Petroecuador, OCP Group at Odds Over Pipeline Connection

A disagreement between officials at Ecuador's state-owned oil company and a privately run consortium that operates a new heavy crude pipeline threatens to leave oil transportation in this Andean nation in a vulnerable state.

Last month, state-run Petroecuador removed a valve that allowed for the connection of its Sote pipeline with the new heavy crude pipeline, known as the OCP. The connection allowed for either Petroecuador or the OCP consortium to use the other's pipeline in the event of an emergency.

According to Petroecuador, the valve was removed because it was only designed to be a temporary measure aimed at dealing with the effects of a landslide that took the Sote out of commission for two weeks in March. The rupture to the Sote caused Petroecuador to have to suspend exports for a similar period of time.

Petroecuador and the OCP group reached an accord, through which the private-sector company would provide the materials and carry out the work to install a permanent connection. However, the valve that the OCP group planned to install wasn't accepted as it didn't comply with the technical specifications demanded by Petroecuador.

While the two sides discuss how to proceed on installing the connection, the OCP group has asked Petroecuador to sign an accord that would enable either of the companies to use the other's pipeline in the case of emergencies.

Jaime Cadena, who manages OCP's technical operations, said Wednesday that the group would seek to have this accord in place for 20 years, which is the same amount of time the private consortium will manage the heavy crude pipeline before it is transferred to state control. Petroecuador hasn't yet responded to the request from OCP.

The Sote, with a capacity of 390,000 barrels per day, currently transports a daily average of 363,000 barrels. In addition to output from Petroecuador, that total includes 70,000 barrels that are produced by private sector companies with which the state-run company has contracts.

According to the OCP group, Petroecuador could save about $26 million per year if it were to ship those 70,000 barrels of heavy crude through the OCP pipeline, as the state-run company would avoid mixing the lower quality crude with its higher-grade, lighter output.

The OCP pipeline has a capacity of about 450,000 barrels per day, but is only shipping 180,000 barrels at present.

Alvaro Bayas, an OCP official, said Wednesday that there won't likely be an increase in the volume of oil shipped by private companies via the pipeline. "Conditions aren't favorable for foreign companies to invest in the country and increase production," he said.

Oil is Ecuador's main export product. The commodity generated $2.37 billion in revenues last year, up 29% from the previous year thanks to high prices on international markets. The oil sector represents 15% of the country's gross domestic product and about a third of total state revenues.

In the first four months of 2004, daily oil production stood at 513,211 barrels, of which 63% was generated by private-sector oil companies. Petroecuador exports about 132,000 barrels daily, mainly to the U.S., while private companies ship about 180,000 barrels daily.