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The Economist :Oil in Ecuador:
Correa gets away with a U-turn



 

It’s hard to be green

THE Yasuní National Park in Ecuador’s slice of the Amazon contains countless endangered species of animals and birds. For that reason Rafael Correa, the country’s president, hatched a scheme under which he would forebear from extracting the oil that lies beneath the park’s northeastern corner, if the rest of the world put up $3.6 billion, or half its estimated value. The world spurned this offer and last month Mr Correa cancelled it, saying that the estimated 840m barrels of oil in the area, which he now values at $18 billion, would help him to continue to cut poverty.

The area in the Yasuní park where the oil lies, known as Ishpingo-Tambococha-Tiputini (ITT), contains such endangered species as the giant otter and the freshwater manatee. Until it changed its mind, the government used to say that it was also home to small groups of uncontacted Amerindians. Mr Correa now says that drilling will affect only 0.01% of the park.

The ITT field will be given to Petroamazonas, a state company, which pledges to minimise disruption to the environment. Laying pipelines and digging hundreds of wells will be no more painful than pricking a baby for a vaccine, according to government advertisements. To raise the capital required to exploit ITT, Petroamazonas is likely to bring in Chinese oil companies.

Mr Correa is popular, thanks to an economic boom engineered by higher public spending, paid for by raising oil royalties and Chinese loans. Although oil output is at record levels, consumption is rising and reserves are being fast depleted. New production contracts have driven away multinationals and discouraged exploration, industry analysts say. The oil ministry has twice extended a tender for an area south of the Yasuní because no companies bid.

There are two alternatives to drilling in the Yasuní. One would be to welcome foreign investment in other industries. But the president is not keen on that. The other would be to redouble efforts to develop Pungarayacu, a big field of heavy oil. But that would also annoy greens.

Polls suggest that Ecuadoreans are evenly split about developing the ITT field. The Waorani Indians, a few of whom live there, initially protested against Mr Correa’s decision, but have been placated by offers of money for health care and schools. The opposition wants a referendum on the issue.

If one were held, Mr Correa might win it. He is a formidable campaigner. In a bid to deflect the anger of environmentalists at his U-turn, Mr Correa this month turned his rhetorical fire on Chevron. Two years ago, an Ecuadorean court in Lago Agrio, an Amazon town, imposed a colossal $19 billion fine on the company over pollution allegedly caused in the 1970s and 1980s by Texaco, bought by Chevron in 2001. In fact, Ecuador’s government reached a final settlement with Texaco in 1998 (the tar pit into which Mr Correa dipped his hand earlier this month is the responsibility of Petroecuador, a state company).

Chevron accuses the Ecuadorean court of fraud and the lawyers who sued it of racketeering. An international arbitration panel sitting in The Hague under United Nations rules has told Ecuador to stop trying to collect the damages. The government says it will not obey. If Petroamazonas and Mr Correa’s Chinese friends mess up the Yasuní, the president will find it harder to come up with a scapegoat.

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Editor's Note: This commentary was published by The Economist (print edition: The Americas), on Sept 28, 2013. Petroleumworld reprint this article in the interest of our readers.

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