Colombia is facing higher energy costs driven by increased reliance on imported natural gas amidst declining domestic production. Industry forecasts indicate a widening natural gas deficit, while key gas transporters invest in infrastructure. Retail gas prices have surged, complicating the financial landscape for energy firms. The decline in reserves and policy changes create further challenges.
Colombia is preparing for increased energy costs as it becomes more reliant on imported natural gas to meet the rising demand amid falling domestic production. Fitch Ratings advises that due to the country’s regulatory framework, energy firms can pass these higher expenses onto consumers. However, this could lead to political challenges as these costs may significantly impact the economy.
The nation’s reliance on gas-fired electricity, especially during periods of drought and elevated demand, represents a substantial concern, despite hydroelectric power being the primary source of electricity generation. With imports projected to constitute close to 20% of consumption in 2024, the country faces difficulties stemming from limited hydroelectric output, declining domestic gas production, and geographical disparities.
Industry forecasts suggest an expanding structural deficit in natural gas, with domestic production expected to only meet 88% of consumption in 2025 and plummet to 70% in 2026. Major gas transporters, including Transportadora de Gas Internacional S.A. ESP and Promigas S.A. E.S.P., are making significant investments in gas infrastructure to manage increased imports and bolster onshore projects.
Retail gas prices have surged in various regions; Vanti announced a notable 36% increase in Bogotá, while Empresas Públicas de Medellín (EPM) raised prices by 21% in Medellín. Other suppliers, like Gases del Caribe and Surtidora de Gas del Caribe, have managed to stabilize their prices by utilizing smaller gas fields in northern and southwestern Colombia.
The depletion of Colombia’s proven gas reserves is alarming, with forecasts indicating only six years of supply remains by 2025 based on current production levels of 965 giga British thermal units per day. Major players such as Ecopetrol S.A. and Canacol Energy Ltd. are witnessing declines in their production rates, particularly from crucial fields like Cusiana and La Guajira.
The reduction in domestic gas output is influenced by geological limitations and government policies that discourage investments in the oil and gas sector. Colombia recently signed the Fossil Fuel Non-Proliferation Treaty and ceased to issue new oil drilling contracts, reflecting a shift in policy focus.
Gas distributors operate under a regulated tariff system that permits cost transfers to consumers. Nonetheless, escalating energy prices could exacerbate working capital requirements for these companies and intensify political scrutiny. Electricity distribution firms have faced financial strain from rising energy costs and tariff restrictions since the pandemic, further complicated by delayed government subsidies. The EPM is anticipated to provide financial aid to its subsidiary Afinia, significantly affected by payment disruptions.
In summary, Colombia is bracing for rising energy costs due to dwindling natural gas production and increasing reliance on imports. The current regulatory framework permits energy firms to pass costs to consumers, but heightened political scrutiny may arise as households bear the brunt. Major gas transporters are investing in infrastructure to meet the demand; however, ongoing challenges surrounding gas reserves and regulatory policies complicate the sector’s outlook.
Original Source: www.financecolombia.com
