Cuba: The revolution will not be energized

Cuba: The revolution will not be energized



No oil find means no easy way out for the island's economic woes.

Nick Miroff November 4, 2012 05:00



HAVANA, Cuba — Cuba's long, costly quest for socialism-with-oil appears

to be ending in little more than a string of empty holes across the

bottom of the Gulf of Mexico.



The latest attempt to strike crude in the deep waters off the island's

northwest coast has come up dry, the Cuban government announced Friday,

and industry experts say it'll likely be years before another rig tries

there again.



The bust is a relief to opponents in Florida who feared a cash windfall

for the communist government, and tourism officials in the state who

have been dreading the possibility of a Cuban spill fouling their beaches.



But the news is a gut-punch to Cuba's hopes for an oil injection to its

faltering economy, and President Raul Castro's attempt to save his older

brother Fidel's socialist system by introducing limited market

principles and new sources of job growth.



Cuban officials recognize that the country's overwhelming energy

dependence on the Soviet Union led to disaster when the USSR crumbled.

But Cuba's creaky, inefficient electrical grid continues to rely almost

entirely on imported oil and diesel fuel, most of which is sent today by

energy-rich ally Venezuela.



Venezuelan President Hugo Chavez provides the Castro government with

about 100,000 barrels of oil per day on highly favorable trade terms,

roughly enough to cover two-thirds of Cuba's energy needs. He was

re-elected to a new six-year term last month.



But Cuba was counting on an oil find in local waters to trigger a rush

of new foreign investment, and the ability to renegotiate some of its

debts. Now, ambitious plans for new petroleum storage and refining

facilities on the island may be scaled back, since they were partly

contingent on the rise of a Cuban oil industry.



"It's bad all the way around," said Jonathan Benjamin-Alvarado, a

professor at the University of Nebraska at Omaha who tracks Cuba's

energy sector.



"Cuba hoped the investment would help to advance energy development and

serve as a catalyst for broader economic expansion," he said. "I am

certain that this is devastating news for all the interested parties and

almost certainly chills the investment environment moving forward."



In the next few years, 81-year-old Raul Castro is looking to move

hundreds of thousands of state workers off government payrolls and into

more productive industries that could drive economic growth. The

island's tourism industry continues to expand, but revenue from

commodities like nickel and sugar has been sagging.



Cuba's prospects for big oil were sufficiently attractive that nearly a

dozen foreign companies signed deals with the Castro government to

explore offshore in the Cuban-controlled waters of the Gulf of Mexico.



More from GlobalPost: Cuba watches 2012 US election closely



But drilling for oil is often a game of miss-and-miss, analysts say, and

the failure of several foreign firms to reach commercial quantities of

crude in Cuban waters is not proof such reserves are nonexistent.



The Cuban government's statement Friday didn't say the country was

giving up on its search even though the latest well — opened in

partnership with Venezuela's state oil company PDVSA — was another dud.



"Although this well does not offer possibilities for commercial

exploitation, the results obtained in the exploration will permit the

guidance and expansion of the operations on the blocs of Cuba's

Exclusive Economic Zone in the Gulf of Mexico," said a statement from

government oil firm Cubapetroleo that ran in the Communist party

newspaper Granma.



But although Cuba and its partners have the will to keep digging, they

won't have a rig, oil industry experts say.



The rig they've been using — the Chinese-built, Italian-owned Scarabeo 9

— is departing for most promising waters in Africa, according to experts

consulted by Reuters.



At a rental cost of more than $500,000 a day, Scarabeo 9 is the only rig

in the world built to comply with US trade sanctions against Cuba that

mandate no more than 10 percent American technology may be used.



Without the Scarabeo 9, says former oil executive Jorge Pinon, Cuba will

be "out of the 'game' for a long time with no 'shovel.'"



Cuba's best prospects for developing new oil resources now rest with

Russian state firm Zarubezhneft, which has plans to explore in shallower

waters using a Norwegian-built platform. But that rig will operate in an

area of the Gulf that offers far poorer prospects for a quality find,

and there has been no confirmation that it will arrive this month as

previously announced.



Without an oil find to give Cuba a quick financial boost, communist

authorities may need to look onshore for new economic prospects, further

liberalizing the island's small private sector and offering bigger

incentives to foreign companies that might invest in agriculture,

tourism and other proven moneymakers.



More from GlobalPost: Cuba Kapital, an in-depth series on Cuba's

economic reform

http://www.globalpost.com/series/cuba-economic-reform



http://www.globalpost.com/dispatch/news/regions/americas/cuba/121103/castro-offshore-oil-exploration-gulf-venezuela-chavez