Cocaine Production Soars In Colombia As Oil Industry Crumbles

Authored by Matthew Smith via OilPrice.com,

Conflict-torn Colombia’s economically crucial oil industry continues to labor under the pressure of an array of threats.

After being severely impacted by the pandemic oil output in the Andean country fell to its lowest level in over a decade, to an average of 694,151 barrels per day during June 2021.

Heightened political turmoil leading to nationwide anti-government demonstrations, including community blockades of major roads, forced onshore drillers to shutter operations causing production to plunge. While the protests and blockades ended by mid-July 2021 tensions remain high driven by a surge in violence, lawlessness and poverty since Ivan Duque won the presidency in 2018. Much of that can be attributed to his failure to implement the 2016 peace accord with Colombia’s largest armed group the Marxist FARC.

On all accounts, 2021 is shaping up to be Colombia’s most violent year in a decade. Massacres have surged as have the murders of civil society leaders and ex-FARC combatants. Legal impunity has soared since Duque was sworn into Colombia’s top office in August 2018.

According to the United Nations (Spanish), Colombia’s cocaine production during 2020 surged to a record high of 1,228 metric tons or roughly eight percent more than a year earlier. That volume is also significantly greater than all the cocaine produced in Colombia when the Medellin Cartel was at the peak of its power during the 1980s. Unsurprisingly, it is the vast profits generated by producing and smuggling cocaine that are fueling Colombia’s decades-long low-level multiparty asymmetric conflict and high levels of violence in rural zones. Many of the remote areas which are coca-growing hotspots and subject to considerable violence are also rich in petroleum. It is the lead of the coca plant which contains the alkaloid cocaine, one of the world’s most profitable illicit substances.

Among the most violent and lawless regions is Catatumbo, which spans the eastern Colombian department of Norte de Santander and includes western Venezuela. Catatumbo is one of the most prolific coca cultivating areas in Colombia. For this reason, the region is at the center of a long-running conflict between various non-state armed actors including remnants of the leftist EPL guerillas, the ELN, former FARC combatants and paramilitaries.

Those groups are all vying for control of Catatumbo’s lucrative coca growing fields and smuggling routes into Venezuela, where the petrostate’s near-collapse makes it an ideal jumping-off point for shipping cocaine to the U.S. and Europe. The non-state armed groups operating in Catatumbo have greater control and influence than Colombia’s security forces.  

The area is also one of the most oil-rich parts of Colombia containing the prolific Catatumbo Basin which according to Colombia’s hydrocarbon regulator, the National Hydrocarbon Agency (ANH – Spanish initials), is underexplored. The Catatumbo Basin is an extension of Venezuela’s Maracaibo Basin which is classified as a super basin estimated to contain around 2% of the world’s hydrocarbon reserves. It is characterized by the presence of the La Luna geological formation, which is an ultra-rich petroleum-bearing Late Cretaceous age source rock.

Colombia’s second-largest oilfield Caño Limon, which was discovered by Occidental Petroleum in 1983, is in the region. The U.S. EIA believes, aside from considerable conventional hydrocarbon resources, that the basin possesses extensive unconventional shale oil and natural gas potential from the widespread Cretaceous La Luna Shale formation.

The exploitation of unconventional hydrocarbon resources through hydraulic fracturing has long been seen as a solution for boosting Colombia’s meager 1.8 billion barrels of proven oil reserves which have a short six-year production life. Those aspects along with the Catatumbo Basin having only been moderately explored, point to it possessing considerable hydrocarbon potential with a high likelihood of further petroleum discoveries if drillers can safely undertake exploration activities.

Many other conflict zones, which incidentally are also key coca-growing regions within Colombia are also rich in hydrocarbons. The Putumayo Basin in Colombia’s southern Putumayo Department, which also has one of the Andean country’s largest concentrations of coca fields, is the Andean country’s second-largest oil-producing region.

The basin is the northern extension of the Putumayo-Oriente-Maranon Basin, which runs from northern Peru through Ecuador to southern Colombia and is estimated by the US Geological Survey to have mean undiscovered oil resources of three billion barrels. According to the ANH more than 365 million barrels of oil reserves have been identified in the basin. Those numbers in conjunction with the giant oilfields discovered in the Oriente Basin in nearby Ecuador, notably around the municipality of Lago Agrio, point to the Putumayo Basin’s enormous exploration potential.

A deteriorating internal security environment coupled with rising violence and heightened political turmoil are deterring foreign oil companies from investing in urgently required exploration and development activities in Colombia. That poses a significant risk to the Andean country’s economy because in a country with a large informal economy that makes effective taxation difficult and in many cases near impossible, oil revenues form a critical part of government income.

The sharp contraction of Colombia’s economy during 2020, where gross domestic product shrank by nearly 7%, has caused fiscal income to sharply decline to magnify the risks posed by low petroleum reserves and declining production.

The Duque administration’s failure to fully implement the 2016 FARC peace treaty coupled with a spike in violence means that Colombia’s economy has yet to enjoy the much-vaunted peace dividend, which was predicted to boost GDP growth by up to 3%. It also means the Andean country’s oil industry has not benefited from the increased security that the peace accord was going to deliver which would have opened territory once off-limits for exploration because it was controlled by armed groups.

For these reasons, it is doubtful Colombia will make the major oil discoveries necessary to boost proven reserves and production. That is a pressing issue because oil is responsible for 17% of government income, around 3% of GDP and more than a third of exports by value. As those numbers demonstrate, if Colombia is unable to maintain its crude oil output at current levels by making further discoveries, then the economy and government revenue are under threat.

Any sharp decline in economic growth and fiscal income could have a disastrous impact on Colombia’s already fragile outlook.

Bogota must reduce violence and lawlessness if it is to successfully attract foreign investment to drive greater oil exploration and development to enhance economic growth.