Ecuador Oil and Gas Report Q1 2012

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 country’s 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 2020’s 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. Spain’s Repsol YPF is the most important foreign player in Ecuador and has been one of the most receptive to reform. Italy’s Eni and Chile's 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 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 lessthan- stellar growth outlook.

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BMI Industry View 5
SWOT Analysis 7
Ecuador Oil and Gas SWOT 7
Global Energy Market Outlook 8
Table: Global Oil Consumption (000b/d), 2009-2016 11
Table: Global Oil Production (000b/d), 2009-2016 12
Regional Energy Market Outlook 13
Oil Supply And Demand 13
Table: Latin America Oil Consumption (000b/d), 2009-2016 15
Table: Latin America Oil Production (000b/d), 2009-2016 16
Oil: Downstream 17
Table: Latin America Oil Refining Capacity (000b/d), 2009-2016 17
Gas Supply And Demand 18
Table: Latin America Gas Consumption (bcm), 2009-2016 19
Table: Latin America Gas Production (bcm), 2009-2016 19
Liquefied Natural Gas 20
Table: Latin America LNG Exports (bcm), 2009-2016 20
Ecuador Energy Market Overview 21
Table: Ecuador – Upstream Projects Database 22
Industry Forecast Scenario 23
Oil And Gas Reserves 23
Oil Supply And Demand 23
Gas Supply And Demand 24
Refining And Oil Products Trade 24
Revenues/Import Costs 25
Table: Ecuador Oil And Gas – Industry forecasts And Historical Data, 2009-2016 25
Oil And Gas Infrastructure 27
Oil Refineries 27
Table: Refineries In Ecuador 27
Service Stations 28
Oil Pipelines 28
Oil Storage 29
Regional and Country Risk/Reward Ratings 30
Latin America Region 30
Composite Scores 30
Table: Regional Composite Risk/Reward Ratings 30
Upstream Scores 31
Table: Regional Upstream Risk/Reward Ratings 31
Downstream Scores 32
Table: Regional Downstream Risk/Reward Ratings 32
Competitive Landscape 33
Table: Key Domestic And Foreign Companies 34
Overview/State Role 34
Licensing And Regulation 35
Government Policy 36
Ecuador Oil & Gas Report Q1 2012
© Business Monitor International Ltd Page 4
International Arbitration 38
International Energy Relations 40
Table: Key Upstream Players 43
Table: Key Downstream Players 43
Company Monitor 44
Petroecuador 44
Eni Ecuador 47
Repsol YPF 49
Petroamazonas – Summary 51
Petróleos de Venezuela (PdVSA) – Summary 51
ENAP – Summary 52
Andes Petroleum – Summary 52
Oleoducto de Crudos Pesados (OCP) – Summary 53
Inpex – Summary 53
Sinopec – Summary 53
Ivanhoe Energy – Summary 54
Others – Summary 54
Appendix: Oil And Gas Long-Term Forecasts 56
Regional Oil Demand 56
Table: Latin America Long-term Oil Consumption (000b/d), 2014-2021 56
Regional Oil Supply 57
Table: Latin America Long-term Oil Production (000b/d), 2014-2021 57
Regional Gas Demand 58
Table: Latin America Long-Term Gas Consumption (bcm) 2014-2021 58
Regional Gas Supply 59
Table: Latin America – Long-Term Gas Production (bcm), 2014-2021 59
Methodology And Risks To Forecasts 60
Glossary Of Terms 61
Table: Glossary Of Terms 61
Oil And Gas Risk/Reward Ratings Methodology 63
Ratings Overview 63
Table: BMI’s Oil & Gas Business Environment Ratings – Structure 64
Indicators 65
Table: BMI’s Oil & Gas Upstream Ratings – Methodology 65
Table: BMI’s Oil & Gas Business Environment Downstream Ratings – Methodology 66
BMI Methodology 68
How We Generate Our Industry Forecasts 68
Energy Industry 68
Cross checks 69
Sources 69
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