PETROLEUM: Venezuela Seeks Partnership with Cuba

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Feb 29 2000 (IPS) - Venezuela intends to be the second Latin American country, after Brazil, to invest in Cuba’s oil industry, which this year hopes to see its production levels reach three million tonnes of crude.

Cuban oil fields produced 2.13 million tonnes of petroleum last year, 27 percent more than in 1998, when its total was 1.65 million tonnes, itself a major increase over 1997’s 664,000 tonnes.

Though production is not enough for a country that, according to its authorities, requires a minimum of seven million tonnes each year, this sustained growth has generated optimism about the future of this strategically important industry.

To that end, government officials report that petroleum and electricity will be the most active economic sectors this year, with a 31 percent increase in hydrocarbon production, reaching 2.8 million tonnes.

The same sources acknowledge that foreign investment (600 million dollars over the last eight years) has been decisive for growth in this area, previously considered the Achilles heel of the Cuban economy.

Brazil’s enormous Petrobras oil company began its role in Cuba in late 1998 and is now preparing to drill its first well on the island sometime this June to August, at an estimated cost of 20 million dollars, and representing the second phase of its operations there.

In partnership with the state-run Cuba-Petroleo (CUPET), Petrobras is seeking this “black gold’ in a 3,000 square km area along Cuba’s north-central coast, along the provinces of Villa Clara, Sancti Spiritus and Ciego de Avila.

The Brazilian company has joined 10 other foreign firms in Cuba – from Canada, Spain, Great Britain, France and Sweden, among others – that in the 1990s began operating seven ocean oil wells and 11 on land.

In mid-February, Venezuela signed a memorandum of understanding that, if finalised, will enable the Cienfuegos refinery, located 336 km southeast of Havana, to begin working.

The site has the capacity to process three million tonnes of crude annually. It was one of several oil-related projects paralysed by the island nation’s economic crisis that began when it lost its the major source of foreign aid when the Soviet Union fell apart.

The memorandum establishes a partnership between the Petroleum Corporation of Venezuela and CUPET for the management of oil drilling, refining and eventual marketing of petroleum derivatives.

According to the document, the first group of agreements should be finalised within a month, including Venezuela’s use of the refinery, built in the 1980s with help from the now-defunct Soviet Union.

Venezuela is among the world’s major oil producers, alongside Mexico, Russia, Saudi Arabia, Kuwait, the United States, the United Arab Emirates and China.

Last August, Venezuela’s president Hugo Chávez proposed expanding the region’s San Jose Pact to include Cuba, but the initiative failed. The Pact allows 11 Central American and Caribbean countries to buy oil from Venezuela and Mexico under favourable terms.

But the Cuban government under Fidel Castro seems to prefer developing its own oil industry because it is now spending 1.0 to 1.2 billion dollars on petroleum imports annually.

“It is an assurance to have our own energy resources within our national territory. This is a factor of strategic importance,” commented Manuel Marrero, chief petroleum specialist at the Cuban Ministry of Basic Industry, in an interview with the government- run press.

Marrero also reported that “there has already been a very favourable response from a growing number of oil companies” to the Cuban push for joint exploration throughout a 112,000 sq km area in its exclusive economic zone located in the Gulf of Mexico.

The expert refrained from mentioning nations or companies interested in the bidding, announced for June, though he confirmed that it involves “transnational companies that have appropriate technologies and have the financing necessary for this activity that, though very expensive, is also profitable.”

“Cuba offers complete guarantees for companies choosing to enter into this business with CUPET,” he stated.

The proposed area is divided into 59 blocks (measured in surface units in order to facilitate negotiations) of approximately 2,000 sq km each, and with a depth of 1,000 to 4,000 metres.

Marrero says the process has sparked interest among potential investors for three reasons: the blocks are located in an area known to hold petroleum, the commercially applicable technology is available, and the Cuban government has thrown its support behind the operation.

The partnership contracts call for joint production and would remain in effect for at least 30 years, with an initial exploration period of not less than six years.

Until the early 1990s, Cuba received 13 million tonnes of crude from Moscow per year at preferencial prices.

An old agreement still valid in 1999 committed Russia to providing Havana with 1.5 million tonnes of crude in exchange for 800,000 tonnes of sugar.

The falling price of sugar worldwide in 1998 and 1999 cost the island nation an estimated 265 million dollars in lost export revenue.

“Equally harmful effects have been brought by rising fuel prices,” complained government minister José Luis Rodríguez last December in his report before Cuban parliament on the economy’s 1999 performance.

The average price of a barrel of petroleum jumped from 9.91 dollars in December 1998 to 24.69 dollars last November, hitting 30 dollars per barrel in mid-February.