Quito bets on hydrocarbons

As domestic energy reserves dwindle, Ecuador looks to diversify its energy portfolio.

Ecuador is struggling to service its domestic energy needs. As national reserves dwindle, the country is looking to import liquified natural gas (“LNG”) which will help Quito to simultaneously develop a promising hydrocarbons sector and achieve ambitious renewables targets. These are uncharted waters for Ecuador however – a lack of clarity over permits and regulatory frameworks could unsettle investors and delay inflows of much needed capital in the short term. 

A mining and energy lawyer explained, “Ecuador does have a history of producing LNG in the Amistad field, but never to significant levels. Once the government started to notice a deficit in production, it started to import, balanced against demand.”   

“Once the government started to notice a deficit in production, it started to import, balanced against demand.”

Mining and energy lawyer, Ecuador

Amistad is Ecuador’s only gas field and inaction on turning to alternative sources of energy would have put the country on course to face a domestic supply shortage in the next few years. Amistad’s production is expected to fall to 8mn ft³/d within the next four years thus galvanising the government’s turn towards hydrocarbon alternatives.  

Ironically, Amistad’s decline has given impetus to Ecuador’s longer-term objectives to become a more competitive player in the hydrocarbons sector. The lawyer remarked, “The importation of LNG is in line with ambitious energy policies that seek to make Ecuador more globally competitive. The country is already an oil producer, but growth in the energy sector more broadly has been let down by policies that have failed to unleash its full competitive potential.” LNG imports should help to reverse this trend.  

The private sector has been enthusiastic. Gas Vesubio, one of Ecuador’s largest natural gas companies, and US extractives specialist SYCAR have expressed a strong interest in hydrocarbon opportunities and several other companies – including those in Ecuador’s sizeable industrial ceramics sector – are well placed to use liquid hydrocarbons in their own production chains.  

Ecuador’s path towards a hydrocarbon future is by no means obstacle-free. One of the most significant challenges will be developing contracts and issuing permits. Here, Ecuador’s love affair with eye-watering bureaucracy and regulatory complexity could make investment rather less attractive. The government should prioritise cutting red tape in this area and streamline the process for issuing permits and granting contracts for LNG imports. 

Promisingly, Ecuador’s LNG demand generates a need for more gas importers, not only SYCAR or Vesubio, so more and more companies will begin to qualify for imports – this should give impetus to streamlining the business environment. For Ecuadorians, this means cleaner, cheaper, and safer energy. So confident is the government that hydrocarbons will set the country on a brighter energy course, the energy ministry is promoting the sale of a huge block of natural gas worth USD 600 million. The ministry is concessioning the entire project to private companies.  

The lawyer said, “What the ministry is looking for is to attract foreign investment – Ecuador has emphasised using special purpose vehicles to do so streamlining the entire concession process. Businesses can operate, pay taxes and be compliant fairly easily.”

“What the ministry is looking for is to attract foreign investment.”

Mining and energy lawyer, Ecuador

So long as Ecuador commits to such streamlining and mitigates the potential for corruption and bribes – an intransigent challenge in energy tenders and concessions across the region – the country’s hydrocarbon future looks promising.

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