Cuban oil rigs could be built 45 miles off South Florida

Cuban oil rigs could be built 45 miles off South Florida
By Doreen Hemlock
Havana Bureau
March 17, 2008
Havana, Cuba

Imagine oil rigs drilling in deep waters just 45 miles off the coast of
South Florida. Refineries process the oil in Cuba and sell it across the
Caribbean and beyond. Canadian and Mexican companies supply billions of
dollars in equipment and services.

This could happen, as Havana is inviting foreign companies to explore
its probable oil and natural gas reserves while Washington's embargo
against the communist-led island keeps U.S. companies locked out.

South Florida is watching closely amid debate over drilling near its
shores and concerns about U.S. energy policy. Oil companies increasingly
seek to tap Cuba's deep-water reserves now that oil prices are soaring
and profits are more likely.

"In 34 years following Cuba, I've never seen an issue like this — so
strategically important to the United States," said Kirby Jones,
president of Washington-based Alamar Associates, who advises U.S.
companies on Cuba and opposes the U.S. embargo.

Cuba is courting oil investors to slash its dependence on foreign fuels.
The cash-strapped island can't afford to import all it needs, especially
with today's oil prices topping $100 a barrel. The island long relied on
the Soviet Union for subsidized oil and now depends on cheap supplies
from Venezuela that it pays for with services from its doctors and other
professionals.

Havana began opening to foreign investment in the early 1990s after the
loss of Soviet aid, and Cuba now produces almost half the oil and
natural gas it consumes. It drills mainly for heavy crude on or near
shore with help from Canadian companies.

But the big prize lies in deep-water reservoirs miles off the north
shore in the Gulf of Mexico. By some estimates, the area holds almost as
much oil and natural gas as the coveted Arctic National Wildlife Refuge
in Alaska — enough to meet Cuban demand for years.

Havana is forging deals with companies from Norway, Malaysia, India,
Vietnam, Spain and other nations to explore dozens of its 59 deep-water
blocks. Brazilian President Luiz Inacio Lula da Silva visited in January
to seal contracts for Petrobras, the global leader in deep-water drilling.

Analysts say it will take several more years and hundreds of millions of
dollars for the companies to figure out where to drill in waters often a
mile deep.

But if the pieces fall into place, offshore rigs could be working by
2012 not far from South Florida, said Jonathan Benjamin-Alvarado, a Cuba
energy specialist at the University of Nebraska in Omaha who has visited
the island many times.

"Cuba also could become a transshipment point for oil, refined products
and exports for the region," Benjamin-Alvarado said.

U.S. Sen. Bill Nelson, D-Fla., aims to head off those possibilities and
keep drilling far from Florida shores. In a long-shot move, he seeks to
scrap a 31-year-old accord that splits the 90 miles of water between the
United States and Cuba and to redraw the boundaries.

"Soon, there could be oil rigs within 50 miles of the Florida Keys and
the Florida Keys National Marine Sanctuary," Nelson wrote the Bush
administration in late January, after Brazil's president met then-Cuban
leader Fidel Castro. "And, as the Gulf Stream flows, an oil spill or
other drilling accident would desecrate part of Florida's unique
environment and devastate its $50 billion tourism-driven economy."

Today, U.S. companies are the only ones banned from Cuba under terms of
Washington's 45-year-old embargo. All other nations trade with the
island, the Caribbean's largest.

The American Petroleum Institute, representing U.S. oil industry
companies, long has rejected go-it-alone sanctions like the embargo on
Cuba. It seeks greater access to oil reserves worldwide, a spokeswoman
in Washington said.

Just four years ago, talk of Cuba becoming a serious producer of
deep-water oil seemed far-fetched.

In 2004, Spain's Repsol announced offshore finds but deemed oil samples
from Cuba not commercially viable.

But since then, oil prices have reached new inflation-adjusted highs and
the economics of oil have changed.

Furthermore, recent events in Venezuela have raised concerns about how
long President Hugo Chavez can keep up oil largesse to Cuba, now
estimated to top $2 billion a year.

Cubans worry that if Venezuela cuts off cheap oil they'll suffer
widespread blackouts as they did after the Soviet Union halted oil aid
in the early 1990s. Back then, with fuel in short supply and cash tight,
lights went out up to 16 hours a day and bicycles often replaced cars.

"The recent high-profile visit by Brazil's President Lula was a way to
show there's an alternative to Chavez, who can be so unpredictable,"
Cuban economist and political dissident Oscar Espinosa Chepe said at his
Havana home.

"But there's a downside. If those companies find oil offshore, it could
delay economic changes needed in Cuba," said Espinosa Chepe, explaining
that a more financially secure regime could tighten control. "When
Chavez started providing oil, Fidel rolled back market-oriented reforms."

Cuba still faces hurdles to exploit its huge north basin reserves,
estimated by the U.S. Geological Survey at 4.6 billion to 9.3 billion
barrels of oil and almost 1 trillion cubic feet of natural gas.

Deep-water rigs are in short supply worldwide and expensive to use,
sometimes $200,000 a day or more. Companies in Cuban waters also may be
banned from using some cutting-edge U.S. technology because of the U.S.
embargo. Older technologies could make exploration more expensive,
Benjamin-Alvarado said.

As plans proceed, analysts are figuring out which U.S. companies stand
to lose the most.

Big U.S. oil producers likely won't be shut out permanently, said Jorge
Piñon, former president of Amoco Latin America and now an energy fellow
at the University of Miami's Center for Hemispheric Policy.

Should the U.S. embargo on Cuba end, U.S. behemoths could swap some of
their holdings with partners elsewhere, such as PetroVietnam, for their
partners' assets in Cuba.

The big losers likely would be U.S. oil equipment and service companies,
such as Halliburton, which would need to get in early. They would be
shut out of mega-contracts to build refineries, pipelines, ports and
other basics. And their competitors, including Canadian and Mexican
companies familiar with the Gulf of Mexico area, would be supplying food
and other services to the oil industry, Piñon said.

For many Cubans, concerns over offshore oil are more immediate, however.

"If they find oil, things can get better," said Antonio Villar, 34,
taking a break from hauling trash in a tractor-pulled cart in Havana
province. "We could have more industry. The cost of living would go
down. And there'd be more food to eat, more variety of food."

Doreen Hemlock can be reached at dhemlock@sun-sentinel.com or 305-810-5009.

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