CUBA
Cuba oil boom may complicate U.S. embargo
As Cuba's oil potential grows, a Canadian company has disclosed plans to
export the island's petroleum and set up a possible clash with the U.S.
trade embargo.
BY JANE BUSSEY
jbussey@MiamiHerald.com
The discovery of oil in the Florida Straits and near the Cuban shoreline
-- potentially billions of barrels of reserves -- has boosted Cuba's
energy prospects and drawn the attention of the U.S. oil industry.
Now, a small Canadian energy company, Sherritt International, says it
plans to export Cuban oil for the first time -- a move that could put
the crude on a collision course with the U.S. trade embargo against Cuba.
Details are few, but questions about the move go to the heart of the
embargo: Where will the oil be refined? And how could Sherritt
International or subsequent handlers keep the Cuban crude out of fuel
being exported to the United States?
The issues rise as the oil and gas industry turns its gaze to the
prospect of oil drilling off Cuba -- currently forbidden fruit for U.S.
companies.
Sherritt International, in a report about its record 2006 earnings, said
that in 2007 it ``plans to export a portion of its Cuban production as a
consequence of anticipated production growth and limited demand for
domestic heavy oil.''
Sherritt, which had revenue of about $1 billion U.S. in 2006, produces
an estimated 68,000 barrels of crude oil in Cuba. Michael Minnes,
company spokesman, said plans for exporting the oil are still under
discussion.
''We respect U.S. law,'' Minnes said from Sherritt's Toronto
headquarters. ``We have no intention of selling it into a situation that
would affect the embargo.''
Minnes said demand in Cuba for the oil has dropped because the island is
increasingly using diesel generators for electricity production instead
of burning crude.
Sherritt doesn't currently have offshore wells; instead, its onshore
equipment drills horizontally into petroleum reservoirs located under
the water.
The Sherritt International plans drew fire from Cuban-American U.S. Rep.
Lincoln Díaz-Balart, R-Miami.
'Sherritt is on the `short list' of companies that will have very
serious civil as well as criminal legal problems in Cuba when the Cuban
people recover their sovereignty and have a government that fights for
their rights,'' Díaz-Balart said.
''Their oil investments will involve but a small part of their legal
problems once the rule of law returns to Cuba,'' the lawmaker said in a
statement e-mailed to The Miami Herald.
There was no immediate response to an e-mail and a phone call to the
Cuban Interests Section in Washington.
STICKY PROBLEM
Oil expert Jorge R. Piñon said Sherritt or any other oil company would
face the challenge of how to commercialize crude oil outside of Cuba
without breaking the U.S. embargo, in place since the early 1960s.
''Inevitably wherever this crude oil is processed in the Caribbean
region, there is a high probability that its byproducts will find their
way into the U.S. markets,'' said Piñon, a former oil executive who is
now a senior researcher at the Institute for Cuban and Cuban-American
Affairs at the University of Miami.
Sherritt International, in a joint venture with the Cuban government,
has been drilling for oil in Cuba for more than a decade, gradually
increasing production to the point that domestic production provides
almost half Cuba's petroleum needs. Venezuelan refined products make up
the rest.
But what has tantalized the oil industry was a report that Spanish
energy company Repsol-YPF struck offshore oil in 2005 -- even though it
wasn't a commercially viable well. In 2005, a U.S. Geological Survey
report estimated Cuba's potential petroleum reserves could run some 4.6
billion barrels and natural gas reserves could total trillions of cubic
feet.
EXPLORATORY DRILLING
''This would make Cuba a major oil player in the region,'' Piñon said.
With European, Asian and South American firms gearing up for more
exploratory drilling around Cuba, U.S. oil companies and equipment and
service suppliers are looking longingly at the potential bonanza.
U.S. OIL FIRMS OUT
The U.S. trade embargo bans American companies from doing business in
Cuba, with exceptions for food and medicine, and the Bush administration
has been increasingly aggressive about enforcing it.
''U.S. policy toward Cuba is to encourage a democratic, market-oriented
transition,'' said Eric Watnik, State Department spokesman. The Treasury
Department's Office of Foreign Assets Control has oversight over
enforcing the embargo.
Last year, Sen. Larry Craig, R-Idaho, and Rep. Jeff Flake, an Arizona
Republican, both critics of the embargo, introduced legislation to
broaden the exemptions to allow the oil and gas industry to bid on Cuban
contracts. But that effort went nowhere.
Legislators are currently discussing what form the bill should take to
be reintroduced in the new Democratic-controlled Congress.
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