The lure of Cuban energy independence: One twist after another

Commentary: The lure of Cuban energy independence: One twist after another
Published on July 5, 2012
by Elena Maffei
Research Associate at the Council on Hemispheric Affairs

On May 29 during a press conference presenting Repsol's four-year
strategic plan, the company's president, Antonio Bufrau, announced that
the Spanish oil giant will almost certainly stop prospecting for oil in
Cuban territory after a costly well it drilled turned out to be dry.
This recent disappointment parallels the 2004 finding by Repsol that
established that its explorations on the northwest coast of the country
would not yield commercially viable quantities of oil. After spending
$150 USD million in explorations throughout the country, Repsol is
likely to turn its attention to more profitable fields in countries such
as Brazil and Angola.

With the conclusion of the Spanish company's operations on the island,
the Cuban dream for energy independence could vanish, especially
considering that the leased platform Scarabeo 9, is the only one allowed
to operate offshore in the Cuban Exclusive Economic Zone (EEZ), an area
of 112 square kilometers in the waters of the Gulf of Mexico. Repsol's
initial plan was to move the platform to a different location unless
another company stepped up to lease the oil rig, at a cost of $150,000
USD per day. The Spanish company, in consortium with Statoil of Norway
and the Indian ONGC, held an option to drill another well in the waters
of the Cuban EEZ. But Brufau was terse in rejecting the arrangement,
stating that the company preferred to concentrate its search for oil in
Angola and Brazil.

Unsurprisingly, Cuba does not want to abandon its quest for oil. In an
official statement, the Cuban government affirmed that Repsol's decision
does not eliminate the potential of the Cuban EEZ. He asserted that the
EEZ could eventually become one of the largest reservoirs of oil
production worldwide, given the high estimates regarding the country's
yet to be discovered hydrocarbon reserves. A U.S. geological survey, for
instance, projects a presence of approximately 5 billion barrels in oil
reserves in the country.(1) In light of such figures, this dry well
could be considered isolated and not totally symptomatic. Cuban oil
expert at the University of Texas Jorge Piñón affirms that two
unprofitable wells are not indicative of the presence or lack of oil
deposits in Cuba.(2)

The press release by the Cuban government clarifies that the exploration
will continue and that the semi-submerged platform Scarabeo 9
(previously utilized by Repsol) has now been moved to the Catoche 1X
sector, located north of the province of Pinar del Rio. The Malaysian
oil company Gulf PC is operating in the new drilling site in cooperation
with the Russian company Gazpromneft. Once this drilling is completed,
the Scarabeo 9 will be moved again, this time further to Cabo de San
Antonio 1X, and another round of drilling will likely commence under the
supervision of the state-owned Venezuelan oil company PDVSA (Petroleos
de Venezuela SA), which will hold the master lease on the platform.(3)

The Spanish company's decision to leave Cuba can perhaps be best
understood as a political move made by the country. At first glance,
Repsol's attitude may appear to reflect the new foreign policy now being
implemented by the freshly elected right-leaning Spanish government led
by Mariano Rajoy. However, it has become increasingly likely that the
main reason for this withdrawal is a strategic response by the Spanish
company after the Argentine government nationalized YPF, Repsol's former
affiliate in Argentina. Repsol may have been pushed to make this
decision after Cuba had lauded and supported the oil company's seizure
by Argentine President Cristina Fernández de Kirchner. As was easily
predictable, the Raul Castro administration is in support of the
Argentinian takeover of YPF, and even though this move seems consistent
with the ideology of Cuban leaders, it ended up being a risky and
counterproductive step for Cuba. Repsol's move came as a real shock,
disappointing not just President Raul Castro's dream of energy
independence for the Island, which now heavily depends on guaranteed
supplies from Venezuela (100,000 barrels per day), but the country's
need to revitalize its economy as well.

The Castro administration's desperate pursuit of energy security is also
motivating the country to develop renewable energy alternatives. In a
recent note published in the official government media outlet
Cubadebate, the administration made public its intention to increase
Cuban renewable energy production from 3.8 percent to 16.5 percent -- a
12 percent increase -- over the next eight years.(4) This is expected to
be achieved using mainly sugarcane and other sources of biofuel, but
also through hydraulic, solar, and wind sources. The government also is
considering expanding production of biogas by 10 percent by the end of 2013.

This new declaration, however, clearly shows the dogged will of the
Caribbean country to achieve energy independence. As Robert Zoellick,
outgoing president of the World Bank, remarked, it is obvious that if
Venezuela cuts its subsidies to Cuba, the regime would find itself in
some sort of precarious outcome, hence the need for new energy
sources.(5) However, the plan as outlined by Cuban strategists seems
unclear. In fact, Cuba appears to be moving down two very different and
contradicting paths; one is more classical in the hunt for black gold,
while the other is based on sustainable and efficient growth. Of course,
if Cuba finds oil in its EEZ, the discovery will definitely enhanced its
geopolitical outlook. But a cost-benefit analysis has to be made by the
Castro government. Cuba has great potential to develop an energy plan
that is both cheaper and environmentally sustainable, and now is the
time for it to unlock that potential.


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