Government declares force majeure on oil contracts as Rio Coca erosion shuts down pipelines

Dec 14, 2021 | 1 comment

Ecuador has declared force majeure on all oil contracts, including exports and imports, as the threat of soil erosion forced the shutdown of the country’s two pipelines that transport crude across the Andes.

Oil pipelines were shut down on Friday, following the collapse of the Quito-Lago Agrio highway into the Rio Coca gorge.

The pipelines run parallel to the Quito-Lago Agrio highway, east of Quito, which collapsed into the Coca River gorge Friday. The government said the pipelines, which are 50 meters from the landslide area, were not breached but were shutdown and drained as a precautionary measure.

On Tuesday, the said that parts of the pipelines are being reposititioned and would not resume operation until the end of the month.

The majeure clause, which is invoked to remove liability from failing to honor contracts in the event of disasters, went into effect on Sunday, according to a statement on the website of state-owned oil producer Petroecuador. The country’s Trans-Ecuadorian Pipeline System and Heavy Crude Pipeline, as well as the Shushufindi-Quito petroleum products pipeline, had to be shut.

Ecuador’s third force majeure on oil contracts since the two Andean pipelines snapped last year deals a blow to President Guillermo Lasso, who aims to overcome years of stagnant production in the former OPEC member and more than double output to near 1 million barrels a day.

Coca River erosion near pipeline infrastructure has accelerated since the nearby Coca-Codo Sinclair hydro-electric power plant was inaugurated in late 2016. A landslide in April 2020 severed both crude pipelines, triggering spills and a temporary output cut of almost 60%.

International agencies, including the U.S. Army Corps of Engineers, are working to help find a solution to slow the damage from the aggressive erosion.

Petroecuador has begun to shut down production in several fields because the oil can’t be transported and it has limited storage space. The company owns the Trans-Ecuadorian pipeline, known as SOTE, while the other line, known as OCP, is owned by a consortium of oil companies.

The country’s crude output as of Dec. 9 was 482,000 barrels a day, according to the oil and mining regulator. Ecuador exported about 345,000 barrels a day of crude in October, while importing roughly 112,000 a day, based on the latest available data from the central bank.

The country imported around 110,000 barrels a day of gasoline and diesel in November, 66% of which came from the U.S., according to estimates from oil analytics firm Vortexa.

Petroecuador was due to award a term tender on Monday to purchase 11 cargoes of diesel for delivery starting December.


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