VZCZCXYZ0001
OO RUEHWEB

DE RUEHQT #0443 0572109
ZNR UUUUU ZZH
O 262109Z FEB 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6403
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6460
RUEHCV/AMEMBASSY CARACAS PRIORITY 2387
RUEHLP/AMEMBASSY LA PAZ FEB 0435
RUEHPE/AMEMBASSY LIMA PRIORITY 1432
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 1941
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 000443 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/EPSC FAITH CORNEILLE 
TREASURY FOR SGOOCH 
 
E.O. 12958: N/A 
TAGS: ECON EPET EFIN PREL EC
SUBJECT: FIRST VENEZUELAN DIESEL SHIPMENT ARRIVES IN ECUADOR 
 
REF:  Quito 173 
 
¶1.  (U) Summary: President Correa and Venezuelan counterparts 
celebrated the arrival of the first shipment of Venezuelan diesel 
under an Ecuador-Venezuela petroleum exchange agreement with a 
ceremony on board Venezuelan ship Manuela Saenz February 23.  The 
crude-for-derivatives exchange agreement is part of a larger set of 
cooperation agreements signed between the Correa and Chavez 
administrations January 16 (see reftel).  In exchange for the 
shipment and two additional deliveries planned for March, Ecuador 
will begin shipping crude to Venezuela March 15.  The GOE has said 
this arrangement will save Ecuador USD 1.5 per barrel in purchasing 
derivatives (close to USD 1 million for the three scheduled 
shipments).  End Summary. 
 
¶2.  (U)  President Correa, Ecuadorian Ministers of Energy, Culture, 
and Defense, President of state oil company Petroecuador, Venezuelan 
Energy Minister Rafael Ramirez, and Venezuelan Embassy officials, 
along with state oil company representatives from both countries 
attended the ceremony in the port of Balao, Esmeraldas.  Also 
present were representatives of state oil companies from Chile, 
Peru, Brasil, Uruguay, Colombia, and Argentina. 
 
¶3.  (U) Correa praised the arrival of the shipment, noting that 
Venezuela was able to deliver in less than 40 days what had not been 
able to be accomplished in four years for lack of political will. 
Venezuelan Energy Minister Ramirez spoke of Venezuela's disposition 
to create more petroleum sector contracts to benefit both countries. 
 Ecuador will send a government delegation to Venezuela shortly to 
seek further joint energy projects; Ecuador's Ambassador-designate 
to Caracas Rene Vargas has suggested the construction of a new 
refinery in Ecuador as a possibility. 
 
Details of the Exchange 
---------------------- 
 
¶4.  (SBU)  This first shipment totaled 220,000 barrels of diesel, as 
per the initial exchange agreement.  Two additional shipments of 
220,000 barrels each are scheduled to arrive in Ecuador between the 
15-17 and the 22-24 of March.  In exchange, Petrocomercial 
International Sales Manager Carlos Izurieta stated that Ecuador 
expects to ship 1.08 million barrels of crude during the first 
quarter of 2007, and expects to use an exchange rate of 1.5-1.6 
barrels of crude for one barrel of derivatives.  Venezuelan Energy 
Minister Ramirez confirmed that Venezuela expects the first shipment 
of Ecuadorian crude to arrive in Venezuela March 15.  Information on 
how much this exchange benefits Ecuador by purportedly "cutting out 
the middleman" is unclear - official GOE calculations put the 
savings for Ecuador at USD 1.5 per barrel of derivatives (a savings 
of close to USD 1 million for the three scheduled shipments), but 
details on this calculation have not been released. 
 
¶5.  (SBU) Comment:  The arrival of derivatives in Ecuador, on time 
and with the agreed quantity, appears to show a strong political 
will by the GOV to demonstrate that the crude-for-derivatives 
exchange is a serious and not merely a symbolic agreement that can 
deliver real benefits to President Correa and Ecuador.  Although we 
lack details, we suspect that the exchange may be an economic loser 
for Venezuela given transportation and other costs.  If Ecuador does 
indeed enjoy the reported cost savings from the exchange, it makes 
sense to continue with the arrangement.  If it turns out there are 
hidden costs for Ecuador, or if there is any delay in the arrival of 
derivatives from Venezuela (which could affect Ecuador's domestic 
energy supply), support for the arrangement could deteriorate. 
 
JEWELL