Monday, June 30, 2008

Cuba's Oil Partners

Monday, June 30, 2008
Cuba's Oil Partners
Eight countries, led by Venezuela, are actively working in cooperation
with Cuba's oil production enterprise to develop various sectors of
Cuban oil and gas resources, one expert points out. (Photo: Cubaenergia)

Who will help Cuba exploit its offshore oil wealth? Three experts share
their insight.

Inter-American Dialogue

Cuba reportedly plans to start drilling sometime next year to access
several billion barrels of crude believed to lie off the country's
coast. With Cuba's limited resources and technology, who will help the
Caribbean nation exploit its offshore oil wealth? Will US companies be
allowed to be involved? What impact would production from the fields
have on Cuba's economy?

Philip Peters, Vice President of the Lexington Institute and author of
The Cuban Triangle blog: Vice President Cheney erred when he said that
Chinese companies are drilling for oil in Cuba's Gulf waters, but he
sure got this right: 'even the communists have figured out that a good
answer to higher prices means more supply.' Cuba has sold rights to
about one-third of its offshore blocs; foreign partners pay their own
exploration costs and share in the profits of any production. There is
only one known plan to drill: Repsol, leading a consortium that includes
Norsk Hydro, drilled in 2004 and will drill again next year. That's a
sign of confidence on the part of those companies, but even if they hit
the jackpot they are years away from delivering oil to market. Cuba's
domestic production now covers about half of Cuba's energy needs. About
70,000 barrels per day of added output would make Cuba self-sufficient.
Gulf oil has the clear potential to end Cuba's perennial foreign
exchange crunch, and to make the Venezuela relationship less
indispensable for Havana. American companies are barred from
participation in any part of Cuban energy development: onshore,
offshore, ethanol, oil, gas, exploration, production, refining.

Vicki Huddleston, a Visiting Fellow at the Brookings Institution and a
former Chief of the US Interests Section in Cuba: Citing rising oil
prices, President Bush called for repealing the ban drilling for oil
along our continental shelf. Vice President Cheney, in an effort to
justify US drilling in offshore waters, claimed that China was drilling
for Cuban oil 60 miles from the Florida US coast. Ironically, neither
Bush nor Cheney have any intention of allowing American companies to
exploit any of the 4.6 billion barrels of unproven oil reserves or the
9.8 trillion cubic feet of natural gas off of Cuba's coast. Yet,
allowing US petroleum companies to do so would go a long way toward
resolving both their concerns. If we had access to Cuba's offshore oil,
it would diversify our sources—Venezuela is now our fifth-largest
supplier—and help dampen the upward price spiral at the pump. If
American companies with expertise in oil exploitation and protection of
the environment were able to cooperate with the six oil companies that
have contracts to search for Cuba's offshore resources, we would have
considerably greater confidence that the latest and safest technology
would reduce the environmental impact and diminish the possibility of a
spill that might impact states along the Gulf of Mexico. Critics will
argue that allowing American companies to become involved in exploiting
Cuba's oil is a concession to an autocratic government. But excluding
American companies will not prevent others from doing so nor change the
Cuban leadership. Rather, it will simply exclude us from a new source of
oil and possibly heighten the risk to the environment. As the
competition for oil grows, our isolationist policy may become more
costly to us than to Cuba.

Jonathan Benjamin-Alvarado, Associate Professor of Political Science at
the University of Nebraska: In spite of the US economic embargo against
Cuba, no less than eight countries, led by Venezuela, are actively
working in cooperation with Cupet, Cuba's oil production enterprise, to
develop various sectors of Cuban oil and gas resources. This includes
joint venture agreements worth billions of dollars in foreign direct
investment to develop increased refining capacity, petrochemical
facilities, and deepwater oil exploration. At this moment, there is
little or no chance that any US oil companies will be involved because
of the embargo. This is not to say that there isn't significant
interest, but barring a sudden reversal of the 50 year-old opposition to
the Cuban regime, the prospects are dim that any US companies can be
involved. With a new administration or a significant oil find, the US
position might change, but it will require revoking many of the elements
of the Helms-Burton Act of 1996. The estimated size of the offshore oil
reserves are about half the size of the ANWR reserves in Alaska and
would provide a significant boost to the Cuban economy in terms of
investment in and technological transfer to the energy sector. In no way
would the impact negate the fact that Cuba must also develop alternative
energy sources, as it will remain a net oil importer for some time as
resources are developed. This is a fact that Cuban officials are
cognizant of and working diligently to address.

Republished with permission from the Inter-American Dialogue's daily
Latin America Advisor newsletter.

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