Ecuador backs Opec cuts as output slips: Update

Adds appointment of new environment minister.

Ecuador has adopted a hawkish stance on Opec production cuts ahead of a 6 December Opec/non-Opec meeting, reversing its previous support for an easing of output restrictions as its own crude production slides.

In the early months of 2018, Ecuador wanted Opec to relax its 522,000 b/d production cap to make way for what it hoped would be higher domestic output, driven by the Ishpingo-Tambococha-Tiputini (ITT) heavy crude complex.

Energy minister Carlos Perez now says that Ecuador would support production cuts as a way to reduce inventories and support crude prices, which have fallen sharply in recent weeks.

The tiny Opec country produced an average of just over 517,000 b/d between 1 January and 29 November, just shy of its quota, according to data from oil regulator Arch. The November average through the 29th day of the month was 514,888 b/d.

The average for the nearly 11-month period of 2018 was down by around 2.8pc compared to the same period of 2017, and by 5.5pc from the first 11 months of 2016, the Arch data shows.

The government had been hoping to reach 540,000 b/d by August 2018. The target has so far eluded Ecuador in part because state-owned PetroAmazonas has been unable to secure an environmental permit to drill at Ishpingo, the largest of the three ITT fields.

Ishpingo had been expected to produce 18,000 b/d by the second half of 2019, "but the necessary permit has not been granted yet so the development of Ishpingo is stalled," Perez told reporters last week.

Without a permit, Ecuador could lose the chance to tap Ishpingo next year "and there will be obviously problems financing the country's budget," Perez says.

The permitting delay emanates from internal disagreement over the development of ITT, which partly overlaps an environmentally sensitive national park.

On 8 November, environment minister Humberto Cholango, an indigenous leader who opposes ITT drilling, resigned from his post. After a gap of nearly a month, president Lenin Moreno today appointed Marcelo Mata Guerrero, an environmental consultant who previously worked for Spanish firm Repsol in Ecuador, to replace Cholango. A source close to the government told Argus that Mata would speed up the required licenses to further develop ITT.

PetroAmazonas chief executive Alex Galarraga had told Argus during a previous interview that the company is awaiting some 20 environmental permits, including one for Ishpingo, to clear the way for higher output.

PetroAmazonas needs new permits to expand water reinjection at Tambococha and Tiputini, where two-thirds of production is water.

"We cannot reinject the water and that is holding back ITT's production," Galarraga says. The energy ministry planned to produce some 80,000 b/d at Tambococha and Tiputini by the end of the year, but output has reached just 63,000 b/d, according to Perez.

Against this backdrop, the government is lobbying legislators to approve a $31.3bn national budget for 2019. The budget proposal features what is seen as an aggressive crude price assumption of $58.29/bl versus a more conservative $41.92/bl projected in 2018.

Lawmakers want the government to review the budget in case the 2019 assumption proves too optimistic.

Critics in the national assembly say the government's production forecast of 560,000 b/d in 2019-22, driven mainly by ITT development, is also unrealistic.