OPEC & Ecuador

Ecuador is to rejoin the Organisation of the Petroleum Exporting Countries after a 15-year absence in another sign of the group’s growing prestige.

It is the second new member to join in successive years following Angola, which was allowed in at the end of last year.

The move reflects the increased state control over energy being taken by Rafael Correa, Ecuador’s leftwing president.

Last week, his government announced a steep increase in taxes on foreign oil companies’ revenues.

At Opec meetings, Ecuador is likely to side with its ally Venezuela, one of the group’s most hawkish members. Ecuador would be the smallest producer in Opec: it produced an average of just 545,000 barrels a day last year, according to the BP Review of World Energy, a standard industry reference.

Indonesia and Qatar, which currently have the lowest output of Opec’s 12 members, produced about 1.1m b/d each.

Nevertheless, Ecuador’s decision to rejoin reflects a sense that Opec’s influence is growing after several years of strongly rising oil prices.

Galo Chiriboga, Ecuador’s oil minister, said yesterday that the country planned to rejoin at Opec’s next meeting. The heads of state of Opec countries are gathering for a summit in Riyadh in Saudi Arabia on November 17-18, and Opec oil ministers next meet in Abu Dhabi in December 5.

The return of Ecuador – which was a member from 1973 until it suspended its membership in December 1992 – will raise the number of Opec’s members to 13.

Its entry will raise the group’s share of world oil output from about 41.9 per cent to about 42.7 per cent, based on BP’s figures for last year.

Because Ecuador has never formally left the group, it can re-enter without the long entry process demanded of new members.

However, its re-entry will further complicate the already delicate negotiations over allowed production levels for the group’s members.

So far, Angola has not yet agreed a limit, although Abdalla El-Badri, Opec’s secretary-general, has said it will be given one for 2008.

Next month’s summit in Riyadh demonstrates Opec’s growing self-confidence. The group has only had two other summits in its 47-year history.

Opec’s total share of world oil output is expected to rise to almost 50 per cent by 2030, according to the Paris-based International Energy Agency, founded in the wake of the 1974 oil crisis.

It should be interesting to see how Ecuador’s reinstated membership in OPEC affects its relationship with other countries in the region which are fairly dependent on its exports. It is my prediction that the relationships between Ecuador and Argentina (whose economy is recently growing rapidly, which means they will need more oil) and Ecuador and Chile will be mitigated and a bit abused by the country’s OPEC rapport. As it is, the fact that Correa is so fond of Chavez, creates a stream of waves in the region as the political leaders of the left but heads with each other on a constant basis.