Economy & Trade, Headlines, Latin America & the Caribbean

ENERGY-CUBA: Dreaming of the Oil Boom

Patricia Grogg

HAVANA, Jul 28 2004 (IPS) - The possible discovery of large oil deposits in Cuban territorial waters in the Gulf of Mexico has sparked a storm of informal conjecture in the country, in stark contrast with the government’s silence.

Debate has heated up as August approaches and the date set for reports from the transnational oil company Repsol-YPF draws near. The Spanish energy group started prospecting last June in locations agreed with the government of Fidel Castro.

The contract on the Norwegian semi-submersible Eric Raude platform is costing the company 195,000 dollars per day. "Something must be there, no one would spend so much money just on a whim," stated taxi-driver Manuel Bello.

Repsol-YPF, which has invested heavily in Latin America, is prospecting more than 30 km off the northern coast of Cuba, around 1,500 metres below sea level at a point called Yamagua-1. Seismic tests here suggested potential capacity of 1.63 billion barrels.

Ocuje, with an estimated capacity of 435 million barrels, Obatalá with 1.24 billion, and Caraguito with 2.82 billion barrels are other potential sites for the company to drill.

Some of the rumours going around this socialist island nation state that laboratory tests are already underway to determine the quality of crude oil extracted from Yamagua-1. Others say the search is still on because "they have yet to reach the bottom."

Repsol-YPF has mining rights on six of the 59 exploration blocks opened to tender in mid-1999 by the Cuban government. These lie in an area of 112,000 sq km within the country’s exclusive economic zone on the Gulf of Mexico.

In the late 1970s, the United Nations Convention on the Law of the Sea established a 200-mile jurisdiction for coastal states. These areas were made exclusive economic zones in which each country exercises sovereignty over its natural resources.

Maritime frontiers between Cuba and the United States, Mexico and other neighbouring countries, were defined in the early 1980s.

When announcing the call for tenders, Cuban experts were already emphasising that the area was especially rich in crude oil and located close to major oil-producing countries like Mexico and Venezuela. "Why shouldn’t fortune smile on us too" is the gist of off-the-record statements by experts.

But despite all the talk and high expectations, President Castro made no mention of any oil discovery during his Jul. 26 speech at the anniversary celebrations for the 1956 assault on the Moncada barracks, celebrated on the island as National Revolution Day – a major national holiday.

The feeling shared by many Cubans who dreamed of such an announcement is that they could do with a strong injection of optimism. But it did not arrive. Others continue watching the president’s face closely for signs.

"He looked happy yesterday, so there might be good news," said Oscar Reynoso, a retired transport worker following a public appearance by Castro last week.

But whatever people on the street might be saying, everyone agrees any discovery of "light" oil would be positive from all points of view. In fact, it could totally turn the vulnerable Cuban economy around; its Achilles’ heel is precisely its dependence on oil imports.

Reynoso pointed out that public transit was one of the sectors hardest hit by the abrupt cut in fuel supplies from Russia. Up until 1989 the Soviets supplied Cuba with 13 million tons of crude oil. "The pipeline closed when the Soviet Union and the (east European) socialist bloc disappeared," he said.

The 60 percent reduction in crude imports caused a fall of up to 70 percent in Cuba’s refining capacity. Industry and public transport were pushed to the brink of collapse by the lack of fuel.

According to official figures, the country produced some five and a half million tons less of oil by-products between 1990 and 1998, with substantial reductions in petrol, fuel-oil, diesel and industrial naphtha.

Cuba currently imports around 100,000 barrels a day, and produces about 75,000 barrels per day of gas and oil. Discoveries to date have only brought heavy crude with high levels of sulphur and large quantities of gas, which is used to generate electricity for this Caribbean island with a population of 11.2 million.

Domestic oil production is concentrated in a band 200 km long and between 10 and 20 km wide on the northern coast of the provinces of Havana and Matanzas – some 100 km from the capital.

Proven reserves in this area – where companies from countries like Spain, Canada, France and Sweden operate under exploration risk contracts – exceed 100 million tons, although extracting only low-quality crude.

The country currently spends around a billion dollars per year on oil imports, and the high and rising international prices make the debilitated state coffers tremble.

Some crude oil and derivatives are imported from Venezuela, which supplies some 53,000 barrels per day, under an agreement strongly criticised by opposition sectors within Venezuela itself.

Havana pays for 80 percent of the oil at market price 90 days after delivery. The remaining 20 percent must be repaid in 15 years’ time, with two extra years grace thrown in at two percent annual interest.