(S&P Global Platts, 15.Feb.2016) — It was supposed to be the biggest investment ever in Ecuador: $12 billion for a 300,000 b/d refinery and a kick-start to industrialization with a major petrochemical complex.
After $1.2 billion and eight years of broken promises, the Eloy Alfaro Refinery of the Pacific near Manta on the Pacific Coast is a vast empty lot cut from tropical dry forest.
Soon the area will be at the receiving end of a 93 km aqueduct that might supply potable water to nearby cities, but the refinery is a fast vanishing dream despite recent overtures with Iran.
Goaded into planning the mega-project by deceased Venezuelan President Hugo Chavez, his Ecuadorean peer, Rafael Correa, is once again touting the imminent closing of funding for the project. Last week, an Ecuadorean delegation talked with Iran about crude supplies and participation in the refinery.
But while Iran is happy to sell its fellow OPEC partner oil, it remains to be seen if the country will invest in Correa’s refinery plan. Particularly since Iran has many suitors from all corners of the world looking for potential refinery tie-ups.
It’s been a quixotic quest to fund the refinery. Initially, Ecuador expected PDVSA to help put up the cash, which never happened, and for the plant to go online in 2013. In 2009, Ecuador hired French investment bank Lazard. A year later, it was Japanese bank Mizuho. And the next year, an unnamed German investment bank.
The government finally signed a memorandum of understanding with CNPC and the Industrial and Commercial Bank of China in 2012 to seek funding. A year later, CNPC was to take a minority stake in the refinery, but that also never happened. CNPC pulled out, and even though Ecuador slashed the planned output by a third to 200,000 b/d, the $12 billion price tag remained the same.
By point of comparison, all of PDVSA’s Citgo refining assets in the US were valued at $12 billion, with 750,000 b/d capacity.
Now, hope is set on a Chinese-South Korean industrial consortium, Sinomach plus Hyundai, for a financial deal sometime this year.
This is not the first time Correa has courted Iran. His administration pursued a number of financial deals in 2009, primarily for the funding of hydroelectric plants, which also never materialized.
“It’s not just a mega-project in Ecuador, but on a global level,” said Rafael Poveda, minister for strategic sectors, during a trip to Manta last month, making it sound as if the project were still alive.
Right now, however, it’s more notable as an invisible white elephant. Given the history of failure with the project, and Correa pledging not to seek reelection, it’s hard to see who might want to sink money into a project of this scale under the current circumstances.
An opposition government would also likely pull the plug on the plan since country’s balance sheet is in tatters following the crash of oil prices.
Even some of the most basic issues for the project have never been resolved, although critics have raised these issues from the very beginning in 2008.
Other than being political — the province of Manab, surrounding Manta, is Ecuador’s third most populous, hence home to an attractive number of voters — the location for the Refinery of the Pacific was never an obvious choice.
It will require either a port for oil tankers to bring crude to the plant or a pipeline of some 250 km in length to link up with the OCP heavy crude line, which transports oil from the Amazon oil fields.
But supply from the pipeline is questionable as the pipeline is only transporting about a third of its 450,000 b/d capacity (according to the most recent data from Ecuador’s government hydrocarbons regulator, which stopped uploading pipeline data in July 2013).
This brings up the question of whether Ecuador would have enough oil to ensure there would be enough to refine over the lifetime of the plant.
As of December, the country exported almost 72% of the 533,000 b/d it extracts. The remaining 150,300 b/d goes to its existing refineries at Esmeraldas (110,000 b/d), La Libertad (45,000 b/d), and Shushufindi (20,000 b/d).
At least on paper, Ecuador looks as if it already has some overcapacity in refining, since it tops domestic consumption by 30,000 b/d, but it doesn’t necessarily demand the fuels it’s able to refine. The recently finished restoration of Esmeraldas to 110,000 b/d, at a staggering $1.2 billion, still leaves that refinery with about 50% residue.
Iran may have the crude available to support a new refinery, but the daunting financial task ahead makes the Refinery of the Pacific look as remote now as it ever has.
***