2013-12-05 19:04:41 - Fast Market Research recommends "Ecuador Oil & Gas Report Q1 2014" from Business Monitor International, now available
Ecuador's oil production is on track to make some near-term gains as output rises and enhanced oil recovery projects take shape. Moreover, while in the short term we anticipate only modest growth potential given above-ground challenges, the news that the government has opened blocks in the Amazon for drilling suggests upside risk to our pessimistic longer term forecasts. Meanwhile, our current projection for gas assumes that with the arrival of a rig and planned investment at Block 6, output will grow steadily from a low base but a lower rate than the operator's plans call for. However, we expect gas production to trend lower before the end of the decade.
The key trends and developments in Ecuador's oil and gas sector
* Although there is upside from the potential awarding of new licenses in an ongoing bidding round, our forecast calls for both oil and gas reserves to begin to trend lower toward the latter part of our forecast period. We see a somewhat similar trend for production.
* Oil production will grow over the near term with fields such as Sacha ramping up output but gains will be incremental. Moreover, while there are a number of potential growth drivers, we believe the risks lie more to the downside than the upside over the short-to-medium term. For example, Ivanhoe's heavy oil field at Block 20 could produce up to 120,000 barrels per day (b/d) and come online as soon as 2015. However, the quality of the crude raises the cost of development and with no investment decision we have yet to price in the additional volumes. Similarly, although Ecuador has made plans to employ enhanced oil recovery (EOR) methods at a number of fields to bolster output, and state-run Petroamazonas has proposed fee-for-service contracts to 31 companies to undertake the operations, we remain uncertain how enticing the terms will be to these firms.
* That said, while at present we project declining production in the long term given considerable above-ground risks, recent events suggest growing upside potential toward the tail end of our forecast. Namely, the Ecuadorian government has authorised drilling in the country's Ishpingo Tambococha Tiputini (ITT) complex. Previously exploitation of the field had been prohibited as it sits in the Amazon rainforest. However, after the failure of the government's scheme, meant to raise funding from the international community to offset the cost of not producing hydrocarbons in the Amazon, legislators have given the go ahead to begin development of ITT. With a national referendum on the subject likely, and financing for its development still highly uncertain, we have yet to factor oil production from this field in. We note though, that with peak output at over 200,000b/d, if this field is brought online, it could act as a potential game changer for Ecuador's hydrocarbon sector.
* With regard to gas, the arrival of a rig in late 2012 is part a plan to boost production from Block 6 in the Gulf of Guayaquil. Ecuador also completed a deal with Gazprom to assess opportunities on the block, where production is planned to increase from around 0.32bn cubic metres (bcm) previously to 1.02bcm by end 2013. We have assumed a slower rate of growth, although we are factoring in greater supplies given the rig and investment plan are in place. The additional volumes should stimulate investment in gas fired power generation and possibly industrial activity. Additionally, greater gas supply could free up oil for export with sizable volumes used to as feedstock for power.
* Downstream capacity may also expand following an announcement in June that China National Petroleum Corporation (CNPC) would finance the proposed 300,000b/d Pacifico Refineria del Pacifico (Pacific refinery). The refinery could be open by 2015 and would eliminate Ecuador's dependency on imports of light distillates and enable the country to become a net exporter of fuel products.
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