Ecuador seeks to release crude from loan deals
Quito, 30 November (Argus) — Ecuador hopes to offer a larger share of its 382,000 b/d of projected 2018 crude exports for spot and term sale as eight outstanding oil-backed loans gradually mature, and efforts to renegotiate its remaining commitments bear fruit.
If successful, the move could eventually have a substantial impact on the oil market by boosting liquidity and redirecting as much as 300,000 b/d of Ecuador´s medium and heavy sour grades into a broader range of hands.
Deputy hydrocarbons minister Patricio Larrea said today that the government is seeking to restructure oil-backed loans with Chinese state-owned PetroChina and Unipec, and Thailand's state-controlled PTT.
Opec's smallest member is seeking to reduce the volume of crude that it is obligated to deliver to repay the opaque credits signed with these firms under the government of president Rafael Correa, who left office in May.
Ecuador owes some $5.3bn to the three companies, which it is committed to repay with an accumulated total of 500mn bl of heavy sour Napo and medium sour Oriente crude grades and fuel oil through 2024.
Hydrocarbons minister Carlos Perez plans to head to China next week to move negotiations forward. "Our goal is to release as much crude as possible from these contracts, to sell it in the spot market and be able to sign new medium and long-term agreements under better conditions for the country," Larrea says.
Ecuadorean crude had not been offered in the global waterborne spot market, except in deals no smaller than six months, since before oil prices began to slide dramatically in 2014. Shorter term sales could pressure spot prices for competing US and Latin American grades and displace some of their volume in various markets. Colombian medium sour Vasconia and US grades such as Mars and Southern Green Canyon (SGC) would compete directly with Ecuador's Oriente in Asia-Pacific and the US Gulf coast, where refiners are primarily configured to run more heavy sour crude than light sweet.
Ecuador's strategy includes reducing the interest rates that it has to pay as part of the agreements and to extend the credits' terms, "so we would not be forced to pay installments that seize all of our exportable surplus," according to Larrea.
The volume of crude that Ecuador manages to free up in the short-term will depend on the negotiations, Larrea says.
Quito is also considering taking credit lines to fully repay the debt with PetroChina, Unipec and PTT and release all of the crude currently tethered to the loans. According to Larrea, Ecuador has received proposals from companies interested in offering credits at 4-6.5pc interest rates, down from the 7-8pc rates in the oil-backed agreements.
Ecuador also aims to improve the crude pricing formula and reduce the crude collateral linked to the oil-back loans to liberate more Oriente and Napo grades for spot sales.
If no agreement is reached with PetroChina, Unipec and PTT, Ecuador could try to transfer the contracts to a third party. According to Perez, the country has already received a purchase offer for the PTT contract.
PetroChina and Unipec have long been active in Latin American sour crude markets beyond their pledged Ecuadorean supply, picking up Vasconia, Mars and SGC via spot tenders or in the US domestic pipeline market to co-load with Mexican or Venezuelan crude onto VLCCs and resell to independent Chinese refiners with lower allotments for direct imports.
Starting in 2010, under Correa´s 10-year administration, Ecuador began to sell its crude and fuel oil through a series of oil-backed loan agreements, leaving virtually no surplus oil for spot sales. Former political ally Venezuela has a similar portfolio of oil-backed loans, mainly with China, but also with India and Russia.
In September, following a hiatus of more than three years, PetroEcuador returned to the spot market with a sales tender for 2.16mn bl of 24°API Oriente crude.
PetroEcuador had a small surplus of Oriente because the country temporarily increased its production, after Quito decided to comply only partially with its Opec commitment of cutting production by 26,000 b/d.
But a rise in WTI prices to a $55-$57/bl level in November led Ecuador to abandon plans to increase production and request an exemption from extended crude output cuts at Opec's meeting today.