Colombia Oil Exports (COLOMOIL)
|CASE NAME:||Colombia Oil Exports|
1. The Issue
The Andes mountains in Colombia have become the newest oil
spot with several international companies drilling in the region.
Oil drilling is a profitable business for the exploring
as well as the Colombian government which receives a large sum of
money for each barrel of oil recovered. However, the process is
not without violence nor criticism from environmental groups.
Marxist guerrillas repeatedly interrupt production through the
of terrorist tactics including bombings and kidnappings.
Environmental groups challenge Colombian laws regarding
environmental degradation due to the methods of oil exploration
extraction primarily caused by foreign corporations.
Ten years ago, Colombia was an importer of oil. Today, it
Latin America's third-largest exporter of oil to the United
following Venezuela and Mexico. Eleven of the eighteen foreign
companies drilling in Colombia are U.S. owned corporations.
Private investment has financed the exploration of one third of
Colombia's territory. With the majority of the country's known
reserves "having been discovered by private companies, private
investment will be essential both to maintain future exports and
explore the two-thirds of the country not yet explored for oil."
In 1993, British Petroleum and its partners located oil
beneath the eastern plains in the Andes Mountains. The company
predicted "it could be worth $3 billion a year in exports -- the
government hopes for $5 billion -- by 1997." The Colombian
government also "commissioned British Petroleum to continue
exploring for oil in its frontier areas" in 1995.
Heavy taxes have caused foreign oil companies to shy away
Colombia. According to Byron Grote, the Latin America Director
British Petroleum, "the Colombian Government takes up to 90% of
value of each barrel pumped by his company. The Government's
revenue comes from Ecopetrol's production-sharing agreements and
from corporate income and other taxes." In fact, a recent report
published by the Colombian Oil Association, which represents the
major Western companies, concluded that Colombia "is not
internationally competitive to attract risk investments."
3. Related Cases
4. Draft Author: Keri Cooper
(1): Trade Product = OIL
(2): Bio-geography = TROPical
(3): Domain = South America [SAMER]
B. LEGAL Clusters
5. Discourse and Status: AGReement and COMPlete
6. Forum and Scope: COLOMbia and UNILATeral
7. Decision Breadth: 1 (Colombia)
8. Legal Standing: LAW
The Colombian government is the rule-making body on the
of oil and oil exploration. The Environment Ministry conducts
hearings and investigations to determine the costs associated
the process as well as the economic benefits. Colombian
legislation requires an "environmental assessment of any area
proposed for oil or mineral exploration. The environmental
inventory, which catalogues all plant and animal species in the
proposed exploration area, is then reviewed by the Environment
Ministry." According to Colombian environmental law, all
petroleum exploration project must submit the following studies
before beginning operations: "an assessment of the existing
environmental situation, including a plant and animal life
inventory; an evaluation of the possible environmental impacts of
exploration and extraction; a report on the company's
contingency plans and plans for air and water control; and a
projection of long-term environmental impacts once the company
finished its operations in the area." Based on these reports,
Ministry approves/disapproves the site, the extractable amounts
be drilled and the rate at which the extraction occurs are
C. GEOGRAPHIC Clusters
9. Geographic Locations
Geographic domain: South America [SAMER]
10. Sub-National Factors: YES
Geographic site: ANDES
Geographic impact: COLOMbia
Not everyone in Colombia is pleased that the oil companies
drilling more and more in their country. The drug cartels,
groups and paramilitary groups have wrecked havoc on the oil-
pumping stations. Many of the oil wells are located in the
"stomping ground" of the Medellin drug cartel as well as its
competitors. The area is also the home to "the less publicized
`emerald wars' (Colombia produces 60 percent of the world emerald
supply), to three separate groups of Marxist guerrillas and to an
increasingly terroristic national police force seeking to quell
One reporter described a British Petroleum drilling site in
the eastern foothills of the Andes as "an armed camp, swarming
khaki-clad, rifle-toting guards and surrounded by machine gun
emplacements and two rows of flood-lit razor wire." The fortress
is necessary in order to quell some of the violence caused by the
Marxist guerrillas in the region who are protesting the
of coca crops. As it is difficult to halt the coca eradication
process, the guerrillas attack the oil sites and pipelines as a
demonstration of their dissatisfaction with the government's
actions (see COLCOCA case). One of
sites is located in Yopal, in the Casanare region of Colombia
ninety miles northeast of Bogota, in the eastern foothills of the
Andes Mountains (see COCA case). The town
has grown in five years "from a quiet state capital of 20,000 to
boom town of 60,000." But the residents are not pleased with the
growth spurt. The town has gained many things from the oil
companies including: newly paved roads, electricity as well as a
construction boom. All of these things are wonderful for the
residents. The residents do not complain about these
It is the increase in crime, poverty, and the guerrillas that
bothers the residents. The regional Governor of Yopal, Oscar
Leonides Wilches, made an insightful comment. "We were all
off here 20 years ago, when there was no electricity, no running
water, and we were all poor. Now we all live in a perpetual
of insecurity....Oil has destroyed our way of life. It's a
pestilence." Although the efforts of BP are appreciated and
welcomed by the locals including the governor, many residents
they would be happier if the company had never come.
The Marxist guerrillas of the National Liberation Army (ELN)
and the Revolutionary Armed Forces of Colombia (FARC), which have
made the nearby Cusiana and Cupiagua oil fields their prime
are often blamed for the increase in violence. The groups
"regularly blow up pipelines, kidnap foreign oil executives and
kill local politicians in an attempt to force out multinational
corporations and destabilize the Colombian economy." During the
last nine years, "leftist guerrilla squads have dynamited
Colombia's main oil pipeline 346 times, spilling slightly more
1.2 million barrels of crude oil....The guerrillas seek
rural development, and nationalization of the oil industry." The
guerrillas also demand increased spending "for social programs in
areas where the oil is produced."
Colombia's Environment Minister said that "no one has ever
calculated how much the FARC owes" due to fears that the
calculation would encourage the guerrillas to increase their
destructive actions. During the past ten years, pipeline attacks
by the guerrillas are estimated to have cost Colombia "about $1
billion in lost oil sales." Ministry studies examining the years
1989 through 1991 "found that guerrilla pipeline bombings
375 miles of creeks and rivers and fouled 12,500 acres, ranging
from tropical wetlands to Andean watersheds."
The dramatic increase in crime is attributed to the
numbers of migrants from across Colombia who "have flooded in to
work in the oil fields at salaries that are three to four times
minimum wage." Six years ago in Yopal, for example, the town had
"five hotels, three banks, about 60 prostitutes and no
Today, there are 54 hotels, 22 banks, and nearly 700
prostitutes." Progress is not always for the best as seen in
this city and throughout the oil-producing region.
Finally, infrastructure and the cost of living are
dramatically different than in the pre-oil discovery years. The
cost of living as demonstrated by rents charged has tripled.
Available infrastructure is also at risk as sewage systems and
water pipes were not constructed to serve the large numbers of
people who now require the services. At times, the towns even
complain of not enough water for all of the residents.
11. Type of Habitat: TEMPerate
D. TRADE Clusters
12. Type of Measure: Regulatory Ban [REGBAN]
13. Direct vs. Indirect Impacts: INDirect
14. Relation of Trade Measure to Resource Impact
Directly Related: YES OIL
15. Trade Product Identification: Oil
Indirectly Related: NO
Not Related: NO
Process Related: YES HABITat Loss
16. Economic Data
Oil represents twenty-two percent of Colombia's export
and as much as half of its foreign investment earnings. By 1997,
"when the Cusiana-Cupiagua fields are scheduled to reach full
production of 500,000 barrels a day, earnings are expected to
$2.5 billion a year."
However, oil does not always provide the cure-all predicted.
One only need to examine the cases of Nigeria, Mexico, and
Venezuela to see the possible negative benefits of oil. "Over-
dependence on oil often leads to an inflated and indebted public
sector and a narrow tax base. The inflow of foreign currency
raises the exchange rate, damaging non-oil businesses. If the
oil boom turns to bust, many people end up worse off than before the
17. Impact of Trade Restriction: LOW
18. Industry Sector: OILGAS (Oil and Gas)
19. Exporters and Importers: COLOMbia and USA
Ecopetrol, the state-owned petroleum company, expects to
export "500,000 barrels per day of crude oil from Colombia's
supergiant Cusiana oil field to the U.S....Apart from Cusiana,
Colombia currently exports about 200,000 barrels per day to the
The United States is a major importer of Colombian
crude oil because of the steady decline in U.S. production. In
1994, the United States imported an average of "8.9 million
a day or 45 percent, compared with about 30 percent in 1984.
at moderate oil prices, the U.S. spent about $45 billion last
to pay for imported oil, making it a major contributor to the
deficit." Production in the United States is at its lowest level
in four decades. United States domestic crude oil production
"fell to 6.6 million barrels a day last year, the lowest level
since 1954. Domestic production of low-sulfur crude, the variety
from which gasoline is most easily derived, is expected to
by nearly 750,000 barrels a day during the 1990s."
Therefore there is a need for a "nearby source of clean
burning oil for Americans." The U.S. currently imports "slightly
more than half of its crude oil needs." Due to Colombia's close
proximity, it takes only four to five days to "transport the oil
tanker to the major refining centers on the U.S. Gulf Coast and
East Coast. This ensures a predictable oil supply for U.S.
refineries and saves as much as $2 a barrel in transportation
as compared to shipments from the Middle East."
E. ENVIRONMENT Clusters
20. Environmental Problem Types: Pollution Land [POLL]
Environmental problems also include air and water pollution
21. Name, Type, and Diversity of Species
One environmental impact study conducted by British
conducted in the Cusiana region found "280 plant species, 423
species of aquatic invertebrates, 98 species of fish, and 112
species of microscopic algae in the area bounded by three rivers.
The study took twenty-five company biologists sixteen months to
Diversity: 51,220 higher
22. Impact and Effect: LOW and PRODuct
Obviously, there is a limit to the amount of oil which can
pumped from the different wells but exact statistics are not
available due to the uncertainty surrounding the wells. It is
difficult to determine how much oil will be pumped out until
is no more oil to pump out from the well. However, the Cusiana
Cupiagua fields, cover a thinly populated area the size of
Connecticut, "hold 2.1 billion barrels in proven oil and gas
reserves. Ecopetrol announced in late February that probable and
possible oil and gas reserves in the area totaled a further 3.9
23. Urgency and Lifetime: MEDIUM and 100s of years
The Colombian Environment Ministry often fines companies who
damage natural resources. Resolution 300, approved in September
1994, demonstrated that the Environment Ministry is "prepared to
tackle even projects considered economically important to the
country in contrast to the previous enforcement agency, Inderena,
which was often criticized for not confronting large companies
In August 1994, the Environment Ministry fined British
Petroleum approximately $267,000 for damaging natural resources
the state of Casanare during 1991. "The fine was the largest for
environmental damage in Colombia's history." Some of the
company's activities in Casanare were carried out "without
complying with existing requirements established under Colombian
environmental legislation, which resulted in damage to renewable
natural resources and contamination of the environment."
On April 11, 1995, the Environment Ministry issued another
Resolution which suspended the operations of the Sociedad
del Norte petroleum company in the Cucuta-Norte de Santander
municipality after "finding excessive levels of crude oil,
hydrocarbons, and mercury in the Caso Mono watershed located near
the company's Rio Zulia oil field."
24. Substitutes: ALTERnative Energy
VI. OTHER Factors
25. Culture: NO
26. Human Rights: NO
27. Trans-Boundary Issues: NO
28. Relevant Literature
"And Now Oil." The Economist. 31 July 31, 1993, 38-39.
"British Petroleum Presents Ecological Inventory for Exploration
Zone." Environment Watch Latin America, August, 1993, 7.
Brooke, James. "Colombia Becoming an Oil Power in Spite of
The New York Times (March 29, 1995), 2.
Brooke, James. "Colombia Oil Spills Net Fines for All but
The New York Times (March 6, 1995), A2.
"Colombia Courts Oil Interests." Chicago Tribune
(March 27, 1995), 3B.
"Colombia's Environment Ministry Fines British Petroleum."
Environment Watch Latin America (September,) 1994, 14.
"Colombian Government Threatens to Close Ecopetrol Pipeline."
Environment Watch Latin America (November, 1994), 17.
"Environment Ministry Halts Petroleos del Norte Project."
Environment Watch Latin America (May, 1995), 5.
"Oil and Gas Newsletter." Oil and Gas Journal. 27 March 1995,
Salpukas, Agis. "Ideas and Trends: Still Looking to the Persian
Gulf." The New York Times (March 26, 1995), D5.
Sullivan, Allanna. "BP to Continue Search for Oil in Colombia."
The Houston Chronicle (April 2, 1995), 9.
Tirschwell, Peter. "Falling U.S. Oil Production Creates Opening
Colombia." The Houston Chronicle (March 26, 1995), 9.
Vincent, Isabel. "Colombia's Oil Boom Backfires." World Press
Review (December, 1994), 43.
Zipser, Andy. "Trials of Triton: Big Payoff Awaits Oil Explorer,
But First...." Barron's (July 26, 1993), 14-15.
[End notes will be added]
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