CHAPTER 16 SHALE GAS DEVELOPMENT IN COLOMBIA: CHALLENGES AND OPPORTUNITIES--LEGAL AND TECHNICAL OUTLOOK
| Jurisdiction | Derecho Internacional |
(Apr 2015)
SHALE GAS DEVELOPMENT IN COLOMBIA: CHALLENGES AND OPPORTUNITIES--LEGAL AND TECHNICAL OUTLOOK
Senior VP/Director-Energy & Mineral Resources
ECSI, LLC
Lexington
Marianna Boza
Senior Associate
Brigard & Urrutia Abogados S.A.S.
Bogotá
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EDMUNDO J. LAPORTE serves as director of Energy and Natural Resources for ECSI. He is a licensed engineer and has participated in multiple oil & gas, metal, coal, and hard rock mining projects in North and South America, Europe, Asia, Africa, and Australia. These include unconventional gas projects in China; conventional gas projects in Madagascar; underground operations in epithermal narrow vein deposits in Mexico and the U.S.; large open pit copper mines in Chile and Argentina; underground limestone, sandstone, and oil shale mines in the U.S.; underground coal mines in the U.S. and Colombia; and multiple open pit and underground coal mines and hard-rock projects in South America, the U.S., China and Mongolia. Mr. Laporte is licensed in multiple jurisdictions in the U.S., Alberta, Canada; and Australia (chartered engineer). He is also a registered professional engineer in Queensland. Mr. Laporte is responsible for coordinating multiple oil & gas and mineral reporting efforts, geotechnical engineering projects, and development of mine plans and financial models for both domestic and international clients.
MARIANNA BOZA MORÁN is a Senior Associate at Brigard & Urrutia in Bogotá, and Coordinator of the Natural Resources and Environment team and Head of the Oil and Gas and Mining Practices at that law firm. Marianna has worked extensively with international oil and gas companies engaged in exploration and exploitation of hydrocarbon resources, and petrochemical activities. Marianna has participated in the drafting and negotiation of exploration and production agreements, production sharing agreements, operating agreements, strategic alliances, and joint ventures. Also, she has extensive experience providing comprehensive legal advice to hydrocarbons service companies. Marianna has been involved in major deals pertaining to upstream, midstream, and downstream, as well as infrastructure projects, including project financing related to this sector. Before joining Brigard & Urrutia, Marianna was a Senior Associate at Hogan Lovells, and served as Senior Legal Counsel for Shell Venezuela, where she worked extensively with upstream gas licenses in Venezuela, participating actively in the revision of Venezuelan hydrocarbons legislation, and in the midstream/downstream business related to major outsourcing projects regarding production of oil by-products. She also worked as an associate at Macleod Dixon and performed as in-house attorney in secondment to the Legal Department of Repsol Exploración Venezuela and ChevronTexaco Global Technologies Services. Marianna is authorized to practice law in Venezuela and Colombia, countries where she has been also granted the title of Public Interpreter.
Development of shale gas is a hot topic in Colombia, where the shale gas industry is in its infancy. In Colombia, there is a legal void that will need to be filled with sensible legislation, in order to allow its considerable shale gas resources to be fully developed. The paper will address the technical and legal aspects of this industry and its importance for the Colombian economy.
INTRODUCTION
The Colombian history on hydrocarbons began in 1905 with the enactment of Decree No. 34,1 which empowered the National Executive to grant concessions for hydrocarbon resources, and the subsequent execution of the De Mares Concession.2 However, the modern history of hydrocarbons in Colombia started with the hydrocarbons reform in 2003 and the enactment of Decree 1760 of 2003, by means of which the National Hydrocarbon Agency, hereinafter "ANH" for its Acronym in Spanish, was created as an independent regulatory body with the power and authority to control, monitor and surveil the execution of hydrocarbon activities and to manage the hydrocarbon resources in the country. With this reform, Colombia opened the doors of this sector to private foreign and national investments, while making Ecopetrol into another participant in the sector.
As part of this renovation of the oil sector in Colombia, the ANH started to open competitive bidding processes, known as "Rondas",3 to allocate areas for the exploration of hydrocarbon resources through Technical Evaluation Contracts (hereinafter "TEA") and the exploration and exploitation of the hydrocarbons resources by means of the Exploration and Production Contracts (hereinafter "E&P Contracts".) Several rounds have taken place since 2004, totaling 352 E&P Contracts and 94 TEAs currently in force.4 Contracts have also been awarded through invitation or through direct assignment processes.5
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Colombia's hydrocarbons industry has been traditionally focused on conventional resources. There had been little activity in unconventional reservoirs until 2012 when the ANH conducted the first unconventional competitive bidding process in Colombia;6 five blocks of unconventional reservoirs were awarded during Ronda Colombia 2012.7 A second unconventional competitive bidding process was carried out by ANH through Ronda Colombia 2014,8 awarding one block for exploration and exploitation of unconventional reservoirs.9
Interest in resources from unconventional reservoirs in Colombia heightened in 2012 as a result of a report prepared by Arthur D Little, which estimated recoverable shale gas reserves at 30 TCF,10 recoverable tight gas reserves at 1.2 TCF, CBM recoverable reserves in a range from 11 to 35 TCF and shale oil potential reserves in 14 mm boe,11 positioning Colombia as the third largest potential reserve of unconventional resources in Latin America.12 According to the ANH and the UPME, Colombian oil and gas reserves may increase in 10 billion barrels and 11 TFC in the next 20 years from reserves of unconventional reservoirs.13
Unconventional reservoirs in Colombia are mainly located in three out of the 23 Colombian hydrocarbon basins, to know: the Middle Magdalena Valley, Llanos and Catatumbo basins,14 which are simultaneously the major producing basins of hydrocarbons in Colombia. Potential shale formations may also exist in the Caguan-Putamayo, Cesar-Rancheria and Eastern Cordillera basins. The main unconventional reservoir in Colombia is located in the Middle Magdalena Valley, La
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Luna formation, which has been positioned as "world class" in terms of both quantity and quality, and compared to the Eagle Ford shale formation in the southern US.15
The purpose of this paper is to present a legal and technical outlook of the challenges and opportunities faced by Colombia regarding the development of its shale gas resources.
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Contenido
INTRODUCTION
TECHNICAL OUTLOOK
1. What is Shale gas?
2. What is frac'ing?
3. The Shale Gas Boom
4. Colombian Favorable Geology
5. Identified shale gas resources
6. Market Structure
7. Water Availability
8. Infrastructure
9. Other Factors
LEGAL OUTLOOK: REGULATION OF THE UNCONVENTIONAL RESOURCE
1. Agreement 3 of 2014, the Contractual Framework
2. Resolution 90341 of 2014, the Technical Framework
3. The Environmental Framework
CONCLUSIONS
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TECHNICAL OUTLOOK
The high natural gas prices in the 2000s, which resulted from the declining production of conventional natural gas and other economic factors, also played an important role in making shale gas production profitable. Other contributing factors include favorable geology, private land and minerals ownership, market structure, water availability, natural gas pipeline infrastructure and the associated open-access policy.
1. What is Shale gas?
Sedimentary rocks are rocks formed by the accumulation of sediments at the Earth's surface and within bodies of water. Common sedimentary rocks include sandstone, limestone, and shale.
Shale is a fine-grained sedimentary mudrock, comprising mostly flakes of various clay minerals, and including tiny fragments of quartz, calcite, other minerals and organic material. Typically having a laminate structure, shale formations are characterized by breaks along thin laminated parallel layers, known as fissility, and by low porosity and very low permeability. Another significant feature is the amount of carbonaceous material found in shale. Black shale is so called by virtue of a high degree of reduced free carbon which gives the rock its characteristic anthracite color. Shales and other mudrocks contain about 95% of all the organic matter to be found in sedimentary rocks.
Shale gas and shale oil only became noteworthy in the last decade when production in the United States started to flow consistently in high quantities from different plays like the Barnett and Eagle Ford shale plays in Texas, the Marcellus shale play in the northeast or the recently discovered Bakken shale play in the Midwest. However, before becoming the phenomenon that shale is today, making people believe the U.S. could become energy independent or a net gas exporter nation16 shale was just one of the many projects the federal government funded in the 80's trying to find a supply alternative for gas.17
Natural gas has formed through the thermogenic processing of carbonaceous material many millions of years old found at a significant depth in the Earth's crust, where higher temperature and pressure have transformed that material into gas. Natural gas consists primarily of methane, together with other hydrocarbons such as carbon dioxide, nitrogen, and heavier hydrocarbons such as ethane and propane.
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The methane component is typically 80% or more. The proportion of higher hydrocarbons is influenced mainly by the type of organic matter within the geologic...
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