Cuba’s oil prospects pose dilemma for U.S.

On May 12, the Cuban government took advantage of an international meeting on oil drilling safety in Trinidad and Tobago to announce that drilling is about to begin for offshore wells in deep water off Cuba’s northeastern coast. The amounts that might be eventually produced are substantial and of potentially high quality, and could radically improve the socialist island’s economic prospects. In the United States, this has produced varied reactions, from calls for action to stop the drilling, to calls for an end to the 50 year U.S. economic blockade of Cuba.

Cuba has produced oil in the past, but in relatively small quantities and of a quality that has limited its use. Before the collapse of the Soviet Union, that country was Cuba’s major oil supplier, in a mutually favorable arrangement between the socialist states. After 1991, Cuba’s access to oil and refined petroleum products was drastically cut (there was a 19% drop in 1991 and another 22% drop in 1992, with even bigger drops in subsequent years).

Cuba’s response was to cut back on domestic oil use, while looking for alternative sources. Though the cutbacks inspired some innovative approaches to efficient energy use, they also had a negative impact on the living standards of the Cuban people, affecting electrical generation, public and private transportation and many other things. Imported oil also became more expensive for Cuba. The U.S. economic blockade, under which foreign companies trading with Cuba are fined and sometimes excluded from U.S. markets, also drove up the price of all Cuba’s imports.

After the election of President Hugo Chavez of Venezuela, and especially after a U.S. supported coup against him fell flat in 2002, Venezuela in effect came to Cuba’s rescue. Through the PETROCARIBE organization, whereby Venezuela supplies oil to most countries of the Caribbean area on very favorable credit terms, Cuba was able to up its imports of petroleum. Venezuelan oil imports to Cuba have sharply increased, by 32% in 2008 alone. Cuba has been paying for some of this Venezuelan oil by sending doctors, teachers and other specialists to help Venezuela.

In 2004, European oil explorers found large potential undersea oil reserves off Cuba’s northwest coast. The U.S. Geological Survey estimates the quantity at between five and ten billion barrels, but the Cubans themselves say they might be as much as 20 billion barrels. In either case, these are very significant finds.

Presently, Cuba produces about 60,000 barrels per day of its own oil and imports more than twice as much, approximately 150,000 barrels. Once the Cuban undersea sources come on line, the ratio might change drastically, turning Cuba from an oil importer to a major oil exporter. This would create thousands of jobs, as well as solving problems of transportation, electrical generation and production.

Moreover, the offshore reserves are said to be of high quality, with a low sulfur content. However, they are in the deep ocean, about 5,000 feet down, which means complicated and expensive drilling technology. As this is about the same level as the Deepwater Horizon well whose failure led to an ecological disaster last year, it also raises safety concerns.

The initial wells will be 20 miles north of Havana and 60 miles from some of the Florida Keys. Cuban scientists at the Trinidad meeting stressed safety measures they are implementing to prevent an incident like Deepwater Horizon.

The initial drilling of five test wells will be carried out by the Spanish company Repsol YPF, which is bringing over a Chinese constructed, Italian owned platform, with plans to get the operation going by this fall. Brazil is helping finance the conversion of the port of Mariel, about 50 miles West of Havana, into an oil facility, and Venezuela is helping Cuba to restore a USSR built refinery at Cienfuegos, about 150 miles Southeast of Mariel.

U.S. Interior Secretary Ken Salazar expressed “concern” about Cuba’s plans, while anti-Cuba politicians from South Florida called for drastic action to stop the Cuban drilling, for example by denying visas to officials of any foreign companies that help the Cuban effort.

On the other hand, oil industry experts say the United States is potentially losing out on a good deal: The Cubans have stated that they are open to letting U.S. companies in on the possible bonanza, but current U.S. law punishes U.S. citizens and corporations who trade with Cuba. Furthermore, the prohibition on cooperation with Cuba would worsen safety concerns, as U.S. entities with expertise on drilling safety would be forbidden to advise the Cubans, even if an actual emergency were to arise.

NPR quotes John McAuliffe of the Fund for Reconciliation and Development as saying “..there is only one way to minimize the risk, and that is to have the kind of collaboration with Cuba that we have with Mexico and the Bahamas and any other country that is exploring for oil” near U.S. shores.

Photo: The Camilo Cienfuegos oil refinery in Cienfuegos, Cuba. Ismael Francisco, Prensa Latina/AP