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Cablegate: Colombia: El Nino Taking a Toll On Energy Sector

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #3350/01 2951041
ZNR UUUUU ZZH
R 220045Z OCT 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 0461
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHBR/AMEMBASSY BRASILIA 0109
RUEHBU/AMEMBASSY BUENOS AIRES 0356
RUEHCV/AMEMBASSY CARACAS 0439
RUEHLP/AMEMBASSY LA PAZ OCT LIMA 0465
RUEHQT/AMEMBASSY QUITO
RUEHSG/AMEMBASSY SANTIAGO
RUEHZP/AMEMBASSY PANAMA

UNCLAS BOGOTA 003350

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON CO
SUBJECT: COLOMBIA: EL NINO TAKING A TOLL ON ENERGY SECTOR

1. (SBU) Summary. Colombia's energy sector is suffering the
drying effects of the climatic phenomenon, El Nino. The recent
lack of rain has severely lowered dam reserve levels, decreased
hydroelectric power usage, and prompted President Uribe to urge
Colombians to lower their water and energy usage. As a result of
El Nino, the GOC temporarily halted the supply of compressed
natural gas for vehicles, reprioritized natural gas distribution,
and reduced electricity exports to Venezuela and Ecuador as well as
natural gas exports to Venezuela. El Nino will be hardest felt in
early 2010, as meteorologists predict a prolonged dry season. If
dam reserve levels continue to decline, power rationing is likely.
In response to the crisis, the GOC has resorted to non-transparent
actions in the distribution and market regulation of natural gas,
resulting in contract violations. These recent events foreshadow
trouble in early 2010 in the energy sector, and may be complicated
further by Presidential elections in May. End Summary.

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El Nino

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2. (U) The El Nino phenomenon is not new to Colombians. In the
early 1990's Colombia suffered a strong El Nino, which lowered dam
reserve levels to 20 percent and caused rolling blackouts
throughout the country. This had a crushing effect on the economy
and resulted in new bids for thermal plants and calls for more
natural gas pipelines to protect against another strong El Nino.
Unfortunately, pricing mechanisms favored additional hydroelectric
power over thermal and thus mitigated the need for additional gas
pipelines.

3. (U) The 2009-2010 El Nino began to take effect last August and
delayed the rainy season from mid-September to mid-October,
(October is the largest rainfall month, followed by November and
April). According to the Institute for Hydrology, Meteorology, and
Environment (Colombia's NOAA-equivalent), rainfall for this period
declined substantially, with September rainfall down by 70 percent.
In the south, rivers and dams have reached their lowest levels in
the last ten years, resulting in national dam reserve levels to
fall to 66 percent. On average, dam reserve levels for October are
close to 80 percent.

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Electricity Power Generation

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

4. (U) Colombia's installed capacity for electric power generation
is roughly 13,500MW - 68 percent derived from hydro and 32 percent
from thermal, according to the Ministry of Mines and Energy. Last
year, 80 percent of Colombia's electricity came from hydroelectric
plants (hydros) due to above average rains and the low cost to
dispatch hydroelectric generated electricity. As of October 19,
only 48 percent of electricity is generated by hydros, with 47
percent coming from the more expensive thermal, coal, and diesel
power generation plants, and 5 percent from other sources.

5. (SBU) In last year's power-generation bids, more than 80
percent of the 3,000 MW of additional capacity awarded went to
hydroelectric projects, which are scheduled for completion by 2018.
Bids for 500MW of coal powered plants have been awarded, but the
price per kilowatt is too low to attract any financing, which will
delay construction indefinitely, according to local energy experts.
E

6. (U) Because of El Nino, water prices have increased to conserve
water usage. The net effect has been a reduction in dispatched
hydroelectric power. The GOC's goal is to conserve water reserves
for the expectedly long dry season that may last through April
2010; (on average, Colombia's dry season lasts two months, from
January to February).

7. (SBU) Conserving water reserves has forced Colombia to turn on
most of its thermal electric plants, which the majority runs on
natural gas. Viewed as a simple fall-back plan, several factors
have complicated this measure: first, the lack of adequate
transportation of natural gas throughout Colombia; second,
increased use of compressed natural gas; and third, the lack of
transparency in the dispatch of natural gas.

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

Natural Gas Concerns Complicate Predicament

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

8. (SBU) Antonio Celia Martinez, President of Promigas --
Colombia's largest private gas transmission and distribution
company -- told Econoff that Colombia has more than 20 years of
natural gas reserves (roughly 6 trillion cubic feet). A majority
of the natural gas reserves are located on the north coast of
Colombia in La Guajira. However, there is only one natural gas
pipeline that distributes gas from the coast to the interior of the
country. According to Centragas, which manages part of the
pipeline from the coast, Colombia lacks sufficient infrastructure
to transport increased levels of natural gas. Centragas' general
manager, Lewis May, informed Econoff that Centragas' natural gas
pipeline is running at full capacity. He added that Colombia
doesn't necessarily need a new pipeline, but rather more gas
compressors and pipeline loops to increase the flow of gas to the
interior. Investment in natural gas infrastructure is critical
since demand has increased year after year.

9. (SBU) The increase in gasoline prices over the years has
created a growing market for users of compressed natural gas (CNG).
The number of CNG users increased substantially from 6,760 vehicles
in 2000 to more than 240,000 in 2008, most of which are taxis. CNG
stations popped up throughout the country, but the natural gas
infrastructure remained stagnant. Consequently, the combination of
inadequate infrastructure and a redistribution of natural gas to
thermal plants in response to El Nino left the CNG stations high
and dry, with newspaper front pages showing lines of taxis "parked"
in front of empty CNG stations. This shortage lasted for two
weeks, prompting speculation that the GOC revised distribution
priorities to accommodate CNG users.

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

Government Actions

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

10. (SBU) With elections coming up in May, President Uribe needed
to "fix" the crisis immediately. His Minister of Mines and Energy,
Hernan Martinez, announced on September 30 that Colombia planned to
reduce the amount of electric power sold to Ecuador and Venezuela,
340MW and 120MW respectively, as well as reduce natural gas exports
to Venezuela. Since that announcement, electricity exports to
Venezuela and Ecuador have dropped by 30 and 50 percent

respectively, and natural gas exports to Venezuela have dropped by
68 percent, (250 to 80 million cubic feet/day). Additionally,
President Uribe gave a public speech in early October, urging
Colombians to conserve water, electricity and natural gas usage.

11. (SBU) The GOC is very concerned about dam reserve levels
reaching 58 percent - a critical point. Power rationing could be
implemented, especially since El Nino is projected to last through
April 2010. Although the GOC understands the gravity of the
situation, it has taken several non-transparent actions. Instead
of allowing the regulatory body, CREG, to manage the situation,
Minister Martinez drew up several decrees to regulate the
electricity market and redistribute natural gas supplies. In one
decree, the Minister ruled that if thermal plants were dual-fueled
(natural gas and diesel), they would be required to run on diesel
because the demand for natural gas exceeded gas output. The decree
made no mention of honoring natural gas contracts, which resulted
in several violations.

12. (SBU) A U.S. company managing a thermal plant noted to Emboffs
dual-fueled plants without contracts were receiving natural gas.
Also, thermal plants that were not even being dispatched to
generate electricity were receiving natural gas supplies and
selling them on the secondary market for huge profits (one such
plant was coincidentally a state-owned plant). That U.S. company
-- which had a contract but was not receiving its natural gas --
resolved its issue after visiting Minister Martinez.

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Planning Ahead

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

13. (U) According to the Ministry of Mines and Energy, the GOC is
investing in the expansion of two pipeline projects to increase the
flow of natural gas to the interior regions. The
Cusiana-Vasconia-Cali and Ballena-Barranca projects consist of
public and private investments. The projects are expected to come
on line by 2011 and increase natural gas supplies to the interior
by more than 60 percent. Analysts predict that these projected
infrastructure projects will help Colombia avoid the El Nino effect
in the future.

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Comment

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14. (SBU) The effect of El Nino is a good example of how Colombia
reacts in a crisis and reveals an over-reliance on hydroelectric
power. The October rains have just begun, but meteorologists
predict El Nino will keep Colombia dry from January 2010 through
April and possibly into May, causing reservoirs to fall well below
their seasonal averages. The September drought and El Nino
forecasts presage a potential energy crisis ahead. Presidential
elections in May 2010 could cloud GOC decision-making in the event
of an energy shortage. That said, Embassy officials plan to work
with CREG and the Ministry of Mines and Energy to urge greater
transparency in the regulatory market as well as maintain contract
sanctity.
BROWNFIELD

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