UPDATE ON DRUMMOND GAS DISCOVERY

C O N F I D E N T I A L BOGOTA 010197 SIPDIS SIPDIS E.O. 12958: DECL: 11/01/2016 TAGS: ENRG EINV VE CO SUBJECT: UPDATE ON DRUMMOND GAS DISCOVERY REF: BOGOTA 7731 Classified By: CDA MILTON DRUCKER FOR REASONS 1.4(B) AND (D) 1 (C) The President of Drummond Coal Colombia, Augusto Jimenez recently met with embassy officials to give an update on Drummond gas and coal projects in Colombia. He also discussed expanding the La Loma/Santa Marta coal railway. 2.(C) Drummond plans to start extracting natural gas (reftel) at the end of 2007 or early 2008 in La Loma. Drummond currently has a 200 MW power plant that feeds the national electric grid. They plan to power their own extensive mining operation and sell electricity to the national grid for distribution. The company is also discussing a joint venture with ISAGEN (Colombia's largest electric company) to build a 500MW power station in La Loma using La Loma gas and to generate electricity via an ISAGEN transmission line to Bogota. This is Drummond's preferred option. Drummond's alternative plans -- should the ISAGEN arrangement not materialize -- include exploring gas liquification for export or exporting to Venezuela through the Ecopetrol pipeline. ¶3. (C) Drummond also has exploration rights in La Guajira, with preliminary data showing potential for up to 3 trillion cubic feet of gas, and is engaged in a joint venture with Ecopetrol for natural gas exploration in Sogamoso on the Boyaca plateau, with a potential of 9 trillion cubic feet in gas deposits. ¶4. (C) Drummond's primary business in Colombia remains coal. Jimenez estimates 2006 coal exports will reach 22 million tons (vice 26 million tons planned until Drummond was hit by a lengthy strike). Next year they plan to export 30 million tons of coal (mainly to the United States). Drummond estimates that between the La Loma mine and the soon to be opened El Descanso mine (in La Guajira) they have coal reserves of 2.2 billion tons. ¶5. (C) Drummond has purchased and rehabilitated the rail line from its La Loma mine to its private port in Santa Marta. This has increased the cargo capacity for coal from 20 to 35 million tons annually. Drummond is building a second parallel track on the same right of way. When completed in 2008/2009, coal cargo capacity will increase to 80 million tons per annum. Drummond is also involved in rehabilitating the Santa Marta/La Dorada line for the GOC for a fee (not disclosed by Jimenez). The La Dorada line would follow the Magdalena River to an area some 120 kilometers from Bogota by air, but several thousand feet below Bogota in elevation. ¶6. (C) Jimenez also raised concerns over the future of the Santa Marta port. He reported that the GOC wants to consolidate the coal ports in Santa Marta into one central area to make the area more compatible with tourist development. Jimenez claims that he has data to demonstrate that environmental damage occasioned by the port is minimal, and that the existence of the port is compatible with the area's tourism vision. Emboffssuggested Jimenez take the environmental concerns seriously, and for Drummond to take a forward-leaning posture in demonstrating their activities are consistent with tourist development since the potential for politically motivated accusations would be real regardless of Drummond's scientific evidence. . DRUCKER =======================CABLE ENDS============================