What Ecuador would lose if production at ITT is halted by a referendum

On August 20, Ecuadorans will go to the polls to elect a new president and vice president, along with all 137 assembly members as well as whether to stop metallic mining in the Chocó Andino zone northwest of Quito and whether to halt production at oil block 43. 

The general elections were called by President Guillermo Lasso, who while being impeached used a constitutional mechanism that allows him to dissolve the national assembly and call early elections. 

The oil and mining referendums are initiatives of environmental groups that obtained the authorization of the constitutional court for the votes. 

Block 43, also known as Ishpingo, Tambococha, Tiputini (ITT), is not the only one located in the Yasuní national park, an area rich in biodiversity. Blocks 31, 16 and 67 are also located in the park, which according to official statistics have produced more than 400 million barrels of oil over almost 30 years. 

Production at ITT, which is operated by state company EP Petroecuador, began in 2016, during the government of Rafael Correa. BNamericas spoke with Nelson Baldeón, a consultant in energy geopolitics and spokesperson for the college of petroleum engineers of Ecuador, about the consequences that the oil referendum would have if the public decides to stop production at block 43, which is located in the Amazon province of Orellana.

BNamericas: How important is block 43 for the country?

Baldeón: It must be taken into account that block 43 is one of the newest deposits in the country; the other blocks that are in the Yasuní national park are mature fields. Block 43's proven reserves are around 3 billion barrels.

Ecuador has not invested in exploration and therefore cannot replace the block's oil.

Despite the fact that the block has almost 200,000ha, the activity is carried out on only about 80ha. Current production is around 55,000b/d and it is projected to reach around 80,000b/d, that is, it can reach a level similar to that of the Auca field, which is the jewel in the crown.

BNamericas: Those who want to stop production talk about the environmental consequences that the block has generated.

Baldeón: There is no damage. In the oil industry in general and in block 43 in particular, pools for waste are no longer used as they used to be.

The water that comes out is reinjected into the reservoir. Biotic studies that have been carried out show a greater amount of forest and wildlife.

Although there have been oil spills, they have been very few, and of a small magnitude. They have been quickly contained and the respective environmental remediation has been carried out.

The environmental license is so strict that if there is an environmental crime it never expires and whoever signed the license is co-responsible, which forces the authorities to be more careful.

To exploit the block, technologies were brought to mitigate risks; production is by means of the cluster technique. There are no pools, there’s no flaring. There’s no reason to stop producing at the block, and apart from that, the communities in the area don’t want production to stop.

BNamericas: Will the referendum affect legal certainty for the oil sector?

Baldeon: Of course. Overnight, they seek to close a field in production that has capacity to produce 80,000b/d.

If the option to leave the block's oil underground wins, that will affect the reputation and image of the country in the oil industry.

BNamericas: What will be the main effects if production stops?

Baldeón: They are serious. The country's oil production will continue to decline and in 2026 it could be around 360,000b/d.

Every year, between US$200mn and US$300mn of oil equipment enters the country through the port of Guayaquil, including drills, pipes, towers and more. This implies direct taxes of around US$50mn.

Additionally, there are effects on stevedores who move the goods, carriers who carry the cargo; effects on boatmen, workers at the facilities, airplane pilots, hostels and lodging places, and communities that have found employment and a source of income from the activity at the block, among others.

Around US$2bn has been invested in ITT only in oil facilities such as pipes and water separators, among other items.

BNamericas: If production stops, is there a danger of illegal mining?

Baldeon: Of course. The army doesn’t have a base in the area and installing one would cost money, which the treasury doesn’t currently have. Once the activity is ended, there will be a surge of drug trafficking, illegal mining and illegal logging, as the area is rich in gold and fine timber.

Added to all the above is a loss for the State of US$1.2bn net from crude oil exports.

Nor should we forget that the dollarization system requires dollars to sustain itself and oil is the main provider of foreign currency.

BNamericas: If the voters decide to stop the production of oil in the block, can new plebiscites be expected for other fields?

Baldeón: Yes. It’s possible that activists who oppose extractive activities promote similar processes for other oil blocks and even for other types of activities such as hydroelectric generation.

BNamericas: Is there a way to offset the oil from the block?

Baldeón: It’s difficult because there’s no money for exploration or to use secondary or tertiary recovery techniques for the mature fields, which may require some US$1bn each to increase production.

The option would be to withdraw the fuel subsidy, a decision that could cause social commotion, especially due to the strong opposition of indigenous organizations and other sectors.