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Colombia to begin natural gas imports in early 2016: Ecopetrol

Highlights

Colombia in January will begin importing 39 MMcf/d of natural gas from neighboring Venezuela to meet domestic needs, ending decades of natural gas self sufficiency, the head of Ecopetrol said Monday.

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The country is negotiating to increase that level of imports over coming months, Juan Carlos Echeverry, the CEO of the state-controlled company, said in an interview published Monday in El Tiempo newspaper.

Ecopetrol is the country's primary natural gas producer, as well as owner of most of the pipeline network over which much of Colombia's gas and fluids are transported.

An Ecopetrol source on Monday confirmed Echeverry's comments, and said the exact date for the initial gas imports still has not been decided.



Imports could increase significantly in the coming years, officials have said, partly because of declining reserves and the expected near-term impacts of the El Nino weather phenomenon. Climate change may force Colombia to divert more gas to thermoelectric power plants to make up for less electricity generated from hydropower plants due to reduced rainfall.

Although Ecopetrol reported last year a promising natural gas find at its Caribbean offshore Orca-1 well drilled with Repsol and Petrobras, Echeverry said in the newspaper interview Monday that production from the well, if it proves commercially viable, is "several years off."

The planned January imports of natural gas amount to about 3.5% of Colombia's average daily gas consumption of 1.1 Bcf. Ecopetrol currently produces roughly 80% of the the country's natural gas output.

The country has been self sufficient in natural gas since significant gas finds in the northeastern Guajira peninsula that were developed by Chevron, which remains the operator as Ecopetrol's partner. Further gas discoveries in the Cupiagua-Cusiana complex added to the country's gas independence.

But in its third quarter earnings report released Wednesday, Ecopetrol reported that its natural gas output over the three months ended September 30 averaged 128,900 b/d oil equivalent, down 6% from the 137,100 boe/d over the same three months last year.

Ecopetrol's overall production, including crude and products, over the quarter averaged 740,900 boe/d, down 1.8% from the 754,800 boe/d produced over the same quarter in 2014.

Echeverry blamed several factors for the decline, including 70 attacks by leftists guerrillas on pipeline infrastructure this year through September 30, which compares with 130 attacks during all of 2014. The attacks have cost Ecopetrol an average 6,000 b/d of year-to-date production, he told the newspaper.

The lower pace of attacks could be attributed to the fact that Colombia's largest insurgent group, known as the FARC, declared a cease-fire in July while it negotiates a comprehensive peace agreement with the Colombian government. Meanwhile, another rebel group, known by the initials ELN, continues its attacks on pipelines and tanker trucks.

Saying that Colombia's Ecopetrol finds itself in short-term "choppy waters," Echeverry also detailed the company's efforts to cut costs and improve cash flow amid a softer crude price environment. He said 13,000 contract employees have been let go this year, a reduction of 28% from the 47,000 contract workers a year ago.

By year-end, Ecopetrol will have reduced annual costs by roughly $700 million. Much of those costs have come from renegotiating contracts with the 4,200 contractor firms doing business with Ecopetrol, cuts that he admitted have generated ire among suppliers.

The pain is also being felt by the Colombian government. As a result of the price declines, the government will receive Peso 3 trillion (about US$1 billion) in taxes, royalties and dividends from Ecopetrol this year, down from Peso 23 trillion in 2013, Echeverry said.

Echeverry also disclosed that Colombia is currently importing 68,000 b/d of diesel, or 59% of the 115,000 b/d it consumes. As for gasoline, the country currently must import 36,000 b/d, or 40% of the 91,000 b/d that it burns on average.

But once the recently inaugurated $8.1 billion Reficar refinery near Cartagena is fully operational next year, Colombia will convert to a net exporter of diesel and become self-sufficient in gasoline, Echeverry said.

--Chris Kraul, newsdesk@platts.com
--Edited by Derek Sands, derek.sands@platts.com

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