An OPEC delegate said Thursday Ecuador's return will likely be ratified at the summit.
Quito's switch from the non-OPEC side of the world oil ledger back to the OPEC side won't shake the global oil market or impact prices. Its output accounts for just about 1.5% of the more than 30 million barrels a day that OPEC now pumps. But Ecuador could hold surprising weight within the group, if as expected, it aligns with price hawks like Iran and Venezuela.
The current EUR2 million in membership dues, equal to about $2.9 million, buys it the 13th member's seat around the U-shaped bargaining table with Saudi Arabia, the world's largest oil exporter. The Saudis, by all accounts, had a hard time at OPEC's Sept. 11 talks pushing through a 500,000 barrels a day Nov. 1 output increase, meeting resistance from Iran and Venezuela.
Never mind that minnow Ecuador needs to pump two hours worth of crude to pay annual dues, compared with just six minutes for Saudi Arabia, OPEC's budget is funded equally by all members.
"However small Ecuador's production may be, its rejoining of the producer group it once left, a hydrocarbon's rendition of the prodigal son's return, means OPEC as an organization is more representative and possibly more influential," said Antoine Halff, an analyst at Fimat USA LLC. New Price Hawk At The Table "Ecuador's return beefs up the ranks of the price-hawkish, anti-Western, vocal but resource-challenged sub-group of OPEC led by Venezuela and Iran," Halff said. "It could make it harder for the likes of Saudi Arabia to make their views adopted by the rest of the group."
Fifteen years ago, Ecuador, pulled out saying it couldn't justify paying hefty dues and having its output restained by quotas.
The Andean nation lifted its output by around 66% since leaving OPEC, but its oil flow is declining now, in part, as Ecuador has been reducing incentives for international oil companies.
In a variation of the resource nationalism imposed on foreign companies in Venezuela, the other South American OPEC member, Petroecuador has squeezed international oil companies operating in the country and crimped output.
Since Petroecuador took over Occidental Petroleum operations in the country in May 2006, output has dropped by 15,000 to 20,000 barrels a day from those operations, said Patrick Esteruelas, an analyst with Eurasia Group.
The state company Petroecuador is highly inefficient, resulting in high costs, which have caused a 6% annual rate in decline in Ecuador's output to around 500,000 barrels a day, he said. Pinching Private Companies Esteruelas said an Oct. 4 move to sharply increase the state take from privately operated oil companies may drive out investment and further curb output. Under the decree, Ecuador said it would collect 99% of the extra revenue when oil prices exceed a previously stipulated level (around $24 a barrel in some cases), up from 50% previously.
"For the private oil companies, that's very little incentive to maintain or increase investment in Ecuador," Esteruelas said.
OPEC, which added Angola as its 12th member in January, controls about 40% of the global oil market. The group is wrestling now with how to address prices near-record high levels triggered in part by fears that OPEC doesn't have enough spare oil production capacity to cover potential supply outages.
The timing of Ecuador's move may complicate OPEC's stated aim of overhauling its oil output quota system before year end to include Angola. OPEC has avoided outdated output quotas and based recent output policy on outside assessments of the group's output. Thorny talks on production quotas often have brought forth claims of high capacity from member countries looking for a bigger slice of the OPEC pie. An Angolan oil official recently said his country would be happy with a quota of 2.5 million barrels a day, a figure which industry analysts say would be about 500,000 barrels a day above real output capacity.
Esteruelas says he has heard Ecuadorean officials say that as a small producer they don't believe they should be bound by a quota upon their return to OPEC.
Galo Chiriboga, Ecuador's energy minister, told Dow Jones Newswires on Tuesday, that the country received a letter from OPEC welcoming it back. Officials will soon travel to the group's Vienna headquarters to seal the deal, he said.
For Ecuador, returing to the oil-exporter's club may provide some much-needed technical support for its oil fields, but, in fact, could have little to do with actual oil exports.
Officials in Quito say part of the lure of rejoining is the opportunity to obtain loans from other member countries, one of the same reasons Ecuador cited in 1992 as an incentive for breaking away from the group.
When Ecuador joined OPEC in 1973, it rode the wave of high oil prices sparked by the Arab oil embargo, but after the steep price drop in the mid-1980s, the lustre started fading.
"The world doesn't need an organization to regulate oil prices anymore," then-President Sixto Duran-Ballen said after suspending Ecuador's membership in 1992. "Some non-OPEC countries, such as Mexico, manage to sell their oil for prices just as high as OPEC countries without paying excessive fees."
Fifteen years later, that final point holds true. But Ecuador is heading back to the OPEC fold.