Petroecuador cancels long-term No. 6 fuel oil tender

Houston — Ecuadorean state oil company Petroecuador canceled its No. 6 fuel oil tender after facing serious blowback for awarding an unusually long two-year sales contract to Unlimited Corporations.

In an open letter to Petroecuador CEO, Gonzalo Maldonado, Ecuadorean Minister of Energy René Ortiz requested that Petroecuador declare the contract void and suspend the sale of the No. 6 fuel oil.

The criticism stemmed, in part, from the longevity of the proposed contract, which spanned from May 2021 through December 2023.

Ecuador's tenders typically span about three months. For example, the latest fuel oil tender from Ecuador seen by S&P Global Platts was awarded around April 15 to Trafigura for the sale of 1.9 million barrels of No. 6 fuel oil delivered in ten, 190,000-barrel cargoes before the end of July 2021.

The tender in question, however, offered between 13.338 million-22.23 million barrels of fuel oil in up to 117 cargoes of 190,000 barrels each.

This tender was awarded with each cargo pricing at a 51 cent/b premium to the latest spot market price at the date of delivery.

The 1.9-million barrel tender awarded to Trafigura was priced at a 2.65 cent/b discount to Platts US Gulf Coast high sulfur fuel oil.

Platts last assessed spot Ecuadorean fuel oil at a $2.65/b discount to USGC high sulfur fuel oil, at $54.35/b, on April 23.

Another point of contention was the tender's timing, given that a new presidential administration is scheduled to assume control of the country on May 24.

It is "not ethically acceptable that, in the last days of the current [administration, Petroecuador] proceed with a contract for the next 30 months," Ortiz said in his letter, noting that current president Lenin Moreno had agreed to suspend all last-minute contracts except in cases of "real necessity," which Ortiz posits this is not.

Petroecuador could not be reached for comment.

Just in the past week, Petroecuador has awarded two other large tenders in addition to the fuel oil. The first was a tender seeking 1.26 million barrels of cutter stock and was awarded to Freepoint at a $8.38/b premium to the Platts USGC No. 2 heating oil assessment, to be delivered in six, 210,000-barrel cargoes.

The second was for 361,800 mt of LPG, and was awarded to Unlimited Corporations, at a $106.85/mt premium to Platts Mont Belvieu non-LST butane and propane assessments.

This tender did not disclose a final delivery date for the cargo, but requests monthly cargoes of at least 24,000 mt each, meaning the tender could cover the supply of up to 15 months.

"The fuel oil [tender] was canceled, but the LPG [tender] was not and that one is also abnormally long," one market source noted.

Unlimited Corporations, a Panamanian company, also could not be reached for comment.

Big changes expected amid transition

After President Moreno opted out of seeking reelection, his party, PAIS Alliance, lost the April 11 elections to Guillermo Lasso, of the Creating Opportunities party. Lasso, an ex-banker, ran on a platform that seeks to attract foreign investment and promote the production of petroleum, which is Ecuador's most important export.

One of Lasso's main campaign promises has been to alleviate the substantial debt the country faces in proportion to the country's GDP.

His efforts will be tempered by a split congress, where he and his allied party hold a total of only 31 seats in their favor. Meanwhile, 48 congressmen belong to the incumbent party previously headed by Rafael Correa and, after that and until May 24, by Lenin Moreno.

Under Correa, the party was a staunch supporter of the "New Left" or "twenty-first century socialism" employed by leaders like Venezuela's Hugo Chavez and Bolivia's Evo Morales, which promoted widespread social relief, nationalized state industries and a larger governmental presence.

Lasso seeks to minimize the governmental presence through the introduction of the private sector, which is generally perceived as less corrupt, especially as media outlets in the country have extensively covered multiple corruption scandals.

As such, the conflicting policies and upcoming changes to nationalized industries in Ecuador could potentially be drastic.