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ECUADOR: Fate of Untapped Oil Hangs in the Balance – of Trust Fund

Gonzalo Ortiz

QUITO, Jul 14 2011 (IPS) - “Ecuador will not wait ad infinitum” for a decision by the international community, and “at the end of the year” President Rafael Correa will decide whether to extract oil that was to have been left underground at the Yasuní nature reserve, non-renewable natural resources minister Wilson Pástor has announced.

The novelty in Tuesday’s announcement was that Pástor detailed an oil production plan, in the event that drilling goes ahead. He said 14 wells would be drilled, with an investment of 8.6 billion dollars at the extremely attractive internal rate of return of 99 percent.

The minister also gave the possible start date for production in the oilfields as the third quarter of 2012, and added that “the fields are less than 100 km away from an oil pipeline that has spare capacity.”

He was referring to the Heavy Crude Pipeline (OCP), built in Ecuador by private companies to transport oil from the Amazon jungle to the Pacific coast, and mainly owned by the Spanish firm Repsol.

Pástor’s announcement at the opening session of the First Latin American and Caribbean Seminar on Oil and Gas, organised by the Ecuador-based Latin American Energy Organisation (OLADE), was the most detailed so far from a government spokesperson about the option to exploit the crude oil.

The Under Secretariat of Hydrocarbons Policy has already been contacting potential interested parties since March, in case the drilling goes ahead.

The initiative for not extracting the oil was originally proposed 20 years ago by Fundación Natura, the largest environmental organisation in Ecuador, and has since been supported by a number of environmental and indigenous groups defending the Yasuní National Park and its buffer zone, where the oilfields are located.

The Yasuní is one of the world’s most highly biodiverse regions, with more plant and animal species found in one hectare than in the whole of North America, according to scientific studies.

It is also home to the Tagaeri and Taromenane indigenous groups who are living in voluntary isolation from the outside world.

The Yasuní, declared a national park in 1979 and a World Biosphere Reserve 10 years later, covers an area of 982,000 hectares of the Upper Napo river basin.

Leaving one of the country’s largest oil reserves underground would reduce emissions of carbon dioxide, one of the main greenhouse gases responsible for global warming, by 407 million tonnes, environmentalists say.

The environmentalists’ proposal was adopted by Correa when he took office in 2007, and he made it official Jun. 5, 2007 at the United Nations as a multifaceted project, combining protection of the environment and of indigenous communities with promotion of renewable energies, to which the funds would primarily be devoted.

The proposal is for Ecuador to forego extracting the oil, in return for the international community contributing 50 percent of the cost of the greenhouse gas emissions that would be saved by not extracting and burning the oil – at least 3.6 billion dollars.

But there are strong supporters for drilling, like the deputy minister of non-renewable natural resources and former manager of the state oil firm Petroecuador, Carlos Pareja, and President Correa himself has talked extensively about “Plan B”.

This is the option to go ahead with drilling if the international community fails to come up with the funds Ecuador has requested for leaving it underground. The authorities announced their goal was to raise at least 100 million dollars by the end of this year.

However, it seems unlikely this amount will be raised, in spite of the fact that U.N. Secretary General Ban Ki-moon promised Correa to make personal calls to all the heads of state of countries that are likely contributors.

The Yasuní-ITT Trust Fund, set up Aug. 3, 2010 and administered by the U.N. Development Fund (UNDP) and the Ecuadorian government, has so far only received pledges for 1.4 million dollars.

“The trust fund contains an amount barely greater than the budget (of one million dollars) allocated to promote it,” says this month’s issue of the economic magazine Gestión. Augusto Tandazo, an oil expert who supports extracting the oil, told IPS “advertising expenditure already exceeds what has been collected for the fund.”

Pástor expressed great satisfaction that after OLADE’s 38 years of existence it was finally holding its first Oil and Gas Seminar.

“I am pleasantly surprised, too, and that’s why I helped organise this seminar, because oil and gas are the main energy sources in Latin America and the Caribbean,” Victorio Oxilia Dávalos of Paraguay, named executive secretary of OLADE six months ago, told IPS.

“The effort OLADE has put into research and development of alternative energy sources is creditable, but we cannot carry on neglecting oil and gas, which are our countries’ top priority,” he said.

“The oilfields known as ITT for Ishpingo, Tambococha and Tiputini have 846 million barrels in proven reserves, double that amount in probable reserves, and triple that amount in possible reserves,” Pástor said.

Back in 2007 Petroecuador was considering “several alternatives for ITT exploitation: oil extraction by the state company directly; strategic alliances with foreign companies or specifically with the Venezuela state oil company PDVSA; organising an international tender; or creating a mixed (public-private) firm,” according to a company board resolution of Mar. 30, 2007.

If Correa gives the go-ahead, the Tiputini and Tambococha (TT) fields “which are outside the Yasuní reserve” will be exploited, but not the Ishpingo field, which is within its borders, Pástor announced.

But environmentalists say the damage will be irreparable, because the TT fields are in the buffer zone which is essential for the park’s conservation.

The estimated oil reserves in the TT fields are 461 million barrels, the minister said.

Meanwhile, the German government said it will not support the Yasuní-ITT initiative, because the precedent might be imitated by other countries. The announcement came as very bad news for the initiative.

Germany’s Secretary for Economic Cooperation and Development Gudrun Kopp told a German parliamentary commission in early June that “a direct payment into a fund of this type would set a precedent that could ultimately prove very costly.”

Kopp said that if Germany supported the “principle of failure to act,” as proposed by Ecuador, by giving official development funds to the Yasuní reserve, it could then come under pressure by other countries to finance similar proposals.

Although German social democratic, Green and leftwing lawmakers are enthusiastic supporters of the Yasuní-ITT initiative, the German government has taken such a firm position against it that it refused to meet with Ivonne Baki, Ecuador’s top negotiator for the initiative, a former minister.

On one of President Correa’s regular Saturday national broadcasts, Baki publicly asked him to stop talking about “Plan B” because it weakens efforts to raise funds for “Plan A.”

Correa cheerfully replied that he would continue to talk about “Plan B” because his main concern is the future of Ecuadorians, and if international cooperation is not forthcoming he will have to authorise it.

In the circumstances, it appears increasingly unlikely that the oil under the Yasuní nature reserve will remain untapped for long.

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