-Caveat Lector-
"Colombia is Latin America's third-largest exporter of oil to
the United States, after Venezuela and Mexico.
"Eleven of the eighteen foreign oil companies drilling in
Colombia are U.S. owned corporations.
"Many oil wells are located in the "stomping ground" of
the Medellin drug cartel as well as its competitors."
August 11, 1995
Colombia Oil Exports
The Andes mountains in Colombia have become the newest oil
hot spot with several international companies drilling in the
region. Oil drilling is a profitable business for the exploring
corporation as well as the Colombian government which receives a
large sum of money for each barrel of oil recovered. However,
the process is not without violence nor criticism from
environmental groups. The Marxist guerrillas repeatedly
interrupt production through the use of terrorist tactics
including bombings and kidnappings. Environmental groups
challenge Colombian laws regarding environmental degradation due
to the methods of oil exploration and extraction primarily caused
by foreign corporations.
Ten years ago, Colombia was an importer of oil. Today, it
is Latin America's third-largest exporter of oil to the United
States following Venezuela and Mexico. Eleven of the eighteen
foreign oil companies drilling in Colombia are U.S. owned
corporations. Private investment has financed the exploration of
one third of Colombia's territory. With the majority of the
country's known oil reserves "having been discovered by private
companies, private investment will be essential both to maintain
future exports and to explore the two-thirds of the country not
yet explored for oil."
In 1993, British Petroleum and its partners located oil
beneath the eastern plains in the Andes Mountains. The company
predicted "it could be worth $3 billion a year in exports -- the
government hopes for $5 billion -- by 1997." The Colombian
government also "commissioned British Petroleum to continue
exploring for oil in its frontier areas" in 1995.
Heavy taxes have caused foreign oil companies to shy away
from Colombia. According to Byron Grote, the Latin America
Director for British Petroleum, "the Colombian Government takes
up to 90% of the value of each barrel pumped by his company. The
Government's revenue comes from Ecopetrol's production-sharing
agreements and from corporate income and other taxes." In fact,
a recent report published by the Colombian Oil Association, which
represents the major Western companies, concluded that Colombia
"is not internationally competitive to attract risk investments."
The Colombian government is the rule-making body on the
issue of oil and oil exploration. The Environment Ministry
conducts hearings and investigations to determine the costs
associated with the process as well as the economic benefits.
Colombian legislation requires an "environmental assessment of
any area proposed for oil or mineral exploration. The
environmental inventory, which catalogues all plant and animal
species in the proposed exploration area, is then reviewed by the
Environment Ministry." According to Colombian environmental law,
all petroleum exploration project must submit the following
studies before beginning operations: "an assessment of the
existing environmental situation, including a plant and animal
life inventory; an evaluation of the possible environmental
impacts of exploration and extraction; a report on the company's
environmental contingency plans and plans for air and water
control; and a projection of long-term environmental impacts once
the company has finished its operations in the area." Based on
these reports, the Ministry approves/disapproves the site, the
extractable amounts to be drilled and the rate at which the
extraction occurs are determined.
Not everyone in Colombia is pleased that the oil companies
are drilling more and more in their country. The drug cartels,
peasant groups and paramilitary groups have wreaked havoc on the
oil-pumping stations. Many of the oil wells are located in the
"stomping ground" of the Medellin drug cartel as well as its
competitors. The area is also the home to "the less publicized
`emerald wars' (Colombia produces 60 percent of the world emerald
supply), to three separate groups of Marxist guerrillas and to an
increasingly terroristic national police force seeking to quell
the turmoil."
One reporter described a British Petroleum drilling site in
the eastern foothills of the Andes as "an armed camp, swarming
with khaki-clad, rifle-toting guards and surrounded by machine
gun emplacements and two rows of flood-lit razor wire." The
fortress is necessary in order to quell some of the violence
caused by the Marxist guerrillas in the region who are protesting
the eradication of coca crops. As it is difficult to halt the
coca eradication process, the guerrillas attack the oil sites and
pipelines as a demonstration of their dissatisfaction with the
government's actions. One of BP's sites is located in Yopal, in
the Casanare region of Colombia about ninety miles northeast of
Bogota, in the eastern foothills of the Andes Mountains. The
town has grown in five years "from a quiet state capital of
20,000 to a boom town of 60,000." But the residents are not
pleased with the growth spurt. The town has gained many things
from the oil companies including: newly paved roads, electricity
as well as a construction boom. All of these things are
wonderful for the residents. The residents do not complain about
these advancements. It is the increase in crime, poverty, and
the guerrillas that bothers the residents. The regional Governor
of Yopal, Oscar Leonides Wilches, made an insightful comment.
"We were all better off here 20 years ago, when there was no
electricity, no running water, and we were all poor. Now we all
live in a perpetual state of insecurity ... Oil has destroyed our
way of life. It's a pestilence." Although the efforts of BP
are appreciated and welcomed by the locals including the
governor, many residents claim they would be happier if the
company had never come.
The Marxist guerrillas of the National Liberation Army (ELN)
and the Revolutionary Armed Forces of Colombia (FARC), which have
made the nearby Cusiana and Cupiagua oil fields their prime
target, are often blamed for the increase in violence. The
groups "regularly blow up pipelines, kidnap foreign oil
executives and kill local politicians in an attempt to force out
multinational corporations and destabilize the Colombian
economy." During the last nine years, "leftist guerrilla squads
have dynamited Colombia's main oil pipeline 346 times, spilling
slightly more than 1.2 million barrels of crude oil ... The
guerrillas seek publicity, rural development, and nationalization
of the oil industry." The guerrillas also demand increased
spending "for social programs in areas where the oil is
produced."
Colombia's Environment Minister said that "no one has ever
calculated how much the FARC owes" due to fears that the
calculation would encourage the guerrillas to increase their
destructive actions. During the past ten years, pipeline attacks
by the guerrillas are estimated to have cost Colombia "about $1
billion in lost oil sales." Ministry studies examining the years
1989 through 1991 "found that guerrilla pipeline bombings
polluted 375 miles of creeks and rivers and fouled 12,500 acres,
ranging from tropical wetlands to Andean watersheds."
The dramatic increase in crime is attributed to the
increasing numbers of migrants from across Colombia who "have
flooded in to work in the oil fields at salaries that are three
to four times the minimum wage." Six years ago in Yopal, for
example, the town had "five hotels, three banks, about 60
prostitutes and no electricity. Today, there are 54 hotels, 22
banks, and nearly 700 prostitutes." Progress is not always for
the best as seen in this city and throughout the oil-producing
region.
Finally, infrastructure and the cost of living are
dramatically different than in the pre-oil discovery years. The
cost of living as demonstrated by rents charged has tripled.
Available infrastructure is also at risk as sewage systems and
water pipes were not constructed to serve the large numbers of
people who now require the services. At times, the towns even
complain of not enough water for all of the residents.
Oil represents twenty-two percent of Colombia's export
revenue and as much as half of its foreign investment earnings.
By 1997, "when the Cusiana-Cupiagua fields are scheduled to reach
full production of 500,000 barrels a day, earnings are expected
to reach $2.5 billion a year."
However, oil does not always provide the cure-all predicted.
One only need to examine the cases of Nigeria, Mexico, and
Venezuela to see the possible negative benefits of oil. "Over-
dependence on oil often leads to an inflated and indebted public
sector and a narrow tax base. The inflow of foreign currency
raises the exchange rate, damaging non-oil businesses. If the
oil boom turns to bust, many people end up worse off than before
the bonanza."
Ecopetrol, the state-owned petroleum company, expects to
export "500,000 barrels per day of crude oil from Colombia's
supergiant Cusiana oil field to the U.S. ... Apart from Cusiana,
Colombia currently exports about 200,000 barrels per day to the
United States."
The United States is a major importer of Colombian
low-sulfur crude oil because of the steady decline in U.S.
production. In 1994, the United States imported an average of
"8.9 million barrels a day or 45 percent, compared with about 30
percent in 1984. Even at moderate oil prices, the U.S. spent
about $45 billion last year to pay for imported oil, making it a
major contributor to the trade deficit." Production in the
United States!ts at its lowest level in four decades. United
States domestic crude oil production "fell to 6.6 million barrels
a day last year, the lowest level since 1954. Domestic
production of low-suw-ur crude, the variety from which gasoline
is most easily derived, is expected to decline by nearly 750,000
barrels a day during the 1990s."
Therefore there is a need for a "nearby source of clean
burning oil for Americans." The U.S. currently imports "slightly
more than half of its crude oil needs." Due to Colombia's close
proximity, it takes only four to five days to "transport the oil
by tanker to the major refining centers on the U.S. Gulf Coast
and the East Coast. This ensures a predictable oil supply for
U.S. refineries and saves as much as $2 a barrel in
transportation costs as compared to shipments from the Middle
East."
One environmental impact study conducted by British
Petroleum conducted in the Cusiana region found "280 plant
species, 423 species of aquatic invertebrates, 98 species of
fish, and 112 species of microscopic algae in the area bounded by
three rivers. The study took twenty-five company biologists
sixteen months to complete."
Obviously, there is a limit to the amount of oil which can
be pumped from the different wells but exact statistics are not
available due to the uncertainty surrounding the wells. It is
difficult to determine how much oil will be pumped out until
there is no more oil to pump out from the well. However, the
Cusiana and Cupiagua fields, cover a thinly populated area the
size of Connecticut, "hold 2.1 billion barrels in proven oil and
gas reserves. Ecopetrol announced in late February that probable
and possible oil and gas reserves in the area totaled a further
3.9 billion barrels."
The Colombian Environment Ministry often fines companies who
damage natural resources. Resolution 300, approved in September
1994, demonstrated that the Environment Ministry is "prepared to
tackle even projects considered economically important to the
country in contrast to the previous enforcement agency, Inderena,
which was often criticized for not confronting large companies
over environmental violations."
In August 1994, the Environment Ministry fined British
Petroleum approximately $267,000 for damaging natural resources
in the state of Casanare during 1991. "The fine was the largest
for environmental damage in Colombia's history." Some of the
company's activities in Casanare were carried out "without
complying with existing requirements established under Colombian
environmental legislation, which resulted in damage to renewable
natural resources and contamination of the environment."<BR><BR>
On April 11, 1995, the Environment Ministry issued another
Resolution which suspended the operations of the Sociedad
Petroleos del Norte petroleum company in the Cucuta-Norte de
Santander municipality after "finding excessive levels of crude
oil, hydrocarbons, and mercury in the Caso Mono watershed located
near the company's Rio Zulia oil field."
Relevant Literature
"And Now Oil." The Economist. 31 July 31, 1993, 38-39.
"British Petroleum Presents Ecological Inventory for
Exploration Zone." Environment Watch Latin America, August, 1993,
7. Brooke, James.
"Colombia Becoming an Oil Power in Spite of Itself."
The New York Times (March 29, 1995), 2. Brooke, James.
"Colombia Oil Spills Net Fines for All but Rebels." New York
Times (March 6, 1995), A2.
"Colombia Courts Oil Interests." Chicago Tribune (March 27,
1995), 3B.
"Colombia's Environment Ministry Fines British Petroleum."
Environment Watch Latin America (September,) 1994, 14.
"Colombian Government Threatens to Close Ecopetrol
Pipeline." Environment Watch Latin America (November, 1994), 17.
"Environment Ministry Halts Petroleos del Norte Project."
Environment Watch Latin America (May, 1995), 5.
"Oil and Gas Newsletter." Oil and Gas Journal. 27 March
1995, 3. Salpukas, Agis.
"Ideas and Trends: Still Looking to the Persian Gulf." The
New York Times (March 26, 1995), D5. Sullivan, Allanna.
"BP to Continue Search for Oil in Colombia." The Houston
Chronicle (April 2, 1995), 9. Tirschwell, Peter.
"Falling US Oil Production Creates Opening for Colombia."
The Houston Chronicle (March 26, 1995), 9. Vincent, Isabel.
"Colombia's Oil Boom Backfires." World Press Review
(December, 1994), 43. Zipser, Andy.
"Trials of Triton: Big Payoff Awaits Oil Explorer, But
First...." Barron's (July 26, 1993), 14-15.
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