Energy & Mining

Value Not Inflated

Liquified Natural Gas

At the same time as natural gas demand is growing around the world due to the increasing availability of alternative, clean, and low-carbon energy, Colombia’s gas reserves already supply one […]

At the same time as natural gas demand is growing around the world due to the increasing availability of alternative, clean, and low-carbon energy, Colombia’s gas reserves already supply one quarter of national demand, and are expected to last for another 15 years. The production of fuel not only covers domestic demand in Colombia and exports to Venezuela through its gas pipeline, but would also have the capacity to export to a wide range of countries through a maritime gas plant. Bloomberg reported global demand for liquefied natural gas (LNG) in 2014 at 230.7 million tons; according to the consulting firm EY, worldwide LNG demand by 2030 could almost double that of 2012. Latin America is the world’s fastest-growing LNG market, and according to a forecast by Sanford C. Bernstein, it will consume 28.9 million tons of the fuel by 2025, doubling the 13.3 million projected for this year.

LNG is finding its way into new sectors, and generally becoming more widely utilized. Although natural gas has always been popular within the domestic sector, its use in sectors such as industry, trade, energy, and transport has become known for its efficiency, security, profitability, and cleanliness. It offers great benefits in comparison with other fuels, as natural gas has a less negative impact on the environment, and allows innovation in productive processes and increases energy performance.

The LNG sector has undergone multiple changes since it was introduced in the 1930s in Colombia. During the 1950s and 1960s the first oil pipelines were built and there was a positive reception of the fuel in the market, therefore demand began to put pressure on supply. Ecopetrol was by then the only producer of LNG. After the 1960s the Ministry of Mining and Energy regulated activity through a quotes system, in which each distributor was assigned a monthly volume and an exclusive area for its distribution. However, after the 1990s the system was abolished and a wholesale figure was created in order to increase the offer. Thanks to this, Ecopetrol began importing in 1993 and in 1995 a new catalytic rupture plant started functioning in Barrancabermeja refinery, which contributed additional volume to the LNG market. During this period, commercialization and distribution activities became regulated by the Energy and Gas Regulatory Commission (CREG) and under control of the Corporate Domicile Services Superintendency (SSPD). From 2008, a new regulation came into force that established significant changes in the brand scheme of cylinders, the supply chain, and in retail distribution.

In light of the success of this fuel, the Colombian Stock Exchange (BMC) will now administrate the information related to the stock market of gas in the country. The entity, which is called Natural Gas Market Advisory Body, will operate from January 2015 due to informality levels in the market that needed to be legalized. In order to achieve this, there will be a Central Electronic Bulletin in which different agents will have to get registered and reveal their day-to-day information so that the transaction price in the primary and secondary markets can be revealed.

Colombia could become a strategic distributor of LNG, and to this end Pacific Rubiales, the nation’s largest independent oil and gas exploration company, has partnered with Exmar, a Belgian-based diversified shipping group serving international oil and gas industry, to build the world’s first floating liquefaction plant. Starting in 2015, the project will involve the construction and development of a liquefaction and regasification barge, a small-scale vessel particularly fit for delivering LNG to industrial consumers, and the development of a pipeline from the Company’s La Creciente gas field to the Caribbean coast, 3km offshore near Tolu. The Floating Liquefied Natural Gas Unit (FLNG) will produce 500,000 metric tons of LNG a year and will have a liquefaction capacity of 72 million standard cubic feet per day. The transportation of the fuel will serve the growing export market of the Caribbean and Central American markets to substitute for other expensive liquid fuels. The World Banks’ International Finance Corporation (IFC) has contributed $300 million to the financing of this project.