Hopes of big oil find off Cuba raise questions on US embargo
By Marc Frank Published: June 18 2004 5:00 / Last Updated: June 18 2004 5:00
An event unfolding 18miles off Cuba's north-westcoast could change the course of the nation:Repsol YPF,the Spanish petrochemicalscompany, is drilling for oil in virgin waters.
Experts say Cuba'sshare of the Gulf, like those of Mexico and the US, may harbour large quantities of crude. All eyes are watching Repsol: a discovery would boost the company's reserves and open a new and promising area to oil exploration. It could also mark the beginning of the communist nation's transformation from a bankrupt oil-importing country to an oil exporter - and could generate corporate pressure for the US to lift its decades-old trade embargo.
"It is difficult to imagine how the US oil industry could stay on the sidelines for long if there is a commercial find," says John Kavulich, president of the US-Cuba Trade and Economic Council, which monitors commercial relations between the two countries. "There will be pressure on the government from US oil companies, both upstream and downstream," he says.
While some experts give very long odds to wildcat wells - or wells in unproved areas - others believe experience begets at least some results.
"The chances that we will find oil are better than winning the lottery or a casino jackpot," says an engineer working to sink the well. "More like getting some of the numbers right or coming out ahead at the blackjack table on consecutive nights."
The engineer pointed out Repsol must believe it has a good shot as it has contracted Eirik Raude - a Norwegian semi-submersible deep water platform, one of the world's newest and most sophisticated - at $195,000 (€162,400, £106,700) per day.
A person close to the project insists geologists are fairly certain they have located oil and gas a mile below the sea's surface. "They contracted the Eirik Raude to determine the ratio of oil to gas and the oil's quality, the pool's commercial viability," he says.
"These are high risk areas. . . but we are optimistic," Repsol YSA chairman Alfonso Cortina said earlier this year.
The company reported it would spend more than $40m but believes that up to 1.6bn barrels of oil may lie below the seabed. Repsol currently holds 5.3bn barrels of oil equivalent, so such a find would boost its reserves by 30 per cent.
A Lloyds Register report to other oil companies and potential Repsol partners in developing any significant find, estimated $1.5bn would be needed to develop 150,000 b/d by 2008.
Cuba has desperately searched for oil since the Soviet Union's demise deprived it of 255,000 b/d on very favourable terms.
"It would be a huge economic boon that would end a decade-old foreign exchange crunch," says Phil Peters, a Cuba expert and vice-president of the Lexington Institute, a Washington think-tank.
Cuba's energy sector was one of the first opened to foreign investment under Fidel Castro, the president since 1959. In the 1990s the island was explored from end to end.
France's Total, Petrobras of Brazil, and others drilled onshore and offshore to no avail.
Sherritt International and Pebercan of Canada made minor discoveries along the north-west coast's oil belt, which holds an extremely heavy crude that can only be used in the island's modified power plants and factories.
Cuba's oil and gas production has increased from less than 10,000 b/d to the equivalent of 75,000 b/d - half the country's current fuel consumption.
The Gulf of Mexico was divided by treaty between Cuba, Mexico and the US 25 years ago. Cuba's 43,000 square miles were divided into 59 blocks for foreign exploration in 1999.
So far, few companies have signed on. Repsol took the rights to six blocks in 2000 and Sherritt International recently opted for four blocks. The foreign companies must form partnerships with Cubapetroleo, the state oil monopoly, if oil is discovered.
Industry sources say companies from China, France, Britain, Brazil and elsewhere are seriously considering exploration, but waiting for the Repsol results - and the US reaction to development.
"It could be a double edged sword," says a Cuban economist of efforts to develop the offshore oil industry. "The United States would have to act. The embargo might end, or the missiles might fly. There is debate in our government over which is the more probable scenario."
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