Ecuador’s key oil and gas projects tied to policy incentives to boost struggling economy

The government of Ecuador plans to attract $19bn of investment into its oil and gas sector at a time when the global industry is shedding non-core assets and transitioning towards renewable and low-carbon projects.

However, market analyst GlobalData suggests that the government may struggle to get bidders for its upstream plans, which include three bidding rounds for exploration and production activities.

Upstream investment, which accounts for $9.86bn of the total, is 5.85 times higher than 2021’s development and production (D&P) capex and roughly equal to D&P capex spent between 2010–2021. ‘It makes sense that the government seeks its economic boost through an established industry – Ecuador is the fourth largest crude oil producer in South America,’ comments Effuah Alleyne, Senior Upstream Oil & Gas Analyst, GlobalData. ‘However, despite some governments’ commitment to cleaner energy, there remains a reliance on traditional sources including oil, gas and coal presenting as the main drivers for economic growth and power generation.’

With international oil firms focusing on core markets and moving towards low-carbon solutions, Ecuador’s government will likely struggle to gain enough competitive bidders to participate in bid rounds, and any that do bid may not have the requisite experience to reduce operating costs while increasing productivity. With the country’s current production below 500mn b/d – and a goal of 1,000mn b/d - it will certainly be a challenge that requires committed investors, notes GlobalData.

The Ecuadorian government hopes that a boost in crude production will support current crude export revenues, as well as provide funds to develop domestic power generation from natural gas as the country moves to less expensive, low-carbon alternatives in support of domestic needs. In conjunction with access to key resources, the government also plans to increase its business appeal by reviewing hydrocarbon laws, renegotiating existing service contracts for more agreeable terms and continuing production sharing agreements.

Páramo pumping station on trans-Andean heavy crude pipeline, Oleoducto de Crudos Pesados (OCP), near
Papallacta, Ecuador