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Cablegate: Record Prices and Investment Propelling Colombian

VZCZCXYZ0014
RR RUEHWEB

DE RUEHBO #1789/01 1361622
ZNR UUUUU ZZH
R 151622Z MAY 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 2787
INFO RUEHBR/AMEMBASSY BRASILIA 8194
RUEHCV/AMEMBASSY CARACAS 0426
RUEHLP/AMEMBASSY LA PAZ MAY LIMA 6207
RUEHOT/AMEMBASSY OTTAWA 2467
RUEHZP/AMEMBASSY PANAMA 1692
RUEHQT/AMEMBASSY QUITO 6859
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 001789

SIPDIS

WHA/EPSC FOR FCORNEILLE; EEB/ESC FOR MMCMANUS

E.O. 12958: N/A
TAGS: EMIN EPET ENRG PGOV ECON CO
SUBJECT: RECORD PRICES AND INVESTMENT PROPELLING COLOMBIAN
MINING SECTOR

REF: A. (A) BOGOTA 570

B. (B) BOGOTA 1127

1. (SBU) SUMMARY: Bolstered by external demand, domestic
security gains, and pro-investment terms, Colombia's mining
and hydrocarbon sector has experienced an unprecedented
increase in investment and exploration activities. Petroleum
production has reached a six-year high while coal and natural
gas production are at record production levels. Meanwhile,
foreign investment and new bloc offerings by the GOC are
driving exploration efforts at the fastest pace in Colombian
history. Exploration in non-fuel mineral, such as gold and
uranium, has experienced a similar boom. END SUMMARY.

High Prices and Improving Conditions Drive Production
--------------------------------------------- --------

2. (U) In an April 25 interview with leading economic daily
Portafolio, Minister of Mines and Energy Hernan Martinez
characterized Colombia as experiencing a "revolution" in its
mining sector as a result of high commodity prices, a strong
global demand outlook, and strong inflows of investment in
the sector. All three factors, as well as increased access
to exploration areas due to improved security, have fueled
mineral and hydrocarbon exports over the last year.
3. (SBU) According to Colombia's statistical agency, DANE,
mineral sector exports (including hydrocarbons) reached USD
13.9 billion in 2007 or 46 percent of total exports.
Revenues from 2007 exceeded those in 2006 by 19 percent. So
far in 2008, export revenues in the sector have grown an
additional 75 percent in comparison to the same period in
2007 and totaled 54 percent of total exports. Similarly, the
Colombian Central Bank reported in April that approximately
one-half of Colombia's record USD 9 billion in foreign direct
investment (FDI) in 2007 went to the mineral/hydrocarbon
sector. Representatives from producer companies and the GOC
tell us the increased investment derives from not only higher
commodity prices, but also improved security in exploration
areas and pro-investment policies by the GOC (ref A).

Oil: Aggressive Exploration
---------------------------

4. (SBU) The petroleum sector has demonstrated the clearest
trend, with new inflows of FDI and new investment by
partially privatized national hydrocarbons company Ecopetrol
reversing a long-term decline in exploration efforts.
Current daily production has risen to 570,000 barrels per day
(bpd), Colombia's highest rate since 2002. So far most of
the production increase has derived from squeezing more oil
from mature fields, but new exploration efforts have ramped
up in the last year. According to the Colombian National
Hydrocarbons Agency (ANH) the number of new wells drilled in
2008 will reach 90, up from only 21 in 2004. The 2008
estimate represents the highest annual total of new wells in
Colombian history. The GOC auctioned nine offshore blocs in
late 2007 and has begun the process for auctioning as many as
150 onshore blocs later this year. The prospective blocs lie
near the Venezuelan border and the GOC believes offer strong
prospects for development of heavy oil deposits.

Coal: Ensuring Infrastructure to Increase Exports
--------------------------------------------- ----

5. (SBU) Colombian coal production has also boomed over the
last year, driven by the same factors as the petroleum
sector. The combined production of conglomerate Cerrejon
mines, U.S.-based Drummond, and Swiss-owned Glencore, should
reach 110 million tons by 2010, up from 38 million tons in
2000 (ref B). Representatives from all three companies tell
us proven deposits are sufficient to maintain this level of
production through 2030. Rather than discovering new
deposits, all three companies have identified adequate
transportation and port infrastructure as the primary export
constraint for the sector. Likewise, the companies are
currently engaged in discussions with the GOC regarding
environmental requirements to shift to direct-loading port
operations by 2010, which they fear could impact export
capacity.

Opportunities in Natural Gas, Gold, and Uranium
--------------------------------------------- --

6. (SBU) In addition to oil and coal, Minister Martinez and
other GOC officials tout prospects in gas, gold, and uranium.
Private sector firms, including Chevron and Drummond, have
expressed to us confidence that Colombia has several strong
prospective gas fields. Natural gas production has risen 18
percent already in 2008 to 862 million cubic feet according
to ANH and the GOC expects several new offshore Caribbean
wells to come online by the end of the year. Colombia began
shipping gas via a new pipeline to Venezuela in January 2008
and recently announced plans to triple the original planned
daily amount of 50 million cubic feet. Besides increased
natural gas exports to Venezuela, the number of Colombian
consumers using natural gas has nearly doubled since 2002 to
4.6 million (or roughly 10 percent of the population),
creating for the first time in Colombian history a sizable
domestic market for gas.

7. (U) Meanwhile, an influx of foreign firms, many of them
Canadian, are actively pursuing exploration for gold and
other minerals in Antioquia, Caldas, Choco, Santander, and
Vaupes Departments. On May 12, Toronto-based Colombia
Goldfields announced preliminary results of mining samples
from the Zona Alta field in Marmato, Caldas, indicating
deposits of up to 2.6 million ounces of gold. The company
described the findings as the first step in confirming
Marmato Mountain as a world-class gold deposit In addition
to gold exploration, the Mines and Energy Ministry has issued
26 licenses for uranium exploration since the beginning of
2007.
BROWNFIELD

=======================CABLE ENDS============================

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