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Cablegate: First Venezuelan Diesel Shipment Arrives in Ecuador

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

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