State-owned oil producers Petroecuador and Petroperu are considering the sale or to give in concession refinery assets due to financial constraints, according to market sources and local media reports.
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Register Now Ecuador's Energy Minister Carlos Perez said in March the government was evaluating options for its 110,000 b/d Esmeraldas refinery.
One of them is to give its operation in concession to a private company and at the same time, launch an international auction to build a new 300,000-barrel refinery.
Another option is to refurbish Esmeraldas to reach that capacity.
Perez said last week that the terms for the auction will be released in July.
"There is still a lot of confusion," a source with knowledge of Petroecuador's operations said, adding that talks with a major oil producer for a possible strategic partnership were unsuccessful.
A request from S&P Global Platts for comments on the concession plans hasn't been answered by Petroecuador.
Ecuador's economy depends mostly on its crude sales and it is the smallest member of the OPEC.
"If Petroecuador or Petroperu decide to give in concession to private companies some of their refinery businesses, their operations will be more transparent and efficient, avoiding redundancy and getting more profitable," Lenny Rodriguez, an analyst of Platts Analytics, said.
A five-year plan to refurbish Esmeraldas was completed in 2015 at a cost of $2.2 billion, instead of the less than 200 million originally planned, amid corruption scandals.
After the modernization, the refinery raised its capacity from 85,000 b/d to 110,000 b/d.
However, Esmeraldas is still facing operational problems, and in the last few years has reported additional maintenance work focused on specific units.
In March, the refinery started a 54-day planned turnaround, and currently is operating at 50% of its full capacity as the FCC, which produces gasoline and distillate fuels, is still being repaired.
"As equipments are being opened, problems are being solved," a Petroecuador spokeswoman said. "Some spare equipment hasn't arrived yet," the source with knowledge of Petroecuador's operations said, adding that a tentative date for renewed operations could be the end of June.
MORE PRODUCTS IMPORTED, BUT ADDITIONAL CRUDE TO EXPORT
Imports have increased considerably as a consequence of the refinery stoppage. In March, Ecuador imported 4.4 million barrels of products, up 40.2% on the year.
The March imports were driven by high-octane naphtha at about 2.1 million barrels, up 59.4% on the year. Diesel imports were over 1.6 million barrels, up 52% from year-ago month.
Ecuador usually imports high-octane naphtha and diesel to meet domestic demand.
The company recently bought from Trafigura 2.8 million barrels of diesel with maximum 50 ppm sulfur content to be delivered in 11 cargoes starting in May at a $4.98/b premium to S&P Global Platts' US Gulf Coast ULSD pipeline assessments.
Trafigura was also the winner in March of a 36-month contract to supply Petroecuador with 93 RON and 87 RON naphtha as well as low sulfur diesel, to be delivered until September 2022.
Following Esmeralda's stoppage, Petroecuador offered 11 cargoes of heavy sour Oriente crude totaling nearly 4 million barrels in the spot market for July-September loading. The crude is usually processed in the Esmeraldas refinery.
The tender was awarded Monday to Marathon Petroleum at NYMEX WTI plus $3.09/b, which was 90 cents lower from a previous tender with the same grade that the US refiner won in March.
In addition to the Esmeraldas refinery, the fate of Petroecuador's refinery in the Pacific coast -- originally a joint venture between Petroecuador (51%) and Venezuela's state-owned PDVSA (49%)-- has been cast further in doubt after the Ecuadorean government began the liquidation of project assets in March.
The project had a total cost of $1.5 billion, with nearly $285 million funded by Petroecuador and $228 million by PDVSA. The Ecuadorean government invested $1 billion when both partners were facing financial difficulties.
Government efforts failed to find new investors for the refinery project, which was to planned to have 300,000 b/d production capacity.
SIMILARITIES AND CHALLENGES
The location of the potential new refinery in Ecuador is unknown but if the decision is to refurbish Esmeraldas to a 300,000 b/d capacity, it could follow a pattern similar to a project being done in Peru.
In Petroperu's 65,000 b/d Talara refinery, the Peruvian state-owned oil producer is building new units to expand its capacity by 30,000 b/d to 95,000 b/d.
Petroperu has scheduled a one-year planned turnaround in Talara, starting November, to finish the process.
In preparation, Petroperu is expected to buy more products, according to market sources. On the crude side, late December the Peruvian oil refiner signed a contract with Petroecuador to buy 3.96 million barrels of Oriente crude, with the last cargo to be loaded in November.
Carlos Paredes, who heads the company's board, said this week the estimated cost of the refinery's refurbishment has increased to $4.7 billion from the $4.3 billion calculated in February, according to El Comercio newspaper.
Paredes said the company was evaluating the sale of some of the project's auxiliary units to help finance work at the refinery. The aim would be to obtain an income of between $800 million and $1 billion, El Comercio said.
Attempts to obtain Petroperu's confirmation did not receive responses.
