Oil spill: a boon for Cuba?

Oil spill: a boon for Cuba?
The Gulf oil spill could mean more drilling off Cuban coast.
By Nick Miroff
Published: June 4, 2010 06:44 ET in The Americas

HAVANA, Cuba — The worst oil spill in U.S. history may not be such a bad
thing for Cuba — assuming that the crude now fouling up the Gulf never
reaches the island's shores.

It's an environmental threat that also comes with a potential economic
opportunity. Cuba's untapped offshore reserves are growing increasingly
attractive to U.S. oil companies with every gushing barrel into the
Gulf, some experts say.

Cuba has 4.6 billion barrels of oil and 9.8 trillion cubic feet of
natural gas in undersea deposits off its northwest coast, according to
U.S. Geological Survey estimates, enough to put the country on par with
major regional exporters like Colombia and Ecuador. Cuban geologists say
there may be four times that amount in vast hydrocarbon pools under
Cuban-controlled waters farther out into the Gulf.

The Castro government has already signed deals with nearly a dozen
foreign oil companies interested in drilling those waters, including
Brazil's Petrobras, Norway's Statoil and a unit of India's ONGC. It has
also extended invitations to U.S. oil companies, which are currently
barred from doing business with Cuba under the half-century-old trade
embargo.

The restrictions have been enforced so zealously that when American oil
executives attempted to meet with Cuban officials at a 2006 energy
summit in Mexico, the U.S. Treasury Department had the Cuban delegation
kicked out of the conference hotel.

But several events in the past few weeks have brought the U.S. oil
industry closer to Cuba. For the first time, Treasury officials have
given American oil industry representatives permission to travel to
Cuba, having denied previous travel requests. Executives from the
International Association of Drilling Contractors say they're now
preparing a three-day visit to the island to discuss safety and
environmental standards with their Cuban counterparts.

At the same time, Cuba and its foreign partners are moving forward with
their own offshore agenda. According to Reuters, Spain's oil giant
REPSOL has contracted for a Chinese-built rig that could begin drilling
in Cuban waters later this year. That plan raises new concerns about the
possibility of environmental damage to Florida if an accident were to
occur on a rig in nearby Cuban waters.

Because of the embargo's trade restrictions, Cuba would have no access
to the U.S.-based companies that respond to oil spill disasters and
conduct cleanup operations, according to a recent white paper authored
by the drilling contractors association.

"This island nation continues to gear up for serious offshore drilling —
including in deep waters in relative proximity to Florida's coastlines,
beaches and marine habitats," the document warns. "A blowout offshore
Cuba could wreak catastrophic environmental consequences on the U.S. far
worse than in Cuba itself."

The association's president, Lee Hunt, said his group was not traveling
to the island to conduct business with the Cuban government. He said the
purpose of the trip was to share information on safety practices and
environmental safeguards.

Several of the foreign companies being considered for drilling in Cuba
are also members of a Houston-based trade group, Hunt noted.

Still, Cuba energy experts say that the Deepwater Horizon disaster has
forced the U.S. government to allow American oil companies to begin to
engage with Cuba, a step that could chip away at the trade embargo. An
energy bill in the U.S. Senate sponsored by Sen. Lisa Murkowski
(R-Alaska) and Sen. Mary Landrieu (D-La.) includes a provision that
would essentially exempt U.S. oil companies from the Cuba trade embargo,
arguing it would be in the interest of national security.

And if the massive Gulf oil spill makes drilling in U.S. waters more
difficult, it makes Cuba all more appealing, according to Jorge Pinon, a
Cuba energy expert at Florida International University and the former
president of Amoco Oil Latin America.

"If the U.S. government places onerous restrictions — taxes, legal,
bureaucratic red tape, etc. — on oil companies operating in the U.S.
Gulf of Mexico, it will force them to explore and develop hydrocarbon
resources on the Cuba side of the Gulf of Mexico," said Pinon, who
advocates U.S. involvement in Cuba's oil industry.

While it seems hard to fathom now, he said, "there is a chance that in
three to five years the fiscal and commercial terms and conditions for
drilling for oil and gas in Cuba will be more attractive than in the U.S."

Pinon: "If major resources are found, Cuba could eventually become an
important and strategic supplier of oil to the U.S."

Multiple legal and political barriers would stand in the way of such a
partnership with the Castro government. But the U.S.'s pressing energy
needs and the threat of another environmental disaster could force the
long-estranged neighbors into a new relationship, said Jonathan
Benjamin-Alvarado, a political scientist and Cuba energy scholar at the
University of Nebraska at Omaha.

"Trust and confidence building measures will have to be monitored and
evaluated at a pace amenable to both governments," he said.

Cuba currently produces about 60,000 barrels of oil a day from onshore
wells, according to Cuban government data, while receiving more than
90,000 barrels per day in oil and petroleum products from major ally
Venezuela. The REPSOL operation is being watched closely, since major
oil revenues would provide a huge boost to Cuba's perpetually struggling
economy.

Dissident economist Oscar Espinosa Chepe said that he didn't think U.S.
involvement in Cuban oil development would necessarily be an obstacle to
democratic reforms on the island. "The drilling is going to happen one
way or another," he said. "I would rather have the United States involved."

http://www.globalpost.com/dispatch/commerce/100602/oil-drilling