Auditors: Colombia’s Energy Transition Would Cost 8-11% of GDP Per Year

Although the country’s oil exploitation policies are uncertain, if Colombia’s energy transition were to take place immediately, an investment of close to US$30 billion per year would have to be made, which would represent between 8% and 11% of the national GDP.

This is what Crowe Colombia estimates in its study: “How possible is the energy transition in Latin America,” in which it analyzes the possible paths we could take, compared to other countries in the region, and the implication of the decisions taken by the national government in the coming months.

According to Janeth Romero (above photo), a Crowe audit partner, “by way of comparison, it is estimated that in the United States and Europe the energy transition would cost between 5% and 6% of GDP per year. Reducing CO₂ emissions costs money, since it must make a technological transformation for electricity generation, in the mobility of the transport system and support the conversion of sectors that generate large emissions such as agriculture and clothing, among others.”

Taking into account that in the first stage of this transition the great protagonist would be gas, the use and production of oil and coal would tend to be reduced significantly since tangible facts such as the manufacture and sale of electric cars, the race for solar and wind energy, would begin to discourage their consumption.

“This means that total demand for fossil fuels would have to decline steadily until 2050, by an annual average equivalent to the production of a large oil field. On the other hand, offshore oil operations in the exploration stages would become less and less viable and those that are underway would become riskier”, assures Romero.

According to analysis by the University of Texas, the decrease in the fall in demand, due to a hypothetical concerted transition policy at regional level, would affect all oil producers in the region and the impact would be felt more by those that are more dependent on crude oil, which are Venezuela, Ecuador and Colombia.

Historically, before the sharp decline registered in recent years by the state-owned oil company PDVSA and the subsequent sanctions imposed by the United States, around 95% of the foreign currency coming into Venezuela came from oil. Venezuelan crude oil sales in 2019 totaled US$12.2 billion, equivalent to 83% of the country’s exports, according to data from the Observatory of Economic Complexity.

Taking a look at Brazil, this is a country that has become “the great oil producer in Latin America”, with almost three million barrels per day, a figure similar to that reached by Venezuela and Mexico “in their good times”, but despite the size of the sector, Brazil is not dependent on oil, as it produces agro-industrial products on a large scale that position it as a natural exporter.

In the case of Argentina, unconventional crude oil deposits have recently been discovered (known as shale oil) that have great potential, and it is worth noting that this country, together with Chile and Bolivia, is known as the “lithium triangle”, where the world’s largest reserves of this mineral, key for the production of electric batteries and vital for the energy transition, are found.

Now, it is important to analyze that the current context allows us to foresee that, at least in the next three decades, the consumption of fossil fuels will continue to increase, then the countries of the region will be able to continue producing and making the business profitable and thus, obtain sustainable resources to guarantee the adequate energy transition.

However, to ensure an adequate process and the sustainability of the industry, the countries most dependent on oil and its derivatives must focus efforts on efficiency and reducing production costs, and in turn, reduce the intensity of carbon and greenhouse gases.

“For Colombia, on the other hand, these resources continue to be absolutely necessary for the national economy and therefore it is advisable that while a serious strategy is being prepared with truly sustainable projections, it is still necessary for industry players and the government to mitigate the effect of the fall in production, as it will fall faster than demand and there is a risk of losing self-sufficiency, impacting state revenues and its announced social investment plans” concluded Romero.