Cuba hopes offshore oil will fuel economy, ease isolation
HAVANA -- Eighteen miles off Cuba's northern coast, a Spanish company is in the early stages of oil exploration that could dramatically improve Cuba's economic fortunes and increase pressure to ease U.S. trade sanctions against the island.
Battered by high oil prices and starved of hard currency, the Cuban economy has been on life support for years as it struggles to meet its energy needs and manage the Bush administration's intensified efforts to isolate the island's communist government.
But experts say a major oil discovery could provide a huge lift to Cuba by making it energy self-sufficient and even a potential oil exporter.
Neither Cuba nor Repsol YPF, the petrochemical giant conducting the exploration, have said much about the project since drilling began in June. Preliminary results could be announced as early as next week.
"These are high-risk areas, but we are optimistic," Alfonso Cortina, Repsol's chief executive, said in March. The company is spending $195,000 a day to lease a Norwegian platform that is prospecting a mile below the water's surface.
While the Gulf of Mexico has been a major source of crude oil for decades, experts said it is impossible to predict whether Repsol will come up dry or discover enough high-quality light crude to justify investing the $1 billion-plus needed to develop a major field.
Repsol's strip in the gulf never has been drilled before. Previous offshore exploration efforts near Cuba have turned up little, though the technology for finding deep-water oil deposits has advanced significantly in recent years.
Production takes years
The deep-water wells closest to Cuba are about 400 miles away. Even if oil is found, it could take three years or more before production begins.
"Deep-water provinces around the world are a new frontier in the last decade," said Michael Rodgers, senior director at PFC Energy, an energy consulting firm based in Washington. "But anytime a company goes into a new frontier, there is more risk associated with this."
Ernie Lalonde, a vice president at the Canadian company Sherritt International, said his company also signed a deep-water exploration contract with Cuba in 2002 and began seismic studies in a 2 million-acre tract bordering the Repsol area.
Lalonde called the chances of finding a major deposit in untested waters a "long shot." Still, he is optimistic and eagerly awaiting Repsol's results.
"This is a big-dollar game," Lalonde said. "You are talking in terms of millions of dollars for one well."
It was Sherritt and a second Canadian company that stepped in to help Cuba after the fall of the Soviet Union ended huge economic subsidies that included cheap, plentiful oil.
The Soviet collapse devastated Cuba's economy, causing chronic fuel shortages and power outages, and it forced officials to open Cuba's oil industry to foreign capital.
Domestic production, primarily from onshore rigs, has increased sharply, and the country now produces enough oil and gas to generate most of its electrical power, officials say.
Still, Cuba produces the equivalent of only about 75,000 barrels of oil a day--half its current fuel consumption--and most of its imports come on favorable terms from Venezuela, a close political ally.
But Venezuelan President Hugo Chavez is facing a tight recall vote next month that could end his presidency. Venezuelan opposition leaders have been harshly critical of the Cuban oil deal.
'Rabbit out of a hat'
Analysts said a major discovery of light crude could lessen Cuba's dependence on Venezuelan imports and resolve its cash-crunch problem. It also could feed expectations of improved living conditions among the impoverished island's 11 million people.
"It would be a tremendous boost," said Daniel Erikson, director of Caribbean programs at the Inter-American Dialogue, a Washington think tank. "It's the equivalent of pulling a rabbit out of a hat. It would allow them to address major economic problems without requiring reforms."
In the wake of such a discovery, Cuban officials probably would accelerate an ongoing crackdown on what limited private enterprise exists on the island, experts say.
It also could allow Cuba to begin repaying its $12 billion foreign debt, ease access to international credit and relieve the pressure for continuing the U.S. trade embargo against the island, especially as the U.S. seeks to diversify its oil imports from the Middle East.
In December, Cuban officials indicated they would welcome U.S. participation in offshore exploration efforts. Cuba opened a 43,000-square-mile area in the Gulf of Mexico in 1999 to foreign companies, dividing it into 59 blocks.
So far, only Repsol and Sherritt have signed exploration contracts.
"The government of Cuba wishes to express that it has no objection whatsoever to the participation of American oil companies in exploration and drilling in our exclusive economic zone on mutually beneficial terms," said a statement in the Communist Party newspaper, Granma.
John Gibson, president of Halliburton's energy services group, said in November that he favors lifting U.S. sanctions against Cuba, along with Libya and Iran, to allow U.S. companies to expand their foreign markets.
It is a position evidently held by many oil executives.
"Oil companies have traditionally been opposed to unilateral sanctions," said Larry Goldstein, president of the Petroleum Industry Research Foundation, a New York City group that studies oil issues. "They close the door to U.S. companies but not to foreign operators.
Stepped up pressure
"If oil is found in Cuba and it's in our back yard and U.S. entities can't participate, what sense does that make?"
But that view runs counter to the policies of President Bush, who recently has stepped up pressure on Cuban President Fidel Castro by tightening legal travel to the island and further limiting remittances sent by Cubans living in the U.S. to relatives in Cuba.
Bush argues that the remittances, which total hundreds of millions of dollars annually, along with tourism help prop up Cuba's communist government.
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