Ecuador’s plans for dramatic growth in oil production face a myriad of potential obstacles, including the region’s ongoing financial crisis, environmental protests, and internal political uncertainty.
At first glance, the energy industry of the former Opec member seems to be on the fast track for growth. Crude oil production, now hovering just below 390,000 barrels a day stands to grow overnight by a minimum of 100,000 b/d once the $1.1 billion heavy crude OCP pipeline begins operations. But the 450,000 b/d pipeline project, scheduled to be completed next January, is riddled with controversy.
The OCP project faces fierce opposition from environmental groups that want to reroute the pipeline so that it does not run through the Mindo-Nambillo environmental reserve. Last week, nine activists were arrested outside the offices of consortium member Occidental in Quito, including US activist Julia Butterfly Hill.
Environmental groups including Greenpeace planned to demonstrate this week in front of the New York offices of the German bank West LB, the major lender of the OCP group, which is composed of Canada’s EnCana, Spain’s Repsol YPF, Argentina’s Perez Companc, Italy’s ENI, and US’ Occidental and Kerr McGee. In a statement, the environmental coalition called on West LB to cancel the loan, given that the bank is a signatory to an international statement by banks on the environment and sustainable development.
Petroecuador has downplayed the threat posed by the protesters, saying they do not count on much support among the local population and the government has vowed to finish pipeline construction on time despite this opposition.
With proven and possible reserves of 6.671 billion barrels and a heavy investment by the OCP group, Ecuador could double its production before the end of the decade. As internal consumption, which is only about 167,000 b/d now, is growing at an annual rate of only 1%, there is room for a big increase in crude exports, now about 231,000 b/d.
Analysts said it could be possible for Ecuador to overtake Colombia over the next few years to become Latin America’s third largest oil exporter, behind regional giants Venezuela and Mexico.
But closer scrutiny shows an array of persistent problems holding Ecuador’s energy development back. Some experts, including Jorge Pareja, a former president of state oil company Petroecuador, say that maintenance of the state’s main fields remains grossly underfunded.
Despite its stated goal of increasing production to 400,000 b/d by December 2002, Petroecuador has managed to average just 234,000 b/d for the first half of this year, up from a disappointing annual average of 227,000 b/d for the whole of 2001.
Petroecuador’s decline in production, which peaked in 1987 at 282,000 b/d, has been overshadowed by the abrupt increase in production by private companies, which jumped from 85,000 b/d in 2000 to a current level of 160,000 b/d. In all, total crude production for the first six months of 2002 still showed a healthy gain of almost 40,000 b/d over the same period a year earlier – with the increase coming entirely from private production.
Regional financial and political woes may also hinder growth plans. Due to the Argentine financial crisis, both Perez-Companc and Repsol-YPF have announced they may not be able to deliver on their production targets in Ecuador once the OCP begins to function next year. Repsol-YPF had planned to ramp up production to 110,000 b/d-120,000 b/d from the current figure of 60,000 b/d. Perez Companc, for its part, had promised to invest at least $300 million for the development of its Blocks 18 and 13.
Pareja said it is almost certain neither of these companies will be able to meet its investment goals, although OCP Director Hernan Lara told Oil Daily that the $2.5 billion the OCP consortium plans to invest is guaranteed by banks and that construction of the OCP pipeline is on schedule for preliminary trial use in January.
But perhaps the largest problem that the Ecuadorian energy industry faces is what analyst Rene Bucaram calls “an internal lack of direction.” Continual policy shifts have eroded much of the groundwork for short- and near-term development strategies. This is at least partly due to continual administrative shuffles.
Last month, Petroecuador’s President Gustavo Gutierrez was sworn in, replacing Rodolfo Barniol, who is now interior minister. Gutierrez has little more than four months left before the term of Ecuadorian President Gustavo Noboa expires. Experts say they have no inkling who would be selected to fill his place.
Ecuador’s presidential elections are scheduled for Oct. 20, but the nation’s two main political parties have not yet chosen their official candidates.
Gutierrez told Oil Daily that the transition to the next administration will be smooth. “I am confident of Petroecuador’s prospects for the future. Production may have contracted, but the groundwork is being set for an increase in output over the next few years,” he said. “I am sure that the future administration will not deviate from our main policies, which are in the interests of Ecuador,” he added.
Juan Pablo Toro in Quito
