By Jorge R. Piñon, 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.
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 the refining capacity to process heavy crude oil.
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 US policy toward Cuba.