There’s an ongoing catastrophe taking place in Ecuador. Not only has a significant part of its Amazon rainforest has been polluted by several oil spills, but the low oil price has totally gutted the oil industry.
This is a big problem for Ecuador because 50 percent of its exports and 30 percent of its government revenues come from oil. According to the article, Ecuador Reveals Pain Inside OPEC: It’s Pumping Oil At A Loss:
President Rafael Correa said on Tuesday that the South American nation is receiving as little as $30 a barrel for its crude, while production costs average about $39. The warning comes after several other members of the Organization of Petroleum Exporting Countries, including Algeria and Libya, said the group should consider holding an emergency meeting to respond to the drop in oil prices.
Ecuador was receiving as little as $30 a barrel back in August 2015 when that article was written. However, today it’s likely getting a price closer to $20 for a barrel of oil. If Ecuador was in serious trouble last year due to low oil prices, the situation today is nothing short of a catastrophe for its oil industry and economy.
Even though Ecuador isn’t a large producer of oil, it produced a little more than 556,000 barrels a day (bpd) in 2014, while total consumption was 259,000 bd. Thus, it exported nearly 300,000 bpd in 2014. Here is a chart of Ecuador’s net oil exports since the 1970’s:
What is interesting in the chart above is the increase in Ecuador’s domestic oil consumption. While production has increased significantly since the 1970’s, so has consumption (black line). Ecuador’s total production increased from 200,000 bpd in the 1970’s, to 556,000 bpd, however net exports (green) did not increase all that much due rising domestic consumption.
The Collapse Of Ecuador’s Drilling Rig Industry
While the drilling rig count in the U.S. and world has fallen considerably over the past 18 months, nothing can compare to the collapse that has taken place in Ecuador. When oil was trading over $100 in August 2014, Ecuador had 27 drilling rigs working in the country. Today… they have one:
Thus, the low price of oil has totally gutted Ecuador’s drilling rig industry…. a 96 percent collapse in just 18 months. Again, the reason for the huge decline in Ecuador’s drilling rig industry has to do with simple economics–you can’t continue producing something as a loss, especially at a huge loss.
According to the article, Ecuador: A Nation Of Oil No Longer:
In 1972, the military Government of General Guillermo Rodríguez Lara instigated a mini oil boom. In Quito, his regime exhibited the first barrel of oil produced by a consortium between transnational Texaco and the fledgling Ecuadoran State Petroleum Corporation (CEPE for its Spanish acronym). Nearly half a century later, the Government of Rafael Correa Delgado ends the extractive cycle, squeezing the last drops of black gold from the earth. The depletion of Ecuador’s crude reserves, combined with the collapse in oil prices, spells economic tragedy for a country that has tied its fate to hydrocarbons. In 2015, at an average price of $50 per barrel, the situation is catastrophic. The country expects to make $9.942 billion from oil exports and derivatives, but production and import costs of $10.145 billion leave a shortfall of $226 million.
Unfortunately, for Ecuador, it’s now receiving a price closer to $20 a barrel. This is the reason the country only has one lousy drilling rig.
While Ecuador’s oil troubles are worse than other oil exporting countries, due to shortsighted government energy policies. At this point, it looks like it could get quite a lot worse for Ecuador before it gets better. For now, it seems the only thing Ecuador can do is join Venezuela’s call for an emergency OPEC meeting in the hope that oil prices will recover.
By SRS Rocco Report
More Top Reads From Oilprice.com:
- OPEC Will Not Blink First
- ISIS Forced To Cut Wages As Oil Revenues Tank
- Oil Glut Compounded By Cracks In Global Economy