Cuba: Waiting for oil boom
Cuba waits for its oil boom
Cuba is still waiting for its offshore oil rush since US experts said four years ago the island may sit atop nearly 10 billion barrels of deep-sea oil, revealing for Cuba an enormous economic Catch-22.
Cuba needs the technical expertise of major western oil companies to get to any of the unexploited crude. Yet on 7 February the US marked the 47th year of a trade embargo that has blocked producers with the technical ability to drill that deep, denying Cuba what could be a massive windfall.
Further taxing Cuba's oil industry is the fact that the US embargo not only prohibits American oil companies from investing, but bans the sale of the latest drilling equipment, forcing state oil company Cupet to use less efficient technology, said Jonathan Benjamin-Alvarado, a Cuban oil expert at the University of Nebraska at Omaha.
US law also forbids international companies from investing in expropriated American property in Cuba and could penalise offenders by revoking travel visas or restricting access to drilling contacts in the US portion of the Gulf.
A major discovery was supposed to transform Cuba into an oil exporter, drawing the foreign currency it needs to finance imports of food and machinery to modernise its communist economy and to raise stubborn state wages that average less than a dollar a day, said an Associated Press report.
With public debts mounting, the government was forced to buy out its two main drilling partners from a 25-year deal, and even high-ranking officials say Cuba now imports about half the roughly 200,000 barrels of oil consumes a day at a discount from leftist ally Venezuela.
The embargo and world economic crisis have undermined some of the appeal of costly deep-water drilling off the island, and Cuba's existing oil industry is floundering.
Output is thought to have dropped by a quarter since 2003 as its top field, found by Russians in 1971, dries up.
The US Geological Survey in 2005 estimated that as much as 9.3 billion barrels of oil could lie off the island's north coast, while Cuban geologists put that number at 20 billion barrels in October, said Rafael Tenreyro Perez, production manager Cupet.
Cuba's only deep-sea test well to date, drilled by Cupet and Spanish oil company Repsol in 2004, found just small amounts of "high quality reserves," while the Ministry of Basic Resources postponed drilling projects in 2007 and 2008, saying that unprecedented oil prices had made rig rental costs too much to bear.
With oil now 75% below its July peak, Repsol may start drilling a second well this year, Tenreyro Perez said, though the company declined to confirm.
Cuba has sought foreign partners, offering better terms than those offered by state-owned companies like in Mexico, which restricts foreigners to fee-for-service deals.
Cuba is offering foreign companies the chance to recover capital investments in the event of a discovery, and to split the spoils with the government.
Yet rights to 21 of Cuba's 59 offshore blocks have been bought since bidding began in 1999, and buyers from Vietnam and Venezuela to Madrid and Moscow have been slow to drill.
The island's top partners have been Canadian, with Toronto-based Sherritt International and Montreal's Pebercan accounting for about 60% of current production.
But the two companies said the island owed them a combined $501.3 million last year, so Cuba bought out their 25-year contract for $140 million.
Even with a big find, it could take five years and $3 billion to develop the 59 deep-sea blocks, which sit an average 6550 feet (2000 metres) below sea-level.
Obama's election has raised expectations of a thaw in US-Cuba relations, but there has been little talk of ending restrictions on US investment in Cuban oil, said Kirby Jones, founder of the US-Cuba Trade Association in Washington, DC.
"The assumption is there is oil all over the Gulf," Jones said. "Much of the business community and energy sector is waiting."