Natural gas findings and production are falling behind, forcing the country to increase their reliance on imports while driving up energy inflation for 2025
Colombia is anticipating an increase in energy costs due to natural gas scarcity. The inability to increase proven natural gas reserves and production will lead to greater reliance on imported gas. Multinational companies (multinationals) operating in the country should prepare for higher energy expenses, including those for electricity, heating, refrigeration, combustion, and transportation.
Business implications
The final price of natural gas comprises three components: the cost of gas molecules, transportation, and distribution. Compared to onshore production and transportation costs, importing gas, regasifying it, and transporting it from Cartagena to the interior can increase gas molecule costs by 150%. Projections from Colombia’s Regional Center of Energy Studies indicate a potential 28% rise in natural gas prices within the next two years in the interior of the country.
- This increase is expected to raise utility expenses for households, reducing disposable income and limiting their spending capacity. Households in the Colombian Caribbean may experience even higher energy costs due to greater use of cooling systems and air conditioning.
- B2C multinationals with products requiring refrigeration or heating may face higher operating costs due to increased energy bills.
- B2B companies using natural gas for combustion in production may also see significant commercial rate increases.
- Manufacturing companies should consider purchasing natural gas futures contracts to ensure price coverage and mitigate exposure to rising prices.
- Natural gas is used as fuel for refinery furnaces and boilers, essential for heating and steam generation processes required for processing liquid fuels. An increase in natural gas prices would lead to higher production costs for liquid fuels, resulting in increased transportation costs.
What’s behind the changes?
Over the first five months of 2024, Colombia’s natural gas production has declined by 8.1% YOY compared to the same period in 2023. While the country can meet its 2024 energy needs, it will likely need to import natural gas in 2025. Natural gas in Colombia is used for national transport system compression stations, residential heating and cooking, refineries, and electricity generation.
Projections from Colombia’s Regional Center of Energy Studies indicate a daily shortage of 83 GBTU in 2025, potentially escalating to 355 GBTU per day by 2029 if onshore production continues to decline, leading to increased energy costs.
Colombia relies on five natural gas fields—Ballenas, Chuchupa, Cupiagua, Cusiana, and Jobo—which provide 80% of demand but have been declining since 2019. Ecopetrol’s offshore Orca-I field exploration did not yield sufficient reserves. Since 2012, natural gas reserves have fallen by 58%, with production outpacing discoveries. This has resulted in a gas replacement rate of only 25%, meaning that for every 100 units of gas produced, only 25 units are being replaced by new discoveries.
Ecopetrol plans to develop the Arrecife field in Córdoba, estimated to hold 6.7 Bcft of reserves, with an initial production of 5-10 GBTU per day, insufficient to cover the expected 2025 shortfall.
In 2022, the Colombian government announced plans to address the natural gas shortfall by increasing imports from Venezuela. However, previous natural gas contracts were nullified due to PDVSA, Venezuela’s national oil company, failing to deliver the agreed-upon quantities. The current operational status of the Trans-Caribbean pipeline between Colombia and Venezuela remains indeterminate.
Additionally, allegations of electoral fraud by the Venezuelan opposition and the subsequent armed response to protesters by the state have heightened the risk of future sanctions against PDVSA from the U.S. State Department. Such sanctions could further limit Colombia’s natural gas purchases from Venezuela.
Other options imply the import of liquefied natural gas (LNG) to be processed at the Cartagena regasification plant. However, the regasification option would entail higher costs to meet the demand. An additional plant is planned to become operational on the Pacific coast at the port of Buenaventura by 2026.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.