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Ecuador Oil and Gas Report Q4 2011
Business Monitor International, Oct 2011, Pages: 70
Ecuador Oil and Gas Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ecuador's oil and gas industry.
This latest Ecuador Oil & Gas Report from BMI forecasts that the OPEC-member country will see oil production rise between 2010 and 2012, but that in the long term an unfavourable business environment will choke off much-needed investment and the country will see production decline.
BMI forecasts oil production will rise from 487,000 barrels per day (b/d) in 2010 to a peak of 515,000b/d in 2012 before seeing volumes slip to just 485,000b/d. Over the same period oil consumption is projected to rise from about 201,000b/d to around 247,000b/d, implying net exports of 238,000b/d in 2015. This downbeat forecast reflects our belief that recent reform of the country’s regulatory framework, which saw the country switch from a production-sharing model to a service-contract model, will reduce investment in new exploration. This is a trend which is expected to hold true through to the end of the decade as production continues to decline to around 420,000b/d by 2020, when consumption is forecast to reach 300,000b/d, implying net exports of just 120,000b/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 staying 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.
Global GDP growth in 2011 is forecast at 3.2%, down from 4.3% in 2010. Growth in the eurozone should be marginally higher than 2010, while US and Chinese economic expansion will slow and Japan’s growth will be negative, reflecting the devastating earthquake and tsunami which crippled the country in March 2011. Our oil price assumption for 2011 is US$101.90/bbl for the OPEC basket, falling to US$97.50/bbl in 2012; US$106/bbl for Brent in 2011 falling to US$101.50/bbl in 2012; and US$95.30/bbl for WTI in 2011 falling to US$94.50/bbl in 2012.
Given the poor production growth outlook and recent reforms that are expected to reduce investment over the long-term, it is unsurprising that Ecuador performs poorly in BMI’s 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 BMI’s 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 BMI’s downstream ratings, reflecting unusually high country risk, based on regulatory concerns, worries over state ownership of assets and a less-thanstellar growth outlook.
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