Oil and Gas Machinery and Services in Colombia

A Hot Tip about Natural Gas in Colombia

Last updated: 10 Mar 2011

Overview

The oil and gas machinery and services market represents a huge opportunity for U.S. companies. The Uribe Administration has made oil and gas exploration and production a top priority. One of the main challenges for Colombia is to achieve an average production of around one million barrels per day by 2015. To reach this target, upstream investment levels need to reach USD 4 billion per year, which should translate into the drilling of approximately 190 exploratory wells (most of them between 5,000 to 10,000 feet deep), in order to achieve net reserves of approximately 2.4 billion barrels of oil by 2010.

 

By October 2009, Colombia’s crude oil and natural gas production increased 17 percent from 584,000 to 704,000 barrels of oil per day, compared to 2008. During the same period, Colombia’s natural gas production increased from 878 to 1,112 million cubic feet per day. Ecopetrol is currently the leader in crude oil production due to the implementation of enhanced production technologies in different fields.

 

The total market for oil and gas equipment grew 24 percent in 2009. The market is expected to grow nearly 15 percent in 2010 fueled by mega projects and the reactivation of investments delayed by the global economic crisis. In 2009, the import market reached USD 2 billion representing a 25 percent growth over 2008. U.S. products represented 50 percent of the total imports in 2009, followed by China (10.5 percent), Germany (9.6 percent), and Brazil (6.3 percent). It is important to highlight the significant growth of Chinese imports during the last five years and that an Indian company established a manufacturing facility in the Cartagena Free Trade Zone. Chinese and Indian companies’ main competitive advantage is lower cost compared to similar equipment from established vendors. However, the disadvantage is the lower quality and reliability of Chinese equipment. U.S. equipment suppliers are urged to keep in touch with local distributors and remind them of the benefits of U.S. equipments’ long-standing compliance with industry standards, reliability, lower shipment costs, innovation, and the current favorable exchange rate.

 

Colombia’s known oil reserves increased from 1,358 million barrels in 2007 to 1,668 million barrels by the end of 2008. Natural gas reserves reached 7,277 Giga cubic feet in 2008, up from 7,084 Giga cubic feet in 2007. Colombia may become a net importer of crude oil by 2020, if no major discoveries are found before then. Despite a significant number of exploration and production (E&P) efforts, only minor discoveries have been made so far, mainly due to the country’s complex geology and geography. A notable exception is the potential for up to four Tera Cubic Feet (TCF) of coalbed methane associated gas discovered by Drummond at its La Loma (state of Cesar) and Ranchería river (state of Guajira) sites.

 

Oil and gas companies are conducting an aggressive exploration campaign throughout Colombia, including assessing its offshore Caribbean and Pacific Ocean basins. Despite the current oil prices (lower than 2008), these activities offer significant opportunities for U.S. exploration and production (E&P) firms as well as equipment manufacturers and service providers interested in this market in the medium and long term. The National Hydrocarbons Agency (ANH) continued its ambitious exploration program that includes direct seismic, gravimetry and magnetometry tenders, complementing E&P companies that are also engaging in related geological, stratigraphic and petrography studies. The ANH is also negotiating E&P and technical evaluation contracts to gain a better understanding of the country’s hydrocarbons resources.

 

In December 2006, the Colombian Congress approved a stock capitalization program for up to 20 percent of Colombia’s national oil company, Ecopetrol. With these funds the company will embark on an ambitious investment campaign for up to USD $60 billion (until 2015) to develop new exploration and production projects and improve liquid fuels quality (reducing sulfur content by modernizing the Cartagena and Barrancabermeja refineries). Other plans include building a biodiesel facility to produce some 2,000 barrels per day, increasing efforts for compressed natural gas in vehicles, and implementing plans for natural gas export to Panama and eventually Central America, among other projects.

 

Ecopetrol launched its Initial Purchase Offering (IPO) on the NY Stock Exchange (trading as ADRs) in September 2008, and established a U.S.-based subsidiary, Ecopetrol Americas, Inc. which has since acquired rights in several blocks in the Gulf of Mexico from ENI, StatOilHydro, Shell, BP and Anadarko. Ecopetrol has also agreements with Petrobras, PetroPeru and others to develop prospects in Colombia and other countries.

 

Ecopetrol has four key goals: to add 500 million barrels of crude oil reserves, to add some three TCF in natural gas reserves, including the production of one million barrels of oil per day, to increase natural gas production to 1,100 MCFD, to increase its refining capacity to 650,000 barrels per day, produce some 2.7 million tons per year of petrochemical products, and produce some 450,000 tons per year of biofuels.

 

On January 2010, Fred Hochberg (Chairman of Ex-Im Bank) met with President Uribe and several of his ministers announced the apporoval of USD 1 billion dollar preliminary commitment ofr ECOPETROL to support the acquisition of U.S. goods and services to support the company’s key goals. Upon the approval and implementation of the U.S. – Colombia Trade Promotion Agreement, U.S. equipment exporters will be more competitive as products will receive immediate duty-free treatment. In addition, the ban on remanufactured products will be lifted.

 

In 2005, the Colombian government approved the elimination of import duties for equipment, spare parts and accessories destined for various oil and gas activities (exploration, production, transportation, and refining). The measure also covers minerals exploration, production, processing, transformation, and transportation. This benefit will expire in October 2010.

 

Best Prospects/Services

The best products and services for this industry are:

• Seismic activity services (both two or three dimensional)

• Improved analytical seismic computer codes

• Drilling equipment (including directional drilling), and drilling fluids

• Wellhead equipment (such as Christmas trees, valves, compressors, pumps, piping equipment, safety equipment, well completion, casing, and cementing equipment)

• Improved production stimulation

• Enhanced oil recovery for selected fields in which production is dwindling

 

Opportunities

U.S. companies interested in pursuing oil and gas exploration and production contracts must approach the National Hydrocarbons Agency (ANH). If interested in providing services or supplying equipment, then the companies must approach Ecopetrol or local petroleum companies directly. U.S. suppliers must contact the relevant U.S. petroleum companies directly in their respective headquarters.

 

Other potential opportunities involve petrochemical and refinery expansion projects that could be very attractive to U.S. firms. These projects include an expansion of the Cartagena Refinery to increase daily capacity to 140,000 barrels (bpd). Chicago Bridge and Iron (CBI) has been awarded a USD 1.4 billion for the engineering, procurement and construction contract. Ecopetrol recently awarded Foster Wheeler USA and Process Consultants the project management contract for the Barrancabermeja Refinery expansion project to 300,000 bpd, estimated to be USD 3.6 billion.

 

Ecopetrol is also looking into different business opportunities in developing petrochemical clusters in Cartagena and Barrancabermeja. They expect to conclude a petrochemicals master plan identifying projects, by mid-2010.

 

Read the full market research report

 


Posted: 04 May 2010, last updated 10 March 2011

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