Tuesday, September 12, 2006

Cuba oil prospects cloud US horizon

BBC

Last Updated: Monday, 11 September 2006, 15:55 GMT 16:55 UK

By Laura Smith-Spark
BBC News

The discovery of potential deep-water oil and gas reserves off Cuba's northern coast has caught the eye of the world's energy-hungry nations.

ndia's state-run oil firm ONGC, already signed up to exploration in the area, has just upped its stake - the latest to place its bets on a Cuban oil rush.

The 44-year-old US trade embargo, meanwhile, continues to bar American companies from doing business with the Caribbean island.

But, some observers are asking, can the US really afford to risk losing out on valuable energy resources only 50 miles (80km) off Key West?

The prospect of nations such as China, Venezuela or India lining up to exploit Cuban oil has already led some politicians to call for the embargo to be relaxed.

They want US oil companies to be able to bid for exploration rights - and for environmental laws to be relaxed to allow drilling in the adjoining US waters.

Others insist the embargo must remain in force in order to keep pressure on Cuba's President Fidel Castro over human rights.

Gulf promise

Cuba's share of the Gulf of Mexico was established in 1977, when it signed treaties with the US and Mexico.

A US Geological Survey report published last year estimates that 4.6 million barrels of oil and 9.8 trillion cubic feet of natural gas could lie within that zone, in the North Cuba Basin.

Cuba had already parcelled its 112,000 sq km (43,240 sq mile) territory into 59 exploration blocks, which it opened up to foreign companies in 1999.

Initial test drilling results and rising oil prices have combined to make the potential deep-water reserves a promising prospect.

Six foreign companies have signed up for 16 of the blocks, according to Fidel Rivero, director general of Cuba's state oil company, CUPET.

Canadian firm Sherritt has taken the rights for four blocks and is already involved in on-shore oil production in Cuba, off Varadero - as is China.

India's ONGC announced its investment in two blocks on Sunday, saying it presented the opportunity of "great finds".

In May this year it agreed a 30% stake in a separate six-block venture with Spanish firm Repsol YPF. A further 30% share was taken by Norway's Norsk Hydro.

Jorge Pinon, an energy consultant working for the Institute for Cuban and Cuban-American Studies at the University of Miami, said the involvement of Norsk Hydro - a leading offshore oil producer - was significant.

"It gives an indication that the geology of the area must be extremely positive and has a high possibility of producing oil in commercial quantities," he told the BBC News website.

However, even if good quality reserves are found, he believes it will be at least five years before production really gets going because deep-water rigs are in short supply.

Rival legislation

The debate over Cuba's potential oil reserves has been making waves in Congress.

Our current policy doesn't serve our energy needs, environmental concerns, or economic principles
Congressman Jeff Flake

This summer, Republicans Jeff Flake and Larry Craig introduced twin bills to the House of Representatives and Senate respectively that would exempt American "big oil" from the embargo.

Congressman Flake, who represents Arizona, described the ban on trade with Cuba as "archaic policy".

"Our current policy doesn't serve our energy needs, environmental concerns, or economic principles," he said.

Two Florida Democrats, Senator Bill Nelson and Congressman Jim Davis, countered with rival legislation which would deny US visas to the executives of foreign oil firms which drill in Cuban waters.

They warn of the potential environmental threat, should deep-water drilling lead to oil spills.

"At risk are the Florida Keys and the state's tourism economy, not to mention the $8bn that Congress is investing to restore the Everglades," said Sen Nelson.

Future thaw?

Meanwhile voices from the Cuban-American lobby argue that loosening the embargo would weaken the US government's ability to pressure Cuba on human rights.

The Cuban American National Foundation, an anti-Castro exile group based in Miami, has called instead for trade restrictions to be tightened further.

Speculation over a possible future thaw in US-Cuba relations has been heightened by Fidel Castro's recent illness and temporary delegation of power to his brother, Raul.

While few people believe Cuba's oil prospects augur an immediate end to the decades-long embargo, some believe it is a step in that direction.

One of those is Kirby Jones, president of the US-Cuba Trade Association, an organisation which seeks to normalise trade relations between the two nations.

"It's really the 800lb gorilla waiting to knock on the door," he told the BBC News website.

"As soon as Cuba actually once again initiates exploration - as soon as there's an oil platform scheduled to be in their waters - I think we will see a lot more interest and US companies very active.

"It's really the first time ever in the history between the US and Cuba that there is a strategic cost to maintaining the embargo.

"[Cuba's oil] will be explored, there's no question about that - it's whether the US will share it, or maintain the embargo and let it go to China, India, Norway."

Daniel Erikson, Caribbean programmes director at the Inter-American Dialogue, a Washington policy group, points out that Cuba has said US firms would be welcome to explore its waters.

"It's being watched with a fair amount of interest by oil and gas companies in Texas and elsewhere," he said.

However, he also sounds a note of caution. Few firms have the technology to drill deep enough to reach Cuba's potential oil reserves - and, if proven, their depth would make them costly to exploit.

"Companies aren't going to push for any change to US law unless they really know that Cuba has substantial reserves," he said.

"So what we are seeing now is a certain level of interest - but not necessarily something that's really going to up-end the Cuban embargo."

No comments: