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Ecuador Oil and Gas Report Q1 2012
Market |
Energy and Utilities |
Report Type |
Market Research |
Country |
Ecuador |
Published |
31 January 2012 |
Number of Pages |
69 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
File Format |
- |
BMI View: Oil has flowed at a fairly consistent rate from Ecuador over recent years and this should continue until least 2014. However, a poor business environment is choking off the investment needed to sustain output over the long term. As a result, we forecast oil production from the OPEC member entering into steady decline in the second half of the decade. Investment incentives could spur new exploration, but there is no evidence that the government will adopt this strategy.
- BMI forecasts oil production will rise from 487,000 barrels per day (b/d) in 2010 to a near-term peak of 515,000b/d in 2012, before seeing volumes slip to just 480,000b/d in 2016. Over the same period oil consumption is projected to rise from about 201,000b/d to around 256,000b/d, implying net exports of 223,000b/d in 2016.
- This downbeat forecast reflects our belief that recent reform of the countrys regulatory framework, which saw the country switch from a production-sharing model to a service-contract model, will deter investment in new exploration. This is a trend which is expected to hold true into the 2020s as production continues to decline to around 419,000b/d by 2021, when consumption is forecast to reach 305,000b/d, implying net exports of just 114,000b/d.
- Ecuador does not have a very active gas sector and that is not forecast to change. In 2010, output was just 0.36bn cubic metres (bcm) and although production should rise, our forecasts show volumes will remain below 1bcm. All output is expected to go towards meeting domestic demand. Over the long-term there is the option of developing a trans-Andean gas trade that would see gas from Venezuela and potentially Colombia flow into Ecuador, although we see little likelihood of this ambitious plan becoming a reality.
- State-run Petroecuador is the dominant oil producer and refiner in the country, but is struggling to maintain output, which has fallen by about a third since 2008. Spains Repsol YPF is the most important foreign player in Ecuador and has been one of the most receptive to reform. Italys Eni and Chiles state-owned Enap, as well as Chinese companies Andes Petroleum and PetrOriental are other important players in the sector.
- Given the poor production growth outlook and recent reforms that are expected to deter investment over the long term, it is unsurprising that Ecuador performs poorly in BMIs composite Business Environment Ratings (BERs), which combine upstream and downstream scores. The country sits in eighth position, just ahead of resource-poor Chile in the composite rankings. The country ranks seventh in BMIs updated upstream ratings, just ahead of Bolivia. Scores are mid-table or higher for proven oil reserves and reserves-to-production ratios (RPR). However, Country Risk is high, oil production growth prospects are poor and the privatisation trend is unattractive, with increasing state involvement in upstream activities. Ecuador now holds eighth place, above Venezuela, in BMIs downstream ratings, reflecting unusually high country risk, based on regulatory concerns, worries over state ownership of assets and a lessthan- stellar growth outlook.
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