Oil income, a bonanza that the country will exploit halfway

The decision of the United States and the United Kingdom to prohibit the purchase of Russian oil, as a sanction against that country for having invaded Ukrainian territory, has led some North American oil companies such as Valero Energy Corp and Marathon Petroleum Corp, together with the commercial unit of Shell Plc  to look for supplies in other countries. Ecuador has entered that radar, but although that demand for inputs may represent better income, if it were to increase it would have difficulty meeting it.

Shell would be looking to extend a supply contract that expires in December 2023.

The global programs of economic reactivation , led by the great powers   and the Russian conflict, foresee a greater demand for crude oil that, for this year, as has been projected, could make the price of a barrel of WTI, a reference for Ecuador, remain throughout this year at an average of $90 , $30 more than what the country has budgeted for this 2022. That, as President Guillermo Lasso already acknowledged, last Tuesday, could generate additional tax revenues of up to $1,500 million for this year.

The calculation, explains Fernando Santos, former Minister of Energy, comes from the pumping capacity that the country currently has, which in reality becomes a limited income, compared to the potential that the situation offers. “That is fixed because in this year’s budget, Ecuador is expected to produce less than 500,000 barrels per day .”

According to a publication by the international media Bloomberg , representatives of companies and refineries in the United States held a meeting this week with Pablo Noboa, manager of International Trade for Petroecuador, in Louisiana. They would be interested in acquiring direct fuel oil, a feedstock used to replace heavy crude that is similar to what Ecuador produces. 

Marathon, the largest fuel manufacturer in the United States, is reportedly seeking between 11 and 22 shipments; Jamaica Petrojam Ltd would target a similar amount and Shell would be looking to extend a supply contract that expires in December 2023.

Would the country have the capacity to increase its supply? This newspaper tried to have a vision on the subject from the authorities of Petroecuador, but it was said that due to agenda items, the interview cannot be granted. However, oil experts agree that, right now, an increase in supply would not be possible . “We are producing an average of 470 to 480 thousand barrels per day, when our average has always been 530,000 barrels. Rather, what we have had is a setback in its production, as a result of mismanagement in this sector,” said Miguel Robalino, an oil analyst.

The possibilities that the country has to increase its supply could come, but in the medium term, by promoting the work of Ishpingo, the largest reserve area of ​​the ITT field, which is getting ready to start the drilling process. In a year, experts say, it could produce an additional 80,000 barrels per day.

Robalino points out that the oil industry, subject to changes in a volatile market, should be prepared to take advantage of this type of situation , but that is something that has not been worked on”. The development policy of the oil industry continues to be a debt also of the current Government that, in 2021, failed to meet its initial goal of resuming the traditional pumping level, and that until now has not been able to carry out its plan to double production. That was deferred to 2028.

In a scenario in which there is talk of higher income, agrees René Ortiz, also former Minister of Energy and Non-Renewable Natural Resources, the country should prioritize the use of resources to invest in this sector. The crisis in Ukraine, he says, has reactivated the theme of energy independence, in which fossil fuels will continue to be key in the medium and long term.

This is also what Robalino believes, who points out that after 50 years of oil production and export, Ecuador should have already managed not only to improve its pumping levels and the quality of its crude oil, but also to be industrializing it, so as not to have to depend on imports. of derivatives. “Colombia, having the same level of reserves, has been able to reach a million barrels per day and become considered to have one of the best state-owned companies in the world,” he said.