Arpel-Naturgas Week: Colombia pivots to Venezuelan gas despite offshore bounty

(Cartagena, Colombia) — Colombia is drawing closer to its troubled neighbour Venezuela in a drive to replenish gas without issuing new exploration contracts at home, comments made by the Colombian government at Arpel-Naturgas Week have indicated. But as foreign companies prepare to tap Colombia’s own gas-rich offshore, Bogotá’s pivot to Caracas may owe more to political affinity than commercial gas supply.

Colombia is scrambling to line up more gas to stave off a looming supply deficit. As of the end of 2022, Colombia only had enough proven gas reserves to cover 7.2 years of production. Amid the country’s latest drought, an LNG terminal outside Cartagena that supplies thermal power generators is running at full capacity.

To address the looming shortfall, Colombian President Gustavo Petro’s administration seems to be putting more emphasis on Venezuelan gas than domestic alternatives. His focus is on a 225km cross-border gas pipeline owned by Venezuela’s national oil company PDVSA that has been empty since 2015. The line was originally used to bring Colombian gas to Venezuela. Now the Petro government has tasked its state-controlled oil company Ecopetrol to help fix it so Venezuelan gas can start flowing the other way.

“We have been working with Ecopetrol to review the pipeline infrastructure…with the purpose of recuperating it,” Colombia’s Hydrocarbons Minister Andrés Camacho told reporters on April 10, at the end of the third day of the Arpel-Naturgas event, a major gas conference in Cartagena. Camacho said one kilometre on the Colombian side had been dismantled but suggested the Venezuelan side was intact.

PDVSA and Ecopetrol “have been reviewing all the technical and legal conditions to be able to develop this reopening and restructuring of the pipeline,” Camacho said.

The announcement followed a controversial meeting between Petro and his Venezuelan counterpart Nicolas Maduro in Caracas this week. Petro said Ecopetrol could explore for oil and gas in border areas, an idea certain to alarm the company’s private investors because of chronic lawlessness and gang violence along the 2,200 km frontier. Before the conference winds down on April 12, Ecopetrol’s chief executive Ricardo Roa was expected to take questions about the business prospects in Venezuela.

Sanctions doubts

The Maduro government has long been a target of U.S.-led sanctions for subverting democracy. Over the past two years, Washington has progressively eased the sanctions in an effort to persuade Maduro to hold free and fair elections. Instead, Maduro has banned one opposition candidate after another ahead of the July 28 elections, and the U.S. is threatening to reimpose some restrictions unless he reverses course.

At the April 10 press conference, Camacho was flanked by Luz Stella Murgas, president of Colombian gas chamber Naturgas. A day earlier, Murgas had told Gas Outlook on the margins of the Arpel-Naturgas conference that Colombia would need more certainty that sanctions would not be reimposed before banking on Venezuelan gas. “When sanctions are lifted, it has to be for the long-term,” she said. In addition, she said Colombia would need legal assurances and at least 50 million cubic feet a day (cf/d) of supply to recover investment in the infrastructure, which would take two and a half years to rebuild. She did not take questions at Camacho’s press briefing.

Venezuela boasts some of the world’s largest gas reserves, but operations are sharply deteriorating. In its once prolific eastern oil division, PDVSA routinely flares at least 2 billion cf/d of associated gas that it is no longer able to process. That volume is twice as much as Colombia currently produces for its domestic market.

If Colombia and Venezuela work out a supply deal, the gas would be sourced from Cardon IV, a Venezuelan offshore joint venture run by Spain’s Repsol and Italy’s ENI. The project produces a fraction of its potential because PDVSA is the sole off-taker for the gas and lacks sufficient means to absorb it. Neither European company has commented on export plans.

Schreiner Parker, managing director for Latin America at Norwegian consultancy Rystad Energy, is sceptical of the Venezuelan supply potential for Colombia. “The degradation of that pipeline is not understood on the Venezuelan side, and there is very little confidence that Venezuela would be a short, medium or long term reliable partner in terms of supplying gas.” That sentiment was echoed by local and international executives on the sidelines of the conference.

Colombia beckons gas producers

The news of the Petro administration’s gas talks with Venezuela broke in the middle of the ongoing industry conference that has shined a spotlight on a cluster of gas discoveries in Colombia’s Caribbean offshore. Delegates repeatedly touted the key role of this offshore gas in ensuring a smooth and orderly transition to cleaner energy.

The discovery closest to kick-off is Uchuva, operated by Brazil’s state-controlled Petrobras in a joint venture with Ecopetrol. In July 2022, Petrobras and Ecopetrol discovered gas at the Uchuva-1 well in more than 800 metres of water on the Tayrona block, an asset that the Brazilian company retained even after it shed much of its overseas portfolio to focus on mammoth pre-salt reserves offshore Brazil. The well is just 32 km from the coast, and 76 km from the coastal city of Santa Marta. Petrobras holds 44.4% of the joint venture. Ecopetrol holds the other 55.6%.

In May, Petrobras plans to spud the Uchuva-2 well, which it expects to complete in November. But the company is not waiting for the results to press ahead with development plans. “We are working on evaluation and development in parallel to cut time to market,” Petrobras country manager Rodrigo Costa told conference delegates.

The discovered gas has a “very interesting quality and a very low carbon footprint,” Costa said, noting that the composition is close to 98% methane with few impurities. But he stressed the need to secure requisite permits and define infrastructure needs, mainly a pipeline to the coast.

Despite Costa’s upbeat remarks, Petrobras as well as European major Shell, which is considered the next company in line to tap Caribbean gas, have yet to take final investment decisions.

Shell operates acreage encompassing the Kronos, Gorgon and Glaucus discoveries, known as KGG, which are farther from shore and in deeper water than Uchuva. The company sees two challenges to development, Ana Maria Duque, Shell president for Colombia, Central America and Spanish-speaking Caribbean, told Gas Outlook.

The first challenge is infrastructure, in “how we manage to physically connect Colombia’s interior and coastal markets in a competitive way,” Duque said. The concern lies in the current distance-based remuneration formula for the transport system, “so if you’re really far away from the producing fields, probably the cost of the gas will increase.”

Commercially, “we need more flexibility on the commercial terms, particularly for offshore gas. We believe offshore gas is a completely different regime,” Duque said.

If the Petrobras and Shell projects materialise as appears increasingly likely, Colombia would probably have little need for Venezuelan gas. KGG could produce 250 million to 400 million cf/d. Together with another 400 million cf/d from Uchuva, the Caribbean offshore has the potential to nearly double the country’s commercial production of around one billion cf/d.

Camacho told reporters that the government is committed to allowing more commercial flexibility for gas to enable the offshore projects to move forward. He vowed other incentives to maximize onshore gas production and optimize existing domestic pipelines.

And facing recurring El Niño-driven droughts that sap hydroelectricity. Colombian gas distributor Promigas plans to expand the 400 million cf/d regasification plant outside Cartagena to 450 million cf/d in the near term, and to 530 million cf/d in 2027, further boosting supply availability.

The next date to watch is April 17, when Brazil’s president Luiz Inacio Lula da Silva comes to the Colombian capital of Bogotá for the opening of an international book fair. Murgas is hoping Lula uses the occasion to deliver a high-profile endorsement of Uchuva. “The investment and geology are there, and there is political will on both sides,” the Naturgas president said.