Could oil reserves prompt an end to embargo?

Posted on Mon, Jan. 22, 2007

Could oil reserves prompt an end to embargo?

PROSPECTS: If estimates of Cuba's offshore oil reserves prove accurate,
it could pressure the U.S. to lift its embargo and permit exploration by
U.S. oil companies. The island already has stepped up exploration for
oil and natural gas and expanded mining with foreign partners.
BY MARTHA BRANNIGAN
mbrannigan@MiamiHerald.com

Since the demise of the Soviet Union forced Cuba to crack open its doors
to outside investment, oil exploration and nickel mining have emerged as
lucrative ventures for foreign investors.

Cuba and its foreign partners are producing roughly 68,000 barrels of
oil a day, up from 18,000 a day in 1992, according to Jorge Piñon
Cervera, an energy expert at the Institute for Cuban and Cuban-American
Studies at the University of Miami.

Cuba still imports most of its oil and refined products -- about 100,000
barrels daily -- primarily from Venezuela on favorable terms. But it's
boosting efforts to produce more at home.

In recent years, Cuba has been auctioning blocks off its north coast to
foreign firms such as Spanish giant Repsol YPF and Toronto-based
Sherritt International for oil and gas exploration in joint ventures
with the government.

CLOSE TO HOME

Some of those exploration blocs are just 50 miles from Florida and
closer to the state's shoreline than the U.S. government permits for
domestic drilling. But under a 1977 treaty with the United States, the
area is part of Cuba's exclusive economic zone and drilling is allowed.

In 2004, Repsol disclosed its first oil strike -- quality grade light
crude -- some 18 miles off Havana, but said the well wasn't commercially
viable. Repsol teamed up with Norsk Hydro of Norway and India's Oil and
Natural Gas Corp. and is forging ahead on exploring other sites.

The potential is huge. The U.S. Geological Survey estimates reserves of
4.6 billion barrels of oil and 9.8 trillion cubic feet of natural gas
off Cuba's north shore -- a veritable bonanza -- though the estimate is
debatable and the offshore sites would be difficult and expensive to
exploit.

But if major deposits are discovered, it would intensify pressure on
Washington to rethink the embargo, at least on energy.

Cuba watchers aren't holding their breath for change during the Bush
administration -- even if Fidel Castro dies.

And since exploration is a long-term affair, ''I don't think there will
be a sense of urgency among U.S. oil companies to get into Cuba,'' says
Piñon.

Last year, Congress talked about exempting U.S. energy companies from
the embargo, a proposal pushed by the American Petroleum Institute, but
the effort fizzled.

Cuba's biggest foreign player is Sherritt, which arrived in Cuba in the
mid-1990s. The company says it is producing about 30,000 barrels of oil
a day with partner Pebercan of Montreal. Sherritt also has nickel and
cobalt mining operations and electricity generating facilities in Cuba.

''You have to build value and be seen as a partner that can move
forward, bringing technology to the table and training,'' says Sherritt
spokesman Michael Minnes.

VALUABLE NICKEL

Nickel was again Cuba's top export last year, as keen global demand for
the metal, used in steel making, has driven up prices. Sherritt plans
over time to boost its nickel capacity at Moa to about 49,000 tons a
year from 33,000 tons.

To be sure, doing business in Cuba is an ordeal for oil companies.
Pebercan, for example, announced last month that Cubapetróleo was two
months late on some $69 million in oil payments -- $37 million owed to
Pebercan and the rest to Sherritt.

Patrice Bedu, vice president of exploration for Pebercan, which finances
operations from cash flow because bank loans are hard to find, says ''We
are negotiating with the Cuban government to fix the problem.'' But he
adds: ``We maintain good relations with the government. It's a temporary
issue, we're sure.''

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