Energy profile of Ecuador
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Introduction
Ecuador has a small economy, with a 2005 gross domestic product (GDP) of $32 billion. Ecuador’s economic growth slowed from 6.9 percent in 2004 to 2.5 percent in 2005. The oil sector dominates the Ecuadorian economy, accounting for 40 percent of export earnings and one-third of all tax revenues. Other important export industries include bananas and cut flowers. Inflation, once a serious problem for the Ecuadorian economy, has declined from an annual rate of 96.1 percent in 2000 to 2.4 percent in 2005. The principal cause of this reduction was the replacement of Ecuador’s old currency, the sucre, with the U.S. dollar in 2000. While limiting its ability to formulate its own monetary policy, Ecuador has benefited from the low inflation and stability of the dollar.
Oil
According to Oil and Gas Journal, Ecuador held proven oil reserves of 4.6 billion barrels in January 2006, the third largest in South America. The country is the fifth-largest producer of oil in South America; in 2005, Ecuador produced 538,000 barrels per day (bbl/d) of oil, of which almost all was crude oil. Of this production, Ecuador consumed 162,000 bbl/d. Crude oil production has risen sizably in recent years, though 2005 production was mostly flat compared to 2004. Ecuador is a significant oil exporter, mostly to the United States. Ecuador sends over 50 percent of its oil exports to the U.S., the remainder split between Latin America and Asia. During the first eleven months of 2005, Ecuador exported an average of 269,900 bbl/d of crude oil to the United States, some 2.7 percent of U.S. total crude oil imports during that period. Ecuador is the second-largest source of crude oil imports from South America, after Venezuela.
Sector Organization
Petroecuador, owned by the Ecuadorian government, was responsible for 38 percent of the country’s crude oil production during the first half of 2005. The most important private oil companies are foreign-owned, with the largest being Occidental Petroleum. During the first half of 2005, Occidental production in Ecuador represented 14 percent of the country’s total crude oil production. In September 2005, EnCana announced that it had sold its Ecuadorian [oil production|production]] and pipeline assets, which included 75,000 bbl/d of crude oil production capacity and a 36 percent stake in the OCP pipeline (see below), to Andes Petroleum, a consortium headed by the Chinese National Petroleum Corporation (CNPC). Other important foreign oil producers include Repsol-YPF and Agip.
While Ecuador’s crude oil production increased 31 percent from 2001 to 2005, Petroecuador's share of national crude oil output declined from 56 percent to 38 percent. The Ecuadorian government announced in September 2005 that it would renegotiate all contracts with foreign oil producers. President Alfredo Palacio has stated that he wants the state’s share of production in private projects to increase to 50 percent from the current 20 percent. The Energy Ministry hopes to have all negotiations completed by the middle of 2006. The move follows a recent trend in South America, with both Venezuela and Bolivia renegotiating production agreements with private operators in order to take advantage of higher world oil prices.
Exploration and Production
Ecuador's most productive oil fields are located in the northeast corner of the country. The largest oil field is Petroecuador’s Shushufindi, which produced 51,600 bbl/d during the first six months of 2005. Other major oil fields include Eden Yutui (Occidental), Dorine (Andes), and Sacha (Petroecuador). Ecuador produces two varieties of crude oil: Oriente and Napo. Napo is a heavy, sour crude, with a 19.2° API and 2 percent sulfur content, while Oriente is a medium-heavy, medium-sour crude, with a 28.8° API and 1 percent sulfur content.
Future increases in Ecuador’s crude oil production will likely come from development of the Ishpingo-Tapococha-Tiputini (ITT) block. The government plans to open ITT to foreign producers through a licensing round in the near future. The IIT block, located in Ecuador's Amazon region, contains an estimated 900 million barrels of proven reserves, with potential recoverable reserves as high as 1.3 billion barrels. Analysts predict that, if fully developed, the block could produce at least 190,000 bbl/d. However, the ITT block reportedly contains a variety of crude oil even heavier than Napo, so any oil producer would need to blend the crude with lighter hydrocarbons before shipping it via Ecuador's pipeline network.
Factors Affecting Oil Production
Several exceptional factors affect oil production in Ecuador. First, many private companies have clashed with the government over contract and tax issues, especially dealing with rebates of the value-added tax (VAT) paid by oil exporters. Both Occidental Petroleum and EnCana have taken legal action against the Ecuadorian government over VAT rebates. In 2004, an arbitration panel awarded $75 million to Occidental in VAT reimbursements, an award the Ecuadorian government disputes.
Second, there has been significant opposition to oil development by indigenous groups. These groups have repeatedly obstructed exploration and production activities in Ecuador's eastern region. The IIT block, which sits deep in the Amazon region, will likely face particularly fierce resistance from these groups. Indigenous activists have also brought a lawsuit against ChevronTexaco over Texaco's former oil operations in Ecuador. The suit is still in litigation, but a resolution of the case in favor of indigenous activists could introduce additional risk for foreign oil operators.
Protests against the oil industry have had a direct impact upon the country’s crude production. In August 2005, protest groups shut down Petroecuador’s crude oil production for a week, forcing the company to declare force majeure on its crude exports. In February 2006, Petroecuador shut down the SOTE pipeline (see below) for several days, after protesters occupied a pumping stations.
Pipelines
Ecuador has two major oil pipeline systems. The first is the Sistema Oleducto Trans-Ecuatoriano (SOTE), built in the early 1970s. The 310-mile, 400,000-bbl/d SOTE runs from Lago Agrio to the Balao oil terminal on the Pacific coast. SOTE has suffered from natural disasters that severely disrupted Ecuador's oil production. In March 2004, a landslide halted oil shipments through SOTE, prompting Petroecuador to declare force majeure on its export contracts. In 1987, an earthquake destroyed a large section of SOTE, reducing Ecuador's oil production for that year by over 50 percent.
The second oil pipeline is the Oleducto de Crudos Pesados (OCP). The 300-mile, 450,000-bbl/d OCP mostly parallels the route of the SOTE. The OCP began operations in September 2003, and its completion immediately doubled Ecuador's oil pipeline capacity. The completion of the OCP pipeline led to a sharp increase in Ecuador’s crude oil production, as private companies are no longer constrained by the capacity limits of the SOTE. Use of the OCP system is mostly confined to private oil producers, with Petroecuador relying upon SOTE.
Ecuador utilizes one international pipeline, the TransAndino. The 50,000-bbl/d pipeline connects Ecuador's oil fields with the Colombian port of Tumaco.
Downstream Activities
Ecuador has three oil refineries, with a combined capacity of 176,000 bbl/d. The largest refinery in Ecuador is Esmeraldas (110,000 bbl/d), located on the Pacific coast. Ecuador is a net importer of refined oil products, and the government has made it a priority to increase domestic refining capacity by improving the efficiency of existing plants and building a fourth refinery with a planned capacity of 200,000 bbl/d. There has also been some talk of Ecuador shipping crude oil to Venezuela for processing, then re-importing the refined products.
Natural Gas
According to OGJ, Ecuador had 345 billion cubic feet (Bcf) of natural gas reserves as of January 2006. There is negligible domestic demand or support infrastructure for natural gas. The only large-scale natural gas project in Ecuador is the Amistad field, located in the Gulf of Guayaquil. Noble Energy is the operator of the field, which has a production capacity of 8 Bcf per year. All of Amistad's natural gas production flows to Noble's Machala facility, a 130-megawatt (MW), onshore, gas-fired power plant that supplies electricity to the Guayaquil region. Ecuador's oil industry also flares a significant amount of natural gas from its operations, as there are no systems in place to capture it.
Electricity
Ecuador produced 11.3 billion kilowatt-hours (Bkwh) of electricity and consumed 10.6 Bkwh in 2003. About 63 percent of Ecuador's electricity production comes from hydroelectricity, with the balance supplied by conventional thermal plants. While Ecuador has a net electricity surplus, it often faces supply shortages during the October-March dry season, when hydroelectricity output declines. To make up for these shortfalls, Ecuador imports electricity from Colombia. There are plans to build new electricity connections to Peru, which would further allow Ecuador to alleviate its seasonal power shortages and open additional markets for electricity exports.
Sector Organization
In 1999, the Ecuadorian government broke apart INECEL, the former, state-owned electricity monopoly that had controlled the generation, transmission, and distribution sectors. Six state-owned companies now dominate the country’s generation sector, though there are important private producers supplying customers in the urban areas surrounding Quito and Guayaquil. A single, state-owned company, Transelectric, controls the transmission system. State-owned companies control most of the distribution sector, with the exception of Guayaquil, which is served by a municipal-owned distributor. The Ecuadorian government has repeatedly tried to privatize the distribution sector, though each attempt has failed due to resistance from Congress, protests by labor unions and rural activists, and lack of interest from private investors.
In late 2005, the Ecuadorian government announced new measures to promote the construction of new independent power projects (IPP) to increase the country’s generating capacity. The new policy excludes IPPs from all taxes and import tariffs for 12 years and allows them to sell surplus generation into the national grid or directory to private consumers.
Hydroelectricity
The 1,100-megawatt (MW) Paute plant, located in eastern Ecuador, represents over 60 percent of the country's hydroelectric generating capacity. In 2003, the state-owned operator of the Paute plant, Hidropaute, won a tender to build the Mazar hydroelectric dam several miles upriver from Paute. When completed in 2007, the 180-MW Mazar plant will act as a secondary holding reservoir for Paute, reducing sediment buildup and increasing production capacity during the dry season. Another large hydroelectric facility is the planned San Francisco project, downstream from the existing Agoyan plant on the Pastaza River. The San Francisco project, owned by Hidropaute, is a run-of-river style plant, diverting water through a 7.5-mile, underground channel. Brazilian engineering firm Odebrech expects to finish the San Francisco plant by 2007.
Conventional Thermal
Most of Ecuador's conventional thermal generating capacity is diesel-fired, supplied by imports and domestic refineries. Many of Ecuador's diesel power plants are old and inefficient, and often cannot meet electricity demand during the dry season. There have been efforts to increase gas-fired capacity in the country, especially through integrated projects such as the Machala plant. However, financial problems faced by the operators of conventional thermal plants continue to deter private investment.
Further Reading
U.S. Government
- CIA World Factbook - Ecuador
- EIA - Historical Energy Data on Ecuador
- U.S. Embassy in Quito, Ecuador
- U.S. State Department Background Notes on Ecuador
- U.S. State Department's Consular Information Sheet - Ecuador
General Information
- Information on Ecuador from the Latin America Network Information Center (LANIC)
- International Monetary Fund (IMF) on Ecuador
- International Energy Agency (IEA) on Ecuador
- International Newspapers Online: Ecuador
- LatinWorld's section on Ecuador
- World Bank on Ecuador
Associations and Institutions
- ARPEL, Regional Association of Oil and Natural Gas Companies in Latin America and the Caribbean
- The Latin American Integration Association (ALADI)
Foreign Government Agencies
- Banco Central del Ecuador (Central Bank)
- Fondo de Solidaridad
- Instituto Nacional de Estadística y Censos (National Statistical Office)
- Ministry of Energy and Mines
Oil and Natural Gas
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