’s third-largest producer.
He is also pushing Congress, through legislation he outlined on his first day in office, to raise taxes on energy exports and is working to implement a ban on fracking.
No other oil-producing country seeks to restrict the industry so much.
Oil executives in Bogotá get the message. Ecopetrol SA, the state-controlled producer, has abandoned pilot projects for fracking, a controversial extraction technique it relied on to revive production.
And independent producers like Gran Tierra Energy are now looking elsewhere, including to neighboring Ecuador, to increase output. The Colombian Petroleum Association estimates that Petro’s plans will cause a 30% drop in investment in the industry.
“They are scaring the private sector a lot,” said John Padilla, managing director of Colombia-based energy consultancy IPD Latin America.
All of this, of course, is good news for anyone concerned about global warming. The problem is that the anti-oil crackdown is contributing to a collapse in Colombian markets that, if unchecked, will increase financial and political pressure on the new administration.
The peso has sunk more than 20% against the dollar since Petro was elected in June, driving up the price of imports and adding to an inflationary spiral that hits Colombians daily.
“The question,” Padilla said, “is how long that discourse can continue.”
Petros’ environmental activism stands out in a region where commodities have historically driven the economy. About 50% of Colombia’s export earnings come from oil and mining.
If Petro succeeds, it will provide other emerging markets with a strategy for starting the energy transition.
Or it can become a cautionary tale of over-ambitious environmentalism. No doubt the push against oil will precipitate a decline in Colombia’s production and exports when the country needs all the revenue it can get to finance its plans to increase social spending.
The Colombian peso has lost a fifth of its value against the dollar since Gustavo Petro was elected president in June.
RISK OF COUNTERACTION
The risk of a public backlash against the Petro is real, especially as it goes hand in hand with the elimination of costly fuel subsidies.
This year, Ecuador’s president was almost blamed for fuel prices. Brazil and Mexico have sacrificed tax revenue to subsidize gasoline and oil.
Many industry watchers still expect the Petro to retreat under tight national budgets.
“Circumstances will prevail and discourse will have to match reality sooner rather than later,” said Schreiner Parker, Latin America director at consultancy Rystad Energy.
Members of Petro’s economic team disagree on how quickly the country should move away from oil and gas.
Finance Minister José Antonio Ocampo has said that there is no final decision on ending oil and gas exploration.
For her part, Mines and Energy Minister Irene Velez, an academic and environmental activist who has worked with Petro since he was mayor of Bogotá, said the ban on granting new areas for exploration remains in place.
In response to questions, the Ministry of Mines and Energy said that Ecopetrol and other exploration companies already have enough licenses to increase Colombia’s proven oil reserves and that the government will allow existing projects to continue.
Even if Petro were to slow or reverse its efforts, it has already weakened Colombia’s ability to turn around an oil industry that has been in decline for years. The country has always been a tough seller for major international oil companies.
Colombia does not offer the same kind of billion-barrel discoveries made in Guyana and Brazil and should offer more incentives for companies to take an exploration risk.
Chevron Corp. withdrew from Colombia in 2019; Occidental Petroleum Corp. sold its land holdings in Colombia in 2020; even Ecopetrol, a company whose leadership is hand-picked by the government, has turned to American shale for expansion opportunities.
If Petro succeeds in transitioning to renewable energy in a country with strong winds, raging rivers and abundant sunshine, the rough start to his tenure will be forgotten.
Colombia’s planned 13 gigawatt renewable energy projects will help reduce dependence on hydrocarbons.
According to BloombergNEF, Ecopetrol has more concrete plans for renewable energy and green hydrogen than regional peers Petróleos Mexicanos (Pemex) or Petróleo Brasileiro SA (Petrobras).
However, the Colombian Petroleum Association believes that a crisis will develop long before the country achieves that transition. “All the alarm bells are going off,” Francisco Lloreda, the group’s leader, said in an interview.
With information from Bloomberg
