Colombia mulls oil products supply options
Colombia's energy planning agency Upme is proposing an annual fuel charge of 174 pesos/USG (6¢/USG) to finance new pipeline capacity, storage and other infrastructure seen as critical to ensuring long-term supply.
In an unprecedented indicative fuel supply plan published today, Upme outlined three scenarios over the next two decades. The document, which recommends pipeline competition and structural price adjustments to account for rising imports, is seen as a road map for the business-oriented government of president-elect Iván Duque, who takes office on 7 August.
Among the report's main base-case projections is the need to import crude to run state-controlled Ecopetrol's two main refineries starting in 2026. Demand for jet fuel is seen as particularly robust across all scenarios.
The report addresses the dilemma of the 250,000 b/d Barrancabermeja refinery, which supplies around 80pc of demand, particularly in the products-short Colombian interior.
The refinery processes about 70pc light crude and 30pc heavy and yields products such as gasoline with 300ppm sulfur that do not meet official quality specifications, requiring imports for blending.
Previous efforts to upgrade the refinery to boost gasoline and diesel production and cut fuel oil output failed, and critics say it is no longer worth the expense of up to $10bn because nearby oil fields are declining. A new refinery on the Atlantic coast to complement the existing 165,000 b/d Cartagena refinery, coupled with new pipeline capacity to the interior would make more sense, they say.
Upme itself is calling for 10,000-15,000 b/d modular refinery options near oil-producing areas such as Nariño and Orito, mirroring the trend toward distributed power generation. The agency is also recommending a new pipeline linking the Barrancabermeja and Cartagena refineries.
"We are going to have to do something about Barrancabermeja because bunkers regulation is changing," said Upme hydrocarbons advisor Beatriz Herrera, referring to more stringent international marine fuel specifications that take effect in 2020.
Another key issue addressed in the report is capacity limits on products pipelines, all of which are owned by Ecopetrol subsidiary Cenit. Although some pipelines have spare capacity, others cannot meet demand, prompting the use of more costly and less efficient trucks, and putting upward pressure on pipeline tariffs.
The fall in contraband fuel supply from neighboring Venezuela in recent years adds to the need for expanded midstream capacity, Upme says.
One vital artery is the 125,000 b/d Pozos Colorados-Galán pipeline, which runs from Santa Marta on the Atlantic coast to Galán station near Barrancabermeja in Santander department. Cenit plans to boost capacity to 133,000 b/d by the end of 2018, with expandability to 144,000 b/d.
More significant capacity increases on products pipelines, as well as fresh storage to boost inventories, will require private-sector participation. But in contrast to Colombia´s crude pipeline network in which the private sector is already active, regulation governing products pipelines is fuzzy, leaving the sector in the exclusive hands of Cenit.
Proponents of midstream competition, which they say would lower "exorbitant" pipeline tariffs, are hoping that the mines and energy ministry will issue a resolution, based on an initiative developed by gas and energy regulator Creg, to clear the way for the private sector.
A politically sensitive proposal that will fall in the lap of the new administration would change Colombia´s products pricing formula from an export parity basis to import parity. The shift would imply higher domestic prices.
The proposed fuel charge, if implemented, would take effect in 2019, replacing an existing 71 peso/USG pipeline continuity fee that expires next year.
Upme will receive comments on the new fuel supply report for the next 30 days.
Related news posts
![](/_next/image?url=%2F-%2Fmedia%2Fproject%2Fargusmedia%2Fmainsite%2Fimages%2F14-generic-hero-banners%2Fherobanner_1600x530_generic-c.jpg%3Fh%3D530%26iar%3D0%26w%3D1600%26rev%3D-1%26hash%3DFC2BEDE406483FEF5FDB9549159BAC11&w=3840&q=75)
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more