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Cablegate: Colombia Energy Update: More Blocs, Gas Prospects,

VZCZCXYZ0001
RR RUEHWEB

DE RUEHBO #4452/01 3521511
ZNR UUUUU ZZH
R 171511Z DEC 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 6132
INFO RUEHBR/AMEMBASSY BRASILIA 8561
RUEHPE/AMEMBASSY LIMA 6833
RUEHLP/AMEMBASSY LA PAZ DEC CARACAS 1438
RUEHQT/AMEMBASSY QUITO 7535
RUEHZP/AMEMBASSY PANAMA 2794
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 004452

SIPDIS
SENSITIVE

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

E.O. 12958: N/A
TAGS: ENRG ECON SENV EPET PGOV CO
SUBJECT: COLOMBIA ENERGY UPDATE: MORE BLOCS, GAS PROSPECTS,
AND BIOFUELS

REF: BOGOTA 4088

1. (SBU) SUMMARY. Colombia's energy sector continues its
solid expansion in spite of the recent decline in oil and gas
prices. The National Hydrocarbons Agency (ANH) has
adjudicated 100 exploration contracts in 2008--a new
record--and concluded two successful bloc auctions during the
year. On the operational side, oil production has increased
almost 100,000 barrels per day (bpd) since 2007 and BP
recently announced promising offshore gas prospects in two
existing blocs near Cartagena. Beyond hydrocarbons, Alcol
Rio Suarez announced the initiation of Colombia's largest
ethanol plant and the GOC signed an arrangement with Puerto
Rico to study the feasibility of a submarine cable link for
Colombia to supply electricity to Puerto Rico. END SUMMARY.

Auction of 43 More Blocs Concludes Record Year
--------------------------------------------- -

2. (SBU) On December 4, ANH completed its second oil and gas
bloc auction of 2008, receiving bids on 48 heavy oil
mini-blocs in the eastern Cordillera region (Santander &
Norte de Santander), Magdalena Department, Putumayo
Department, and the eastern Llanos region (Meta Department).
The number of blocs that received bids was one-half of the
total offered, meeting the GOC target for the round. ANH
Senior Advisor Jorge Alberto Arias characterized the auction
to us as a success since many of the blocs received multiple
bids higher than expected and the unsuccessful blocs
correlated directly to those with the least amount of
preliminary data.

3. (SBU) Arias said that ANH believes the recent decline in
world oil prices had negligible impact on the auction,
asserting that most of the mini-bloc prospects remained
economically viable at or below current prices. (COMMENT:
While local petroleum company representatives cite various
factors such as infrastructure costs, long-term price
estimates, and anticipated technology advances in determining
the financial viability of heavy oil prospects in Colombia,
when pressed most estimate world oil prices above USD 60 a
barrel are necessary to ensure long-term profitability.
However, they admit that the break-even point could be lower
in the future and say locking in exploration rights now
remains important even during the current price downswing.
END COMMENT.) Alejandro Martinez, President of Colombia's
National Petroleum Association echoed the view telling us
that Colombia's pro-investment terms, especially vis-a-vis
the region, should continue to attract considerable
hydrocarbons investment even in a lower price environment.

4. (SBU) The total exploration investment committed to the 48
adjudicated blocs exceeds USD 300 million and, according to
ANH Director Armando Zamora, builds on USD 4 billion in total
hydrocarbon sector investment in 2008. The latest auction
follows a successful round in November (reftel) and brings
total adjudications (exploratory and operational) for 2008 to
a record 100 contracts. Colombia has raised oil production
from an average of 531,000 barrels per day (bpd) in 2007 to
623,000 in October 2008. Based upon the increase in
exploration and investment, Zamora predicts Colombia will
reach 700,000 bpd in 2009. ANH Senior Advisor Arias told us
that the GOC plans to follow up the success of the two 2008
auctions with a Pacific Basin Round in 2009 and an offshore
San Andres Basin Round in 2010. Arias said the exact
schedule would depend on the completion preliminary seismic
data rather than world oil prices, asserting that hydrocarbon
companies take a long-term view in the bidding

decisions--focusing more the available seismic data than
current oil prices.

BP: Offshore Gas Prospects Promising
------------------------------------

5. (SBU) BP announced in late November that its recently
completed seismic data from two blocs one mile offshore of
Cartagena strongly indicate the presence of commercially
viable gas deposits. BP Colombia President Guillermo
Quintero told us the company plans to begin drilling
exploratory wells in the second half of 2009 and expressed
optimism that gas will be found. Quintero said BP had

invested USD 35 million in mapping and studying its offshore
blocs and will partner with Petrobras and Colombian
hydrocarbons parastatal Ecopetrol in developing any gas
deposits discovered.

Largest Ethanol Plant Launched
------------------------------

6. (SBU) On December 4, the private investment group Alcol
Rio Suarez announced the launch of the construction phase of
new ethanol production facility located in Santander
Department. When complete in 2010, the USD 130 million plant
will rank as Colombia's largest and most multifunctional
bioenergy facility producing 123 million liters of ethanol
per year for transportation fuel blending as well as
co-generate 28 megawatts of electricity from bagasse waste.
The plant's distillery will also produce fertilizer from the
vinasse byproduct. Drawing feedstock from 11,000 hectares of
sugarcane, the company's president Michael Perdomo told us he
expects the plant to generate 3,000 direct jobs.

Cooperation with Puerto Rico on Electricity
-------------------------------------------

7. (SBU) On December 11, Foreign Minister Bermudez, in the
presence of the Acting DCM, signed a statement of cooperation
with Puerto Rico to study the feasibility of a 680-mile
submarine cable from Colombia's northern coast in La Guajira
Department to the island to provide an alternative to current
oil-fueled electrical generation. As envisioned, the cable
would rank as the world's longest, reach a depth of 3000
meters and cost at least USD 4 billion.
8. (SBU) In addition to the cable, Colombia would have to
build a designated electrical generation plant in La Guajira
to supply the power for transmission. Colombia's main
electrical transmission company, ISA, and the Medellin Public
Utilities Company (EPM) have agreed to fund the feasibility
study while the Inter-American Development Bank has expressed
interest in potentially supporting the project. However, the
GOC will await any further decisions on the project until the
completion of the study.
NICHOLS

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