Oil majors are gearing up to explore off the coast of Colombia, offering hope to a country struggling to reverse declines in reserves and output of its biggest export.
Royal Dutch Shell plc is planning to drill this year in the Caribbean, while Exxon Mobil Corp., Repsol SA and state-controlled Ecopetrol SA will follow suit in 2022, Energy Minister Diego Mesa said in an interview.
“International oil companies are more focused on the offshore potential,” Mesa said. “They are working on getting the rigs for next year.” Spokespeople for Exxon and Repsol didn’t immediately respond to requests for comment.
Colombia’s exploration is part of a wider effort by major oil companies operating in South America to hunt for massive offshore fields, in contrast to Europe, where some of the same companies have scaled back crude investments in the North Sea to plow money into renewable energy. Deep-water drilling is on the rise in Brazil, Suriname and Guyana this year with rig fleets growing.
While explorers including Petroleo Brasileiro SA have struck oil and gas in Colombia’s deep waters, none of the fields have been brought into production yet. The success of further exploration and development is key to offsetting the decline in conventional oil fields on land that has been in production for decades.
Output has declined in recent months, in part because of blockades in some of the country’s main oil production regions amid nationwide anti-government protests. Production fell below 700,000 barrels a day in the second week of May, the lowest level since 2009. Average oil production in 2020 fell 12 per cent from the previous year to 781,300 barrels a day.
Mesa expects output to rebound from here and average 790,000 for the year. The rise in oil prices has encouraged more onshore drilling, he said.
The country also has 32 onshore and offshore blocks up for grabs this year, including “frontier basins” in the Pacific. Mesa expects 10-15 blocks to eventually be awarded.
Colombia expects to award renewable energy contracts in October for projects with at least 5 megawatts of capacity to supply industrial users and large corporations starting in 2023.
Local producers Celsia SA ESP, Empresas Publicas de Medellin ESP, Isagen SA ESP, Grupo Energia Bogota SA, and multinationals such as EDP Renovaveis SA, Enel Green Power SpA, and Electricite de France SA are among the potential bidders, Mesa said.
The auction is part of about $6 billion in planned projects to eventually generate 7,000 megawatts. The Andean nation also wants to develop a green hydrogen industry and is seeking potential export markets.
“There is significant interest from some companies from Germany. They have been very active about looking at the potential of Colombia to supply green hydrogen,” Mesa said.
President Ivan Duque will sign a law in the coming weeks to extend tax benefits for companies investing in renewable energy sources including hydrogen and geothermal. Benefits include value-added tax exemptions for equipment investment, lower tariffs and faster depreciation deductions.
Next week Colombia will award the first contract in Latin America for large-scale battery storage, worth about $70 million. The batteries, with a capacity of 50 megawatts, will be used to support transmission lines and will be similar to those offered by Tesla.
“The idea is to continue to do this more often both to support the grids, and as a complement to renewable energy going forward,” Mesa said.
© 2021 Bloomberg L.P.