Wednesday, February 15, 2006

Energy: Cuba's Oil Reserves Becoming As Valued As Its Cigars

By Patricia Grogg

HAVANA, Feb. 14, 2006 (IPS/GIN) -- The need to find new oilfields to satisfy world demand, which could soon outstrip production, has prompted foreign oil companies to take an interest in offshore prospecting and drilling around Cuba.

According to predictions, global crude oil production is going to fall in terms of both quantity and quality. By around 2015 demand will have grown by about 60 million barrels a day above 2004 consumption levels, which stood at 75 million barrels a day.

The Spanish-Argentine firm Repsol YPF was the first to take up the challenge issued by the Cuban government in mid-1999, when it put out for tender 59 blocks for oil exploration in an area of 112,000 square kilometers within its exclusive economic zone in the Gulf of Mexico.

Repsol YPF has mining rights over six concession blocks with a total surface area of 10,702 square kilometers, and did its first exploratory drilling in mid-2004, at a depth of 3,410 meters.

The results only partially lived up to initial expectations, because although the oil found was of high quality, the well was not considered commercially viable. Previously, seismic tests had indicated that Yamagua-1, the well drilled more than 30 kilometers from the north coast of this Caribbean island, had a potential capacity of only 1.6 billion barrels.

Repsol YPF is now gearing up to resume operations, in partnership with Indian and Norwegian oil companies.

The Oil and Natural Gas Corporation of India confirmed that it will participate -- through its international exploration arm ONGC Videsh -- together with Repsol YPF and the Norwegian firm Norsk Hydro, in prospecting and drilling in Cuban waters.

ONGC Videsh and Norsk Hydro will each control 30 percent of the shares, while 40 percent will remain in the hands of the Spanish- Argentine company. According to experts, the involvement of the Norwegian company is a sign of the seriousness of the prospecting enterprise.

India, which imports 70 percent of the oil it consumes, has also negotiated separate concessions over two more oilfields in Cuba, as well as agreements for prospecting and joint production of oil in Venezuela. Venezuela supplies Cuba with approximately 90,000 barrels a day under preferential payment terms.

Norway is one of the world's leading producers and exporters of crude oil, ever since the discovery of large reserves off its coasts in the 1960s. It is also the chief source of natural gas in Western Europe.

China, whose fast-growing economy requires large imports of oil, and which maintains close political and trade ties with the government of Fidel Castro, has also been attracted by Cuba's oil prospects.

A contract signed last year by the state-run Cubapetroleo company and the Chinese oil firm Sinopec, one of the world's 10 largest oil companies, has paved the way for joint production in another of the country's potential oilfields.

According to analysts, Asia's giant sees energy scarcity as one of the greatest threats to its national security and social stability. Official Chinese sources indicated that China imported 42.9 percent of the energy it consumed in 2005, and forecast that this year the proportion would rise to 44 percent.

Studies point to the existence of undiscovered reserves of approximately 4.6 billion barrels of oil and 9.3 trillion cubic feet of natural gas in the Gulf of Mexico, an area shared by Cuba, Mexico and the United States.

The scent of a good business prospect that could be lost because of the four-decade U.S. trade embargo against Cuba drew representatives of U.S. companies to Mexico recently to meet with Cuban authorities and Cubapetroleo executives.

The Feb. 2-4 meeting was attended by representatives of Valero Energy Corp., Caterpillar Inc., the Texas Port of Corpus Christi, the Louisiana Department of Economic Development, the Lafayette Economic Development Authority, the National Foreign Trade Council and USA-Engage.

But the gathering was interrupted by the U.S. Treasury Department, which ordered the management of the Maria Isabel Sheraton Hotel in Mexico City to comply with U.S. legislation and expel the Cuban delegation from its premises, thus delivering a clear message that the White House will permit no cracks in the blockade.

The expulsion of the Cuban officials by a U.S.-owned hotel on Mexican soil in accordance with a U.S. law sparked a diplomatic row.

All the signs indicate that the U.S. energy sector will have to wait for the embargo to be lifted, or for political change in Cuba, as well as moves by Washington to dislodge the foreign oil companies that are already active in Cuba, should significant oil reserves be found there.

Cuba currently produces some 75,000 barrels of crude a day, covering nearly half of total domestic consumption. The rest is imported from Venezuela. About 95 percent of its domestic crude, which is very heavy and has a high sulfur content, is pumped in an area located between Havana and Matanzas, nearly 100 kilometers from the capital.

Also taking part in oil exploration in Cuba are Sherritt International and Pebercan from Canada. In addition, Brazilian state- owned oil giant Petrobras maintains a presence here in spite of the initial failure of its oil prospecting.

Articles published on, the Web site of the Association for the Study of Peak Oil and Gas (ASPO), predict that global oil production will peak in 2008, as demand continues to climb.

One of the problems that oil analysts point to is the marked reduction in the rate of discovery of large oilfields. In 2000, 16 oilfields with reserves of more than 500 million barrels were discovered. But in 2001 only eight were found, and in 2002 just three. Furthermore, it takes several years to get a new field into production.

This means that one-third of world oil production presently comes from oilfields where production is declining at a rate of approximately 4 percent a year, they report.

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