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DE RUEHBO #3017/01 2311409
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P 181409Z AUG 08 ZDK
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC PRIORITY 4204
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RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
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UNCLAS SECTION 01 OF 03 BOGOTA 003017 
 
SENSITIVE 
SIPDIS 
 
WHA/EPSC CORNEILLE; EEB/ESC MCMANUS; DOE FOR LEINSTEIN AND 
GWARD 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EPET EAGR PGOV ETRD CO
SUBJECT: COLOMBIA SHOWCASES POTENTIAL AS STRATEGIC ENERGY 
PARTNER TO DOE DEPSEC KUPFER 
 
REF: 07 BOGOTA 7088 
 
¶1. (SBU) SUMMARY.  Acting Deputy Secretary of Energy Jeffrey 
Kupfer led a DOE delegation to Cartagena, Colombia August 
7-9, which met with a wide array of government and private 
sector leaders from across the energy sector.  They told the 
delegation that Colombia's business climate was excellent and 
noted Colombia's tremendous energy sector potential in areas 
ranging from natural gas to biofuels.  Deputy Secretary 
Kupfer gave remarks at the annual General Assembly of 
Colombia's major business association (ANDI). The delegation 
also visited the second largest coal mine in Colombia, La 
Loma, operated by Alabama-based Drummond Ltd.    END SUMMARY. 
 
National Industries Association: Energy Outlook Bright 
--------------------------------------------- --------- 
 
¶2. (SBU) The energy sector principals of the National 
Industries Association of Colombia (ANDI) explained how 
Colombia's self-sufficiency and growing export potential in 
the energy sector position the country well to serve as a 
strategic energy ally to the U.S.  According to ANDI Energy 
Committee Director Daniel Romero, about 65 percent of 
Colombia's electricity comes from hydroelectric generation, 
and short-term expansion plans will likely push the figure to 
70 percent.  Colombia is the world's fifth largest producer 
of coal, which is mostly exported to the U.S. and Europe. 
Production is expected to increase from 70 million tons in 
2007 to 120 million tons in 2012.  On natural gas, Romero 
noted that Colombia has tremendous on-shore potential that 
has only recently become viable due to the improved security 
situation in the country.  On biofuels, ANDI Board Chairman 
Sergio Restrepo noted the efficiency of sugar cane and palm 
(Colombia's chief inputs) in producing ethanol and biodiesel, 
respectively, and stated that, for this reason, Colombia had 
not had to deal with the "food versus fuel" dilemma to the 
degree that other countries had.  Deputy Secretary Kupfer 
cautioned that while there were some downsides to corn-based 
ethanol, it served neither country's interest to make public 
remarks over the superiority of one type of ethanol over 
another, as this only emboldened those seeking to undermine 
biofuels altogether.  In response to the Deputy Secretary's 
question of how the U.S. could be helpful to Colombia's 
efforts to develop its biofuels industry, the group responded 
that its biggest needs were in the areas of technology, 
investment, infrastructure, and government regulation. 
 
Zamora:  Colombia a Potential Substitute for Venezuelan Crude 
--------------------------------------------- ---------------- 
 
¶3. (SBU) Armando Zamora heads the Colombian hydrocarbons 
regulatory agency (ANH).  He told Kupfer that only 22% of 
Colombian territory has been explored for oil and gas, 
including the estimated 1 million kilometers of Colombian 
territorial waters off the Pacific and Caribbean coasts. 
Zamora stated that due to security gains, almost all of 
Colombian territory is now safe for exploration, noting 
however that the GOC would not authorize exploration in the 
Colombian Amazon due to environmental sensitivities.  He 
cited a Halliburton study estimating that there are 20 
million barrels of recoverable oil yet to be found in 
Colombian territory.  Zamora noted that Colombia will produce 
600,000 b/d by the end of 2008, a figure that could jump as 
high as 1 million b/d by 2020.  FDI for hydrocarbon 
exploration continues to pour in, reaching $3.5 billion (out 
of a total of $9 billion) in 2007, increasing to an estimated 
$5 billion for 2008.  Zamora concluded the meeting by 
mentioning an MOU that Colombia plans to sign with Jamaica to 
explore for gas in joint waters in the Caribbean.  Zamora 
believes that Colombian gas -- as well as its heavy crude -- 
should be looked at as a substitute for Venezuelan oil, and 
could be delivered to states throughout the Gulf and 
Caribbean as a means to counter Chavez's petro-diplomacy. 
 
 
Ecopetrol: Privatization Spurring Expansion 
------------------------------------------- 
 
¶4. (SBU) Javier Gutierrez, President of Colombia's parastatal 
oil company Ecopetrol, characterized the operating 
environment in Colombia as excellent.  The GOC sold 10.1 
percent of Ecopetrol's shares in November, 2007 (reftel) and 
plans to sell another 9.9 percent, although Gutierrez said no 
decision had been made yet as to when.  Despite the 
 
BOGOTA 00003017  002 OF 003 
 
 
government's large stake in Ecopetrol, Gutierrez made clear 
that the company has no advantages over any other oil company 
when it comes to doing business.  Ecopetrol currently 
produces 450,000 of Colombia's 570,000 barrels per day, and 
Gutierrez said Ecopetrol's goal was to produce one million 
barrels per day in ten years, partly through international 
expansion into Brazil, Peru, the Gulf of Mexico, and 
elsewhere.  Gutierrez noted the tremendous on-shore 
exploration potential that has opened up in Colombia with 
increased security.  The number of new exploration wells has 
increased each year since 2004, when there were 10, to 2007 
when there were 73.  This year, Gutierrez said there may be 
more than 100.  In response to Deputy Secretary Kupfer's 
question about the GOC's take on newly awarded projects being 
linked to the price of oil, Gutierrez said that this was 
common throughout the world and that a trigger of $90 per 
barrel was quite reasonable.  Gutierrez noted that Ecopetrol 
was seeking strategic partnerships with organizations with 
agricultural expertise in sugar and palm to expand its 
involvement in the biofuels sector.  When asked about the 
major challenges Ecopetrol faces, Gutierrez noted natural gas 
production and transportation infrastructure, as well as 
retention of human capital.  Gutierrez said, however, that 
with recent salary reforms at the company, the latter has 
become less of a problem.  Acting Assistant Secretary Slutz 
encouraged Ecopetrol specifically, and Colombia generally, to 
take a more active role in the Carbon Sequestration 
Leadership Forum, a suggestion Gutierrez welcomed. 
 
Biofuels: Growing Industry to Fuel Employment 
--------------------------------------------- 
 
¶5. (SBU) Members of the National Biofuels Federation outlined 
how Colombia's regulatory framework -- through a combination 
of fuel blending mandates, price floors, and tax benefits -- 
is designed to incentivize the creation of a robust national 
biofuels industry.  The domestic ethanol industry was started 
five years ago, and the biodiesel industry, just one year 
ago.  Today, 70 percent of Colombia's gasoline is E10 (10 
percent ethanol), with the goal to have 100 percent E10 by 
the end of 2009.  Under the current requirements, the 
blending mandates will increase gradually up to E20.  There 
is even draft legislation under consideration that would 
require all vehicles produced or imported as of 2012 to be 
flex-fuel (able to run on E-100).  Arturo Infante, the GOC's 
National Biofuels Coordinator, noted that Colombia had not 
decided to establish a biofuels industry for the sake of 
energy, since Colombia is already self-sufficient.  Rather, a 
biofuels industry will allow Colombia to reclaim land that 
has previously been controlled by illegal armed groups and 
put it to productive use, which will in turn create jobs and 
viable alternatives for demobilized individuals.  Infante 
also stressed the need for life cycle analysis studies 
currently under way (of both sugar-based ethanol and 
palm-based bio-diesel) to help answer biofuel critics from 
the environmental and labor angles.  Infante also stressed 
Colombia's desire to be part of the Global Bioenergy 
Partnership (GBEP) in order to move forward with some form of 
environmental and labor standards, which would help Colombia 
differentiate its biofuels from those of cheaper suppliers, 
such as Indonesia and Malaysia.  In response to Deputy 
Secretary Kupfer's question about how the U.S. could be 
helpful to the biofuel industry, Luis Fernando Lodono, 
President of the Sugar Growers' Association noted that with 
entry into force of the Free Trade Agreement, Colombian 
ethanol and biodiesel will enter the U.S. duty free. 
 
Minister Explains New Contract Model 
------------------------------------ 
 
¶6. (SBU) Minister of Mines and Energy Hernan Martinez 
explained the GOC's proposed new contract for hydrocarbon 
exploration, emphasizing that changes would only apply to new 
contracts--there will be no retroactive application to 
existing arrangements.  The GOC wants to encourage continued 
foreign investment, he emphasized, but also finds itself 
politically vulnerable if it were to do nothing to increase 
the government's take in an era of growing energy prices, 
particularly given the confiscatory activities of Colombia's 
neighbors.  The new policy -- which has yet to be formally 
adopted -- calls for the GOC's 30% royalty take to increase 
when oil exceeds $90/barrel.  It would jump by 5% for every 
$30 price increase (i.e., 35% from $90-$120; 40% from 
$120-150.)  There would be a maximum royalty of 50%. 
 
BOGOTA 00003017  003 OF 003 
 
 
Martinez emphasized that the GOC has consulted extensively 
with the private sector, and that his read is that they are 
comfortable with the proposal (a point confirmed by U.S. 
energy companies during their dinner meeting with Kupfer). 
Martinez welcomed Kupfer's offer of DOE assistance in 
critical infrastructure protection, predicting disastrous 
consequences if an incident were to shut down Colombia's 
inland refinery in Barrancabermeja.  Colombia -- with only 5 
days of reserves -- would have no means to supply the capital 
of Bogota and the inland population centers from its 
remaining refinery in Cartagena.  During the discussion, 
Minister Martinez noted that Carbon Capture and Storage 
technologies are not a priority for Colombia due to the 
country's limited use of its coal resources.  He also said 
that it was not economical to use CO2 injection technologies 
for enhanced oil recovery in Colombia's declining fields, as 
the distance between its oil fields and coal centers is too 
far. 
 
¶7. (U) DOE delegation cleared this cable. 
BROWNFIELD