Colombia is not the first country that comes to mind when we talk about oil and gas. But over the past decades, Colombia has seen rapid growth in coal and oil exports. The total value of its coal and oil exports in 2022 were $12.9 billion and $18.7 billion, respectively, amounting for 52% of all export revenue.

Colombia’s growing dependence on fossil fuels presents a significant risk to the country. In an era of the global energy transition, future demand for coal and oil is highly uncertain. If efforts to stop climate change accelerate and clean technologies become more competitive, fossil fuels might not be as valuable as they are today. Oil demand could decrease as electric vehicles take over in transportation, while coal could be replaced in a green steel industry. In this scenario, Colombia’s export revenue will plummet without economic diversification.

The transition away from coal and oil in Colombia will not be easy. Colombia’s economy is not very diversified today, and the country has struggled with expanding its industrial production. The country is competitive in agriculture and natural resources, but expanding these sectors to replace coal and oil will be difficult.

1. Colombia’s Growing Dependence on Fossil Fuel Exports

Colombia has over time transitioned from an agricultural to a fossil-fuel based export economy. Agricultural exports have traditionally been a large driver of Colombia’s economy, with goods such as coffee and fruit being some of its most exported products. However, the numbers for coal and oil have grown over time. The figure below illustrates this trend over time, with the trade values reflecting inflation adjusted to prices (in USD) from 2022:

In 1995, both coffee and crude oil exports shared a nearly similar percentage value, 17.2% and 17.4% respectively. Additionally, products like bananas, cut flowers, and other vegetables played a crucial role in Colombia’s rising export economy. However, by the 2010’s, the playing field shifted, as export values from oil and coal increased dramatically, making up the majority of export revenue still today. 

The large share of coal is noteworthy, considering that Colombia itself does not consume much coal. As of 2022, coal only makes up 5.4% of the country’s total electricity generation, where hydro leads with 72%, with oil and natural gas at 3.3% and 16.3%, respectively. However, Colombian coal is mostly bituminous. Because of its high heating value, it is exported globally for industries like steelmaking.

Colombia’s fossil fuel resources are concentrated in specific regions of the country. 90% of the country’s coal production comes from the regions of Cesar and La Guajira, in the northern part of the country in the Caribbean region. Nearly all of Colombia’s oil production takes place onshore in Meta, a department of Colombia located in the central regions of the country. Similarly, approximately 85% of Colombia’s natural gas production is concentrated in the remote grassland regions of Llanos and Magdalena Valley; however, the gas-producing basins in these areas are of mature age and are declining in production. 

In fact, Colombia is facing a sharp post-pandemic decline of oil production nationwide. Now, oil production has hit the mark of under 800,000 barrels a day, and proven oil reserves are projected to only last for another 7.5 years. On the contrary, coal is abundant in the country. Data shows that Colombia has nearly 4,664 metric tons in coal reserves, amounting to more than 100 years. 

Against this backdrop, Colombia’s export dependence on fossil fuels presents a difficult problem. Even without the energy transition, dwindling oil reserves necessitate a transition away from oil. And with energy transition, the long-term outlook for coal exports is challenging despite the fact that Colombia’s high-quality coal is primarily used in the industry instead of power generation.

2. Economic Diversification Strategies

Colombia’s primary fossil fuel challenge is not domestic consumption, with per capita carbon dioxide emissions as low as 1.7 t CO₂ /capita as of 2022. Instead, the primary challenge is replacing the export income from oil and coal in an era of the global energy transition.

Colombia’s government has at the international level made a series of commitments to phase out fossil fuel production. Colombia is a member of several international partnerships on a just transition away from fossil fuels, including the Fossil Fuel Non-Proliferation Treaty. Colombia’s left-wing president, Mr. Petro, who took office in 2022, has called for halting new fossil fuel exploration within the country.

But these commitments have not come with a practical road map. Colombia does not have in place a robust economic diversification strategy that would replace the substantial income from oil and coal over the coming decades.

What can Colombia do?

The first priority is to develop export industries based on the country’s comparative advantages. Over the past two decades, Colombia has seen some success in shipbuilding, plastics, electronics, and appliances. The country’s strong agricultural sector could be a foundation for expanded food processing and agro business. Besides manufactured products, Colombia has also done well with tourism, cosmetics, and remittances from migrant workers, mostly in the United States.

New export industries can over time replace fossil fuel revenue, but this process will take time. There is no silver bullet to replacing coal and oil, as each of the other export sectors, including coffee, is an order of magnitude smaller than fossil fuels. Colombia will likely need a broad portfolio of growing export industries, including services and remittances from migrant workers.

Within Colombia itself, fossil fuel-dependent regions need new sources of livelihood and employment. Given that the producing regions are less developed than the country’s core urban areas, this presents a significant challenge. The fossil fuel-rich areas of Colombia are almost entirely dependent on royalties and other revenue related to oil and gas. Replacing these will be difficult because new export industries are likely not going to be established in these areas.

Fortunately, renewable energy resources are geographically close to fossil fuel reserves in many parts of Colombia. Even though renewables are unlikely to emerge as an export product, they can help with job creation as Colombia moves away from fossil fuel exports.

The country’s closeness to the equator makes it a favorable geographical location for solar PV because of its high irradiance levels. Data shows that La Guajira, where coal is mined, is of particular importance for renewable energy growth in Colombia. Near the Guajira Peninsula, an area of major coal reserves, solar irradiance levels reach upwards of 6.0?kWh/m.2. The same level of value can be said for wind capacity, as the region has high wind speeds and a projected 18 GW of potential capacity. 

Colombia also has considerable potential to ramp up its production of biofuels, with ample agricultural supplies of sugarcane and palm oil to convert into ethanol and biodiesel. Already being a large producer of biofuels in South America, Colombia’s regions within the departments of Cesar and Magdalena have held promise for agricultural based fuel production. However, research forewarns that the intense expansion of the country’s bioeconomy could backfire. The Amazon, which accounts for nearly 35% of Colombia’s entire landmass, faces tremendous risk of deforestation, coupled with low economic output from the resources pulled from the region. The preservation of the Amazon rainforest is contingent upon repelling the increasing levels of resource extraction, in which a sustainable bioeconomy is difficult to achieve..

3. Global Lessons

The Colombian case study offers two useful insights for other countries and the global energy transition community.

First, even countries that are domestically diversified can be dependent on fossil fuels for export revenue. At first blush, Colombia does not look like a petrostate. But the country’s exports are driven by fossil fuels, and without export revenue, capital investments in domestic infrastructure and business would stall. In this sense, Colombia is a petrostate – today, it cannot survive without fossil fuels.

Second, preparing for the energy transition requires economic diversification decades before the global economy leaves fossil fuels behind. Developing competitive export industries has always been difficult, and today’s developing economies face special challenges in the face of China’s dominant role and the advent of robotized manufacturing.