Monday, June 30, 2008

Cuba's Oil Partners

Latin Business Chronicle

Monday, June 30, 2008

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.

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

BY LATIN AMERICA ADVISOR

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.

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