Thursday 19 April 2018

Chinese state-run firms take over 90pc of Ecuador's oil exports

Joshua Schneyer and Nicolas Medina Mora Perez

China's aggressive quest for foreign oil has reached a new milestone -- near monopoly control of crude exports from OPEC nation Ecuador.

Last November, Marco Calvopina, the general manager of Ecuador's state oil company PetroEcuador, was dispatched to China to help secure $2bn (€1.47bn) in financing for his government.

Negotiations, which included committing to sell millions of barrels of Ecuador's oil to Chinese state-run firms through 2020, dragged on for days. Mr Calvopina grew anxious and threatened to leave.

"If the Phase III transaction documents are not signed in the coming days, then I cannot remain in Beijing," he wrote in a letter to China Development Bank (CDB).

In reality, Mr Calvopina had little choice but to wait. Shunned by most lenders since a $3.2bn debt default in 2008, Ecuador now relies heavily on Chinese funds, which are expected to cover 61pc of the government's $6.2bn in financing needs this year.

In return, China can claim as much as 90pc of Ecuador's oil shipments in coming years.

"This is a huge and dramatic shift," said Rene Ortiz, a former Ecuadorean energy minister and secretary general of OPEC. "Never before has Ecuador committed its oil to a lender."

A small OPEC exporter, Ecuador pumps around 520,000 barrels per day (bpd), or 5pc as much oil as kingpin Saudi Arabia. But China's role in the Andean country shows how the Asian giant's oil firms are becoming powerhouse traders in energy markets far from home.

CRITICAL

The oil that Ecuador sells to Chinese firms can be traded anywhere. Yet less than 15,000 bpd is being shipped to China this year, down nearly 40pc from 2012. Most is sent to the US.

President Rafael Correa, a socialist who is critical of the power that Western oil majors and private energy trading firms once held in Ecuador, has touted the Chinese deals as a triumph of trade between allies.

Mr Ortiz and other critics say the cash-strapped government's dependence on loans with increasingly onerous terms could hurt PetroEcuador's competitiveness, damage transparency in an oil industry that accounts for half of Ecuador's exports, and distance the country from other creditors.

Contracts, company presentations, and crude loading schedules show how China has come to dominate trading of Ecuador's 360,000 bpd of oil exports since its biggest listed oil company, PetroChina, first offered PetroEcuador $1bn in financing in mid-2009.

Beijing's growing thirst for natural resources has led Chinese oil firms to offer at least $100bn in oil-related financing around the world.

They already control growing volumes of oil from Venezuela, where China has negotiated at least $43bn in loans; from Russia, where the tab may exceed $55bn; and Brazil, with at least $10bn. In Angola, the deals total around $13bn.

In Ecuador, Chinese firms also participate in oilfields and a refinery project. But most of the loan transactions don't hand China direct control of oil wells, reservoirs or pipelines. Instead, the borrowings are repaid with cash proceeds from PetroEcuador's oil sales to Chinese firms.

The Chinese "provide financing for our country and, in exchange, we ensure sales of oil at international prices", Ecuador's then-finance minister Patricio Rivera told state-run TV earlier this year.

PetroChina International said its arrangements in Ecuador "are purely normal commercial contracts between two companies," and "have proved to be mutually beneficial".

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business