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Q&A: PetroEcuador to import LNG, rethinks bunker

08 Jun 2018 20:37 (+01:00 GMT)
Q&A: PetroEcuador to import LNG, rethinks bunker

Quito, 8 June (Argus) — State-owned PetroEcuador plans to import LNG to replace diesel and LPG in transport and industrial activities. The company is also reconsidering its participation in the marine bunker business and battling a legacy of corruption left by ex-president Rafael Correa's regime. Carlos Tejada, PetroEcuador's chief executive, sat down with Argus to explain the company's challenges ahead. Edited highlights follow.

PetroEcuador is laying out a plan to import LNG and gradually replace imported LPG and diesel. How will the plan work?

We are proposing to import LNG from the US Gulf Coast. Vessels could dock at PetroEcuador's Pacific Coast Monteverde LPG terminal in Santa Elena province. Special barges can also be docked at Monteverde to work as floating regasification units. The gas will then be sent from Monteverde to Guayaquil through a projected 120km 20-inch pipeline which will require a $200mn investment.

Would Monteverde need to upgrade infrastructure to work as an LNG terminal? Who would develop the pipeline?

This will all be a private sector operation. In a first phase, which would take some two years, gas will be used to replace diesel and LPG in transport and industrial activities in Guayaquil.

In a second phase, transport infrastructure such pipelines must be built to distribute gas to households at Ecuador's main cities to replace LPG that is currently used for cooking and water heating, at a very high cost.

According to PetroEcuador's projections, one million BTUs of natural gas would cost nine times less than the same volume of imported LPG. This means that gas can be sold to households at the same price as LPG, but the state will no longer have to spend heavily on LPG subsidies.

PetroEcuador already owns a controversial 200 t/d liquefaction facility in Machala. Is the plant operating?

The fact is that five key hydrocarbon infrastructure projects carried out by the past government are facing problems, among them PetroEcuador's Bajo Alto liquefaction plant and the Pascuales-Cuenca pipeline.

PetroEcuador has adopted a controlled risk policy to keep the infrastructure and plants working. We know the risks, we have calculated failure probabilities and operate to minimize them at Bajo Alto, the Pascuales-Cuenca pipeline and the Esmeraldas refinery, while the company takes actions to repair and complete the infrastructure.

Bajo Alto is working at 120 t/d capacity. But the plant is so plagued by construction defects that it will never be able achieve its projected capacity.

We are repairing it to reach 160 t/d capacity in the best scenario, but to put Bajo Alto under conditions to operate at 200 t/d would cost $72mn, much more than the $54mn that were spent to build it. This is the legacy we received from the previous administration.

Speaking of faulty infrastructure, Brazil's Odebrecht has sued PetroEcuador over the unfinished $600mn Pascuales-Cuenca pipeline, claiming that Ecuador refuses to pay an outstanding bill. How much are they asking?

Yes, Odebrecht claims that we still owe them $168mn. We are not paying that because the pipeline has serious defects. Storage tanks are sinking and construction works including access roads have severe cracking. Sinkholes have twisted the pipeline so it cannot work with automatic pressure reduction valves, and we must rely on manually operated valves.

PetroEcuador has repaired some of the damage and keeps the pipeline functioning, but it is yet to see how much an integral repair will cost. Ecuador signed a cooperation agreement with UNDP (the UN Development Program) to hire international auditing firms to evaluate the faulty infrastructure, including Pascuales-Cuenca.

Now we are waiting for the international auditing conclusions and for the controller's office reports to take legal action. Odebrecht is a delinquent and appalling builder that treated us with no respect.

PetroEcuador aims to produce more LPG locally. How is the company going to achieve that goal?

By increasing the efficiency of the LPG unit at the (20,000 b/d) Shushufindi refinery. The unit is now processing LPG below capacity. We are in talks with (state-owned) PetroAmazonas which produces associated gas that has been used in the past for power generation at their oil fields, but as PetroAmazonas is connecting its oil fields to the national grid, more associated gas would be freed up for processing at Shushufindi. Within a year, we can work at capacity at Shushufindi, helping Ecuador to increase its LPG output from 280 t/d to 500 t/d and to partially replace imports.

How is Ecuador preparing to comply with the new global regulations that cap the sulfur content of marine bunker fuel at 0.5pc starting on 2020?

There will be trouble in the future. PetroEcuador and the country must think very carefully if we should stay in the marine bunker business, if it will be financially sound under the new global regulations which are very demanding.

In order to comply with the sulfur cap, PetroEcuador would have to improve its fuel oil processing units which will be very costly. Maybe it would be better to abandon the marine fuel business altogether and to sell bunker to power plants instead.

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