Colombia Risks Gas and Power Rate Surge as Exploration Falls 43%
Colombia could face new pressure on natural gas and electricity rates due to the lower availability of domestically produced gas and the growing reliance on imports. The warning was issued during the presentation of the latest sector report by energy distributor Promigas, which focused on the decline in oil and gas exploration activities and their potential effects on consumers.
The scenario is particularly sensitive for households because the higher cost of gas would not only directly affect the bills of those who use this fuel for cooking, but also electricity generation, precisely at a time when El Niño and lower water availability for hydroelectric plants are putting pressure on the system.
Thermal power plants that use gas would have to absorb higher costs to ensure their operation and, according to Promigas, that increase would ultimately be passed on to users through higher rates.
Colombia risks gas and power rate surge as exploration falls 43%
One of the figures explaining the sector’s concern is the 43% reduction in investments allocated to oil and gas exploration between 2022 and 2025. The decline means that Colombia has reduced the pace at which it searches for new deposits precisely at a time when production from some existing fields is showing signs of decline.
The problem is not limited to oil. In the case of natural gas, lower exploration increases the risk that domestic supply will not be sufficient to meet future demand. The situation is forcing the country to seek external alternatives and means that international prices, transportation costs, and regasification are playing an increasingly important role in the Colombian market.
The sector’s own evolution reflects this transformation. Promigas maintains that energy security requires new investments and greater capacity to respond to demand, while Colombia moves forward with an energy transition that has reduced interest in new hydrocarbon projects.
Aquiles Mercado, vice president of Promigas, explained that the problem is already beginning to be felt in some regions. Canacol Energy, one of the country’s main independent gas producers, has reportedly reduced its production from approximately 140 million cubic feet per day to about 70 million.
In addition, part of that gas will have to be allocated to the Tesorito thermal power plant, reducing the volume available to distribution companies such as Surtigas, Gases del Caribe, and other major consumers in the Caribbean region.
Against this backdrop, distributors will have to turn to imported gas to serve approximately 2.2 million users, around 98% of whom are residential customers. The price could reach US$20 per million BTUs (British Thermal Unit, a unit of energy measurement), compared with about US$10 previously paid for gas supplied to households, according to the warning presented by Promigas.
The impact would also reach electricity
The higher cost would not remain limited to gas bills. Thermal power plants play an important role when hydroelectric generation cannot meet demand on its own, so an increase in the price of the fuel used to generate electricity can ultimately raise generation costs.
Promigas is specifically warning about this effect. If thermal plants have to purchase imported gas at considerably higher prices, they will have to pass part of that cost on to the electricity market. The result could be simultaneous pressure on households’ gas and electricity bills and on companies’ costs.
The situation once again puts Colombia’s energy security debate on the table. The country needs to move forward with diversifying its energy mix, but it must also ensure that during this transition there is sufficient gas supply for households, industry, and electricity generation.
Against this backdrop, the report proposes several measures to strengthen competitiveness and revive Colombia’s oil and gas industry. Among them, it considers a possible tax reform that would rationalize taxes applied to the sector and improve its competitive conditions.
It also considers coordinated action among the ministries of Mines and Energy, Interior, Environment, and Defense necessary to reduce the risks facing the industry and create a favorable environment for its development.
Regarding relations between companies and communities, it proposes strengthening mechanisms such as tax-funded public works and royalty-funded public works, as well as studying a new scheme that would allow the National Hydrocarbons Agency’s (ANH) share in production to be converted into public works. The objective would be to create a mutually beneficial relationship and shared value without increasing the burden on companies.
The report also proposes updating the land map to define new available areas, reviewing the contractual regulations of the permanent area-allocation program and oil bidding rounds, and giving special consideration to companies with lean cost structures. These companies could take advantage of their strengths to boost the exploitation of mature fields and contribute to strengthening national production.
A warning for upcoming decisions
Promigas’ message comes at a time when the decline in exploration is beginning to have more visible consequences for supply, according to the energy distributor. The discussion is no longer focused solely on how much oil and gas Colombia can produce, but on how much it will cost to guarantee supply when domestic fields enter decline and external sources become necessary.
The warning thus presents the country with a dilemma: reducing hydrocarbon exploration may respond to energy-transition objectives — something the previous government of President Petro already attempted — but insufficient domestic supply could also increase dependence on imports and make essential services more expensive.
For now, Promigas says the gas needed for thermal power plants will be available, but warns that an increasing share will come from imports. The risk, therefore, is that lower exploration today will ultimately translate into higher costs for consumers tomorrow.