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Viewing cable 09BOGOTA3350, COLOMBIA: EL NINO TAKING A TOLL ON ENERGY SECTOR

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Reference ID Created Released Classification Origin
09BOGOTA3350 2009-10-22 00:45 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Bogota
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. 
 
 
 
----------- 
 
El Nino 
 
----------- 
 
 
 
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. 
 
 
 
------------------------------------ 
 
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. 
 
 
 
-------------------- 
 
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. 
 
 
 
------------- 
 
Comment 
 
------------- 
 
 
 
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