Lack of Ecuadorian LSFO output to benefit Panama

Ecuadorian marine fuel suppliers have started importing low sulphur fuel oil (LSFO) with 0.5pc sulphur content — as well as the components to blend it themselves — in order to meet Ecuadorian bunker demand in a move that could ultimately benefit suppliers in Panama.

Historically Ecuadorian bunker suppliers have marketed imported fuel oil for bunkering. But the exclusive use of imports and no supplies of locally refined LSFO could keep Ecuador's prices for the fuel less competitive compared with the competing port of Balboa, on Panama's Pacific coast. This could shift some of the demand away from Ecuador to Balboa.

The International Maritime Organization global regulation which capped marine fuel sulphur emissions content at 0.5pc from 3.5pc starting on 1 January drove up demand for the lower sulphur bunkering fuels starting in December.

Panama suppliers began offering LSFO for sale as early as October. Ecuadorian bunker suppliers waited for a supply update from state-owned PetroEcuador until the end of December, when it became clear that they needed to import the product if they were to meet demand, as it remains unclear if the company will produce it in the future.

PetroEcuador's residual fuel oil sulphur content ranges at 1.61-2.30pc with viscosity at 50°C in the range of 420-510 centistokes. Its sulphur content does not meet the global marine fuel regulation without blending it down.

Panama does not have an operational refinery and is also reliant on oil imports. But the bulk of the LSFO product to be sold for bunkering in Panama and in Ecuador is expected to be sourced from the Atlantic side of the continent, namely from the US Gulf coast and the Caribbean.

To reach Ecuador from the Atlantic side the residual fuel oil will be transshipped through Panama, making Panama better positioned to take advantage of import prices compared with Ecuador.

Ecuador sold about 10,000 b/d of residual fuel oil for bunkering during the first 11 months of 2019. The country's three refineries produced a total of 61,750 b/d of residual fuel oil during that same time period, down by 7pc compared with the prior-year period.

The Esmeraldas refinery produced 62pc of the fuel, the Libertad refinery produced 37pc and the Shushufindi refinery produced 1pc. About 7,000 b/d of the fuel was sold for public utility power generation and about 4,670 b/d sold for industrial power generation.

Ecuador exported 39,450 b/d of residual fuel oil in the first eleven months of 2019 to Panama, Japan, Mexico and the US, among others.

International demand for Ecuadorian high-sulphur residual fuel is expected to drop this year.

By Stefka Wechsler