Opening the door to business in Ecuador

Nelson Jaramillo Pita, SYCAR LLC, USA, discusses Ecuador’s changing energy landscape and the start of foreign breakthrough into the country’s natural gas and LNG markets.

US natural gas developer SYCAR LLC is the first foreign company with permission to market natural gas in Ecuador. The Ministry of NonRenewable Natural Resources granted the company the approval to commercialise natural gas, LNG, and compressed natural gas (CNG) for the country’s industrial market.

With this decision, the government effectively opens the door to the participation of the private sector in the import of fuels in Ecuador, something that has been reserved by law to the oil state owned company, Petroecuador. The Ministry of Non-Renewable Natural Resources is also targeting the possible concession of the Machala located gas-fired power plant, a project that would require a supply of natural gas beyond domestic production of the Amistad gas field, giving the import of natural gas in Ecuador an interesting business opportunity.

Ecuador is a country with an important achievement in terms of power generation with 90% of the power demand being supplied by hydropower and renewables. However, due to technical issues and the massive erosion of the Coca River in the San Rafael sector, the major hydropower plant Coca Codo Sinclair, which accounts for 25% of the energy produced, is in serious risk of going out of service to be repaired.

The issues above are also getting more complicated for the energy sector due to the seasonality of rains which makes the country more vulnerable to climate factors such as the El Niño phenomenon. This phenomenon causes droughts, reducing reservoirs and consequently reducing hydropower generation.

In this scenario, the Government of Ecuador is taking action to have thermo power capacity ready and on standby to complement the hydropower capacity in any power generation shortfall. This includes the construction of two new combined cycles for a total of 1000 MW, increasing the importance of a reliable supply of natural gas for the country. SYCAR’s project, Jambeli LNG, looks to be a solution for this.

A first for Ecuador

Jambeli LNG is the first LNG import terminal in Ecuador and includes the construction of mooring facilities for the berthing of an FSRU in the Jambeli Canal to supply natural gas to Ecuador’s industrial and electricity markets.

Figure 1. Jambeli LNG is a floating LNG facility that supplies natural gas to clients and the power sector in Ecuador.

The industrial sector of Ecuador has given a positive response to the project and the future availability of LNG as an opportunity to reduce manufacturing and maintenance costs, as well as reducing its carbon footprint and improving the efficiency and lifespan of the main equipment. In this sense, LNG will be an excellent substitute to other liquid hydrocarbons such as diesel, LPG, and fuel oil.

SYCAR envisioned the Jambeli LNG project from a market perspective, present and future, as importing LNG will benefit Ecuador in the short- and medium-term. It takes advantage of the increase in LNG export projects worldwide, which have kept natural gas prices very stable and low in recent years, with the usual eventual peaks such as the ones seen this year.

Jambeli LNG can also be a catalyst to stimulate national gas production with E&P efforts by the private sector as well as government efforts to recover 100 million ft3/d of flare gas being burned in the Amazon region to be able to increment domestic gas production if a market is developed for it.

The project could also drive the development of other industries of basic and finished products as well, which is essential to support the economic stability of a dollarised economy in a country that is having hard times to see a promising post-COVID future.

Ecuador is an oil producing country, a former member of OPEC. The country produces approximately 500 000 bpd and reaches an average consumption of 250 bbl of refined products (diesel, gasoline, LPG, and others) which are supplied by three low conversion local refineries as well as imports.

In regard to natural gas, the state-owned company, Petroecuador, operates the Amistad gas field located in the southern part of the country, which supplies gas to a gas-fired power plant as well as to a mini liquefaction plant in Bajo Alto. However, due to a natural decline in production and reserves, there is uncertainty about the future commercial production of the field without major investments – which are a large constraint for the Ecuadorian Government under the present economic conditions.

With a reduction in domestic gas production, significant vulnerability of the hydropower generation, and low conversion refining assets, Ecuador is highly dependent on the use of imported fuels. Indeed, fuel imports represent close to US$2 billion/yr, out of which a large part has to be subsidised by the government. However, to reduce the increasing energy bill, the government has launched a plan for the release fuel prices by establishing price ranges, and is also opening the import of fuels to the private sector.

The challenges for Ecuador are then to increase oil production and take its refinery assets to higher levels of efficiency and productivity. On the other hand, the government of right-wing President Guillermo Lasso is promoting Ecuador as the destiny for direct foreign investment for the exploitation of its natural resources, especially in mining which is increasing its exports by a remarkable 127% from 2020 and accounts for the fourth major Ecuadorian export after oil, bananas, and shrimp.

Given this reality, the opportunity arises to massively introduce natural gas into the energy mix in Ecuador by importing LNG. SYCAR plans to take advantage of this opportunity with the Jambeli LNG project, a floating LNG facility to supply natural gas to industrial clients as well as the power sector. This initiative reinforces the security of the long-term supply of this hydrocarbon given the imminent trend of opening the hydrocarbon market to the private sector.

This project represents a great opportunity to structurally change the energy mix in Ecuador by effectively and safely introducing natural gas to hydrocarbon-demanding sectors such as power and industry, and, in the future, transportation and domestic use, displacing other hydrocarbons such as diesel and LPG. It is a paradigm shift that represents a huge challenge and an opportunity for stakeholders in both the public and private sectors.

Project progress

Jambeli LNG is being developed in the Jambeli Canal, in the Gulf of Guayaquil on a location near Bajo Alto in the El Oro province. This is a prime location, with water depths of 36 ft on average and protection in inland waters.

The project is fully licensed, having received a concession granted by the Undersecretariat for Ports and Marine and Fluvial Transport attached to the Ministry of Transport and Public Works, as well as an FSRU operating permit from the Hydrocarbon Regulation and Control Agency attached to the Ministry of Energy and Non-Renewable Natural Resources, and an environmental license approval by the Ministry of Environment, Water, and Ecological Transition.

Potential demand for natural gas

SYCAR forecasts an initial demand of at least 50 million ft3/d, equivalent to 375 000 tpy of LNG, with a forecast of growth in demand of an additional 100 million ft3/d supported by industrial customers, if the thermo power capacity is activated in the country.

Other sectors that could substitute the use of liquid fuels such as diesel and LPG are transportation and domestic use, with the most important challenge to overcome being the non-existence of local distribution networks to service this market. With plans in the electricity sector to develop 1000 MW of combined cycle power plants, another 160 million ft3/d would be needed. The refining sector can greatly benefit from imported natural gas as well for its process, especially if resid upgrade projects are launched.

In conclusion, natural gas would benefit various strategic sectors of the Ecuadorian economy ensuring the stability of supply and stable prices of this fuel compared to other hydrocarbons such as diesel, in a situation in which the country cannot be 100% dependent on hydropower generation and is exposed to natural elements that it cannot control, such as the erosion of the Coca River.

TEM20 adv A5 _ Algemeen _ Contouren.indd 1 10-03-2020 09:09