Ecuador oil reforms at stake in elections

Ecuador goes to the polls on 7 February in a race that will determine the fate of oil industry reforms, a choice reminiscent of fellow oil producer Mexico's 2019 election that ushered in a resource-nationalist administration.

The top contender to succeed President Lenin Moreno on 24 May is Andres Arauz, a protege of Moreno's exiled predecessor Rafael Correa who ruled the former Opec country in 2007-17. Arauz's lead alarms the business community, which fears a rollback of economic reforms and a re-embrace of populism embodied by Venezuela.

Moreno served as Correa's vice president before spurning his legacy of corruption and state intervention, and adopting austerity measures.

Generally polling second is conservative banker Guillermo Lasso, a veteran presidential candidate who would expand Ecuador's orthodox reforms, consistent with the country's policy commitments to the IMF. Indigenous candidate Yaku Perez is polling third on an environmental platform.

With many Ecuadoreans either undecided or vowing to cast a null vote, an 11 April run-off seems likely. Peru and Chile will hold consequential elections on the same day, raising the stakes for investors across the resource-rich Andean region.

In October 2019, a plan to scrap fuel subsidies sparked violent protests, forcing Moreno repeal it. But in May 2020 — after the Covid-19 pandemic hit and international oil prices collapsed — the government adopted an import-parity fuel pricing mechanism, effectively bypassing sizable adjustments at the pump.

The government is now promoting private-sector imports to compete alongside fuel supplied by state-owned PetroEcuador. But the company lacks adequate infrastructure to lease to other importers, a senior oil industry executive in Quito tells Argus. Government hopes that a Hyundai-led consortium will upgrade the 110,000 b/d Esmeraldas refinery are similarly unrealistic, the executive says.

Ecuador is producing around 480,000 b/d of crude, including 60,000 b/d from the Ishpingo-Tambococha-Tiputini (ITT) heavy crude complex and 68,000 b/d from the Sacha field that the government wants to lease. About 80pc of the overall output comes from PetroEcuador, which absorbed state-owned producer PetroAmazonas last month.

Chinese state-owned companies account for most of the remaining output, and they also take the bulk of Ecuador's sour crude exports to service oil-backed loans, limiting the cash barrels that might ease Quito's fiscal gap.

In its latest spot tender today, PetroEcuador awarded 2.16mn bl of medium sour Oriente grade to Chinese state-owned Sinopec's trading arm Unipec at a $0.79/bl discount to WTI. The crude will load in six 360,000 bl cargoes this month.

By Patricia Garip