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Opportunities
The
United States Geological Survey in its “Assessment of Undiscovered Oil and
Gas Resources of the North Cuba Basin, Cuba, 2004”, estimated reserves
of 4.6 billion barrels of undiscovered oil, 9.8 trillion cubic feet of
undiscovered natural gas, and 0.9 billion barrels of undiscovered natural gas
liquids in Cuba’s North Basin.
If this
assessment is correct it will move Cuba
up the ranks, and side by side with other South American holders of proven
oil reserves such as Ecuador,
Colombia, and Argentina, but much lower than Mexico and Venezuela.
The
future of Cuba’s oil
and gas exploration and production sector is in the deep offshore Gulf of
Mexico waters, along the western approaches to the Florida
Straits and the eastern extension of
Mexico’s Yucatán Peninsula, making exploration and
production technologically challenging.
Cuba’s Exclusive Economic Zone (EEZ) in the Gulf of Mexico is an 112,000 square kilometers area
that has been divided in 59 exploration blocks of approximately 2,000 sq km
each at an average depth of 2,000 meters, with some blocks as deep as 4,000
meters. The EEZ lies within
demarcation boundaries, between Mexico,
Cuba, and the United States,
agreed in December 1977 during the administration of U.S. President Jimmy
Carter. Yet to be agreed is the maritime boundary for the Gulf of
Mexico’s Eastern Gap located off Florida’s
west coast.
As of
today, Cuba
has awarded twenty offshore blocks, representing five concessions,
to
international oil companies such as Spain’s Repsol,
India’s ONGC, Malaysia’s Petronas,
Canada’s Sherritt and Venezuela’s
PDVSA. If successful, these deepwater
projects would take from three to five years to bring into full development
at an estimated total capital investment cost of over $3 billion.
Current
commitments by international oil companies in spending hundred of millions of
dollars in exploratory work, along with the USGS new estimates of
undiscovered reserves, underscores Cuba’s oil and natural gas offshore
potential.
The
challenge for foreign oil companies operating in Cuba
would be how to commercialize future hydrocarbon production in the most
efficient and cost effective way as long as the United States economic and trade
embargo against the Cuban government remains in place. With the possible exception of PDVSA’s future revamped Cienfuegos refinery, Cuba
does not have the refinery or conversion capacity needed to process large
amount of heavy crude oil production in its two other refineries. The U.S. does have that refining
capacity, to process heavy crude oil.
Challenges
As of
2006 it is estimated that Cuba
had an internal demand of approximately 160,000 b/d of crude oil and refined
products. Due to the lack of heavy oil
refining capacity, Cuba’s
current onshore/coastal heavy oil production of approximately 68,250 barrels
per day is used directly as boiler fuel in the electric power, cement, and
nickel industries.
Under a
subsidized supply agreement, Cuba
imports its shortfall of about 90,000 barrels per day of crude oil and
refined products from PDVSA, Venezuela’s
national oil company.
Rice University’s
economists Amy Myers Jaffe and Ronald Soligo,
project that if Cuba
opens up its economy and develops a market economic system, the
country’s crude oil consumption would more than double to 349,000 b/d
by the year 2015. This anticipated
future demand would prevent Cuba
from becoming a net exporter of crude oil until projected production
surpasses the 350,000 barrel per day threshold.
Today,
just like during the 1970-80s, during the Soviet era, Cuba again
depends on over fifty percent of its oil supply from a single foreign source
at subsidized prices and preferential contractual payment terms. Such
relationship and dependence weakens any future transition and economic
growth.
For a
future Cuba,
it is important not only economically but also politically, to gain energy
independence free of any one single foreign crude oil supplier’s
influence.
Cuba’s long term energy
challenge begins with its future economic growth and rising standard of
living within an open market environment. This anticipated growth will depend
largely on the development of a competitively priced, readily available,
environmentally sound long term energy plan.
There
will be no sector, industry or infrastructure group that will not be directly
impacted and/or influenced by such a comprehensive energy policy.
A
future Cuban energy policy should embrace energy conservation, modernization
of the energy infrastructure, and a balanced sourcing of oil, natural gas,
sugarcane ethanol and other alternative energy sources in a way that protects
the island’s environment and plays a catalyst role in its economic
development and growth.
The
economic and political implications for the island, not only of becoming oil
self sufficient but also a possible net crude oil/products exporter, could become
a major challenge for future U.S policy toward Cuba.
Jorge R. Piñon is a senior research associate at the University of Miami’s
Institute for Cuban and Cuban-American Studies and former president of Amoco
Oil Latin America.
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