Oil and gas in the capitals

	Vol. 229 No. 9
DAYSE ABRANTES, CONTRIBUTING EDITOR, SOUTH AMERICA

The other coastal drilling ban

The dazzling 2,008-drum opening ceremony at the Olympic Games in Beijing was mind-boggling to behold. The precise, immense display of discipline and harmony starkly contrasts with muffled reports of horrendous human rights violations and press and Internet censorship.

Absent also is any discussion of China’s mercantile export policy, which floods world markets with cheap goods produced by workers earning sub-par wages, and is breaking the back of manufacturing sectors in several countries.

Despite these offenses, many self-declared diehard anti-Communists salivate at the prospect of doing business with such an enormous market. At the same time, a little Communist island nation with an economy in shambles inspires fear and hatred from many businessmen, despite the massive wads of petro-dollars that could be made by doing business with Cuba.

Why doesn’t the US government forget about animosities and open a way to negotiate with Cuba as it did back in 1972 with China? ask many analysts.

In 2004, the US Geological Survey estimated the North Cuba Basin to contain a mean case of 4.6 billion bbl of oil, with a high-end potential of 9.3 billion bbl, and a mean case of close to 1 Tcf of gas.

On July 1, 2008, Cuban authorities confirmed the existence of a huge reservoir containing 20 billion barrels of oil off the country’s shore in the Gulf of Mexico. “We are going to change the history of the island,” said Fidel Rivero, president of state-owned oil company Cubapetroleo (Cupet).

A major oil find could give the Havana regime a new lease on life. “Cuba could be a major regional player in oil,” says Jorge Piñon, an oil expert at the University of Miami and a former president of Amoco Oil Latin America.

Cuba claims 59 blocks of deep Gulf of Mexico waters in an economic exclusion zone adjacent to US waters. Of those blocks, 28 have been reserved by seven foreign companies for exploration. Cuba has sold rights to about one-third of its offshore blocks.

No, according to independent energy experts, China is not yet drilling for oil in Cuba, despite recent claims by top American politicians. But China’s state-run CNOOC is a minor partner on some exploration leases in Cuban waters.

Nevertheless, the embargo continues to have strong support from some states, particularly Florida, whose politicians have expressed concern that offshore drilling might spoil its pristine beaches.

It is indeed ironic that President George W. Bush and then-Florida Gov. Jeb Bush have ensured that a 125-mile Florida buffer will keep US drillers further away from Florida than Cuban drillers will have to be.

Even if the most promising blocks have been taken, ending the embargo would still open up significant exploration opportunities for US companies. And Cuban officials say US companies would receive the same treatment as others. “American energy companies and investment are welcome in our country,” Ernesto Plasencia, Cuba’s commercial attaché in Washington D.C., told Fortune magazine in March 2007.

Even now, Cupet’s Rivero said American oil executives are visiting Cuba to find out more about the island’s oil potential, “but they’re coming in as tourists, through the back door.”

Cuba’s oil production has been increasing, but remains puny-just 68,000 bpd. With help from the Soviet Union, oil was discovered in Varadero in 1971. Recently, Russian Prime Minister Vladimir Putin told news agencies that it is time for Russia to rebuild links with its former Cold War ally. Russian oil companies have seen “sufficiently promising prospects” to join the Cubans as partners in exploration of the Gulf of Mexico, off the northwestern coast of the island, Russian Energy Minister Sergei Shmatko told the ITAR-TASS news agency recently.

Venezuela’s PDVSA is already a major oil partner, with concessions on blocks in Cuba’s Gulf territory. Investment for building and modernizing refineries is taking place, as well as barter: Cuba consumes 145,000 bbl per day of oil, of which 92,000 bpd comes from Venezuela at cut-rate prices, in exchange for which Cuban doctors work in Venezuela’s shanty towns.

Others partners include Spain’s Repsol-YPF, India’s ONGC, Norway’s Norsk Hydro, the Vietnamese state oil and gas group Petrovietnam, Malaysia’s state-run Petronas and Canada’s Sherritt International.

Cuba, looking past the US and its deepwater technological achievements, has been in talks with Brazil’s Petrobras, which has “mucho” deepwater expertise.

Cuban production was never much more than 18,000 bpd until Canada’s Sherritt International arrived in 1992 and started joint production with Cupet. Sherritt is the largest domestic oil producer in Cuba, entirely onshore, representing two-thirds of total production, said Elvin Saruk, the company’s senior vice president.

The Canadian company has vertically integrated operations, with seven production sharing contracts, 31,005 gross bpd production in Cuba during the first quarter of this year, proved and probable reserves of 50.5 million barrels plus 7 billion barrels of original oil in place.

Some in the US who favor lifting the embargo also argue that with its potential for producing clean, renewable, sugar-based ethanol, Cuba represents a significant source of energy that will remain unavailable to American consumers unless the embargo is lifted.

With the embargo, a nearby potential source of oil will be off limits to the energy-thirsty US, and the American oil industry will miss out on billions of dollars of business, agree a growing chorus of oil experts, including Kirby Jones, founder of the US-Cuba Trade Association in Washington.

Some day, maybe soon, an oil executive is going to report a major oil strike, perhaps as close as 50 miles off South Florida, and light a Cuban cigar. Most likely that executive will not be an American.

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