Ecuador Oil and Gas Report Q4 2009

The latest Ecuador Oil & Gas Report from BMI forecasts that the country will account for 2.45% of Latin America regional oil demand by 2013, while providing 4.82% of supply. Latin America regional oil use of 6.93mn barrels per day (b/d) in 2001 reached 7.95mn b/d in 2008. It should average 7.71mn b/d in 2009 and then rise to around 8.46mn b/d by 2013. Regional oil production was 10.30mn b/d in 2001, and in 2008 averaged 9.85mn b/d. It is set to rise to 10.58mn b/d by 2013. Oil exports are slipping, because demand growth is exceeding the pace of supply expansion. In 2001, the region was exporting an average 3.37mn b/d. This total had fallen to 1.90mn b/d in 2008 and is forecast to be 2.13mn b/d in 2013. The principal exporters will be Mexico, Venezuela, Ecuador and Brazil.

In terms of natural gas, the region in 2008 consumed 205.6bn cubic metres (bcm), with demand of 243.6bcm targeted for 2013, representing 18.2% growth. Production of 212.3bcm in 2008 should reach 280.4bcm in 2013, and implies 36.8bcm of net exports the end of the period. Ecuador's share of regional gas production and consumption will remain insignificant.

For 2009 as a whole, we are now assuming an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This represents an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and to US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we are continuing to use a long-term price assumption of US$70.00 for 2013-2018.

In 2009, BMI is now assuming a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The BMI gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The fullyear outturn represents a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put by BMI at US$49.06/bbl, down 43.9% from the previous year's level.

Ecuador's real GDP is now forecast by BMI to contract by 2.3% in 2009, compared with growth of 5.4% in 2008. We are assuming a 5.5% decline in 2010, followed by growth of 3.3% in 2011, 2.8% in 2012 and 2.7% in 2013. State-owned Petroecuador co-operates with several international oil companies (IOCs) and they have between them delivered a greater volume of crude over the past couple of years. We are assuming oil and gas liquids production of no more than 510,000b/d by 2013, with the country expected to pump 490,000b/d in 2009. Beyond 2009/10, consumption is forecast to increase by around 3% per annum, implying demand of 207,000b/d by the end of the forecast period. The export capability would therefore be approximately 303,000b/d by 2013.

Between 2008 and 2018, we are forecasting a decrease in Ecuador's oil production of 12.5%, with crude volumes rising from 514,000b/d in 2008 to a 2014 peak of 525,000b/d, before slipping to 450,000b/d by the end of the 10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 29.8%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 240,000 b/d by 2018. Gas production and consumption will grow only slowly from a very low base over the period. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Ecuador now ranks equal seventh in BMI's updated Upstream Business Environment rating, alongside Bolivia. Scores are mid-table or higher for proven oil reserves, oil and gas output growth and reserves-toproduction ratios (RPR). However, country risk is high and the privatisation trend is unattractive, with increasing state involvement in upstream activities. The country ranks ninth, above only Bolivia, in BMI's Downstream Business Environment rating, reflecting its unusually high country risk, regulatory concerns, state ownership of assets and a less than stellar growth outlook. The score falls just short of Venezuela above it, but Ecuador is 10 points ahead of Bolivia, which lies at the foot of the table.