CUBA'S ENERGY FUTURE

CUBA'S ENERGY FUTURE
2007-05-09. Cuba On Focus, An Information Service of the Cuba Transition
Project, Institute for Cuban and Cuban-American Studies, University of
Miami, Issue 85, May 8, 2007
Jorge R. Piñon*
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 the 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 US 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.

http://www.miscelaneasdecuba.net/web/article.asp?artID=10102