VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #1127/01 0861802
ZNR UUUUU ZZH
R 261802Z MAR 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 2068
INFO RUEHCV/AMEMBASSY CARACAS 0157
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 6032
RUEHZP/AMEMBASSY PANAMA 1426
RUEHQT/AMEMBASSY QUITO 6686
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 001127 

SIPDIS 

SENSITIVE 
SIPDIS 

WHA/EPSC FOR FCORNEILLE; EEB/ESC FOR MMCMANUS; DOE FOR GWARD 

E.O. 12958: N/A 
TAGS: ENRG EPET EINV ECON SENV CO
SUBJECT: COLOMBIAN COAL SECTOR BOOMING IN THE FACE OF 
INFRASTRUCTURE, ENVIRONMENTAL CHALLENGES 


¶1. (SBU) SUMMARY.  Despite already ranking as the world's 
fifth largest coal exporter, Colombia's coal sector looks to 
increase production nearly 65 percent over the next three 
years.  Rich coal deposits in Guajira and Cesar Departments 
as well as attractive prospects for developing nearby natural 
gas deposits augur well for the three main international 
mining firms, including U.S.-based Drummond.  The most 
significant challenges to the industry center on limited 
public infrastructure and environmental compliance.  END 
SUMMARY.

Production Outlook Good 
----------------------- 

¶2. (U) Most of Colombia's coal originates in the northeast 
departments of La Guajira and Cesar, though central Colombian 
Departments of Cundinamarca and Boyaca also possess 
high-quality deposits of coal. Western Colombia  contains
economically viable deposits, but primarily in lower-quality, 
less profitable coal. While commercial coal mining began to 
grow in the late 1980s, exports have increased at a much more 
rapid pace this decade with the U.S. sourcing approximately 
70 percent of its global coal imports from Colombia. 

¶3. (SBU) Beatriz Duque, Director of Coal at the Ministry of 
Mines and Energy, told us that she expects total Colombian 
coal production to reach 69 million metric tons (MT) in 2008, 
up from 38 million MT in 2000.  Duque predicts production to 
hit 110 million MT by 2010, driven by strong investment terms 
in Colombia and rising world demand for the country's 
high-grade bituminous coal.  Duque noted that coal currently 
represents 65 percent of Colombia's mining exports and over 
15 percent of total exports--a figure she expects to remain 
stable despite increasing investment in precious and 
non-precious metal mining. 

Major Players Looking to Expand 
------------------------------- 

¶4. (SBU) International firms Cerrejon, Drummond, and Glencore
account for over 95 percent of Colombia's coal exports, with 
the remainder produced by small local producers. Cerrejon, a 
conglomerate comprised of BHP Billiton, Anglo American, and 
XStrata, ranks as the largest coal exporter in Colombia and 
one of the largest in the world.  According to Cerrejon
President Leon Teicher, the company's operations at La Mina 
constitute the largest known open-pit coal export operation 
in the world. 

¶5. (SBU) As a result of increased investment and rising 
prices, the company has raised production from 18 million MT 
in 2002 to over 30 million MT of coal in 2007 valued at USD 
1.5 billion.  Cerrejon Operations Director Catalina Garcia 
told us her company expects to increase the production from 
its 69,000-hectare operation in La Guajira Department to 40 
million MT by 2010.  She estimates Cerrejon's concession 
contains 2 billion MT of immediately accessible coal with an 
additional 1 billion MT available after the company completes 
a river diversion project.  Cerrejon expects to maintain the 
40 million MT production level through the completion of its 
contract with the GOC in 2034. The company exports 
approximately 53 percent of its production to Europe with 20 
percent going to the U.S. 

¶6. (SBU) Birmingham, Alabama-based Drummond is the second 
largest coal exporter in Colombia.  The company began working 
in Cesar Department in 1987 and exported over 25 million tons 
of coal in 2007, roughly one-third of Colombia's national 
production.  Over 55 percent of Drummond's exports go to the 
U.S. with the remainder to Europe.   The company's contract 
with the GOC runs through 2021.  Drummond Colombia President 
Augusto Jimenez, who estimates the company's coal reserves in 
Colombia reach 2 billion metric tons, told us Drummond plans 
to double production to 50 million tons by 2010. 

¶7. (SBU) Finally, Swiss-owned Glencore expects to double coal 
production from its mines in Cesar Department from 5.5 
million MT in 2008 to 11 million MT by 2010.  Glencore
Colombia President Jorge Carvajales estimates his company's 
coal deposits are sufficient to sustain such production 
through 2035. 

Challenges and Opportunities 

---------------------------- 

¶8. (SBU) Both GOC and mining company representatives 
identified infrastructure and environmental responsibility 
issues as the largest challenges facing the sector. The three 
international mining companies have invested approximately 
USD 3 billion in the last decade on private port and rail 
facilities.  However, lags in public investment in adjoining 
infrastructure led to export bottlenecks.  Meanwhile, GOC 
concerns on environmental compliance have grown.  Director 
Duque emphasized that the most serious environmental problems 
remain with small local producers, but said the GOC would 
like to see more active compliance by all three large 
international companies.  She noted that forthcoming licenses 
and regulation would contain stronger environmental 
requirements for all companies.  In conversations with us, 
Drummond and Glencore complained about delays in 
environmental permits and a lack of thorough impact 
evaluations by the GOC before issuing regulations.  Both 
companies said a GOC requirement for direct loading of coal 
at all at ocean ports by 2010, designed to reduce coal dust 
pollution along the Caribbean coast, is not economically or 
environmentally rational. 

¶9. (SBU) Nevertheless Duque emphasized that investment in the 
mining sector generally, and the coal sector specifically, 
has risen steadily due to more flexible contract terms, 
improved security, and higher coal prices.  In addition to 
major investments by the three existing international 
producers, Mexican, Brazilian, and German electrical 
generation companies are reportedly looking into acquiring 
coal mines in Colombia to secure supplies for their 
respective plants. 

¶10. (SBU) In addition to coal opportunities, Drummond plans 
to increase its production of natural gas located near its 
existing mines.  Drummond estimates that its properties in 
Cesar Department contain at least 2.4 trillion cubic feet of 
natural gas and its properties in La Guajira Department 
contain 3.4 trillion cubic feet in natural gas.  At present, 
Colombia's total estimated natural gas reserves stand at 5 
trillion cubic feet.  Drummond plans to supply the gas for 
Colombian domestic consumption as well as potentially for 
export to Venezuela. 
BROWNFIELD