Viewpoint: IMO 2020 may slow Ecuador loan repayment

Possibly narrower differentials for sour crudes — under pressure from looming emissions regulations — could slow Ecuador's repayment of its oil-backed debt and limit availability for spot market exports in the first half of 2020.

Argus Media - Monica Rojas 31/12/2019

Possibly narrower differentials for sour crudes — under pressure from looming emissions regulations — could slow Ecuador's repayment of its oil-backed debt and limit availability for spot market exports in the first half of 2020.

Ecuador produces heavy sour Napo and medium sour Oriente crudes. It owes about $355mn in oil-backed loans to Thailand's PTT, according to the latest data from the Ecuadorean government. The country appears to have paid the monetary portion of debts to Chinese state-owned PetroChina and Unipec, but still owes a little less than 400mn bl of crude to PetroChina, Unipec and PTT under the contracts, the last of which expires in 2024.

This leaves Ecuador little volume available for spot exports in 2020 to generate additional revenue and help shrink the monetary portion of the debt. This may be exacerbated by changing market dynamics for sour crudes because of International Maritime Organization (IMO) regulations that will tighten allowed sulphur emissions from shipping fuels in January.

Latin American spot differentials for sour crudes, such as Colombian medium sour Vasconia and heavy sour Castilla, have largely been on a downturn since November as the crudes are being penalized for their high sulphur content, especially against sweet crude benchmarks such as Ice Brent and West Texas Intermediate (WTI). This has led to increasingly wider discounts for the crudes, and the same can be said for Ecuador's Oriente.

PetroEcuador's spot tender to sell 1.08mn bl of Oriente crude in the first quarter of 2019 garnered a $2.11/bl premium over WTI, while its 2020 spot crude tender only achieved a 71¢/bl premium to the benchmark. PetroEcuador is expected to export at least 1.44mn bl of Oriente in spot trade in 2020, to be split between four quarterly cargoes comprising 360,000 bl each, as part of a multi-year spot tender for the crude that was awarded to Shell at a 71¢/bl premium over WTI. The historic MR tender to sell roughly 20.2mn bl of Oriente between 2020 and 2024 received only three bids.

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